From Zero to MBA: The Essentials of Business Administration

OVERVIEW

ENTREPRENEURSHIP BASICS FOR MBA

FINDING AN OPPORTUNITY

TESTING A NEW BUSINESS IDEA

FEASIBILITY ANALYSIS

MARKET ANALYSIS

FUNDS

ACCOUNTING BASICS FOR MBA

THE ACCOUNTING EQUATION

˗     ASSETS

˗     LIABILITIES

˗     OWNERS EQUITY

FINANCIAL STATEMENTS

˗     BALANCE SHEET

˗     INCOME STATEMENT

˗     CASH FLOW STATEMENT

FINANCIAL RATIOS

˗     LIQUIDITY RATIOS

˗     ACTIVITY RATIOS

˗     DEBT OR LEVERAGE RATIOS

˗     PROFITABILITY RATIOS

FINANCIAL FORECAST

˗     SHORT-TERM FINANCIAL FORECASTS

˗     LONG-TERM FINANCIAL FORECASTS

˗     CASH FORECASTS

FINANCIAL CONTROLS

INVESTMENT RISK

ANNUAL REPORT

˗     ANALYZING THE ANNUAL REPORT

FINANCIAL MARKETS

˗     STOCK

˗     STOCK INVESTING

˗     MUTUAL FUNDS

˗     BONDS

FINANCE BASICS FOR MBA

FIRST-STAGE FINANCING

˗     DEBT-EQUITY

SECOND-STAGE FINANCING

PARTNERSHIP

MANAGEMENT BASICS FOR MBA

PLANNING

ORGANIZING

LEADING

CONTROLLING

DESIGNING

INNOVATION

˗     CREATIVE

ETHICS

MOTIVATION

HIRING

˗     DEFINING THE AVAILABLE JOB

˗     REQUIRED SKILLS OR EXPERTISE

˗     PAYING EMPLOYEES WHAT THEY'RE WORTH

˗     HIRING PROCESS

TEAMS

EMPOWERMENT

˗     GOAL-PROGRESS

˗     MEETING

˗     INFLUENCING

˗     DELEGATION

 

MARKETING BASICS FOR MBA

MARKETING PLAN

˗     MARKETING PLAN COMPONENTS

˗     TARGET MARKET

˗     TARGET CUSTOMER

MARKET RESEARCH

MARKET P’S—MERKET MIX

˗     PRICE

˗     PLACE

˗     PROMOTION

SALES

˗     SALES STRATEGY

STRATEGIC PLANNING BASICS FOR MBA

COMPARING STRATEGY AND TACTICS:

STRATEGIC GOALS

TACTICAL GOALS

OPERATIONAL GOALS

PLANNING

SWOT ANALYSIS

˗     EXAMINING YOUR COMPANY'S STRENGTHS

˗     EVALUATING YOUR COMPANY'S WEAKNESSES

˗     RECOGNIZING YOUR COMPANY'S OPPORTUNITIES AND THREATS

INNOVATION

RISK MANAGEMENT BASICS FOR MBA

MANAGING RISK: YOU CAN AND SHOULD

VULNERABILITY ANALYSIS

INSURANCE

ACTIONS

TRAINING

ECONOMICS BASICS FOR MBA

THE LAW OF SUPPLY AND DEMAND

ECONOMY CYCLES

ECONOMY HEALTH

THE LAW OF SCARCITY

THE LAW OF DIMINISHING RETURNS

NEGOTIATION SKILLS BASICS FOR MBA

NEGOTIATION ELEMENTS

NEGOTIATION GOALS

NEGOTIATION OUTCOMES

OVERVIEW

Whether you work for a corporation a non-profit organization or for the government, chances are you've considered getting or have already obtained a Masters of Business Administration degree, an MBA. Why? because if you want to get ahead in your organization or just to do a better job of managing or leading, obtaining an MBA is the best ticket in town.

Studies show that MBA graduates particularly those from the top Business Schools are offered significantly higher starting salaries than their counterparts who don't have MBA’s. And that effect carries on through the careers of these MBA’s.

But is it the degree that makes the difference or is it something else at work here? Although that piece of paper with your name and the words Masters of Business Administration would mean a lot, what is even more important are the things you'd learn during the course of your MBA studies: Strategic Planning, Management, Accounting, Finance, Marketing, Negotiation, your current level of leadership and management experience.

For a fraction of the amount you'd pay to get your MBA, I provide you with an easily understandable roadmap to navigate today's most Innovative and effective business techniques and strategies.

 

 

ENTREPRENEURSHIP BASICS FOR MBA

One of the important things to know about entrepreneurship is that it's a personal journey. Entrepreneurship is about people: how you interact with them, make decisions, plan for the future, deal with conflict and so on.

