Business 121 Lecture Notes

Critical Success Factors

Achieving financial performance-

Meeting customer needs-

Providing quality goods and services-

Encouraging innovation and creativity-

Gaining employee commitment-

Accounting

The process of gathering, recording, classifying, summarizing, reporting, and analyzing in monetary terms, information about an organization to aid in decision-making

-

Managerial accounting○

Financial accounting○

2 main branches of accounting-

Managerial Financial

People inside Who uses People outside

C.M.A Who prepares C.A.

Specific info What General info

Segments Where Whole

Current & future When Past

Speed Why Precision

Relevant, flexible, useful How Required

Whatever form suits How G.A.A.P

G.A.A.P - C.I.C.AGenerally accepted accounting principles

Accounting

Lecture 0Thursday, December 24, 2009

11:32 PM

Lecture Notes

Generally accepted accounting principles-

Canadians institute of Chartered Accountants-

Relevancy information - predictive and feedback of performance (allows outside person to get information) value

-

Verifiability○

Representational faithfulness ( represent true facts )○

Neutrality - don't create impression that it is incorrect○

Comparability - can compare companies○

Consistency - stay consistent with approach so you can trust and rely on the information○

Reliability - investors want to rely on the information-

All public companies by law○

Check GAAP applied on consistent basis - not checking every standard○

Scope and opinion sections, qualifications

Auditor's statement○

Could be minor mistakes

There are estimates

Fairly represent how the company is doing

No material errors

Do NOT say statements are accurate○

Qualification errors are problems ○

CEO's and CFO's must certify the design and effectiveness of internal accounting controls

Section 404 of the Sarbanes-oxley Act/CSA○

Audit-

Cost figures□

Market figure - what I can sell it for□

Inventory (stock of goods)

Conservatism (use lowest number)○

Bill of sale

Cost from the past, when we bought it-- how much did it cost□

Historic cost

Can't use opinion of value

Objectivity (verify)○

Match cost to revenue -- spread cost□

Matching revenue to expenses over year

Amortization□

Fundamental principle underlying the income statement

Matching○

Concepts-

Lecture Notes

Matching revenue to expenses over year

The Statements

Statement of financial position○

Snapshot of a point in time○

"stock or status of firm's resources and claims against those resources at certain pt in time"○

XYZ Company LTD Balance Sheet as of December 31, X○

Balance sheet-

Profit and loss statement, statement of earnings○

Movies over a period of time○

"flow of revenues and the costs associated with generating those revenues for a period of time"○

XYZ Company LTD Income statement for the year ended DEC 31, X○

Balance Sheet

What the firm owns (assets) (fin'l resources)

And what the firm owes EQUITIES = Liabilities + Owners' Equity (claims against those resources)

The financial position at a given point in time-

Assets = EquitiesAssets = Liabilities + OE

Premise upon which the balance sheet is built

Ex buy car for 15000 with 5000 downSell the car for 12000 shortly after

Accounting Equation-

Income Statement-

Lecture Notes

Lecture 0Wednesday, January 06, 2010

2:48 PM

Lecture Notes

Lecture Notes

Key Points from Last Class

Managerial vs. Financial accounting-

GAAP (IFRA - International financial reporting standards)-

Auditor's Statement-

Cash vs. profit○

Accounting equation○

Balance sheet vs. income statement-

Sustainability

development that meets the needs of the present without compromising the ability of future generations to meet their needs

-

Dow Jones Sustainability Index-

1000 companies, 80% of global fortune 150○

More holistic image of company○

Global reporting initiative - guidelines-

3 factors that determine ROI○

Examples - companies and industries that could/do most benefit and why?○

Corporate and societal interest intersect

Social responsibility and profitability○

Virtue Rewarded-

Accounting

A = L + OE / DOUBLE ENTRY ACCOUNTING

Asset (A) cash increased $1mm○

Asset (A) inventory decreased $1mm○

Sell $1mm inventory for $1mm cash-

Asset (A) inventory increased $1mm○

Liabilities (L) increased $1mm○

Buy $1mm inventory on credit-

Asset (A) inventory decreased $1mm○

Asset (A) cash increased $1.5mm○

Owners' equity (OE) increased $.5mm○

Sell $1mm inventory for $1.5mm cash-

Assets

Cash or assets that will be converted to cash, sold or consumed within 1 year - liquid○

Cash

Marketable securities - intent is to sell them

Less allowance for doubtful accounts - (contra account)□

Accounting Receivable

Notes receivable

Inventory - lower of cost or market

Supplies

Placed in order of declining liquidity○

Current Assets-

Lecture 1Monday, January 11, 2010

2:26 PM

Lecture Notes

Inventory - lower of cost or marketSupplies

Paid 1st year's rent of $18,000 = $18,000.00 $1500 per month on Sept. 1/08Prepaid rent on Dec 31/08Received the benefit 4 months rent8 months remaining for which not yet received benefit x $1500= $12000 prepaid rent

Prepaid Expenses - benefit paid for, not yet received

Assets that have useful life expectancy > 1 Year○

Land

Buildings

Machinery & equipment

Furniture & fixtures

Trucks and automobiles

Tools

Placed in order of declining life expectancy○

At historic cost (objectivity)○

Cost amortized over life of asset, except for land (matching)○

Amortization - simple straight-line○

Estimated useful life= historic cost - salvage value

Salvage value = what you expect to sell it for

= the portion of the cost of the asset per year that is being matched to revenue AND that the asset is being reduced by to show its current 'book' value

The amount each year accumulates until the asset's 'book' value = salvage value

Purchased machinery for 160000 Jan 1/04Estimated useful life 12 yearsAssume can sell for $40000 - salvage valueAmortization per year?, accumulated amort'n Dec 31/08

($160000-40000) / 12 years = $10000 per yearX 5 years = $50000 accumulated

On Balance Sheet …

Machinery & Equipment $160 000

$110,000Less: accum. amortization $50000

Capital (fixed) Assets-

Long-term holdings of securities - intent to hold (strategic purpose)

Investments○

Legal right vs. physical existence

Patents, trademarks, copyrights etc.

Must be bought□

When one company buys another for more than the fair market value of its net tangible assets

□

Paying for intangibles not reported on statements, ie. Goodwill that has built up over time

□

Goodwill

Intangibles○

Other Assets-

Lecture Notes

Equities

= Liabilities + Owners' Equity

Do I have a liability?

What amount have you NOT paid?

Current or long-term□

When is it due?

You must have incurred expense and not yet paid for it○

Liabilities -

Lecture Notes


Order and valuation inventory, prepaid expenses-

Current Assets

Order and valuation - historic cost, amortization-

Capital Assets

Goodwill-

Other Assets

= Liabilities + Owners Equity

No specific order, due within one year-

Wages payablePay $10,000 is bi weekly wages for work done during the pay period, year end falls at end of one week into pay period

-

Current liability Dec 31/08How do you incur a liability for wagesTherefore $5000 wages payable

When is it due? CURRENT LIABILITY

Loan Payable$160000 loan on machinery payable over 10 years on Jan 1st of each year = $16000 year-

Current liability Dec 31/08-

How much is still owing / not been paid?-

When is it due?-

Machinery was purchased Jan 1/04-

4 x 16000 = 64000 $

Still owing 160000-64000 = 96000 $

How much is due within a year?-

= $16000 Loan PayableCurrent liability-

Example: Interest PayableInterest on loan is 15% of remaining balance owing payable at same time as principal-

Current liability Dec 31/08-

Hold money for a period of time

How do you incur a liability for interest?-

How much is owing?-

When is it due?-

Last payment was Jan 1/08 - paid $64000 by that point-

For the year of '08 held $96000 of bank's money-

Therefore interest interest at 15% = 14 400-

= $14400 interest payable-

Current Liabilities


2:27 PM

Lecture Notes

Long Term Liabilities

Due > 1 year-

Long term wages payable?-

Example : long term portion of loan payable on Dec. 31/08Paid 64000 by Dec 31/08, $16,000 currentTherefore owe $160 000 - 64000 - 16000 = $80000 loan payable

Long term interest Payable?-

Form depends on form of ownership-

Beginning O/E+investments+profits-Withdrawals Ending O/E

All have same components-

Proprietors' Equity

Paul Jones, Capital = total of all components

Partners Equity

Peter Brown, Capital

Total Partners EquitySusan Smith, Capital = total of components, split profits

Common stockPreferred stock (represent investments)

+ profits

Ending R/E -withdraws/dividends

Retained Earnings = beginning R/E

Shareholders' Equity

Owners Equity

Expense of given period was incurred to earn revenue of same period□

Matching expenses with the revenue they help to generate-

Format-

Matching-

Rent expense

1st year's rent pd. Sept. 1/08= $18 000 or $1500/monthPaid out 18000But only incurred rent for Sept - Dec '08 to generate revenues of the same year

Keys:

Income Statement

Lecture Notes

But only incurred rent for Sept - Dec '08 to generate revenues of the same year4 months x $1500 = $6000 Rent Expense

Example: Amortization Expense$10, 000 per year-

Accumulated amortization $50,000 on B/S-

But not paid out, not cash expense-

= $10,000 Amortization Expense

Wage Expense10,000 bi weekly = 260 000/yearBut 5000 incurred but not paid= 260 000 wage expense

Interest Expense96000 for year @ 15% interestBut not paid= 14 400 interest expense

Loan expense-principal payment of $16,000/yearNO SUCH EXPENSE - cost of asset already written off as amortization expenseDon't want to double count cost of assetMatching to revenue more critical, cash flow not an issue for income statement

Income statement

Cash vs ProfitSales revenue -> account receivable-

Expenses -> accounts payable-

Amortization-

Owners' equity - cash to use for business? -

If profit is not cash, then why consider cash paid when determining expenses?

