BU 121 Final Exam Basic Final Exam Review...

Andrew Ferraro BU 121 April/9/2013

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BU 121 Final Exam

Basic Final Exam Review Guide

NEGOTIATING

What is negotiation?

- The ongoing process through which two or more parties, whore positions are not

necessarily consistent, work in an effort to reach an agreement

“Negotiaphobia” – disease of attitude and skill deficiency

- Many people see negotiations as an act of combat or conflict

Three-Step EASY treatment Process

Engage

- Recognize you are in a negotiation and quickly review the viable strategies

Assess

- Evaluate your tendency to use each of the negotiation strategies, as well as the

tendencies of the other side

Strategize

- Select the proper strategy for this particular negotiation

You’re One Minute Drill

- Each time you begin a negotiation situation, take a minute to review the 3 steps

Thomas-Kilmann Conflict Mode Instrument

- Late in the negotiation process after legitimate strategies fully used

- When only a small gap remains on one issue

- Always directly tied to an agreement


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Thomas-Kilmann Conflict Mode Instrument

(5 Basic Negotiating strategies)

Nine of the four strategies are universally applicable or appropriate

Avoidance

- Minimal issue

o Recognize it may grow in importance

o Do it in way that demonstrates investment in relationship

- Superior option readily available elsewhere

o Objections are a sign of interests

Accommodation

- In significantly weaker bargaining position – no leverage

o Can improve leverage with knowledge

- How you accommodate is as important as when

o “this time around we would be willing to consider” and don’t make excuses

Compromising

- Late in the negotiation process after legitimate strategies fully used

- when only a small gap remains on one issue

- always directly tied to an agreement


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Competition

- opponent not inclined or capable of collaborating

o need senior players to get at true needs

- Not worth the effort

o Be careful to look for true potential of negotiation

Collaboration

- When situation present a significant opportunity with capable and willing decision-

makers on all sides

o Win-win-win

o 80/20 rule

- Requires preparation, need identification, and candor – trust

- Internal collaboration is prerequisite for external collaboration

Negotiation Strategy Matrix

Competition

Win/Lose

Collaboration

Win/Win

Avoidance

Lose/Lose

Accommodation

Lose/Win


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2 categories of collaborators

Sages

- Recognize the opportunity to cooperate, they can naturally collaborate

Dreamers

- Think they can collaborate all the time, but are not effective at it

4 Basic interaction styles – similar to DISC

- Peace of information exchange

- Focus on tasks or relationships

o Drivers (D)

o Expressives (E)

o Amiables (S)

o Analyticals (C)

Drivers Expressives

Analyticals Amiables


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Principled Negotiations

- Typical negotiations are ‘positional’

o People state their positions – what they want

o Strategy is ‘distributive’

Competing, compromising, or accommodating

Principled Negotiations

- An ‘interactive’/collaborative strategy

- Produce a wise agreement

- Efficiently

- And amicably

4 Basic Points

- Separate the people from the problem

- Focus on interests not positions

- Generate a variety of options before deciding what to do

- Insist that the result be based on objective criteria


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OPERATIONS AND SUSTAINABILITY

Services vs. Manufacturing

Both transform “raw material” into finished good

- Raw materials in person with unsatisfied need or possession that requires care

- Service is performed not produced

- Focus on process as well as outcome

o Judges on quality of work and service

- Characteristics are different

o Intangible – experience key, customized, can’t be stored

- Customer is part of process

o Extent of contract contact affects operations

Manufacturing

- Set capacity slightly ahead of demand

o In short term turn away customers or outsource at lower margins

- Seasonality – shift demand and capacity requirements by pricing

Service

- Low contact – set capacity to average demand

- High contact – set capacity at peak demand

Mass Productions vs. Mass Customization

Mass production technology

- Stable market conditions

- Efficiency vs. effectiveness

- Repetition

New economic reality

- Constant change

- Customer-driven

- Customization and innovation


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Sustainability

Measured by the Triple Bottom Line – Andy Savatz

- Profit/Environment/Society – People/Planet/Profit

- “sustainability sweet spot” – place where corporate and societal interests intersect – a