All the decisions involved in starting growing and exiting a business, affect not only the business and the people associated with it but also the entrepreneur. This section helps you understand what entrepreneurial thinking is and identify if you're ready to think like an entrepreneur. And if you are, I give you several ideas to get you started.

Before we go any further however, we must agree on one thing: starting a business isn't for everyone. And thank goodness for that, because we do need some scientists, mathematicians, artists and Physicians to keep this world running. We're not trying to turn everyone into entrepreneurs but we do think that there's value in learning how to think like an entrepreneur. With that in mind, here are some characteristics of entrepreneurial thinking that are important to succeeding as an entrepreneur:

·        Entrepreneurs are comfortable with ambiguity and uncertainty.

They know that the best ideas come out of uncertainty and they know that there will always be unanswered questions. So they attempt to find answers for as many critical questions as possible while moving forward answering the rest as they go.

·        Entrepreneurs have self-discipline and tenacity.

In other words, they know how to focus on a task and stick to it through completion. That's why they succeed more than they fail.

·        Entrepreneurs aren't afraid to fail.

They understand that if you never fail at anything, you haven't taken any risks and taking risks is how you learn and grow a business.

·        Entrepreneurs believe that they alone control their destiny.

They know that if they screw up, they should look nowhere else but the mirror. But with this attitude, they also have the freedom to decide their future regardless of what the government or a competitor does.

·        Entrepreneurs focus on opportunity and innovation.

They strive to identify all the great opportunities out there: not only for products and services, but also for new ways of doing business, new marketing strategies and new distribution models. The more they network and take calculated risks, the more opportunity will come to them. This is nature's law and entrepreneurs practice it daily.

No two entrepreneurs are exactly alike, but in general these characteristics can be found in people who launch new companies.

 

FINDING AN OPPORTUNITY

How do entrepreneurs find great opportunities? Do they have a special talent that others don't have? Not really. They're simply creative in their thinking.

Entrepreneurship is a creative process, not a scientific one. It's chaotic not linear, in fact if you're a highly organized person who wakes up every day knowing exactly how your day will go, your chances of discovering a new opportunity will be very low. On the other hand, if your life is a bit more chaotic, things change every day and you're not stuck in any ruts, your chances of being more opportunistic are dramatically higher. Fortunately, everyone has at least some creative juices flowing. You just need to know how to activate the creativity so you can make it work for you.

This section focuses on uncovering the barriers to creativity and removing them so you can better identify opportunities and then act on them. People have plenty of excuses for not being creative but maybe that's because they see creativity only as invention: coming up with a totally new product or service. Although invention certainly is exciting. It's probably the least common way that business people express creativity. The following are a couple common barriers to creativity you may encounter.

1)     I have no time to be creative.

Sure, entrepreneurs are busy people. in fact, today everybody is bombarded with information from conversations with other people, email, the internet and their cell phones and everybody wants answers right now, no one wants to wait anymore because they assume that everyone is connected. It's also amazing how many people let others control their days by always being on call for 20 minutes every day.

Turn everything off and just listen to yourself at first. You won't know what to do, your mind will be racing about the things you think you should be doing. But eventually with a little practice, your mind will settle down and open up. And in time, you'll look forward to those 20 minutes especially after the first great business idea pops into your uncluttered mind give it a try.

2)     I have no confidence that I can do this.

It's much easier to take the path you already know than risk getting lost by trying One Less Traveled. But it's the path you don't know that may hold the creative opportunity you've been looking for. Often people are afraid to be creative or offer creative ideas because they don't want to be criticized. To build up your confidence, set some small goals and practice, practice, practice, removing the barriers to creativity.

Most entrepreneurs improve on a product or service or concept that already exists or they find a way to solve a problem they see or have experienced. You probably show this type of creativity every day: when was the last time you didn't have a hammer handy and you had to find a way to pound a nail. Perhaps you took off your shoe or used the book or some other hard object. That's creative thinking.

At work however, sometimes barriers pop up and you may not know how to get rid of them. You need to be proactive about becoming more creative and opportunistic. So get out your sledgehammer and start removing the barriers to creativity. This section helps:

·        Find your most creative environment.

Your chances of being creative increase when you're in the right environment. The environment in which you work can either stimulate or discourage creativity. For example: if your workplace has a rigid structure and military-like chain of command, it will be difficult to think out of the box, you're currently in one.

Study found that the place where people have the most creative ideas is the bathroom. Well when you think about it, it makes sense. You're typically by yourself and probably aren't accessible; the perfect environment for contemplation. The basic idea here is to find a quiet place without a lot of distraction. Think about where you were when you had your last great idea that may give you a clue as to the type of environment that encourages your creative juices.

