Chater Openning Questions
A manager needs to monitor:
the work activities of their team and the external forces the impact
the way their team performs
Summary
Managing through the Business Cycle
| Assess vulnerability to the recession |
“How vulnerable is our company to recession or a slowdown in sales?”
Assess the vulnerability in terms of magnitude and timing of slowdowns
in sales using national data on the company’s industry. |
| Sketch out a contingency plan for dealing with a recession |
It’s an one or two page plan, which can lead a manager to build
flexibility into the business. |
| Build flexibility to cut expenses |
A company needs the flexibility to cut costs in difficult times.
A manager can build flexibility in the business by considering the
following areas.
- relationships with vendors and customers
- take-or-pay contracts
- the goodwill piggy bank
- a customer profitability analysis system
- hiring
- leasing real estate
- capital spending
- smaller modular investment in stages
- financing
- equity, bond, bank loans
- paying a fee for a stand-by line of credit
- make sure that the maturities are staggered with at least two years
between maturities
- commercial paper vs. bond
|
| Develop an early warning system. |
In 1940, the Battle of Britain began as 2,400 Luftwaffe aircraft
attacked England. The Royal Air Force had only 900 planes., yet they
successfully defended their country from the Germans. They key to their
success, was radar. The early warning system is “radar for
business.” |
The vulnerability assessment
- it’s a review of security weaknesses in an information system. It
evaluates if the system is susceptible to any known vulnerabilities,
assigns severity levels to those vulnerabilities, and recommends
remediation or mitigation, if and whenever needed. By using the national
data that the companys industry has.
The contingency plan
- a plan designed to take a possible future event or circumstance into
account.
Building flexibility into the business
- In order to build flexibility into your business, you must first
learn to trust your employees. As hard as that may be but you did hire
them for a reason. If you want to provide flexible work hours or let
them work from home, do you trust the fact that the work will get done
on time? To build trust, get to know your employees on a personal level.
Hanging out with employees after work is always a big help because then
your closer in and p=out of work.
Summing Up
A company that learns in its contingency planning that it has limited
options for cutting expenses may spend a year adding flexibility
wherever it can.
Economic terms
Explan each of the following terms in your own words. The author
explains the terms in the textbook. If necessary, you may also Google
the term on the Web. Good resources include:
Explain the terms in your own words briefly.
North American Industry Classification System (NAICS)
- NAICS uses a hierarchical structure. You can find a company’s or
industry’s NAICS code by going to the Census Bureau’s North American
Industry Classification System page. NAICS codes are used for many
purposes, but one of the most important is that the Small Business
Administration uses them to set size standards for particular businesses
to be considered “small” in order to qualify for various small
business-related programs.
Marginal Cost
- the cost added by producing one additional unit of a product or
service. Marginal cost refers to the increase or decrease in the cost of
producing one more unit or serving one more customer. It is also known
as incremental cost.Marginal Cost = Change in Total Expenses / Change in
Quantity of Units Produced.
Economies of Scale
- Economies of scale are the advantages that can sometimes occur as a
result of increasing the size of a business. For example, a business
might enjoy an economy of scale concerning its bulk purchasing. By
buying a large number of products at once, it could negotiate a lower
price per unit than its competitors
Capital Goods
- goods that are used in producing other goods, rather than being
bought by consumers. Capital goods include items like buildings,
machinery, and tools. Examples of consumer goods include food,
appliances, clothing, and automobiles.
Equity
- Equity represents the value that would be returned to a company’s
shareholders if all of the assets were liquidated and all of the
company’s debts were paid off. We can also think of equity as a degree
of residual ownership in a firm or asset after subtracting all debts
associated with that asset.
Bond
- Bonds are issued by governments and corporations when they want to
raise money. By buying a bond, you’re giving the issuer a loan, and they
agree to pay you back the face value of the loan on a specific date, and
to pay you periodic interest payments along the way, usually twice a
year.
Bank Loans
- it is an amount of money that one or more individuals or companies
borrow from banks or other financial institutions so as to financially
manage planned or unplanned events. In doing so, the borrower incurs a
debt, which he has to pay back with interest and within a given period
of time. you need a loan for ex (houses, cars, big money purchases)
Line of Credit
A line of credit is a flexible loan from a financial institution
that consists of a defined amount of money that you can access as needed
and repay either immediately or over time. Interest is charged on a line
of credit as soon as money is borrowed.
(also like a loan because it helps you get your loan)
Commercial Paper
- Commercial paper is short-term, unsecured debt issued by
institutions who want to raise capital needed for a short amount of
time. It’s an alternative to having to go through the effort and cost
involved in getting a business loan.
Economic events
Describe the characteristics of the following events briefly.
The Jobs Bank Program of the American Autoindustry
The author uses this as an anecdotal example to explain the danger of
inflexible labor contract. Elaborate.
- When President Obama took office, the American auto industry was
shedding jobs by the hundreds of thousands and GM and Chrysler faced the
possibility of liquidation – which would have caused at least 1 million
more jobs to be lost. The President made the tough choice to help
provide the auto industry the temporary support it needed to grow and
prosper. Two years later, GM, Ford, and Chrysler are all adding jobs,
generating profit, and investing in their U.S. facilities. The industry
is once again leading the world, and is stronger because the President
demanded it retool and build more fuel efficient cars in exchange for
aid. Since Chrysler and GM emerged from bankruptcy in June of 2009, the
auto industry has added nearly 250,000 jobs, the best period of job
growth in over a decade.
The Electric Utility Industry in the 1980s and
1990s
The author uses this as an anecdotal example to advocate for smaller
modular investment in stages. Elaborate.
- The electric utility industry was regularly whipsawed by unexpected
declines in demand growth in the 1980s and 1990s. The industry’s
problems were twofold. It was hard in the short run for people, but got
easier in the long run. Sales weakened due to the fact that the world
was increasing electrical use. The second part of the utilities’ problem
was their preference for large billion-dollar power plants.
The Penn Central Railroad in 1970
The author uses this as an anecdotal example to advocate for
borrowing with staggering maturities. Elaborate.
- Back in 1970, the Penn Central was financing a large portion of its
operations with commercial paper. The recession of 1970 lowered freight
traffic and thus Penn Central’s revenue and internal cash flow as well.
Their creditors were worried for themselves, and refused to roll over
$82 million. The railroad went bankrupt.