Format - Merchandising company

Sales-Cost of goods SoldGross Profit-operating expensesIncome from operations+/- other income/expensesNet income before taxes-taxesNet income

Gross SalesReturns & allowances-

Discounts-

Net sales-

Operating ExpensesSelling & distribution-

General & admin-

Cost of Goods Sold

Lecture Notes

Cost of Goods SoldBeginning inventory-

+Purchases *-

Cost of goods avail for sale-

-Ending inventory-

Cost of goods sold-

Gross PurchasesReturned & allowances-

Discounts-

Net purchases-

+ freight in-

Net cost of purchases-

*COMBINED PROBLEM ON EXAM ON MERCHANDISING NOT MANUFACTURING

Lecture Notes

Key points from Last Class

3 questions○

Do you owe money, how much, when is it due?○

Liabilities-

Time NOT payment

Matching concept○

Format○

Income Statements-

Combined Problem

Information included for both the income statement and the balance sheet

Deal with the information only once for both the Balance Sheet and Income statement-

Retained earnings○

Dividends payable○

Taxes payable○

Operating expense

advertising expense-

Balance, current assets

Cash-

B/S current asset

Account receivable-

B/S sh.equity

Balance sheet-

I/S cogs

Gross purchases-

b/s current asset

Marketable securities-

b/s current liability

Account payable-

I/S beg inv COFGS

Inventory, feb 1/07-

I/S end inv COGS

B/S current asset

Inventory Jan 31/08-

B/S beg, R/E sh.equity

Ret. Earnings, FEB 1/07-

I/S COGS

Purchase returns-

I/S

Net sales-

Complete the income statement first and use the net income to complete the balance sheet-


3:28 PM

Lecture Notes

Lecture 3 CombinedMonday, January 18, 2010

3:26 PM

Lecture Notes

Lecture Notes

($4500-500) /10 years = $400/yr-

Amortization expense $400 ○

I/S operating expense - S&D-

5 years accumulated = $2000 accum amort-

Furniture and fixtures $4500○

$2500Less: Accumulated amortization 2000○

B/S capital assets-

Lecture Notes

$4500/6 years = $750/yearPaid 04 05 06 07 = 4 years = 3000 paidOwing 1500 - B/S

Note payable $750-

Current Liability

Note payable $750-

Long term liability

Lecture Notes

$3500 x 12 = $42000.00 -

I/S operating Expense-

Payroll 33 600○

Selling and distro 80%-

Payroll 8400○

General admin 20%-

Lecture Notes

2 weeks = liability B/S

Current liabilityWages payable 1750-

Lecture Notes

$2000 x 12 = $24000.00

I/S Operating Expense

Rent expense $21 600Selling & Distri (90%)

Rent expense $2400General & Admin (10%)

Lecture Notes

Operating expense-

Insurance expense 1350Selling and distribution (90%)

Insurance expense 150General and Admin (10%)

Lecture Notes

750 every 6 months = 125.monthLast paid sept 1 for September - FebruaryAs of Jan. 31, 1 month remaining

B/S Current AssetPrepaid expense $125-

Lecture Notes

B/S Other assets

Investment 6750 (75%)IntangiblesGood will 2250 (25%)-

Lecture Notes

I/S COGS

Beginning Inventory $3000-

Less purchase returns & allowances $4000○

Gross purchases $42000-

Add freight in 1650○

Net purchases $38000-

Net cost of purchases 39650-

Cost of goods avail for sale 42650-

COGS 37650○

Less ending inventory 5000-

Lecture Notes

B/S shareholder equity - Add 40% net income to beginning retained earningsB/S current liability - Dividends payable = 60% net income-

I/S income taxes = 25% net income before taxesB/S current liability Taxes payable = 25% net income before taxes

Lecture Notes


Recognizing income statement vs. Balance sheet items

Recognizing categories and placement on statement

Process for handling both statements at one time

Steps to follow for each item on statements

Completing income statement before balance sheet

No marks deducted from indents, columns, or $ but affects ability to get numbers right□

Putting it together

Process○

Combined problems-

Cost-Volume Profit Analysis

Tool used for decision making-

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

Must sell more to cover fixed costs (RISK)

But once covered - leveraged effect on profit (RETURN)

Degree to which locked into fixed operating costs○

Shows impact of operating leverage-

Where revenue = expenses or rev-exp = 0○

Also used for 'Breakeven' Analysis-

Most important concept is contribution-

Things to Know:

Constant regardless of level of production and sales○

Normal range of operating activity

Assuming operating in 'relevant range'○

Fixed costs-

Total depends on level of production and sales○

Variable Costs-

= current sales - breakeven sales○

Margin of Safety-

Approaches:

Breakeven chart-

Algebraic approach-

Contribution margin○

Contribution rate○

Contribution -

Example:


2:42 PM

Lecture Notes

Example:

Fixed Cost

Variable Cost

Total Cost

Total revenue

PROFIT

LOSS

3750

Lecture Notes

10x = 30000 + 2x

X = 3750 units

Lecture Notes

Contribution Margin Approach

What is left over after covering variable costs that contributes toward covering fixed costs?-

= Price - VCUnit contribution margin-

How many units do we have to sell at a unit contribution of (Price - VC) to cover FC?-

= FC/(Price - VC)

Easier way to determine dec'n point

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

= (30000-10000) / ((10-2)-(10-6))= 5000 units

Contribution rate approach

Can't do it on a per unit bases, so use ratio-

What % of every sales dollar is left over after covering variable costs that contributes toward covering fixed costs?-

Contribution rate-

= 1 - VC/Sales

= FC / (1-VC/SALES)

Let x be breakeven sales

X = 30000 / (1-2000/10000)X = 30000 / 1-20%X = 30000 / .8

X = $37500

10000 + 6x - 30000 + 2x

X = 5000 units

Proof : (volume above breakeven, below decision point)At 4000 units = revenue 10 x 4000 = 40000 regardlessOld machinery = 40000 - 10000 - 24000 = 6000 incomeNew machinery = 40000 - 30000 - 8000 = 2000 income

Lecture Notes

X = $37500

At $10 per unit = 3750 units

If increasing advertising by $10000 meant that sales would increase by $30000, would you do it?-

Process: What is the additional/incremental contribution?-

Compare to the additional/incremental fixed cost-

Quantitatively○

Qualitatively○

Better off?-

$30000 x 40% cont'n rate = $12000 addt'l cont'-

Vs. $10000 increase in FC-

YES-

Contribution margin = 250-150 = 100 100/unit-

Total contribution = 100/unit x 400 units = 40000$

Contribution rate = 1- $150/$250 = 40%-

Lecture Notes

$250 - $125 = $125.00 contribution margin-

X350 units = $43750 total contribution-

Vs. $40,000 - additional contribution of $3750-

YES-

Qualitative issues-

$230 - $150 = $80.00 contribution marginX 600 units = 48000 total contribution

Vs 40000 = 8000 additional

Vs. 15000 increase in FC

Lecture Notes

Lecture Notes


2:57 PM

Lecture Notes

Lecture Notes


Importance○

Operating leverage○

Fixed costs /variable costs○

Margin of safety○

Breakeven - chart and algebraic○

C-V-P Analysis-

Contribution margin - with units -P-VC○

Contribution rate with totals - 1-vc/sales○

Concept of contribution-

Margin of safety, and interpreting that margin

When to calculate breakeven and what to do with it (could you make money)○

Decision point - when become more profitable

When incremental contribution covers incremental fix

Making a decision between two alternatives○

Quantitative - incremental contribution vs. incremental fixed

Qualitative issues

Making a decision that would affect costs and/or volumes○

Applications-

Marketing

What is marketing?

An "integrated system of activities designed to plan, price, promote and distribute, want-satisfying goods and services to present and potential customers"

-

Related to providing a want-satisfying good or service1)Used to be sell what you produce-

Now it’s produce what you can sell-

Production - sales - customer orientation-

2 keys to successful marketing:-

The Marketing ConceptCustomer orientation-

Integrated focus on customer satisfaction-

Service orientation-

Profit orientation-

Customer relationship management-

But the product must not only provide a particular benefit/satisfy a particular want or need, but it must be needed or wanted…

-

It must provide a unique benefit that the competition does not #1 KEY-

Target MarketThe group of customers to whom you wish to direct your product toward-

A group of customers whose wants and needs have not been met by the competition-

Steps to Defining Target Market:Market segmentation-

Perceptual mapping-

Preference analysis


2:29 PM

Lecture Notes

Preference analysis-

Market SegmentationNeed to know what groups of customers exist from which to choose a target market-

Involves splitting the market into meaningful segments to determine what groups exist-

Homogenous needs (similar needs)-

Everyone is different but they tend to similar with respect to what they want our of a product…-

Geographic - region, population size, density, climate

Demographic - age, gender, lifecycle, income, occupation, education, religion, social class

Customer type

State-of-being (who they are)-

Psychographics - personality, and lifestyle, attitudes, interests, and opinions

State-of-Mind-

Volume - usage rate, user status, readiness to buy

Sensitivity to market factors, occasions

Loyalty

Product Usage - Behaviouralistic-

Benefits sought *z-

Bases for segmentation:-

Lecture Notes


3:03 PM

Lecture Notes

Lecture Notes

Key points for the Financial Advantage

Weakest advantage in the competition-

Quarterly sufficient - most do monthly○

Pre-operating and operating cash flows - sources must fund negative balance - can't carry○

Cash required to fund startup and until cash positive - what re you using it for?○

Cash is king - profit vs cash - cash budget-

90% forecast is predicting sales - realistic, supportable-

Pitfalls of forecasting - capacity - operations and marketing - specific plans, contingency -

Attendance, respect for presenters-

Key points from last class

Context - fixed costs covered?○

CVP-

Marketing concept○

#1 key - provide unique benefit○

Marketing-

Market segmentation○

Marketing

Segment on basis of benefits1.Describe using other bases2.Name them last3.