·        Keep a journal.

Writing in a journal can be a great way to overcome your creative barriers. How many times have you said i'll have to remember to write this idea down, but by the time you get a pen and paper you've forgotten the idea. Keep a journal with you at all times so you can jot down those ideas, so you don't forget them. Remember, you really never know when you may get a great idea. Many people come up with exciting ideas in their dreams or when they're first waking up wouldn't it. Be wise to have a pen and paper near your bed so you don't lose those ideas.

·        Practice solving problems.

As we stated earlier, most new ideas are based on something that already exists and that's something that already exists may be a problem that needs to be solved. Problems in the marketplace are great sources of business opportunities.

·        Network your way to opportunity.

Business associates are the second most common source of new ideas after problems. Your network of business contacts is particularly useful when it includes people from a variety of different types of Industries. For example: a technology or method for producing a particular product may be familiar to you because you work in, say the Aerospace industry. You have a Network contact in the automobile industry and through discussions with that person, you discover that you may be able to take your Aerospace technology or method into the automobile industry as a new venture.

We're not suggesting that you steal ideas from the people you know, but you can let the conversations you have with your Associates open your mind to new ways of thinking about things. That's why it's so important not to hang around only with people like you. If your business, person go spend time with Scientists or artists, these people look at the world differently and have different problems and they may need someone like you, an entrepreneur, to solve them.

 

TESTING A NEW BUSINESS IDEA

From the moment you come up with a great business idea, the questions start: does anybody else think this is a great idea? Is there a way to make money at this? Where do i start? The best place to start is testing the idea in stages to make sure you're not the only person in the world who thinks it's a great idea. In this section I give you a strategy for tackling your new business idea.

What's the difference between an idea and an opportunity. An opportunity is an idea that has commercial potential. One way that you can turn an idea into an opportunity is by developing a business concept. Think of the business concept as an elevator pitch on a very fast elevator. Elevator pitch refers to the 30 seconds that an entrepreneur has to impress a potential investor. If you have only 30 seconds to talk about your business, you want to capture the investor's attention and convey the essentials in a clear and concise manner.

An effective business concept identifies the following four components: (1) the product or service you're offering the customer, (2) the person or business that will be paying you the benefit or value proposition, (3) what's in it for the customer, (4) the distribution or how you plan to deliver the benefit to the customer.

The following sections help you develop your business concept:

·        Define the product or service.

You need to make sure you know specifically what you're offering to the customer. Today the boundary between product and service business has all but disappeared as companies diversify their offerings so you may decide to offer both a product and a service related to that product. Of course that decision will depend on what your customer wants the actual design of your product or service should come from a deep understanding of the customer's needs and your team's capabilities remember.

·        Define your product or services competitive advantage in the marketplace.

In other words, how is your product or service different from what's already out there. Intellectual properties such as a patent or trade secret can offer a substantial competitive advantage. But an innovative process or marketing strategy can also help you stand out from the crowd.

·        Define the customer and benefit.

Many entrepreneurs get confused when they have to identify their customers and the potential benefits they'll provide those customers. That's because in many businesses the customer isn't the end user or beneficiary of the product or service. The trick is that you must satisfy the needs of your primary customer and make sure that the end user's needs are satisfied. As well remember customers buy benefits not features. The two were quite different features are the characteristics of the product or service. benefits are the intangible aspects that solve the customer's pain such as convenience health and saving time.

·        Define the distribution channel

You need to define your organization's distribution channel. When developing your business concept, the distribution channel is the way you'll deliver your value proposition to the customer. You can distribute your product or service and its benefit in a couple ways: directly to the customer such as through the internet or by providing a service indirectly through a distributor or retailer that sells your product these companies are called channel intermediaries. They provide their service so that the entrepreneur can concentrate on what he or she does best.

Which route you take depends on your customers expectations, how do your customers prefer to buy and the costs involved using intermediaries raises the price of the product to the end user, but may make it possible for the entrepreneur's company to grow faster reach more customers.

Researching the industry to discover what similar businesses are doing is critical to making a decision between the direct and indirect channels. Putting together a concept statement means that you now have a business opportunity that you can test.

 

FEASIBILITY ANALYSIS

One of the most important skills that an entrepreneur can acquire is the ability to conduct a feasibility analysis. Feasibility analysis tests the viability of a new business concept before you spend a lot of time and effort to prepare a business for launch. There's a lot of uncertainty in a startup business, feasibility analysis gives you a way to reduce some of that uncertainty and the associated risk which will help you and make potential investors happy.