new way to measure the bottom line

Sustainable Operations

- The next industrial revolution

- Ways to weave sustainability into operations:

o Product design

“cradle to cradle” design

Biomimicry

o Product Stewardship

o Sustainability through servicing

o Sustainability of the supply chain

Cradle – to – Cradle Design

Take – make – waste model – Cradle to Grave design

- Eco-efficient – “less bad” – 3R’s Design

Eco-effective design on nature’s design principles

- “waste equals food” – Cradle to Cradle design

- Products developed for close-loop system

o Every output is safe and beneficial

o Biological or technical nutrients

- Eliminate the concept of waste

C2C developed by William McDonough and Michael Braungart – MBDC – firm started in 1995

consults and certifies C2C production

Biomimicry

- Sustainable innovation inspired by nature – “biologically inspired engineering”

- Based NOT on what we can extract from organisms and ecosystems (harvesting or

domestication), but what we can learn from them


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Product Stewardship

- The responsibility and ethical management of the health, safety, and environmental

aspects of a product throughout its total life cycle

- The concept of extended producer responsibility – accounting for the impact of a

product during use and after disposal

Sustainability through Servicing

- Increased efficiency and creation of environmentally benign products and processes

necessary but not sufficient

- Gains may eventually be counteracted by increases in consumption

- Changes business model from selling products to providing services

o Turn demand for reduced material use into a strategic opportunity

o Services more difficult to imitate – competitive advantage

- Xerox

o 1994 – became “the document company” – help companies improve efficiencies

in document-intensive business processes

Sustainability of the Supply Chain

- “a network of facilities that produce raw materials, transform them into intermediate

goods and then final products, and deliver the products to customers through a

distribution system”

- “management of raw materials and services from suppliers to manufacturers/service

provider to customers and back with improvement of the social and environmental

impacts explicitly considered”

- Outsourcing business operations doesn’t mean outsourcing responsibilities or risks in

today’s global economy – sustainable supply chain management is key to the integrity of

the brand

Timberland

- If you are going to design carbon out of a product, you have to understand every place

in the life cycle that carbon comes in

Greenwashing

- The act of misleading consumers regarding the environmental practices off a company

or the environmental benefits of a product or service


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The Six Sins

1. The sin of hidden-trade off

2. The sin of vagueness

3. The sin of fibbing

4. The sin of no proof

5. The sin of lesser of two evils

6. The sin of irrelevance

HUMAN RESOURCES AND LABOUR RELATIONS

Recruitment Objectives

Employer Branding

- Define target audience

- Develop the employee value proposition

- Communicate the brand

Selecting recruitment methods – tools

- Yield ratios

- Time lapse data

Validation of Selection Methods

Criterion validity

o Those that do well on selection method (predictor) also perform well on the job

(criterion)

Validation Process

o Administer the selection procedure to a group of people

o Correlate (compare) the results/predicted score with performance/criterion

score

o Look for valid predictors

- Predictive & Concurrent

o Difference is in who administered to and implications

Predictive

Concurrent


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Application to selection methods

- Application forms

o What can you ask?

o What is it used for?

o “weighted application blank”

50 answer YES, 40 high performers = weight 80

- Interviews

o Most common but least valid

o Because of interviewers and questions asked

Degree of variance and validity of questions

o Solution:

Interviewers:

Train, use more than one, and give feedback

Questions:

o Use job analysis as guide for developing, validate, and use “patterned” questions

- Testing

- Types of interview questions

Situational

o Question type:

o General question form:

o Key assumption

Behavioural/Behaviour Description Interview (BDI)

o Question type:

o General question form:

o Key assumption

Determining Compensation

Objectives

- Attract, retain, and motivate

- External and internal equality, and incentives

Internal equality – Job Evaluation

- Develop rating system

- Use job analysis to rate jobs

- Assign pay based on relative value – “Price the Pay Structure”


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“Point Method”

- Universal factors

o Skill, Effort, Responsibility, Job conditioning

- Sub-factors – Degrees – Point values – Pay grades

Pay Equity Legislation

NOT “Equal Pay for Equal Work”