Steps:

Psychographics more difficult to measure-

Demographics vs. psychographics

Target market-

Flavor,appearance

Brightness,Fresh breath

Decay prevention

Price

ChildrenTeens,young people

Families,Parents Older men

Self-involved

Hedonistic

Sociable, Self-conscious

Active

Hypo-chondriacs

Conservative

Autonomous

Value-oriented

Lecture 6Wednesday, January 27, 20102:31 PM

Lecture Notes

Theory in Use

"Luxury Goods - Bling sting"How is a company's choice of target market affected by the pest model discussed last semester-

Perceptual Mapping & Preference Analysis

Determine which of the segments will be the target market-

By finding the biggest gap between how the customer perceives the competition meets their needs perceptual map and what they really want preference analysis

-

Steps:

Draw axes that represent the relevant dimensions by which people differentiate between product offerings1.Locate the positions of competing products on the axes/dimensions according to customer perceptions2.

Perceptual mappingLocate each segment's ideal product-

Preference analysisWhat is the target market?-

Lecture Notes

Lecture Notes

Positioning

Finding a distinct position for your product in the customer's mind-

One that communicates that the product provides a unique benefit-

The objective is to position the product as close to the target's ideal as possible-

Consumer approach-

Competitive approach-

2 approaches-

Lecture Notes


Market segmentation - demographics vs. psycho graphics

Perceptual mapping and preference analysis

Positioning

Target market○

Marketing-

Alternatives○

Numbers○

Write-up○

Theory in Use…

Group Hand in Case-

"attack of the monster cinemas"-

How is the mega-plex theatre concept positioned in the entertainment market?-

Where is the highest contribution?○

#1 key

How do they make money?-

Something that they want - benefit○

That they don't feel they are getting from the competition - unique○

To be successful is to provide a unique benefit to the customer-

Do consumers want sustainable/green products?-

#2 Key

Be successful is to convince them that the product provides that unique benefit - through your product, pricing, promotion, and distribution/place decisions

-

Be consistent, don't confuse

Integrated/consistent system of activities○

Clear concise statement of product's unique benefit to ensure all decisions deliver same message

Core Benefit Proposition/CBP-

Sustainable MarketingProduct price place promotion for people, plant, profit-

Product

The creation of a good or service that provides greater value to customers than previously existed.-

New-to-world product-

New product line-

New product added to existing line-

Improved product -

Repositioned product-

Lower-priced version of existing product-

Principled design based on the laws of nature - transform the making and consumption of products into a sustainable regenerative force

□

Transform harmful activitiy vs reduce negative impact□

"cradle-to-cradle" vs "cradle-to-grave"-

6 Types of product development

Product Life Cycle.

Product Life Cycle

Sales

Time

Introduction

Growth

Maturity

Saturation

Decline

Lecture 7Monday, February 01, 2010

2:24 PM

Lecture Notes

Product Life Cycle.

Product Life Cycle

Sales

Time

Introduction

Growth

Maturity

Saturation

Decline

Introduction Growth Maturity/Saturation

Decline

Product StandardizedSmall mix

Increase shareImprove

Limited mix

Defend shareVariations

Differentiate

Maintain shareCut mix

Price Skim/Penetrate

Cover costs

Adjust to meet competition

CompetitiveAggressive

ProfitabilityLiquidation or

Increase

Promotion AwarenessHeavy

BrandCompetitive

DifferencesLoyalty

ReinforceDecrease

Place Establish network

Solidifyrelationships

Increase

Loyalty/Takeover

Drop marginal

*Slow down cycle - new uses, new users - market modification

Lecture Notes

*Slow down cycle - new uses, new users - market modification

Planned obsolelescence - fashion/style, quality, functional-

*can also speed up cycle

Planned Classification

Staples-

Impulse goods-

Emergency good-

Convenience good/service-

Homogenous-

Heterogeneous-

Shopping good/service-

Specialty good/service-

Unsought good/service-

*different markets classify products differently*important to see your product as customer does

Product Differentiation

Creation of real or perceived product differences-

How does it differ?-

Theory in Use..Massaging the message-

To prove that the product satisfies wants and needs that the competition does not - that it has a unique benefit

-

Lecture Notes

Key Points for the Marketing Advantage

Sales projections based on research and logic = educated guess you can defend-

Market potential not just #households○

#with lawns demographics likely to mow own lawn, psychographics care about benefits○

Top down forecasting…-

What you can do - capacity○

Bottom up forecasting-

Compare to breakeven - what have to do-

Assumptions to base sensitivity on○

Need milestones - if not on track, contingency plan○

Sensitivity analysis and contingency plan-

Keys - focus (relevant info), cash, consistency (integration), milestones, specifics(commit), structure (organized thoughts, visuals), KISS (easy for judges to understand)

-


Meet customer needs○

4Ps for 3Ps○

Sustainable Marketing-

CBP(core benefit proposition)○

#2 Key - consistency in marketing mix/4Ps-

Identification and impact on marketing mix/4Ps

Ability to affect speed of cycle

Life cycle○

Identification and implication

Product Classification○

Product differentiation○

Product-

Total Product Concept

Physical features necessary to support CBP-

Brand○

Package○

Service○

Warranty○

Delivery○

Credit○

Atmosphere○

Image reputation○

Accessibility○

Price○

Theory in Use

"massaging the message"

Total package of benefits as seen from the eyes of the consumer - "everything they evaluate before deciding to buy something"

-

Lecture 8Wednesday, February 03, 2010

2:27 PM

Lecture Notes

Third place concept.

What is a Brand?

A collection of perceptions in the mind of the consumer-

Built not only through effective communications or appealing logos - it is built through the total experience that it offers

-

Communicate CBP-

Non-recognition

Brand recognition

Brand recall

Brand preference

Brand loyalty

Move customer through stages of recognition-

Theory in use

"Massaging the Message"What does the article say about brand loyalty?-

What is the myth, what is the reality?-

"Wal-Mart - Counter Intuitive"What is Wal-Mart's Brand-

What market segments is it focusing its new branding on?-

Does this shift make sense? Why or why not?-

"don't go changing"What lessons about branding strategy can the article teach us.-

Price

Cost $5, retail price $7, retail markup = 29% ($2/$7)□

CVP analysis!□

Cost based, target profit, mark-up-

Competitive-based (achieve market share)-

Customer□

Value-based - price-led-

Support CBP□

Test pricing□

Most important-

Approaches:

Life span□

Speed of competitive entry□

Sunk costs□

Introductory pricing - "skimming" or "penetration"-

Market protection-

Illegal

Predatory pricing□

Market domination-

Market stabilization - follow the leader-

Buying a set□

Product line promotion-

Price lining

Specific Strategies

Brand Name

Lecture Notes

Pricing things at few price points□

Price lining-

Loss leader□

Must have bait or else illegal

Bait & switch□

Customer attraction (building traffic)-

Odd/even pricing□

Buy in bulk

Multiple pricing□

Above competition to project quality/image

Theory in UseMassaging the Message

Why is price leadership works a myth

Quality / premium pricing□

Image enhancement - 'psychological pricing'-

Lecture Notes

Hand in Case

Accounting-


Brand, brand loyalty○

Total product concept-

Approaches○

Strategy○

Promotion

Pricing-

AdvertisingAn non personal ad, long term, paid for by a identifiable sponsor, to mass audience-

Personal SellingPaid for, long term, one to one, no mass audience, extremely expensive per person but more effective.-

Sales PromotionMass audience, paid for, short term-

PublicityFree-

All 4 are integrated marketing communication / IMC

Advertising

Institutional : advertising the institution○

Product/institutional advertising-

Awareness-

Interest-

Desire-

Action-

Create AIDA○

Remind○

Communicate CBP○

Objectives-

Communication Model

Source Medium ReceiverMessage

Feedback

How other party receives

(Get sale)

Familiaritya.Spokespersonb.Pros & consc.

Increase credibility of source1.

Unique selling propositiona.Toneb.

Develop clear message2.

Must reach consumer with message intendeda.Use most effective medium3.

Lecture 9Monday, February 08, 20102:29 PM

Lecture Notes

Must reach consumer with message intendeda."the medium is the message"At the most effective CPM (cost per thousand)b.