The ultimate goal of the feasibility analysis is to assist the entrepreneur in thinking critically and answering fundamental questions about the business concept you want to achieve. A high level of confidence that the conditions are right to go forward and start your business.

The feasibility process doesn't have to be linear but it does help to start the analysis with the environment in which your business will operate. That environment is the industry which is a group of businesses that will form the value chain for your new venture, manufacturers, suppliers, distributors, retailers and so forth. These companies essentially represent your support network. Depending on the industry, it may also include government agencies, regulatory bodies and trade associations, to name just a few possibilities.

Remember, you want to understand the industry's size and where it is in its life cycle. Yes, industries go through a life cycle just like humans do birth, childhood, adolescence, adulthood, old age and death. Your industry stage in that cycle will affect your business strategy. For example:

·        An emerging industry early childhood is like the wild west every company for itself. Companies are pushing and shoving trying to grab their share of the industry and establish themselves as the industry standard in this type of industry. Tons of opportunities exist which is a lot of fun.

·        On the other hand, a very mature industry, old age typically, has major established companies that dominate and don't really want to see anything change. Here the only way for an entrepreneur to enter is by bringing something new to the industry. That's what happened when the internet changed the way many mature industries operate.

·        An industry in the growth stage of the life cycle means that a business will require a lot of capital and resources to sustain itself and it may be a target for acquisition by a much larger company.

 

MARKET ANALYSIS

If Industries are about value chain players, markets are about customers. If you don't understand the market, you're going to tap the customers in, it won't buy from you. You want to design a product or service that customers in the market will value. If you make a product or a service that you know customers want they'll have their credit cards ready.

When you are try saves you money on marketing, the best way to research a market is to get out into it and start talking to people, particularly customers. Without a doubt they'll help you figure out the best features and benefits for your product or service and they'll help you calculate how much demand exists. One or two customers isn't enough.

After you define your Target customer and your Market, you can start identifying potential competitors. Keep in mind that competitors aren't always obvious. Look for companies that have the same capabilities and expertise that your company has. Even if they're not serving your customers. With your products right now, there's no reason they couldn't do so after they see how successful you are.

You need to figure out what kinds of supplies and or raw materials are required to produce your product or service. and by the way, are you intending to manufacture in-house? probably not. So now you have to find companies that can do your production work for you that leads to another choice: do you manufacture domestically or follow the crowd to India and China.

Difficult decisions but that's why you network right and that's why you study your industry so you can learn what has worked for other businesses similar to yours.

 

FUNDS

Calculate how much money you need to start; how much money do you need to pull off your business concept. We hope as little as possible.

If you're thinking like an entrepreneur, what you want to find out during the feasibility analysis is how much cash you need to launch the business and operate it until the sales you generate. Produce a positive cash flow: you take in more than you spend. This isn't as easy as it sounds, because most entrepreneurs underestimate their expenses and overestimate their ability to generate sales. Here are some steps for conducting this testing phase of your business:

1)     Make a list of everything you'll need to have in place to start your business and then attach dollar values to each item. This is where having an experienced advisor gained by networking in the industry and searching on the internet comes into play.

2)     Forecast sales for the first two years, based on market research on your understanding of how customers will pay and from the experiences of similar businesses in your industry.

3)     Forecast the expense is required to operate the business.

4)     Create a cash flow statement that shows all your projected cash inflows and outflows just like your checkbox.

If you still have one along with the net cash flow for each month, run a cumulative net cash flow line below the monthly net cash flow line so that you can calculate the highest amount of cumulative negative cash flow that you generate. This can be frightening: negative cash flow means that you spend more cash than you took in from customers.

It's pretty common to experience a negative cash flow or loss in the first few months of a new business of you. Add that highest cumulative negative figure to the total of your startup expenses, you'll get a reasonable estimate of how much money you need to get your business up and running.

 

 

ACCOUNTING BASICS FOR MBA

The entire accounting process from beginning to end is called the accounting cycle. The accounting cycle has three parts:

1)     Transaction: A transaction is something your business does that generates a financial impact. Which is then recorded in the accounting system: a journal for example.

·        If a member of your sales staff sells a three-year subscription of your magazine to an anxious customer and then the check for a hundred and ten dollars arrives and is deposited into your company's bank account. That's a transaction.

·        Similarly when your company makes a payment to joe's house of cheese for supplying food for your company's annual picnic, that creates a transaction.

2)     Journal: as each transaction occurs it gets posted to a journal. A journal is nothing more than a general file to temporarily hold transactions until you can classify them by transaction type.

3)     Ledger: on a regular basis daily weekly monthly or other frequency you classify transactions in the journal by type and move them into individual accounts called ledgers.