Prohibits paying different wages to employees who work the same firm in jobs that are

different but of comparable worth to the company

- Jobs of equal value paid the same regardless of gender

- Attempts to end “systematic wage discrimination”

- And eliminate portion of wage gap that can’t be explained by differences in education,

labour market experience, or seniority

Federal Government, Ontario & Quebec – both public and private sector

- Required to develop and implement plans BUT complaint based system

- In federal law or over 30 years (’77) but wage gap still exists

Labour Relations in Ontario

- Structure of labour movement

- Relationship between union and management

- Different types of unions

- Certification process

- Contract administration

- Negotiating strategy

Structure of labour Movements

Management -------------------------------- Government -----------------------------------Union

Union Structure

Local

- Collective bargaining

- Contract administration

- Grievances


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Parent

- Policy

- Legal aid

- Strike fund control

- Research

- Collective bargaining

- Final authority

Labour Congress

- Lobby with government

- Research

- Mediate disputes

Power Struggle

Union

- Threat of a strike

o Timing

- Ability to carry it out

o Strike fund

Management

- Ability to withstand a strike

o Stockpiling

o Subcontracting

o Skeleton staff

o Strike breakers

Scabs

Replacement workers

o Strike insurance

- Industry-wide lockout

- Employer association bargaining


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Types of Unions

Craft/Trade Industrial

Power Create monopoly over scare resources

Strength in numbers

Tactics U – withdraw, jobs at other sites, info picket M – Industry-

wide lockout

U – control physical access through picket M – withstand

strike

Strike Characteristics Little violent, settled quickly Potential violence, can drag on

Collective Bargaining Process

Union Certification

- Voluntary recognition

- Membership drive

o Get employees to sign union cards

File application when 40% of proposed bargaining unit

o Evidence reviewed by OLRB

o Representation vote

Within 5 days of application

Management needs to be careful of undue influence

o Can’t TIC; facts but no promises or threats

Must have 50% +1 of those who vote to be certified

Contract Negotiations

Issues

- Form of recognition/Union Security

o Voluntary check off of dues

o Rand formula/agency shop

o Union shop

o Close shop

- Duration & Renewal

- Seniority – “superseniority”


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Settlement

- If agreement – ratification vote

o Contract in effect at end of existing or “retroactive”

- If no agreement

o Conciliation – before strike/lockout is legal

Union asks OLRB for ‘No Board’ report

Strike/Lockout legal on 17th day after report is issued

o Mediation

o Arbitration

Conciliation vs. Mediation vs. Arbitration

Conciliation

- Voluntary but necessary

- Non-building

- Legalizes a strike/lockout

Mediation

- Voluntary, Non-building

- No effect on legal timing of strike/lockout; may help avert or end strike/lockout

Arbitration

- Voluntary or compulsory

- Essential services

- Blinding

- Effectively ends strike/lockout

Contract Administration

Both sides watch that the other lives up to the terms of the agreement

If not – Grievance Procedure

- Resolve conflicting interpretations of contract

- Procedure outlined in contract, but elements same…

o Statute of limitations

o Escalation to higher levels

o Time limits

o Arbitration at end


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FINANCE

Evaluating Financial Performance

Why evaluate financial performance?

Principle 1

- Of entrepreneurial finance: real human, and financial capital must be ‘rented’ from

owners

Principle 5

- Of entrepreneurial finance: a venture’s financial objective is to increase value

Different analytical measures are important to different users at different stages

Analytical Measures

Development and start up issues:

- How quickly the venture uses cash – cash burn rate

- The venture’s ability to meet short-term financial obligation (pay bills) – liquidity

- The length of the operating/working capital cycle – conversion period

Additional Survival Issues

- The ventures potential to employ and repay debt – leverage

- The ventures ability to provide a return on investment capital – profitability and

efficiency

Financial Ratios

- Liquidity – ability to meet short term obligations

- Conversion period – time to convert an asset into cash (affects liquidity)

