Exam 2 business management Flashcards
three planning levels
Corporate-level, Business-level and Functional-area Planning
performs goal-setting and strategy-development for the long-term [five or more years into the future] and the intermediate-term [one to five years into the future]. Top-management is primarily responsible for corporate-level planning, though middle-level managers and first-line supervisors can participate.
Corporate-level planning
performs goal-setting and strategy-development in the business for the long-term and the intermediate-term. It is the primary responsibility of managers who run the business (middle managers, though first-line supervisors can participate). It’s worth noting, however, that while middle-level managers in the business are responsible for their business’s plans, often top managers must give final approval before the plan is carried out.
Business-level planning
performs goal-setting and strategy-development for a specific department in a business (e.g., Accounting or Marketing). Functional plans focus on the intermediate-term and the short-term [from 30 days up to one year into the future]. Departmental first-line supervisors are primarily responsible for functional-area planning.
Functional-area (departmental) planning
a company-wide process involving all employees in goal-setting and strategy-developing. There are four steps in the process.
Management by objective (MBO)
involves goal setting. The manager and each of his/her subordinates jointly negotiate each subordinate’s performance goals.
Step 1 of management by objective (MBO)
involves strategy formulation. The manager and subordinate together develop an action plan for subordinates. Each subordinate identifies what he/she will do to achieve his/her stated performance goal. Each manager identifies what he/she will do to help each subordinate achieve his/her respective performance goal.
Step 2 of management by objective (MBO)
involves a frequent but informal performance review. During this stage, each manager and subordinate meet informally on a regular basis to review the subordinate’s progress toward goal achievement. The manager informally reviews each subordinate’s performance to date to see if he/she is on pace to achieve his/her own performance goals. If the subordinate is not on pace to meet goals, the manager and subordinate identify what needs to be done to improve performance. This review takes place periodically throughout the year.
Step 3 of management by objective
involves a formal performance review, typically at the end of the year. The manager officially reviews the performance of the subordinates who report to him/her. The manager determines if the performance goals have been met. If they have been met, the manager provides rewards for goal accomplishment; if they haven’t been met, the manager and subordinate discuss actions to take to improve performance.
Step 4 of management by objective
MBO has proven to be a useful planning/controlling process that results in ___.
Improved organization performance
MBO advantages are what?
(1) goal and strategy alignment throughout the firm; (2) a good likelihood that employees (and work units) will achieve goals because the goals are realistic (due to the subordinate’s participation in setting them), because both managers and subordinates can define the goals, because both managers and subordinates know what they each must do to achieve goals, and because both managers and subordinates know they will be held accountable for meeting their goals.
MBO disadvantages
(1) is the difficulty a firm faces when carrying out MBO if it exists in a turbulent external environment. Also, MBO can fail if: (2) the firm refuses to spend the time needed to train employees how to use it; (3) managers refuse to share power with subordinates; and (4) subordinates do not want to take responsibility for sharing some tasks that managers previously performed.
Successful planning begins with creating an effective ____.
Mission statement
An effective mission statement identifies what?
(1) the company’s customers; (2) the customer needs the company seeks to satisfy; and (3) the products the company will provide to satisfy customer needs.
six characteristics of effective goals
(1) Specific and Measureable; (2) Challenging; (3) Realistic; (4) Define a Time Period for Goal Achievement; (5) Linked to Rewards; and (6) Focus on Key Success areas.
What is a key success area in which a company should set goals?
Profitability
A firm should set a profitability goal measured by ______.
return on investment (net profits/total assets)
Ajax Widgets made $30 million net profit before taxes last year while Zenith Widgets earned $40 million net profit before taxes. Which of the two firms was more successful?
Zenith, right? Not necessarily. Let’s assume that Ajax has $90 million in total assets, while Zenith has $800 million in total assets. This additional information reveals that Ajax was the more profitable of the two firms.
The relation of ___ before taxes to a company’s total assets measures most accurately a company’s success or failure.
net profit
. A firm should set a profitability goal measured by ___ (Net Profits/Total Assets). A business should identify a minimum acceptable objective for profitability. A profitability goal that is incorrectly expressed can misrepresent a business’s financial performance. A firm should not state its profit goal in dollars alone.
Return on Investment
a firm should set goals measured by amount of sales revenues generated by new products. The dictum “innovate or evaporate” still rules supreme. A company that does not develop new products risks becoming obsolete. No firm wanted to be the best manufacturer of buggy whips after the automobile’s invention! An innovation goal could be: five years from now, at least 35% of annual sales coming from products less than 5 years old.
Innovation
a firm sets a goal to produce more goods - or the same amount of goods - at a lower cost. For example, if Worldwide Widgets employees can build an industrial widget in 6 hours this year, after building the same widget last year in ten hours, Worldwide Widgets has improved its ____. An example of an effective ____ goal could be: in two years, reduce labor costs as a percentage of total product costs by 15 percent.
productivity
measured by sales figures contrasted with sales figures of competing firms. Every business should establish goals relative to its competition. Sales figures are meaningless unless and until they are compared with how well the competition is doing. A goal in ___ allows a company to compare how well it is doing with how well its competitors are doing. Annual sales of 100,000 units might appear to be impressive unless the firm’s chief competitor sold 4 million units during the same year. An effective ____ goal might be to increase market share from 15% to 25% within 4 years. Similarly, a new gourmet steak house in Cincinnati would likely measure its success by comparing its market share with the market share of Jeff Ruby’s Steakhouse, since Ruby’s is the market leader.
market share
the area that measures a company’s acquiring the physical assets it needs (e.g., plant and equipment) and acquiring the finances it needs to pay for these assets. Every business needs both _______ to produce the products it sells to customers. Goals in this area should be the result of carefully prepared plans. The costs a firm suffers from lacking necessary buildings and/or out-of-date equipment may be hidden but do exist.
physical and financial assets
For example, for years NKU lost potential students (who wanted to live on-campus) to competing universities who had more campus dormitory living quarters. A physical resource goal could be to increase restaurant space from 25,000 square feet to 40,000 square feet in 9 months; a financial resources goal could be to accumulate $375,000 in retained earnings (profits the company keeps, or “retains,” instead of distributing to stockholders as dividends) by six months from now.
physical and financial resources
measured by annual surveys, seeks to identify sources of employee satisfaction and dissatisfaction, with a goal to continuing with practices that lead to satisfaction and correcting practices that cause dissatisfaction so as to avoid high employee turnover.
Employee satisfaction
Subordinates should receive continuous improvement of their on-the-job skills to help both the employees and the company. Companies that encourage their employees to develop new skills and learn new information can build in ____.
innovation
Firms also need to show concern for employee attitudes reflected in satisfaction levels. Well-run businesses show respect for individuals and treat their employees like adults, like partners. When satisfied employees stay, ______.
the firm can achieve synergy and lower its recruiting costs.
Dissatisfied employees leave; when employee turnover is high, it can increase human resource costs of recruiting, hiring, orientation, and training. These higher costs can _____.
reduce profitability
Employee performance and attitude goals could include: starting a lunchtime seminar series in 6 months and maintaining an employee satisfaction level of at least __ satisfied or very satisfied through the next five years.
90%
