MGMT 302 Test #2

Franchising Disadvantages

- Some franchises have a significant start-up cost. - There is loss of independence for the franchisee due to the imposed operational controls of the franchiser. - Many franchise agreements are difficult to terminate.

Bounded Rationality def.

A concept suggesting that decision makers are limited by their values and unconscious reflexes, skills, and habits

Niche Market def.

- A segment of a market not currently being exploited - Luxury items, custom made items

Venture capitalists

- Groups of small investors seeking to make profits on companies with rapid growth potential (investors, supplying capital in return for stock)

Franchising Advantages

- Franchisers benefit from the ability to grow rapidly by using the investment money provided by franchisees. - The franchisee does not have to build the business step by step; itis virtually established overnight. - Because each franchise outlet is a carbon copy of every other outlet, the chances of failure are reduced

Classical VS. Administrative decision making model

- The classical model explains how managers can at least attempt to be more rational and logical in their approaches to decisions. - The administrative model can be used by managers to develop a better understanding of their inherent biases and limitations

Benefits of buying an existing business

- an existing business has already proved its ability to draw customers at a profit − It has established working relationships with lenders, suppliers, and the community − The track record of an existing business gives potential buyers a much clearer picture of what to expect than any estimate of a new business' prospects

Benefits of starting a new business

- does not suffer the ill effects of a prior owner's errors − The start-up owner is free to choose lenders, equipment, inventories, locations, suppliers, and workers, unbound by a predecessor's commitments and policies

Why is it important to have small businesses in the society?

- is a strong presence in mature economies and will be quite important in emerging economies job creation: an important source of new (and often well-paid) jobs, several industries dominated by small businesses, currently account for over one-third of all jobs in high-technology sectors of the economy innovation: consistently supply over half of all "innovations" introduced into the U.S. marketplace each year importance to big business: provide big businesses with many of the services, supplies, and raw materials they need; Large businesses outsource many routine business operations such as packaging, delivery, and distribution to smaller companies

Reasons for Failure (4)

1) Managerial incompetence/inexperience of the entrepreneur 2) Neglect in not devoting sufficient time and effort to the business 3) Weak control systems that do not warn of impending problems 4) Insufficient capital to sustain the business until it starts to turn a profit

Industries small businesses are more likely to operate in & WHY

1) Services: Require few resources, and are the fastest-growing segment (56.2%) 2) Retailing: Products manufactured by other firms, sold directly to consumers 3) Construction: Relatively small, local projects 4) Financial and insurance: Often individuals affiliated with national companies 5)Wholesaling: Buys from manufacturers and sells to producers or retailers

Industries small businesses are less likely to operate in & WHY

1)Transportation: Taxis, Uber, Lyft, charter airlines 2) Manufacturing: Cost of equipment and start up high

Steps to rational decision making (6) - EXAMPLE

1. I must decide whether to advise my client in who to hire for a position 2. I can suggest individual #1, individual #2, or individual #3 3. Individual #1 may not be reliable; individual #2 does not have a lot of experience, individual #3 is qualifies and has experience 4. Individual #3 is the best alternative because of reasons listed in Step 3 5. I advise my client to hire individual #3 6. I follow-up with my client and how their new hire is fitting in and performing

Forms of Group Decision Making (3)

1. Interacting group or team - members openly discuss, argue about, and agree on the best alternative 2. Delphi group - a group arrives at a consensus of expert opinion 3. Nominal group - A structured technique used to generate creative and innovative alternatives or ideas

Advantages (5) of group decision making.

1. More info and knowledge available 2. More alternatives are likely to be generated 3. More acceptance of final decision is likely 4. Enhanced communication of the decision may result 5. Better decisions generally emerge

Steps to rational decision making (6)

1. Recognizing and defining the decision situation 2. Identifying alternatives 3. Evaluating alternatives 4. Selecting the best alternative 5. Implementing the chosen alternative 6. Following up and evaluating the results

Disadvantages (4) of group decision making

1. Takes longer than individual decision making so is costlier 2. Compromise decisions resulting from indecisiveness may emerge 3. One person may dominate the group 4. Groupthink may occur

Distinctive Competencies (for small business)

1. The ability to identify new niches in established markets 2. The ability to identify new markets 3. The ability to move quickly to take advantage of new opportunities

programmed decisions & example

A decision that is relatively structured or recurs with some frequency (or both) example: choosing to go to practice at 3:30

unprogrammed decisions & example

A decision that is relatively unstructured and occurs much less often than a programmed decision example: choosing which amusement park my friends and I want to go to

Advisory board vs. Management Consultants

Advisory Board: Works with company on a long-term basis MGMT Consultants: solves narrow, well-defined problems on a project basis (short-term)

First Motor advantage

Any advantage that comes to a firm because it exploits an opportunity before any other firm does - Companies such as Microsoft, Apple, and Amazonestablished first-mover advantage

Methods that can be used to lower risk in decision making:

Classical Model: - Assumes decision makers have complete information - They can effectively eliminate uncertainty - They evaluate all aspects logically and rationally Administrative Model: Argues that decision makers - use incomplete and imperfect information - are constrained by bounded rationality - tend to "satisfice" when making decisions

Economies of Sale

Def: manufacturing costs often fall as the number of units produced by an organization increases - Large businesses are more likely to benefit - Organizations with higher levels of production have a major cost advantage

Innovation importance and what drives it

Gives businesses an advantage over their competitors, increases profit, gives access to new resources/technologies

How a small business creates a new market

Novel inventions

Crowdfunding

Post ideas online where would-be investors can view and support

Satisficing def.

The tendency to search for alternatives only until one is found that meets some minimum standard of sufficiency

How small businesses can benefit from big businesses

They can form strategic alliances with large businesses

Escalation of commitment def.

When a decision maker stays with a decision evenwhen it appears to be wrong

Groupthink def. & how to avoid

def: when a group or team's desire for consensus and cohesiveness overwhelms its desire to reach the possible decision - Agreeing with the decision because it is easier, not necessarily the right or best decision. - Results in a group decision of one person's opinion How to Avoid: Assign someone the role of devil's advocate, allowing them to find fault, and question, aspects of the decisions

What the classical model assumes:

it assumes their decisions will be in the organization's best interests

Second Motor advantage

occurs when a firm following the lead of the first-mover is actually able to capture greater market share, despite having entered late

What Governments can do to encourage entrepreneurship

providing funding through grants, loans and other financial incentives (Small Business Association - SBA)

Franchising

the entrepreneur pays the parent company for the use of its trademarks, products, formulas, and business plans