- Leverage – implications relating to the use of debt

- Profitability and efficiency

Analytical Techniques

- Industry comparable analysis – compare against average

- Cross-sectional analysis – compare to specific firms

- Trend analysis – compare over time


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Cash Burn Rates & Liquidity

Cash Burn Rate

- How quickly a venture ‘burns through’/uses cash

- Determine weeks of cash remaining

Cash Build Rate

- How quickly a venture builds cash through collections on sales

Liquidity

- The ability of the venture to maintain a build rate high enough to meet its obligations as

they come due

Measuring Burn and Build Rates

Cash Burn = the cash a venture expends on its operating and financing expenses and its

investments in assets

- Cash Burn

o = Cash Operating Expenses + Interest + taxes

o + Increase in inventories

o – changes in payables and accruals

o + Capital Expenditures

- Cash Build = what the venture receives on its sales

o Cash build

o = Net sales – Increase in Receivables

- Net Cash Burn – when cash burn exceeds cash build

- Monthly Burn Rate

o Monthly cash burn rate

o – monthly cash build rate

o = monthly net cash burn rate

- Burn and Build Rates can also be determined using the Cash Flow Statement

o Cash flow from operating activities and investing activities


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Liquidity

- Compares assets that can be quickly converted to cash with liabilities that represent

near-term needs for cash

- Addresses long-term trends

- Deals with working capital management issues

Conversion Period Ratios

- Measures the average time in days required for non-cash current assets and selected

current liabilities to create or demand cash

o The faster assets can be converted into cash, the greater the liquidity (other

things being equal)

Operating Cycle

- Measures the time it takes to purchase raw materials, assemble a product, book the

sale, and collect on it

Measuring Conversion Times

- The number of days of operation that must be externally finances

- Should be close to 0 as possible

Leverage

- Considers how the firm acquired external financing (to support the longer C3)

- Measures the extent to which the firm has used debt and its ability to meet its debt

obligations

- What is the benefit of using debt vs. equity?

o Interest vs. dividends

o Risk/return trade off

o Control vs. legal resource

Profitability and Efficiency

- Measure how efficiently a venture controls it expenses and uses its assets

- Accounting-based measures of profitability are a standard starting point for examining

venture value


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Operating and Financial Leverage

Pros Cons

Operating - higher upfront fixed costs = lower margin at first but over time VC goes down and contribution goes up - amplified returns after fixed costs have been covered

- high fixed costs that cannot be covered - amplified losses

Financial - firms like debt because they have more control over their company - paying interest is cheaper than dividends; higher return -tax deductibility lowers taxes

- must always pay interest - if you go with equity financing you have less control - lower return if using equity - too much debt can bring down returns

Cost-Volume-Profit Analysis

- Tool used for decision making

- Shows effect of changes in Costs or Volumes on Profits – CVP Analysis

- Shows impact of Operating Leverage

o Degree to which locked into fixed operating costs

Must sell more to cover fixed costs (RISK)

But once covered – leverage effect on profit (RETURN)

- Also used for ‘Breakeven’ Analysis

o Where Revenues = Expenses OR Rev-Exp=0

- Most important concept is contribution

Recap

- Assess risk in decision when doing something new

o Breakeven – above become profitable

When fixed costs covered by contribution from sales = FC / contribution

per unit or & margin

- Decide when to change strategy – start new approach

o Determine decision point – above become more profitable

When incremental fixed costs cover incremental contribution

- Make decisions that affect cost and/or volume – fine tuning a strategy

o Positive impact on profit

Total incremental contribution > incremental fixed and negligible

negative qualitative impact


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Things to Know

Fixed costs

- Constant regardless of level of production and sales

- Assuming operating ‘relevant range’

o Normal range of operating activity

Variable costs

- Total depends on level of production and sales

Decision Point

- Point where incremental (additional) fixed costs are covered by the incremental

contribution

Applications

Assume

- ABC Company currently sells 400 units of a product at $250/unit and the variable costs

are $150/unit

o Contribution per unit = $250 - $150 = $100/unit

o Total $ contribution = $100/unit x 400 units = $40,000

o Contribution margin = 1 - $150/$250 = 40%

Good Luck!! – Andrew Ferraro


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BU 121 Final Exam Basic Final Exam Review...

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