Individual ledgers include such accounts as payroll, travel and sales. The collection of all ledgers for a company is called its general ledger. After all transactions have been posted to their ledgers managers, have access to a wide variety of reports that summarize the organization's transactions and their effect on the business which include the income statement, balance sheet and so on.

 

THE ACCOUNTING EQUATION

The accounting equation is the foundation of the science of accounting. A day without the accounting equation is like a day without sunshine (At least it is in our CPA's office). According to the accounting equation, assets equal liabilities plus owner's equity.

The following sections break down each part of the accounting equation and how it affects your organization's finances:

 

ASSETS

An asset generally is anything in a business that has some sort of financial value and can be converted to cash. The products you have stocked in your warehouse are assets, they're converted into cash as you sell them; along with the cash in your register which could also be converted into cash; if you sold it on ebay, the microwave oven in the employee break room.

Remember, assets come in two different flavors. These categories represent how quickly assets can be converted into cash:

1)     Current assets

Current assets are assets that can be converted into cash within one year. Think checks that arrive in the mail today, invoices for a month's worth of consulting services or the computers for sale on your showroom floor.

Assets that you can quickly convert into cash also are known as liquid assets and the speed by which you can convert assets into cash is called liquidity.

2)     Fixed assets  

Fixed assets are assets that take more than a year to be converted into cash. Think that custom-built industrial milling machine that only three companies in the world have any use for, the building that houses your headquarters and that finicky old copier down the hall that may now make a better boat anchor than reproduction machine.

Here's a list of the most common kinds of business assets:

·        Cash

Includes good old-fashioned money and money equivalents, such as checks, money orders, marketable securities, bank deposits.

·        Accounts receivable

Accounts receivable represent the money that your clients and customers owe you for purchasing your products or services. When you allow a customer to buy your goods today and pay later, you are creating a receivable.

If you work strictly on a cash basis hot dog stand, ticket scalper e-commerce site, you don't have any receivables and this item will be zero.

·        Inventory

Inventory comprises the finished products that you purchase or manufacture to sell to customers, as well as raw materials work in progress and supplies used in operations.

If you run a grocery store, your inventory consists of every item on display for sale in your store: the carrots, the tubs of margarine, the boxes of donuts and so on.

·        Prepaid expenses

When you pay for a product or service in advance, you create an asset known as a prepaid expense. Examples include a prepaid maintenance contract on a typewriter, an insurance policy with a one-year term paid in advance and an agreement for security alarm monitoring paid in advance on a quarterly basis.

·        Equipment

Equipment is the wide variety of property that your organization purchases to carry out its operations. Examples include desks, chairs, computers, electronic testing gear, forklifts and lie detectors

·        Real estate

Real estate includes assets such as the land buildings and facilities that your company owns, occupies and utilizes. Some companies have little or no real estate assets and others have sizable ones.

 

LIABILITIES

Liabilities are money owed to others outside your organization. They may include the money you owe to the company that delivers your office supplies, the payments you owe on the construction loan that finance your warehouse expansion or the mortgage on your corporate headquarters building.

As with assets liabilities come in two flavors. Each representing the amount of time it should take to repay the obligations.

1)     Current liabilities

Current liabilities are to be repaid within one year. Think of the money for next week's employee paychecks, the payment your company owes to your office supply business and payment on a short-term loan from the bank.

2)     Long-term liabilities

Long-term liabilities are to be repaid in a period longer than one year. Think the payments on the company delivery van, the mortgage on the company's distribution facility or the money owed to holders of corporate bonds.

Here's a list of the most common business liabilities from both the current and long-term categories:

·        Accounts payable

Accounts payable are the obligations owed to the many individuals and organizations that have provided goods and services to your company. Examples include money owed to your computer network consultant, your local utility company and an out of house advertising agency that your marketing department uses for ad campaigns.

·        Notes payable

Notes payable represents loans made to your company by individuals or organizations, such as banks and savings and loans. The notes could be anything: from an iou promised to an individual; for a small amount of cash to a multi-million dollar loan secured from a large bank.

·        Accrued expenses

Sometimes a company incurs an expense but has no immediate plans to reimburse the individual or organization that's owed the money. Examples include future wages to be paid to employees, interest due on loans and utility bills.

·        Bonds payable

When companies issue bonds to raise money to finance large projects, they incur obligations to pay back the individuals and organizations that purchase them.

·        Mortgages payable

When companies purchase property, they often do so by taking out mortgages, long-term real estate loans just like the one you may have on your home. Secured by the property itself, mortgages payable represents the mortgages that an organization has on all its properties.