A $5000/1,000,000 = $5 CPM

B $5000 / 100,000 = $50 CPM

BUTA $5000/10000 target = $500 effective CPM-

CPM-

Other factors in media selection

Local tv○

Direct mail○

Radio○

Geographic selectivity-

Specialty magazine○

Go to the place○

Target selectivity-

Websites○

Newspapers○

Flexibility/timeliness-

Tv○

Absolute cost-

Magazines○

Length of life-

Magazines○

Quality of reprod'n-

TV○

Internet○

Creative ability-

internet○

Capacity for detail-

'Green Washing'

Mislead consumers regarding the environmental practices of a company or the environmental benefits of a product or service

-

Sales Promotion

Claims based on a single attribute while ignoring others

Environmental qualifiers such as organic or etc

Like green insectide

Lecture Notes

Free samples, trial period○

Cents off coupons, cash rebates○

Extra volume for same price, bonuses○

Giveaways, contests○

Premiums○

Point of purchase displays (setting up a display in store to promote product)○

Short term incentives to induce purchase-

Support personal selling and advertising-

Support CBP-

Public relations & Publicity

Greater impact due to perceived objectivity-

Very hard to get, must be "newsworthy"-

Place

Logistical decisions costly, time consuming, and not easily changed○

Choice of location must fit with CBP○

Use of marketing intermediaries / channel of distribution

Critical decision○

Purchase is a function of desire and availability-

ManufacturerAgent

WholesalerRetailer

Customer

$4.99 - 1.50 - 1 = $2.49 to wholesaler$2.49 + 1 + 1.50 = $4.99 to consumer

(MSRP)

= lower contribution?

Demand-backward pricing-

Demand-Backward Pricing

Lecture Notes

Key Points for the Operations

Logistics, processes, flow diagram○

Space utilization○

Burn rate

Need operational capacity to meet sales projections and sales projections/funding to cover operating expenses

○

Operating expenses○

Need for conservatism, milestones, contingency planning○

Operations is about how your business works-

Do you have the right people to weather the surprises, proven competencies○

Timing of hiring○

Paying yourself(last) - where is investor's money going?○

HR is about having the right people to make it work-

10 multiple choice - distribution marketing and accounting chapters

Mark breakdown-

10 marks accounting theory

50 marks marketing

Short answers-

10 marks CVP

20 marks - 1 combined - merchandising corporation

Problems-

Accounting 35% + CVP 10% + marketing 55%-

Articles - those covered in class-

Review sheet of topics on website; more detail when exam finalized-


Advertising - communication model□

Sales promotion□

Publicity□

Promotion

Importance of decisions□

Price and contribution

Promotion

Implications of using marketing intermediaries□

Place

Marketing-

Midterm Exam

Place

Volume - distribution arrangements, training

Contribution -case allowances, volume discounts

Promotional allowances

Push to channel members-

Pull - promotion to customers-

Push vs. Pull

Lecture 10Wednesday, February 10, 2010

2:29 PM

Lecture Notes

Finance

Financial management is made up of:

Provides informationAccounting-

Makes decisions about the acquisition, disposition, and management of capital with the help of accounting information

Finance-

Maximize shareholder wealth-

Ultimate objective-

Viability - liquidity and stability (risk)-

Profitability-

Goals-

Risk-return tradeoff-

Finance department's responsibilities

Budgeting - disposition-

Determining financial resources required-

Financing - acquisition-

Obtaining financial resources required-

Working capital management-

Investing - management of long-term funds-

Managing the financial resources effectively-

Decisions - Balance sheet

Assets Equities

short-term Investing Financing

working capital management

- liquidity

- working capital cycle

- cash budgeting

long-term» Capital budgeting - Capital structure

- Amount and mix - stability

- Operating leverage - financial leverage

- CVP - EBIT analysis

DIVIDENDS

Decisions – Balance Sheet

Short term - cash flow forecastForecasting financial needs

3 steps-

Budgeting

Lecture Notes

Short term - cash flow forecast□

Long term□

Operating budget

Capital budget

Cash budget

Master budget□

Developing budgets to meet those needs

Deviations from budget□

Establish financial control

Advantages of Budgeting

Compels managers to plan-

Promotes communication and coordination among subunits of the organization - "systems" approach

-

By clarifying goals and providing yardstick for rating performance - source of motivation-

Establishing goals or standards against which actual performance can be measured - facilitates control

-

Negative aspects of Budgeting - Abuses

Means to reward waste and penalize thrift-

Individuals subjected to guidelines not consulted-

Evaluate device - perceived as threat-

Convenient scapegoat or lost opportunities-

Cash Budget

Management of cash flows-

Management of working capital cycle-

*Worksheet based on historical measure of amounts and timing of cash flows in working capital cycle

ex: you need to prepare a cash budget for the months of June, July and August; min. cash balance = $6,000

•

assume that sales are forecasted at $10,000, $20,000, $30,000, $15,000, $25,000, and $20,000 from April to September respectively

•

assume also that you expect to collect 30% in month of sale, 60% in month following sale, and 10% in the 2nd month after sale

•

assume that purchases are 75% of the next month’s sales•assume also that you pay for 20% of purchases in the month of purchase, and 80% in the month following

•

Worksheet

April May June July Aug. Sept.

Net Sales 10,000 20,000 30,000 15,000 25,000 20,000

Collections:

30% month of sale

60% month follow

10% 2nd month

Total Receipts

Net Purchases

75% next mth. sales 22,500 11,250 18,750 15,000

Payments:

20% month of purch.

80% month follow

Total Disbursements for Purch.

Worksheet based on historical measures of amounts and timing of cash flows in working capital cycle

Beginning Cash Balance+ ReceiptsTotal Cash Available-DisbursementsCash excess / (deficiency)Minimum cash balance desiredBorrowing Req'd / surplus or repaymentEnding Cash Balance

Lecture Notes

Worksheet

April May June July Aug. Sept.

Net Sales 10,000 20,000 30,000 15,000 25,000 20,000

Collections:

30% month of sale

60% month follow

10% 2nd month

Total Receipts

Net Purchases

75% next mth. sales 22,500 11,250 18,750 15,000

Payments:

20% month of purch.

80% month follow

Total Disbursements for Purch.

Cash Budget

June, July, August, 19XX

Beg. Cash Balance

Add: Receipts

Total Cash Available

Less: Disb. for Purch.

Selling & Admin.

Interest

Dividends

Capital Expenditures

Taxes

Total Disbursements

Cash Excess / (Deficiency)

Min. Cash Balance Desired

Borrowing Required

Surplus Cash

Ending Cash Balance

June

$ 6,000

July August

1,000

22,000 24,500 19,500

6,0003,000

18,000

20250 12750 18000

4,500

22,00028,00020,250

31,500(3,500)

$6,000

6000245003050012750

23450

7050

7050

Lecture Notes


Demand-backward pricing□

Push vs pull promotion□

Implications of using marketing intermediaries

Place○

Marketing-

Objective, goals, tradeoff○

Budgeting - advantages, negative aspects○

Format and process of cash budget○

Keys to Cash Budget

Borrow for deficiency + minimuma)Ending balance = minimum req'db)

Deficiency1.

Surplus available to repay borrowinga)If do… ending balance >/= minimum req'db)If don't… ending balance = total excessc)

Excess > minimum2.

Borrow to = minimum req'da)End balance = minimum req'db)

Excess < minimum3.

3 Possibilities-

Finance-

EBIT Analysis

EBIT Analysis

To determine the best mix of debt and equity in the form's capital structure-

Measured by EPS…-

Objective is to maximize shareholder wealth-

Earnings per share ( of common stockholders )-

= earnings available to common stockholders

# shares of common stock= net income - preferred dividends

Lecture 11Monday, February 22, 2010

2:31 PM

Lecture Notes

– ex: ABC Company requires an additional $4 millionin external long-term financing

– earnings before interest and taxes are assumed to be $6 million next year, and ABC’s tax rate is 50%

– the existing capital structure consists of:• $5,000,000 in 10% bonds

• $3,000,000 in 6% preferred stock

• 1,000,000 shares of common stock at $10/share

• $500,000 in Retained Earnings

– ABC has 2 alternatives with which to raise the money:

• $3,000,000 in 11% bonds, and $1,000,000 in 7% preferred stock

• $2,000,000 in 8% preferred stock, and $2,000,000 in common stock at $10/share

– Need to know the effect that each element of the

capital structure has on EPS…

• Debt

– Interest

= $ debt x % interest rate

• Preferred stock

– Preferred dividends

=$ preferred stock x % dividend rate

• Common stock

– # shares

= $ common stock / price

Earnings Before Interest and Taxes - EBITInterest-

Earnings Before Taxes - EBTTaxes-

Net Income = EATPreferred Dividends-

Earnings Available to Common Stockholder/ # shares of Common Stock

Earnings Per Share - EPS

Lecture Notes

– Need to know the effect that each element of the

capital structure has on EPS…

• Debt

– Interest

= $ debt x % interest rate

• Preferred stock

– Preferred dividends

=$ preferred stock x % dividend rate

• Common stock

– # shares

= $ common stock / price

– Existing…

• $5 000 000 bonds x 10% = $500,000 interest

• 3000000 preferred stock x 6% = 180 000 dividend

• 1 000 000 shares of common stock

– Alternative #1…

• 3 000 000 bonds x 11% = 330 000 interest

• 1 000 000 preferred stock x 7% = 70 000 dividend

– Alternative #2…

• 2 000 000 preferred stock x 8% = 160 000 dividend

• 2 000 000 common stock /$10 = 200 000 shares

common

ABC Company

EBIT Analysis (000‟s)

Existing Alternative

Structure #1 #2

EBIT $6000 6000 6000

- Interest 500 830 500

EBT 5500 5170 5500

- Taxes 2750 2585 2750

EAT 2750 2585 2750

- Pref. Dividends 180 250 340

Earnings Avail. C/S 2570 2335 2410

/ # shares of C/S 1000 1000 1200

EPS 2.57/sh 2.34 2.01

All Numbers in First Row must be Same!!

