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Strategic Management Module
What is Strategic Management?Is there such a thing as Non-Strategic
Management?More about the Management of Company
Competitive Position than People Management
© SHRM 1-1
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Synonyms for Strategic
Long termBig Picture
Competitive Positioning
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Module 1: Strategic Management
12% PHR (27 questions)29% SPHR (65 questions)
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Any student use of these slides is subject to the same License Agreement that governs the student’s use of the SHRM Learning System materials.
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HR Roles
Historical roles are still important, but roles have broadened into today’s more strategic focus.
Historical:• Advice• Service• Control
Current: • Strategic• Operational• Administrative
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• Workforce composition
• Globalization
• Emphasis on ethics
• Flexible organizational boundaries
• Require:– Strategic HR perspective
– Alignment of human capital and corporate strategy
– Technology
Changes in the HR Profession
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(things your predecessors spent less time dealing with…)
Off shoring Mergers and Acquisitions
Project Mgmt Change MgmtOutsourcing Technology
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Key Trends in HR
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Key Trend: Offshoring
• Domestic HR challenges– Displaced workers
– Increased HR workload
– Decline in employee morale
– Shortage of employees in positions vulnerable to offshoring
SPHR only
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• International HR challenges– Recruiting, managing, and
motivating the new workforce
– Communication and coordination across time zones
− Cultural issues
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Key Trend: Mergers, Acquisitions, and Divestiture
1. Identify issues, form and train teams, and prepare for change.
2. Investigate cultural, structural, technological, financial, and legal risks.
3. Develop plans to address key issues.
4. Measure activity of new organization against benchmarks.
HR in the M&A Process
Perform due diligence
Planintegration
Prepare for M&A
Implement and measure
1 2 3 4
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SPHR only
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Management Functions
ForecastSet goals
DesignAssist
ScheduleImplement
Measure
Planning Organizing Directing Controlling
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Project Management Steps
RolesInformational• Communicator• Information disseminator
Decisional• Conflict resolver• Resource allocator
Interpersonal• Leader• Liaison
Conception
1 2 3 4
Planning, scheduling, monitoring, and control
Completion Evaluation
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Project Planning Tool: Gantt Chart
• Also known as horizontal bar chart, milestone chart, or activity chart.
• Plots the sequential steps of a project against time.
January February March MayApril
Development of RFP for new medical insurance plan
Identification of possible providers
Issuance of RFP
Evaluation of proposals
Company presentations
Selection
Presentation of new plan to employees
Development of plan
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Project Planning Tool: PERT Chart
• An arrow diagram or road map identifying all major events
• Shows how much time is needed to complete a project.
Numbers = Weeks
Legend:
Event
Critical Path
F
Activity
15
2
2
2
2
BA
C
D
E
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Change Management Model
1. Determine the need or desire forchange.
2. Prepare tentative plans.
3. Discuss alternatives andprobable reactions.
4. Make a final decision.
5. Establish a project planand a timetable.
6. Communicate the change.
7. Implement and evaluatethe change.
HR challenge: To maintain the level of intensity and consistency of effort throughout the change process
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A company must immediately downsize its workforce by 15% due to shrinking markets. What important role will HR play during the process?
A. Form new work teams based on the gaps created by the layoffs.
B. Summarize industry trends and communicate them to employees.
C. Ensure that top management regularly communicates with employees.
D. Launch a new quality initiative to preserve customer satisfaction.
Answer: C1-14© SHRM
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The Outsourcing Process
1. Analyze needs and define goals.
2. Define budget.
3. Create RFP.
4. Send RFPs to contractors.
5. Evaluate contractor proposals.
6. Choose contractor.
7. Negotiate contract.
8. Implement and monitor.
9. Evaluate.
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Managing Technology Trends
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Strategic Planning Process
• Defines where the organization is now, where it wants to be, and how it will get there.
• Gathers internal and external information.
• Develops alternative strategies.
• Selects appropriate strategies.
• Implements a plan.
• Evaluates and revises the plan as needed.
Strategy
Implementa-
tion
Phase 3
Strategy
Development
Phase 2
Strategy
Formulation
Phase 1
Strategy
Evaluation
Phase 4
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Phase 1: Strategy Formulation
Must understand:• What business the
company is in.• When to change the
mission and alter strategy.
• How and when to communicate the mission.
Strategy Formulation
• Develop vision and mission statements.
• Define organizational values.