 

OWNERS EQUITY

Owner's equity is the money that remains when you take all your company's assets and subtract all your liabilities. Owner's equity represents the owner's direct investment in the firm or the owner's claims on the company's assets. Another way of expressing a company's owner's equity is its net worth. Net worth is simply a snapshot of your company's financial health for a particular period of time.

Here are the two types of owner's equity:

1)     Paid in capital

The money that people invest in a company when companies such as ibm ford motor company or pepsico offer to sell shares of stock to investors in a secondary offering, new stock; or when companies do an initial public offering, go public for the first time; investors provide paid in capital to the companies when they pay money to buy the stock.

2)     Retained earnings

A company's earnings that are held within the company. The money gets reinvested not paid out to shareholders as dividends.

Remember, although owner's equity generally is a positive number, it can go negative when a company takes on large amounts of debt: for example, to acquire another company.

 

FINANCIAL STATEMENTS

Reviewing financial statements is a great way to start analyzing a company's Financial Health and its long-term Outlook. However to get the most mileage out of these reports, you need to undertake a deeper level of analysis. You must apply financial ratios to the numbers contained in the balance sheet and income statement and do Financial forecasting.

When it comes to assessing the overall Financial Health of an organization business, people worldwide use three key financial reports. These reports known more precisely as financial statements are the balance sheet, the income statement, the statement of cash flows.

Managers often receive a variety of Financial and project reports tailored to their exact needs. For instance: a software engineer manager may receive a weekly labor report that shows her exactly who worked on the team's software projects, how many hours each employee worked, the cost of those hours and a variance above or below budget; An accounts receivable manager may get an aging list of receivables that outlines who owes money to the company, how much is owed and for how long; and a production manager may receive regular reports on the cost of returned products customers didn't approve of because of quality problems.

Each of these reports offers a unique perspective for looking at a company's Financial Health and no one financial report can tell you the full story. A Doctor Who's faced with a patient who has an undetermined illness doesn't order only a blood test he also orders a chest x-ray and a complete physical examination. The doctor doesn't know which test will reveal the source of the problem so she orders several different tests. Likewise, you come to understand the complete picture of your organization's status only by reviewing all the financial statements and sometimes by digging even deeper for more information.

Who reads financial statements? If you're a manager or business owner, you're probably very familiar with the three major financial statements: A manager or owner's job description is to keep closed tabs on his organization's performance and make changes in the allocation of company resources to maintain a high level of financial return. If you're part of a self-managing work team or if you work for an open book organization, one that shares financial and other performance data with all employees, you two are probably familiar with the financial statements and the information they provide. If you're in one of these positions and you aren't familiar with financial statements then continue on, people in the following lines of work also pay close attention to financial statements:

·        Banks

Banks need financial statements to make judgments on whether to extend loans or lines of credit.

·        Accountants

Accountants require financial information to assess the health of an organization.

·        Investors and financial analysts

Investors and financial analysts need financial statements to determine the attractiveness of a particular organization when compared with a wide range of other investment opportunities.

What do financial statements tell you? Each different type of financial statement exists for a specific purpose and it provides information that other statements don't. In general, financial statements offer their readers the following important status information:

1)     Liquidity: The company's ability to quickly convert assets into cash to pay expenses such as pay a roll, vendor invoices, creditors and so on

2)     General Financial condition: The long-term balance between debt and Equity the assets left after you deduct liabilities

3)     Owner's equity: The periodic increases and decreases in the company's net worth

4)     Profitability: The ability of the company to earn profits Revenue that exceeds costs consistently during an extended period of time.

5)     Performance: The organization's performance against the financial plans developed by its management team or employees

Remember! As you review financial statements for your organization keep in mind that there's no such thing as a good number or a bad number unless you made an entry error. A high profit number may or may not be good news depending on the situation. Similarly, a low Revenue number may not be bad news again depending on the situation.

If a particular figure isn't what you expect it to be, too high or too low, research why the number is different from what you expect. In other words, take the time to look beyond the errand number itself before you suffer a heart attack or fire your sales staff. For example: if profit declined from one period to the next you may view this as a bad thing in fact your boss may say that it's a very bad thing; however, after researching the subject you may find the decline to be a result of your CFO's decision to draw down profits, reduce profits by expenditures elsewhere in the company to minimize the impact of income taxes on your company definitely a good thing.

 

BALANCE SHEET

The balance sheet gives you a snapshot of your organization's Financial Health at an exact point in time, not over a period of time. You use this snapshot to determine the book value of a company's assets and liabilities including Equity at a particular date.