If Given anything other then EBIT work backward through existing structure and project through all alternatives

Lecture Notes

ABC Company

EBIT Analysis (000‟s)

Existing Alternative

Structure #1 #2

EBIT $6000 6000 6000

- Interest 500 830 500

EBT 5500 5170 5500

- Taxes 2750 2585 2750

EAT 2750 2585 2750

- Pref. Dividends 180 250 340

Earnings Avail. C/S 2570 2335 2410

/ # shares of C/S 1000 1000 1200

EPS 2.57/sh 2.34 2.01

Choose the option which results in the highest EPS while realizing that there is always a tradeoff between risk and return

-

RISK - comes from leverage... what happens when you have more debt than equity in your capital structure

-

Should be able to determine the degree of leverage-

(5 000 000 + 3 000 000) debt(3 000 000 + 1 000 000) pref + 10 000 000 common + 500 000 retained earnings

= 8 000 000 / 14 500 000 = 0.55:1 AVERAGE

Calculate interest coverage ratio…-

6 000 000 / 830 000 = 7.2x

Decision

It has least dilutive impact on EPS-

While having acceptable risk as measured by the interest coverage ratio-

Maximizing shareholder wealth-

While balancing risk and return-

Therefore :-

Choose alternative #1 because-

– XYZ needs an additional $8,000,000 in external long-term financing. It’s EBT next year are projected to by $4,000,000, and it’s tax rate is 50%.

– XYZ’s existing financial structure consists of• $15,000 in current liabilities

• $1,000,000 in 10% bonds

• $150,000 in preferred stock at a 5% dividend rate

• $2,100,000 in common stock at $15/share

• $750,000 in retained earnings

– XYZ has three alternatives with which to raise the financing:

1 $6,000,000 in 12% bonds + $2,000,000 in pref. stock at 7%

2 $2,000,000 in 9% bonds + $4,000,000 in pref. stock at 6% + $2,000,000 in common stock at $20/share

3 $5,000,000 in common stock at $16/share + $3,000,000 in 11% bonds

– Choose alternative #1, leverage 1.4:1, int. cov.5x

Practice Question

All Numbers in First Row must be Same!!

If Given anything other then EBIT work backward through existing structure and project through all alternatives

Lecture Notes

– XYZ needs an additional $8,000,000 in external long-term financing. It’s EBT next year are projected to by $4,000,000, and it’s tax rate is 50%.

– XYZ’s existing financial structure consists of• $15,000 in current liabilities

• $1,000,000 in 10% bonds

• $150,000 in preferred stock at a 5% dividend rate

• $2,100,000 in common stock at $15/share

• $750,000 in retained earnings

– XYZ has three alternatives with which to raise the financing:

1 $6,000,000 in 12% bonds + $2,000,000 in pref. stock at 7%

2 $2,000,000 in 9% bonds + $4,000,000 in pref. stock at 6% + $2,000,000 in common stock at $20/share

3 $5,000,000 in common stock at $16/share + $3,000,000 in 11% bonds

– Choose alternative #1, leverage 1.4:1, int. cov.5x

Practice Question

Int. cov. 5x

Lecture Notes

Friday February 26th 6:00pm - 9:30pm

Look at slides.

MidtermWednesday, February 24, 2010

2:43 PM

Lecture Notes


Keys - finding EBIT, adding in present financing○

Maximize shareholder wealth - "least dilutive impact"

Measure risk - interest coverage ratio - looking for "acceptable" risk => 3x□

Balance risk and return

Decision criteria and justification○

EBIT Analysis-

Ratio Analysis

Analyzing accounting information to help make better decisions - about other firms, or about our firm by outsiders

○

Analysis the results of those decisions○

Ratio analysis is a tool used for:-

A ratio is a mathematical comparison using information from the financial statements-

It detects crude trends/overall problems that require further investigation-

Ratio Analysis - 3 Steps

Ability to meet short term debts and obligations

Liquidity-

Ability to meet long term debts and obligations

Stability-

Profitability-

Rate of change

Growth-

Value of stock is holding, shareholders are happy?

Marketability-

To assess overall financial well-being, look at all 5 types of ratios: 1.

Same ratio of other firms in industry-

Industry average-

General rules, not accurate, starting point

'rule of thumb'-

Same ratio for series of past years in same company-

Another ratio-

Compare the ratio to something else2.

Pull apart the numerator and denominator into component parts to see where problem lies3.

Liquidity

Measure a company's ability to meet its current/short-term obligations - short-term viability-

Assess the adequacy of a firm's working capital management-

Assess whether net working capital provides a sufficient cushion to meet current debts as they come due.

-

Net working Capital

= current assets -current liabilities

Objective?-

What is sufficient? - depends on:-

Speed of working capital cycle-

Knowledge of / ability to predict WCC-

Lecture 12Monday, March 01, 2010

2:29 PM

Lecture Notes

Faster the cycle, less net working capital.

Current Ratio

= Current assets / current liabilities'Rule of thumb' > 2:1 for risk, < 4:1 (risk too low, too low return)-

Suggests that NWC should be at least as large as current liabilities-

CA(2) - CL(1) = NWC(1) = CL-

Acid Test /Quick Ratio

Current liabilities= current assets - (inventories + supplies + prepaids)

'rule of thumb' > 1:1-

Receivable Ratios

Average collection period1.

Annual (credit) sales= avg. (closing) accounts receivable x 365 days

2% discount in 10 days, or full in 30 days○

Compare to credit terms ex : 2/10, net 30 vs. 59 days-

Check industry terms, discount, penalty, credit granting procedures-

Adds up in a year○

Why so important to take advantage of discount?-

Accounts Receivable Turnover2.

How many times do we collect our accounts receivable

= annual (credit) sales / avg. closing A/R

Risky

If it's slow○

Not getting interest

Limit market

If it's too fast○

Tradeoff?-

Inventory Turnover3.

= cost of goods sold / average inventory

OR sales /average inventory

Tradeoff? - need to achieve a balance - not too slow, not too fast.

Lecture Notes

No inventory left and others go to another company

Risk○

Tradeoff? - need to achieve a balance - not too slow, not too fast.-

Theory in Use…

"Raiding a company's Hidden Cash"What are the short and long term benefits of operating without a net working capital balance?-

What is the key to operating without net working capital-

Stability

Long term viability○

Measure company's ability to meet its long-term obligations by measuring the relationship between components of a firm's capital structure

-

Shows results of financing decisions-

Debt to Equity or Debt to Net Worth

= total debt / shareholders' equity (net worth)

= current liabilities + long term liabilities

Common stock + pref. stock + retained earnings

'rule of thumb' for industrial firm <1:1-

Firm using other money to make money

As long as does not risk viability

Earn a better return using equity

Does not dilute their interest

Shareholders are fine with debt○

Investors/shareholders?-

Leverage

= long-term debt / sh. Equity (net worth)

Measures the degree to which a company has locked itself into fixed financial costs-

Implies that a given change in sales will result in a greater change in profit-

'rule of thumb' < .5:1 low-

.5 : 1 - 1: 1 average>1 : 1 high

Long term debt is a cheapest source of capital because interest is tax deductible, dividends are not, therefore higher return

○

Advantage-

Higher long term debt means higher interest payments which are a legal obligation whereas dividends are not, therefore a greater risk of insolvency

○

• ex: presently each firm has $1,000,000 in common

stock outstanding, and each needs to finance an

additional $1,000,000…

A B

10% bonds equity with

10% div.

EBIT 1 000 000 1 000 000

-interest 100 000 0

EBT 900 000 1 000 000

- taxes @ 50% 450 000 500 000

EAT 450 000 500 000

Disadvantage-

Lecture Notes

• ex: presently each firm has $1,000,000 in common

stock outstanding, and each needs to finance an

additional $1,000,000…

A B

10% bonds equity with

10% div.