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Phase 2: Strategy Development
S = Internal strengths
W = Internal weaknesses
O = External opportunities
T = External threats
Strategy Development
• Conduct a SWOT analysis, including environmental scan.
• Establish long-term objectives (three to five years).
• Identify corporate, unit, and functional strategies.
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Phase 3: Strategy Implementation
Resources needed toachieve objectives:
• Financial
• Physical
• Human
• Technological
Strategy Implementation
• Establish short-term objectives (six months to a year).
• Develop action plans.• Allocate resources.• Motivate employees.
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Phase 4: Strategy Evaluation
• Assess strategies by noting changes in:– Internal strengths and
weaknesses.
– External opportunities and threats.
• Take corrective action when changes have occurred.
Strategy Evaluation
• Review strategies at planned intervals.
• Measure performance.• Take corrective action.
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Which of the following activities best prepares HR to participate in the strategic planning process?
A. Evaluating a new HRIS system
B. Restructuring HR’s recruiting system
C. Training line managers on interviewing techniques
D. Reviewing the company’s key financial data
Answer: D1-22© SHRM
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Understanding the Internal Environment
InformationTechnology
Operations
Finance andAccounting
Employees
Marketingand Sales
HR
• Understand the perspective of your business partners.
• Create communication and collaboration.
• Identify internal needs and emerging issues.
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Finance and Accounting
• Finance helps business units with financial needs.– Pricing products
– Creating financial models
• Accounting balances the checkbook of the company.– Accounts receivable
– Accounts payable
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Budgeting Methods
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Balance Sheet
• Basic form of the sheet is:
Assets = Liabilities + Equity.
• Every financial transaction is an exchange, and both sides are recorded.
• Only records transactions measured in money.
Summarizes the firm’s financial position.
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Balance Sheet
AssetsCurrent assets
Fixed assets
Investments
Total assets
Liabilities and equityCurrent liabilities
Equity
Total liabilities and equity
$310,000
$70,000
$20,000
$400,000
$145,000
$255,000
$400,000
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Income Statement
• Basic form of the statement is:
Revenues – Expenses = Net income.
• Some expenses are never cash outflows (depreciation).
• Some expenses may be paid partly in one period and partly in another (cost of goods sold).
• Owner withdrawals are distributions, not operating expenses.
Explains revenues, expenses, and profits over a specified period of time.
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Income Statement
Gross sales $360,000Less cost of goods sold $240,000Gross profit $120,000Less expenses: $50,000
Salaries $20,000Rent $18,000Utilities $7,200Depreciation $1,800Interest $3,000
Income less expenses $70,000Income tax expense $28,000Net income $42,000
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Marketing and Sales
Promotion
Price
Place
ProductMarketing:Plan, price, promote, and distribute goods and services.
Sales:Sell the organization's product to the marketplace.
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Operations
Control
Inventory Scheduling
Standards
Capacity
Keyconcepts
• Goal: To provide goods and services to customers.
• Focuses on productivity, quality, cost, delivery, and performance.
• Affected by supply chain management.
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A company commits to answering all phone calls within 15 seconds. Which operational concept deals with observing and documenting actual results?
A. Capacity
B. Inventory
C. Scheduling
D. Control
Answer: D1-32© SHRM
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Information Technology
Enables an organization to use information to support its strategic objectives.• Strategic information systems are
designed to achieve competitive superiority.− Airline reservation systems
• Operational systems focus on reducing costs or improving productivity.− Remote access systems that allow
telecommuting
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Employees
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Evolution of Organizations
HR Focus:Staffing Compensation, HR planning,
training
Introduction
Staffing andtraining
Change managementOutplacementCross-training
Growth Maturity Decline
Crisis: Leadership
Need:Creativity
Crisis: Delegation
Need: Clear direction
Need:Formal systems
Crisis: Bureaucracy
Crisis: Change resistance
Need:• Streamlined
decision making• Flexibility• Small-company
thinking
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Cost Leadership Strategy
• Requires:
– Exploitation of all sources of cost advantage.
– Efficiency and productivity.
– Sharing of information.
– Centralized decision making.
– Cross-training and job rotation.
– Process improvements.
Goal: To be the low-cost producer
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Differentiation Strategy
• Requires:– Reduced costs in areas not related to differentiation.
– Strong research and development and marketing.
– Product knowledge and quality training.
– Decentralized decision making for quicker speed to market.