Before we move forward, I have a question for you: do you know what the accounting equation is? Assets equal liabilities plus owner's equity. The accounting equation is the basis for creating the balance sheet: assets include cash and things that you can convert to cash; liabilities are obligations debt loans mortgages and the like owed to other organizations or people; owner's equity is the net worth of your company after you subtract all the liabilities from the organization's assets. In the balance sheet assets are listed in order from the most liquid readily convertible to cash to the least liquid. Liabilities and owner's equity are listed in the order in which your company plans to pay them

Note:

·        You can convert current assets to cash within a year; current liabilities are scheduled to be paid within a year.

·        Remember! Reviewing may changes in your balance sheets over time. Managers, Bankers, investors and so on can pick up on trends that may affect the long-term viability of the irm and that may positively or negatively impact the value of its stock

 

INCOME STATEMENT

Why does a business exist? To leave a lasting legacy in the world; maybe in some cases to employ thousands of people and pull a city or region out of an economic slump that threatens the fabric of the community. That's happened on more than one occasion to save the world. Perhaps the number one reason that businesses exist is to make money, to make a profit for their owners. Because making money is such an incredibly important part of the day-to-day focus of a business.

Companies need a quick and easily understood way to figure out how much money they're making such a tool exists: the income statement. Remember! An income statement also known as a profit and loss statement. A report of earnings or a statement of income and losses gives its readers three key pieces of information:

1)     The businesses sales volume during the period of the report

2)     The businesses expenses during the period of the report

3)     The difference between the businesses sales and its expenses its profit or loss during the period of the report

 

CASH FLOW STATEMENT

Have you ever heard the phrase cash is King? No not queen or Prince; King. For any business cash truly is what matters: it takes cash to pay employees, to purchase supplies, to pay bills and to execute many more business functions. A cash flow statement also known as a statement of cash flows by some, is a specialized report that tracks the sources of cash in a company as well as its inflows money coming into the business and outflows money going out of the business.

The statement is an extremely valuable tool for ensuring that your company has the cash it needs to meet its obligations, when you need it. This can mean the difference between keeping your business afloat and watching it sync.

The business World features a number of different kinds of cash flow statements. Each one suited to a particular business need. Some work best strictly inside a business and some work best outside a business: for investors creditors and other interested parties. Here are a few of the most common types of cash flow statements:

·        Simple cash flow statement or cash budget

Arranges all items into one or two categories. Most often cash inflows and cash outflows.

·        Operating cash flow statement

Limits analysis of cash flows to only items dealing with the operations of a business not its financing.

·        Financing cash flow statement

Includes cash raised by issuing new debt or Equity Capital, as well as expenses incurred for repaying debt or paying dividends on stock

·        Statement of cash flows

Often an external statement that depicts the period to period changes, in balance sheet items and the actual dollar amount for the period in question for income statement items. This statement shows the following categories: operating cash inflows; operating cash outflows; priority outflows such as interest expense and current debt payment; discretionary outflows such as equipment expense; Financial flows, things you borrow or changes in equity.

Remember! Although you can find plenty of different cash flow statements to meet your every mood, whatever you do, don't forget the first and perhaps the most important rule of cash management: happiness is a positive cash flow having a positive cash flow more coming in than going out. Means that you're in a better position to meet your current and future financial obligations

 

FINANCIAL RATIOS

In life and in business, people seek rules or shortcuts that will put complicated processes or data into simple easily understood terms. In that spirit, when looking at a company's financial situation, certainly about as complicated a task as anyone could imagine, business people like to use a variety of financial tools to derive powerful but simple ratios to measure performance. We take a look at these tools in this section.

Remember as you continue through the financial ratios in this section, keep in mind that they can vary. Considerably for companies in different industries manufacturing companies as a group have different ratios than consulting firms or utilities. Be sure that when you compare one company's numbers with the numbers for another, you're comparing apples with apples and oranges with oranges. However, some ratios many of which we explain here are common to all businesses.

 

LIQUIDITY RATIOS

Liquidity ratios are ratios that measure the solvency of a business. Its ability to generate the cash necessary to pay its bills and meet other short-term financial obligations.

·        Current ratio

The current ratio is the ability of a business to pay its current liabilities out of its current assets

·        Quick ratio

The quick ratio also known as the acid test, is a measure of a business's ability to pay its current liabilities out of its current assets. However, the quick ratio subtracts inventory out of the current assets. Providing an even more rigorous test of a firm's ability to pay its current liabilities quickly.

Inventory often is difficult to convert to cash because it may be obsolete or in the case of some fraudulent practices non-existent.

 

ACTIVITY RATIOS

Activity ratios are indications of how efficient your company is at using its resources to generate Revenue. The faster and more efficiently your firm can generate cash, the stronger it is financially and the more attractive it is to investors and lenders and the less likely it is that managers will be laid off.