EBIT 1 000 000 1 000 000

-interest 100 000 0

EBT 900 000 1 000 000

- taxes @ 50% 450 000 500 000

EAT 450 000 500 000

Interest cost 100 000 - tax savings 50 000

= real interest 50000 / 1000000 debt= 5%, not 10% -- lowest cost of capital

A 15% return - 5% cost = 10% overall-

B 15% return - 10% cost = 5% overall-

If return on capital is 15%

But what about B's greater net profit?Additional equity : SHARED

Summary

Low leverage :-

Lowest risk but higher cost of capital= lower return

Higher risk but lower cost of capital= higher return

High leverage-

Lecture Notes

Keys Points for The Plan/Presentation/Pitch

Cater to reader - embedded images vs appendix○

Get someone to read it - make sure they understand○

Contingency shows ability to be flexible○

PLAN-

Over-communicate what and why

Communicate your vision

Be passionate

They need to believe in idea, potential, and you○

Be confident○

Present what is important - exec summary as guide, high level financials○

Rehearse○

Script, memorize, practice, know○

Work on flow - transitions between speakers○

Beginning - wow factor - remember you in a 'professional' way○

Attire suitable to idea○

Have slides ready with details not included in presentation

Don't BS

Know your plan - Q&A○

PRESENTATION-

Pain statement 0 problem trying to solve○

Gain/value proposition - how does your idea solve it○

Why yours is best way○

How easy/fast will it be to get to market○

How much do you need and what will they get○

Tell them your idea again - SELL it○

Succinct, easy to understand, appeal to their greed *WIFM), irrefutable - don't leave them with more questions than answers

○


Ratio Analysis - steps, comparisons-

Sufficient level of net working capital

Working capital cycle and effect on NWC

Risk vs. Return

Ratios for measuring management of WCC and interpretation

Liquidity concepts-

Advantages/disadvantages of debt and equity

Ratios for measuring and interpretation

Stability concepts-

Interest Coverage Ratio

PITCH-

= EBIT / Annual Interest-

Helps assess the risk inherent in being highly levered-

'rule of thumb' for industrial firm > 3x, but should look at long-run trend in earnings, and variability in earnings

-


2:53 PM

Lecture Notes

Profitability

Gross Profit Margin (GPM)-

= gross profit / sales (net)

Net Profit Margin (NPM)-

= net profit / sales

Check components of income statement-

ROI-

= net income / shareholder's equity (net worth)Most important profitability ratio for investor-

– ex:

A B

Sales 10 000 000 10 000 000

Net Income 500 000 1 000 000

NPM 5% 10%

Sh. Equity 1 000 000 5 000 000

ROI 50% 20%

Growth

Measures the rate of growth of any balance sheet or income statement account-

Past yr's "----"= present yr's "----" - past yr's "----"

Marketability

Earnings per Share (EPS)-

# shares of common stock= Earnings available for common stockholders

# shares of common stock= net income - preferred stock dividends

Calculate fully diluted if P/S convertible-

Lecture Notes

Price /earnings Ratio

EPS

Helps gauge stock value and growth prospects-

If high P/E ratio - why would people bit up price relative to earnings available?-

Low price/earnings not growing, high payout-

= market price / share

Yield

Price/share ( your investment )= dividends/share

Payout

EPS

Relationship to P/E ratio?-

= dividends /share

Lecture Notes


Risk of leverage - interest coverage ratio○

Stability -

Margin vs ROI○

Profitability-

EPS - fully diluted○

Price/earnings vs payout○

Importance of dividend decision○

Operations

Service vs manufacturing

Production vs. Operations-

Processes used

Types of operations-

Responsible & decisions-

Trends- sustainable operations-

Modern tools & techniques-

Quality control-

Service vs. Manufacturing

Focus on performance-

How to make□

Manufacturing

How it tastes□

Are facilities clean?□

Service

Focus on process and outcome-

Intangibility

Unlimited customization for service□

Customization

Can't store a service□

Unstorability

Focus on service characteristics-

Focus on customer-service link-

Focus on service quality-

Types of OperationsClassified by processes used

Transforming a raw material□

Chemical

Fabrication

Assembly

Transport

Clerical

Services take person and make them happy□

Transformation 'technology'-

Marketability-


2:36 PM

Lecture Notes

Clerical

Material build into product (synthetic)□

Analytic (breaking down a product to retrieve product) like a gas□

Analytic vs. Synthetic System-

Either high or low□

Responsibilities

3 major foundational concerns:

Form and function (trade off)

Match voice of customer to voice of engineer◊

Standardization◊

Prototyping◊

Techniques

CAD (COMPUTER ASSISTED DESIGN)◊

CAM (COMPUTER ASSISTED MANUFACTURING)◊

Must be communication with each other◊

Technologies

Research and development

Examples

Waiting lines-

Assembly lines-

Minimize sitting◊

Inventory systems-

Decisions

Make or buy-

B/E (break even)-

Optimal operating levels-

Quality management-

Tools/Techniques

Flowcharts-

Simulation (process prototype)-

ERP - Enterprise resource planning-

TQM - total quality management-

Product Design-

Supply Chain Management

Seamless from raw material to giving to customer-

Trends - Sustainable Operations

The next industrial revolution-

Eco-effectiveness : "cradle to cradle" design-

Vs. eco-efficiency : "cradle to grave" systems-

Biomimicry-

Product stewardship-

Sustainability through servicing

Extent of customer contact-

Lecture Notes

Sustainability through servicing-

Sustainability of the supply chain-

Cradle-to-Cradle Design

Intelligent design can eliminate the concept of waste-

Recycle into similar material◊

Biological and technical nutrients-

Products developed for closed loop systems-

Based on nature's design principles - "waste equals food"-

Eco-effective vs eco-efficient design-

C2C can certify C2C products

Biomimicry

Sustainable innovation inspired by nature -- "biologically inspired engineering"-

Based not on what we can extract from organisms and ecosystems, but what we can learn from them.

-

Product Stewardship

The responsible 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 product and processes necessary but not sufficient

-

Gains may eventually be countered by increases in consumption-

Turn demand for reduced material use into a strategic opportunity-

Services more difficult to imitate - competitive advantages-

Change business model from selling products to providing services-

Products becoming commoditized-

1994 -" the document company " - help companies improve efficiencies in document intensive business processes

-

Increase productivity and reduce costs - better customer relationships - not likely to change suppliers , other product opportunities, attract new customers

-

Xerox-

Sustainability of the Supply Chain

Management of raw materials and services from suppliers to manufacturer/service provider to customer 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.

-

Lecture Notes


Service vs manufacturing○

Type of operations○

Responsibilities○

Cradle to cradle design

Biomimicry

Product stewardship

Sustainability through servicing

Sustainability of the supply chain

Trends - sustainability○

Operations-

Sustainability of Supply Chain

Wal-Mart

Pilot program with suppliers of seven common items - to measure and reduce the amount of energy used in making and distributing them

-

Home Depot

Gives marketing and store display preference to EcoOptions line of environmentally friendly products and favours suppliers that come up with new categories of green products

-

Starbucks

Sources primarily regions in west Africa that rely on forms of child labour - invested in rural communities

○

Before it launched a new line containing cocoa-

Timberland

Organic materials

Decisions

Cost implications - rent, land○

Close to labour pool○

Convenience is service based○

Location - cost, proximity, convenience-

Assembly-line/product - design layout based on product○

Process - focus on processes for unique products○

Modular/cellular - sequence of creation○

Fixed position - production cannot move, yacht, plane, go to product to produce○

Lay out-

Don't want to add capacity later

Don't want to outsource

Don't want to lose customer

Just above demand ○

Depends on how much contact

Capacity at peak demand for high contact

Capacity at average demand for mid contact

For services○

Capacity - goods/high & low contact services-


3:39 PM

Lecture Notes

Capacity at average demand for mid contact

Add value○

bottleneck

Speed up service "fail" points○

Limit human discretion to increase consistency○

Worker interaction with customers○

Method-

Appointments, reservations -- service○

Scheduling-

Materials management - design, material flows, and inventory○

Process control - worker training, just in time, quality○

Modern Production Techniques

Mass production technology vs. new economy-

Change vs. stable market conditions-

Customer-driven - effectiveness vs efficiency-

Customization and innovation vs repetition-

Theory In Use

"the customized, digitized, have it your way economy"-

What is mass-customization and what makes it possible?-

What implications does this 'new economy' have on a company's marketing and financing-

Economic order quantity (EOQ)-

MRPII information fed into processes-

Materials requirement planning (MRP)/MRPII-

Everyone being linked in one computer system; every area in supply chain-

Enterprise resource planning (ERP)-

Materials come in just in time-

Just in time inventory control (JIT)-

Using equipment that can adapt to changing needs-

Flexible manufacturing-

Manufacturing as little waste as possible-

Lean manufacturing-

Replacing humans-

Robotics-

Effective and efficient, combination-

Mass customization-

Want two to work together-

CAD/CAM-

Computer integrated manufacturing, combo of above-

CIM-

Quality Control

Produce quality at efficient level to be productive-

Productivity- quality connection-

Focus on quality of everything we do-

Edwards DemingW.

Total quality Management (TQM)-

Don't wait until your finished to check

Check sampling

Checking statistics

Monitor own quality every step

Statistical Process Control-

Control-

Lecture Notes

Monitor own quality every step

Extension of stat, getting workers together and asking for opinion

Quality circles-

Use firm of highest quality and compare

Benchmarking-

Certifies company that quality is good

Levels playing field

Required to do business worldwide

ISO-

Six sigma-

Lecture Notes


Sustainability of the supply chain-

Location, layout, capacity○

Methods, scheduling, control○

Decisions-

Modern techniques○

Mass production vs new economy-

Productivity-quality connection○

TQM, statistical process control, quality circles, benchmarking, ISO certification○

Theory in Use:

Harley Davidson-

What happened at Harley-Davidson that pushed it to the bring of bankruptcy-

What operational principles/techniques did Harley-Davidson use to turn itself around?-

Quality control-

Human Resources

Responsibilities

Forecasting human resource needs/planning-

Recruiting potential candidates-

Selecting the best available-

Training and developing-

Performance = ability x motivation

Encouraging high performance-

Performance evaluation-

Compensation-

Union/management relations-

Sustainability and HR

Accenture - 60% rated ethical mgmt as important factor in job search□

Globescan - 68% disagreed that salary is more important than a company's social and environmental reputation when deciding where to work, and 53% said very likely would not apply for job at company that was socially irresponsible

□

KPMG – among workers who feel their bosses lack integrity only 20% would recommend workplace vs 80% who believed company had strong ethics would

□

Recruiting and retaining top talent

3 critical challenges facing HR professionals-

To respond to emerging demands of stakeholders

Sustainability fosters innovative approaches and informs the way people think and act

Enhancing critical competencies - training-

GlobeScan –80% of people felt greater motivation and loyalty the more socially responsible their employers became

MORI – 70% of staff who were committed to the values of the company said their productivity had increased

Incentives must be aligned with goals of sustainable development

“Does Sustainability Change the

Talent Equation?” MIT Sloan Management Review Fall „09

• Annual Sustainability Initiative Survey – collaboration

between MIT Sloan Management Review and the Boston

Consulting Group (BCG)

– When a company takes up sustainability, how does people

management change?