Goal: Attempt to set the product apart from its competition by giving it unique characteristics for which customers will pay a premium price
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Other Strategies
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Specialization and Departmentalization
• Specialization: Degree to which processes are divided into tasks and grouped into jobs– Balances need for productivity with employee
satisfaction
• Departmentalization: The way an organization groups jobs so work can be coordinated– Functional, divisional, or matrix
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Functional Structure
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Divisional Structure
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Matrix Structure
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Authority and Reporting Issues
Chain of Command• Line of authority
within an organization
• Defines the boundaries within which a manager can make decisions
Span of Control• Number of individuals
who report to a supervisor– Narrow span (“tall”
organization)
– Wide span (“flat” organization)
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Centralization and Decentralization
Decision Making
Centralization
Authority resides with upper management.
Decentralization
Authority is shared with lower levels.
Formalization: Degree of discretion individuals have over the way in which they do their jobs.
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STOP
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Environmental Scanning
• Interprets data related to external opportunities and threats.
• Prepares HR to participate in strategic planning.
• Examines seven key factors:– Demographic – Political
– Economic – Social
– Employment – Technological
– International
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Demographic Factors
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• Age
• Gender
• Generational differences
• Population shifts
• Ethnicity
• Unskilled labor
• Nontraditional labor force
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Economic Factors
Interestrates
InflationDisposable
income
CPI
GDP
EconomicFactors
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Employment Factors
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• Attitude toward careers
• Immigration
• Occupational and industry shifts
• Recruitment
• Unions
• Unemployment
• Turnover
• Relocation
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International Factors
• European Union
• Wage comparisons
• Trade agreements
• International labor law
• Globalization
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Other Factors
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ROI
Measures the economic return on a project or investment.
ROI = Value of benefits received
Costs to produce benefits
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Cost-Benefit Analysis
• Determines the financial impact that programs have on company profitability.
• Presents data as a ratio.
-Value of projected benefits
Cost benefit ratio =Cost
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Break-Even Analysis
Determines the point in time at which total revenue associated with an HR program is equal to the total cost of the program.
-Cost
Break even point = × Time*Savings
* Time = The period of time for which the return is being analyzed.
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HR is launching a company-wide training initiative. How can HR determine when the anticipated revenue return will exceed the cost of developing the program?
A. Calculate gross margin.
B. Calculate return on investment.
C. Conduct a cost-benefit analysis.
D. Conduct a break-even analysis.
Answer: D
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Balanced Scorecard
• Aligns business function measures with organizational strategies.
• Measures the effectiveness of a department or the entire company.
• Considers perspective of all stakeholders.
Finance
Learningand
growth
Businessprocesses
Customers
MissionVisionValues
MissionVisionValues
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For a balanced scorecard system to be implemented effectively, it shouldA. be introduced simultaneously to all divisions and
departments.
B. start at the bottom of the organization and work its way to the top.
C. focus on specific measures that support business strategies.
D. concentrate on tracking and reporting financial results.
Answer: C1-57© SHRM
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HR Audit
• Analyzes effectiveness and efficiency of HR programs.
• Keeps executives current on HR activities.
• Allows HR managers to cut or enhance programs and address noncompliance.
• Conducted by HR staff or a third-party contractor.
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Other Measurement Methods
• Organization’s most important issues (e.g., dollar sales per employee or percentage of workforce that is unionized)
• Human capital ROI
• Turnover cost
• Compensation as a percentage of operating expense
• Training investment factor
• Time to start
• Cost per hire
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Inductive and Deductive Reasoning
• Inductive (from specific to general)– Looks at a set of
observations and designs a rule.
– Joe, John, and Mary are top salespeople and have accounting backgrounds. Therefore, for this job accounting background indicates success.
• Deductive (from general to specific)− Starts with a general rule and
deduces specific instances.
− Research shows that units led by controlling managers have decreased morale. John is a controlling manager. His unit will suffer morale problems.
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Primary and Secondary Research
Primary(data gathered firsthand)
Secondary(data gathered by others)
• Experimental
• Pilot projects
• Surveys
• Interviews
• Focus groups
• Direct observation
• Testing
• Secondhand reports
• Historical data
• Purchased data
• Professional publications
• Benchmarking
• Best-practices reports
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Scientific Method
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Step 1: Problem Analysis
• State the problem as a question.
• Identify key factors that contribute to the problem.– “Why are there so many
voluntary terminations?”