• Talent recruitment and retention rises

• Employee engagement and

productivity improves

• Employee expectations rise

Creating incentives for exceptional performance-

Lecture 16Monday, March 15, 20102:28 PM

Lecture Notes

“Does Sustainability Change the

Talent Equation?” MIT Sloan Management Review Fall „09

• Annual Sustainability Initiative Survey – collaboration

between MIT Sloan Management Review and the Boston

Consulting Group (BCG)

– When a company takes up sustainability, how does people

management change?

• Talent recruitment and retention rises

• Employee engagement and

productivity improves

• Employee expectations rise

Planning

Describes the job□

Job description

Specifies characteristics of worker to do job well□

Job specification

1st need to do a job analysis-

Numbers and skills□

Goals

Internal and external environment□

Project future demand

Forecasting/Planning - Stapes :-

Currently, then how will this change?□

Inventory of numbers and skills

Adjust for future - retirement, turnover, promotions and training

Project future supply-

Shortages and surpluses in numbers of skills

Determine net needs / "gap"-

Develop plan…-

Evaluate and make changes-

Absenteeism - develop plan - soft vs hard

Caring and concerned about reason□

Soft approach

Deals with the surface□

No fault approach□

Hard approach

Contingency-

Human Resource Plan-

Increase efficiency

Overtime

Training and transfers

Use resources better□

Change plans

Subcontract - "out sourcing"

Capital vs. people

Decrease requirements□

hire□

Shortage options-

Surplus

Choice :Size-

Lead time-

duration-

Lecture Notes

Surplus

Layoff - Firing

Layoff is not permanent, firing is layoff permanently-

Labour not always cutting workforce-

Downsize-

Cutting to what you want to achieve-

Rightsize-

Allow people share jobs-

Job sharing-

Recruitment

Sources :

Doesn't work for entry level positions-

Doesn't work for top top positions-

Works if you're stable-

From within - cheap, fast, good for morale-

Recommend someone good (pre-selection)□

Tell what's bad about the job (pre-conditioning) know reality of job□

Pre-conditioning, pre-selection-

Word of mouth-

Public vs. private - "headhunters"-

Employment agencies-

College/university recruitment-

Trade union / professional association-

Advertisements-

Professional contacts-

Unsolicited applications-

Approaches

Don't have to continually go through the process-

Realistic approach -

Selection

Must 1st consider 3 factors in designing selection procedures-

Human Rights Legislation

Employment equity-

Validity

Predict success/performance-

Reliability

Predicts success consistently -

Choice :Budget-

Lead time-

Type of job-

Lecture Notes


Recruitment, retention, and training

Engagement, productivity, and incentives

Expectations

How sustainability affects HR○

Responsibilities of HR department-

Job analysis - what it is, importance-

Steps, contingency - absenteeism - hard vs. soft approaches○

Downsize vs rightsize

Layoffs, hiring freeze

Job sharing

Handling shortages and surpluses - application ○

H/R Planning-

Sources, application○

Recruitment-

Selection

Administer the selection procedure to a group of people and correlate (compare) the results/predictor scores with performance/criterion scores

Look for valid predictors

Given procedure to applicants

Hire them, then watch how they work, assess

Lengthily and then make correlation

More accurate results

Predictive□

Taking current employees and comparing performance

Quicker

Results tainted by experience

Concurrent□

Best approach is to do both□

Lecture 17

Audio recording started: 1:16 PM Wednesday, March 17, 2010

Theory in Use…

"New face of work" and "diversity Works"What does the employment equity act require of employers-

Why should employers not covered by the act still strive for employment equity-

Education and experience►

"bonafide qualifications"►

Actual ability not assumptions►

What can you ask?◊

Screen for job specifications►

What is it used for?◊

50 answer YES, 40 high performers = weight 80►

"weighted application blank"◊

Application forms

Interviews

Methods :-

Difference is in who administered to and implications :

Predictive and Concurrent-

Validation Process - criterion validity-

Lecture 17Wednesday, March 17, 2010

1:00 PM

Lecture Notes

Most common but least valid◊

First impression

Early bias►

Negative influence►

Hypothesize►

Match to ideal►

Some characteristics overshadow everything

Halo effect►

Rate everyone average

Rate everyone easy

Rate everyone low

Central tendency /leniency / strictness►

Following earlier performance could be better or worse

Rating depending on order►

Because of interviewers and questions asked◊

Degree of variance and validity of questions◊

Solution :

Train interviewers-

Use more than one-

Give feedback-

Interviewers :

Use job analysis as guide for developing questions-

Validate questions-

Use "patterned" questions-

Questions :

Interviews

Pen and paper or job sample►

"assessment centres"►

Ability/aptitude◊

Measuring for a personality trait (construct)-

Is construct related to performance-

Construct validity►

Psychologist projects your personality from your response

–

Projective-

Yourself–

Self-report-

Types - self-report and projective►

Use more for placement and career counseling-

Interest inventories►

Personality◊

Compensation

Attraction - external equity►

Retention - internal equity►

Motivation - provide incentives►

Three objectives-

Wage survey establishes base rate►

Applicants must understand adjustments-

Adjust in regards to economy, nature of company and industry, and nature of job

►

External equity-

Evaluating the job to assign pay-

Job evaluation►

Job analysis-

Develop list of factors to rate jobs on-

Rate jobs *

Job evaluation steps►

Internal equity-

Testing

Lecture Notes

Rate jobs *-

"price the pay structure"–

Assign pay based on relative value-

"Point Method"Universal factors1.Factors universally applicable-

Skill, effort, responsibility, job conditions-

Subfactors, 3. degrees, 4. point values, 5. pay grades2.What factors relevant used to reward pay-

Specific to company-

3.-

Define different amounts of subfactors-

4.-

Score each subfactor-

Done by employees as well-

5.-

Add point scores, ranges = paygrades-

1st 2nd 3rd 4th 5th

Factor Degree Degree Degree Degree Degree

Skill

Knowledge 14 28 42 56 70

Experience 22 44 66 88 110

Initiative and Ingenuity 14 28 42 56 70

Effort

Physical Demand 10 20 30 40 50

Mental Demand 5 10 15 20 25

Responsibility

Equipment or process 5 10 15 20 25

Material or product 5 10 15 20 25

Safety of Others 5 10 15 20 25

Work of Others 5 10 15 20 25

Job Conditions

Working Conditions 10 20 30 40 50

Hazards 5 10 15 20 25

Score Range Grade

139 and under 12

140-161 11

162-183 10…

…316-337 3

338-359 2

• Pricing the Pay Structure...

Pay

Rates

Pay Grades / Job Evaluation Points

Pay Equity Legislation

Not "equal pay for equal work"-

Prohibits paying different wages to employees who work for the same firm and who work in jobs that are different but of comparable worth to company

-

Ends wage discrimination in jobs where there are few men with which to make comparisons for equal pay

-

Federal government, ontario, quebec - both public and private sector

#1 Universal Factors #3 degrees defined

#2 subfactors #4 Point values

#5 Pay grades

Trend Line

Range

leave him

Increase pay

Lecture Notes

Required to develop and implement plans but complaint based system

In federal law for over 30 years '77 but wage gap still exists

Federal government, ontario, quebec - both public and private sector-

"systemic wage discrimination" -established compensation practices that tend to unconsciously favour and reward work done by male workers

Eliminate portion of wage gap that can't be explained by differences in education, labour marker experience, or seniority.

Ensure paid same for jobs of equal value regardless of gender-

Lecture Notes


Selection

Methods - issues, solutions

Compensation

External equity

job evaluation process-

Pay equity legislation-

Internal equity

Audio recording started: 1:17 PM Monday, March 22, 2010

Lecture 18

Labour Relations in Ontario

Structure of labour movement-

Relationship between union and management-

Different types of unions-

Certification process-

Negotiations - strategy and process-

Contract administration-

Primary/ Secondary Stakeholders - UNIONS

Secondary-

If you don't have a union

Primary-

If you do have a union

Management - represent rights of owners○

Union - represents rights of employees○

Ontario labour relations act-

Only federal if your job cross into another province□

Canada labour code-

Government - Formulate rules○

Tripartite System-

AFL-CIO

U.S. Headquarters

Canadian Branches

of Internationals

Regional Offices

CLC or CFL

Provincial Federations

of Labour

Local Labour

Councils

Local Unions

National Unions

Regional Offices


12:57 PM

Lecture Notes

AFL-CIO

U.S. Headquarters

Canadian Branches

of Internationals

Regional Offices

CLC or CFL

Provincial Federations

of Labour

Local Labour

Councils

Local Unions

National Unions

Regional Offices

Set policies○

Help legal matters○

Help strike fund○

Help bargaining○

Parent - let locals do their own thing, they have authority and final say, help with financial trouble-

Local - day to day, contract bargained, grievances handled, branches of union-

Labour congress - association of many unions - promote interest of unions, lobbies with government, settle parent disputes

-

AFL = American federation of labourCIO = Congress of industrial organizationsCLC = Canadian labour congressCFL = Canadian Federation of Labour

Union vs. Management

Union

Peak season-

Timing○

Threat of a strike-

Strike fund○

Ability to carry it out-

Management

Stockpiling○

Subcontracting ○

Management does work-

Skeleton staff○

"scabs"-

Replacement workers-

"strikebreakers"○

Strike insurance○

Ability to withstand a strike-

__________________________________Industry wide lockouts-

Imbalance in size○

Small employers band together to bargain as a group with a large employer○

Employer assoc'n bargaining-

Lecture Notes

Craft vs. Industrial Unions

Craft - same skillWorkers with same skill-

Also called trade/labour unions-

Limit access, limit apprenticeship

Because of sequential nature of work, if one trade is gone, nothing is done.

Create monopoly over scarce resource (skill) + ○

Power-

U- Withdraw, jobs at other sites, info. Picket○

Only thing they can do.

M - industry-wide lockout○

Tactics-

Little violence○

Resolved quickly○

Strike characteristics-

Industrial Same industry/company-

Can be replaced, but makes it difficult to replace

Strength in numbers○

Power-

Get angry people there to intimidate

U - control physical access through picket line○

M - withstand strike○

Tactics-

Can be violent○

Can be very long○

Collective Bargaining Process Union Certification

To gain the right to bargain for a group of employees, the union must first demonstrate to OLRB that the employees want the union as their exclusive bargaining agent

-

Voluntary recognition1.

Organizing/membership drive□

Certification hearing□

Certification Process

Certification process - through OLRB-

Signed union card

Gather proof that the employees want the union-

SPY, PROMISE, INTERROGATE, THREATEN = BAD.

Management must not interfere - undue influence - SPIT-

Organizing/Membership drive

Desires of U and M

Desire not to split into too many bargaining units

Splitting office and production workers

Removing management from group

Nature of work, conditions of employment, and skills◊

"community of interest" of workers

"appropriate" bargaining unit-

Certification Hearing


Strike characteristics-

Lecture Notes

List of names to management

Management has 2 days to challenge names

"appropriate" bargaining unit ---

Determine if union has support of bargaining unit-

#signed union cards# in bargaining unit

< 40% application dismissed

Within 5 days of mgmt checking list

> 40% representation vote


Lecture Notes


OLRA vs. Canada Labour Code-

Identifying them, relationship between them, and roles

3 levels○

Structure of labour movement-

Sources of power○

Union/management power struggle-

Membership - power source - tactics used - strike characteristics○

Craft vs. industrial unions-

Membership drive - undue influence○

Certification hearing - bargaining unit, representation vote○

Lecture 19

Audio recording started: 1:25 PM Wednesday, March 24, 2010

Contract Negotiations

Union certification-

• true „winner‟

• greater „power‟

Mgmt.‟s

Initial

Offer

Union‟s

Initial

Demands

Range of Acceptable

Outcomes

Mgmt. won? Union won?

resistance points

Argue position○

Soft vs. hard○

Standard strategy - 'positional' bargaining-

Limited resources

Win/lose

Distributive○

Cooperative, mutual

Work together

Integrative○

Distributivevs. Integrative bargaining-

Developed at the Harvard Negotiation Project○

Produces a wise agreement

Efficiently

Improves/doesn't damage relationshipAnd amicably

Criteria for judging negotiation○

Principled negotiations-

Lecture 19Wednesday, March 24, 2010

1:20 PM

Lecture Notes

Improves/doesn't damage relationship□

"Principled Negotiation"

Attacking the problem together

Separate the people from the problem Amicable-

Focus on underlying interests

Interest is why you want what you want

Focus on interests, not positions WISE-

Generate a variety of options before deciding what to do WISE-

Insist that the result be based on some objective criteria WISE-

= EFFICIENT

4 basic points

Concern

for My

Interests

Concern for Their Interests

HIGH

HIGHLOW

Competing/Forcing

Hard Positional

AvoidingAccommodating

Soft Positional

Collaborating

Principled/Integrative

Compromising

Distributive

Forcing Accommodating Compromising Avoiding Collaborating

Issue

Importancehigh low medium low high

Relationship

Importancelow high medium low high

Relative Power high low equal-high equal-high low-high

Time

Constraintsmed-high med-high low med-high low

Negotiating Strategy

- based on situational considerations

Stages of Negotiations

Typically management would present proposal first-

Set agenda and take control-

Not be wise if you don't know what union wants-

Take reactive if you don't know and wait…-

If you're reactive you don't set tone; get sense where other side is at-

Reactive vs. proactive approach

Explain nature of proposal and necessity for acceptance vs. detailed justification

Opening statements-

WIN/LOSE

LOSE/WIN

WIN A LITTLE/LOSE A LITTLE

LOSE/LOSE

WIN/WIN

Lecture Notes

If you're reactive you don't set tone; get sense where other side is atExplain nature of proposal and necessity for acceptance vs. detailed justification

Offer counterproposals

Present detailed information to support or refute proposals - identifies range

Do this integrative way-

Tradeoffs - concessions

Middle stage-

Take proposal back to bargaining unit-

Weigh costs and gains of proposed settlement relative to costs of no settlement


Final stage-

Not available in Ontario

Union has no security

Have to collect their own dues

No assistance

No security in terms of management

(open shop)-

Everyone in union gets dues taken off paycheck by management

Voluntary Check-off of Dues-

Everyone in bargaining unit pays dues get it taken off pay check

Rand Formula /Agency Shop-

Status quo

Keep membership at certain size, if you join you stay a member, you quit, you lose job.

(maintenance of membership)-

After a period of time you have to join

Only if you are permanent you have to join

Union Shop-

Have to be a union member

Automatic

Not legal in USA

Closed shop-

Form of recognition / union security

Duration and Renewal

Contract for at least 1 year (3 year more normal)-

If both agree-

Renegotiate anything-

Seniority - "superseniority"-

Every union vote for someone as a union rep.-

"superseniority" applies to union rep. and treated as if they are there longest.-

Issues-

Least to most secure

Lecture Notes

10 multiple choice-

Chapter 8,9,11,12,14, and 20 as indicated on course outline - material not covered in class-

Less emphasis on finance

Finance, operations, HR and labour relations○

60 marks short answer-

3 questions - cash budget, EBIT analysis, ratios - statements and formula sheet attached○

30 marks problems-

More detailed breakdown and review Wednesday-


Resistance points, range of acceptable outcomes○

Situational considerations

Positional/distributive vs principled/integrative bargaining○

Negotiation strategy-

Stages in negotiations-

Union security○

Superseniority ○

Issues in negotiations-

Union Security

Clause 1. (same as present agreement) Each month the company will deduce from the pay cheque of each employee in the bargaining unit, whether a member of the union or not, an amount equivalent to monthly Union duesas specified in the Union Constitution and will promptly transmit such deductions to the secretary-treasurer of the union

Clause 2 : The company agrees that all employees who are or who become members of the Union shall remain dues-paying members as a condition of continuing employment.


Settlement

Contract in effect at end of existing or "retroactive"□

If employees want to ratify the contract (permanent)

if agreement - ratification vote-

Conciliation - before strike/lockout

Mediation

Arbitration

If no agreement …-

Potential costs of a strike-

Conciliation Process

Audio recording started: 1:22 PM Monday, March 29, 2010

FINAL EXAM

Conciliation Officer

- 14 days maximum

Report

“No Board Report”

- strike cannot be averted

Conciliation Board

- strike could be averted

- 30 days maximum

14 day „cooling off‟ period

strike/lockout legal

on 17th day

Report

7 day „cooling off‟ period

strike/lockout legal

on 10th day

If you are not in legal strike position - wildcat strike.

Meditation

Paid for by government

Strip both teams down to 1 representative and make suggestion and hopefully they settle

2 days for mailing

Government saying you should not strike. 9 days

Strikers ask for these

2 days to mail report

Lecture 20Monday, March 29, 20101:06 PM

Lecture Notes

Meditation

After conciliation process exhausted-

No effect on legal timing of strike-

Voluntary - cost borne equally-

Like conciliation officer or board, can only make suggestions-

Arbitration

Voluntary - critical both sides agree to it.-

Compulsory for essential services ("interests" arbitration) or if gov't intervenes-

Here decision gets made

Decision final and binding-

Final offer - total package selection

Compromise□

Final offer - issue by issue selection

Conventional arbitration

3 types-

Voluntary/CompulsoryBinding/Non-BindingEffect on Strike

Conciliation

Mediation

Arbitration VoluntaryIf Government forces itFor essential

Voluntary

Voluntary

Binding

Legal strike position

Ends the strike

Contract Administration

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

Resolve conflicting interpretations of contract○

Statute of limitations

Escalation to higher levels

Time limits

Culminates in "rights" arbitration□

Arbitration at end

Procedure outlined in contract, but elements same…○

If not… Grievance Procedure-

Next Class

Final exam reviewStudy guide on course website-

Remember to do yourPresentation peer evaluations-

TA evaluations-

Lecture Notes

Business 121 Lecture Notes

Documents

Transcript of Business 121 Lecture Notes