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Step 2: Hypothesis Formulation
• Restate problem as a testable prediction.– “Voluntary terminations
are high because of low job satisfaction.”
• State the relationship between two factors that can be tested.
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Step 3: Experimental Design (Classic)
• Subjects are randomly assigned to two equal groups.
• Experimental group is exposed to the variable; control group is not exposed to the variable.
Experimental group R O X O
Control group R O O
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Step 3: Experimental Design(Quasi-Experimental)
• Subjects are not assigned at random.
• Experimental group is exposed to the variable; control group is not exposed to the variable.
Experimental group O X O
Control group O O
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Steps 4 and 5: Data Collection and Analysis
Step 4: Data Collection• Data is gathered through primary and secondary research
methods.
Step 5: Data Analysis
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• Data is analyzed and placed into a useful context.– Quantitative analysis: Based on facts and statistics
– Qualitative analysis: Based on attitudes, opinions, and feelings
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Descriptive Statistics:Measures of Central Tendency
Mean = Average = 10.33
Median = Point above and below which 50% of scores lie = 12
Mode = Most frequently occurring score = 12
4668
1010101212121213131314
15 scores for a total of 155 points
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Given the following data, what is the mode?
A. 3B. 4C. 5D. 6
Answer: C
2 3 3 4 5 5 5 6 6
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Descriptive Statistics:Measures of Variation
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• Provide an indicator of variation around central tendency values.– Range: Distance between highest and lowest
scores.
– Percentile: Specific point that has a given percentage of cases below it.
– Standard deviation: How much scores are spread out around a mean.
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Descriptive Statistics: Measures of Association—Correlation
Shows the relationship between two variables.
Negative Relationship
As the value of one variable increases, the other decreases.
Example: The higher one's satisfaction, the lower his or her intention to quit.
No Relationship Positive Relationship
As the value of one variable increases, so does the other.
Example: The higher one's satisfaction, the higher his or her intention to remain with the company.
–1.00 0.00 1.00
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Descriptive Statistics:Measures of Association—Regression
• Refers to a statistical method used to predict a variable from one or more predictor variables.
• Determines whether a relationship exists between variables and the strength of the relationship.
• Causal relationship exists when two variables are related in some way.
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Inferential Statistics
• Form a conclusion by studying a sample of the population.
– Population: Entire group (all employees).
– Sample: Part of the population (20 random employees).
– Normal distribution: Expected distribution given a random sampling of a large population.
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Qualitative Analysis
• Most useful for:– Depth of information.
– Brainstorming and idea generation.
– Discovering underlying motivation, feelings, values, attitudes, and perceptions.
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• Gathered from:– Interviews.
– Surveys and questionnaires.
– Observation, file studies, testing.
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Reliability
• Ability of an instrument to measure consistently.
• Test A scores are more consistent.
• This test is considered reliable.
Test A Test B
Candidate Form 1 Form 2 Form 1 Form 2
1 90 92 87 95
2 89 90 79 86
3 92 94 81 93
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Validity
• Ability of an instrument to measure what it is intended to measure.
• Answers the questions:– What does the instrument measure?
– How well does it measure it?
• A reliable instrument is not always valid.
• A valid instrument is always reliable.
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Ethics
• System of moral principles and values that establish appropriate conduct.– Ethics is not synonymous with legality.
• HR assumes a key role in creating an ethical organization by:– Participating in the creation of an ethics policy.
– Determining supportive procedures and training.
– Creating a culture that values ethics.
– Conducting investigations and applying discipline.
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Which of the following would NOT be an ethical violation for an HR manager?
A. Recommending a qualified friend for an open position
B. Telling a friend in private that layoffs will occur
C. Having ownership in an outside firm under contract to the organization
D. Allowing surveillance of locker room areas
Answer: A
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Ethical Issues
• Board of directors’ training
• Workplace privacy
• Whistleblowing
• Conflict of interest
• Bribes, payoffs, and kickbacks
• Insider trading• Cultural clashes• Copyrights• Corporate responsibility
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Legislative and Regulatory Environment
• Laws are actions passed by Congress and state legislatures.
• Regulations reflect how laws will be implemented and often have the force of law.– Regulatory agencies may issue guidelines that
interpret how regulations will be enforced.
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Rule-Making Process
The public may comment via public hearings, conversation, e-mail, or letter for a specified time period.
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Laws are made by legislatures, and rules are made by agencies.