·        Receivables turnover ratio

The receivables turnover ratio indicates the average amount of time that your company takes to convert its receivables Into Cash. The ratio is a function of how quickly your company's customers and clients pay their bills basically it points out problems that your company may be having in the collections process: average collection period.

You can discover a very interesting piece of information by using your receivables turnover ratio. By divining 365 days by your receivable’s turnover ratio, you find out the average number of days that your company takes to turn over its accounts receivable. This result is known as the average collection period.

·        Inventory turnover ratio

The inventory turnover ratio provides an idea of how quickly your company turns over inventory: sells it off and replaces it with new inventory. During a specific period of time, this number represents the ability of your firm to convert inventory Into Cash. The higher the number the more often you turn over inventory a good thing

 

DEBT OR LEVERAGE RATIOS

For most organizations going into debt is a normal part of doing business that can plug holes when cash flows can't cover all your necessary operating expenses for short periods of time. Debt also allows companies that are growing quickly to finance their expansion. However, you can have too much of a good thing: too much debt for instance, can be a financial drag on any organization. For your measuring pleasure, debt ratios are measures of how much debt a company is carrying and who's financing the debt.

·        Debt to equity ratio

The debt to equity ratio measures the extent to which a company is financed by outside creditors versus shareholders and owners. Here's how it works: debt to equity ratio equals total liabilities divided by owner's equity.

A high ratio anything more than 1.0 is considered bad because it indicates that your company may have difficulty paying back its creditors.

·        Debt to assets ratio

The debt to assets ratio measures how much of a company's assets are financed by outside creditors versus the percentage that the owners cover. In other words, you divide the long-term liabilities you have by your total assets. Debt to assets ratio equals long-term liabilities divided by total assets.

Ratios of up to 0.50 are considered acceptable. Anything more may be a sign  of trouble. Note: however that most manufacturing firms have debt to asset ratios between 0.30 and 0.70

 

PROFITABILITY RATIOS

Except for new startup companies which aren't expected to make money right out of the gate; all companies are expected to generate profit from their operations; and as with sales and revenue, the more profit you generate the merrier your owners and shareholders or investors will be. Profitability ratios indicate the effectiveness of management in controlling expenses and earning a reasonable return for shareholders and owners.

·        Profit ratio

The profit ratio is a measure of how much profit your company generates for each dollar of revenue, after you account for all costs of normal operations. The inverse of this percentage: 100 profit ratio equals the expense ratio or the portion of each sales dollar that's accounted for by expenses from normal operations. The higher the ratio the better.

Remember! The expected ratio can vary considerably from industry to industry. For example: although grocery stores which make money by turning over high volumes of inventory quickly generally are satisfied with profit ratios of just a couple percent; many software developers have profit ratios of 30 to 40 percent or more;

·        Gross margin

The gross margin is an indication of the profitability of a firm to determine gross margin you use your sales revenues and gross profit, which is what's left over after you subtract the cost of goods sold.

·        Cogs

The direct cost of making a product from revenue. Gross product tells you how much you have left to pay overhead costs and make a net profit.

·        Return on investment ratio

Return on investment better known as roi. Is one of the stars of the world of financial tools. Return on investment measures the ability of a company to create profits for its owners the percentage it spits out: represents the number of dollars of net income earned per dollar of invested capital as such.

Roi is of great interest to investors shareholders and other people with a financial stake in your company these folks want to make as much money as they possibly can on their investment dollars. So the higher the return on investment the better.

·        Return on assets ratio

The return on assets ratio also known as roa takes the ebit earnings before interest and income tax that a company earns from the total capital used to create the profit. Here's the way to calculate return on assets: return on assets ratio equals ebit divided by net operating assets.

In this sense, roa indicates the effectiveness of a company's utilization of capital. Acceptable roa ratios vary depending on the industry. For example: ratios below  five percent are generally indicative of asset heavy businesses such as manufacturing and railroads; while ratios of more than 20 percent are indicative of asset like companies such as software and advertising firms.

 

FINANCIAL FORECAST

Have you ever tried to guess what will happen tomorrow or next week or next year in your business? If you can count on one thing in business, it's that nothing will stay the same for very long. In business today, change is a constant. Therefore, savvy business people try to anticipate forecast and predict change before it occurs. And because financial considerations can mean the difference between life and death to a company, financial forecasts and projections are keystones of proactive business management practice.

·        Ask questions similar to the following if you want to prepare accurate financial forecasts for your business:

·        How many employees will we have on board this year and will we have the money to pay them when we need to?

·        Will we have sufficient funds to invest in new manufacturing equipment that will improve the productivity of our workers while increasing output and lowering rejects?

·        How much money will we need to stock up our inventory in time for the holiday season? Will the money be available when we need it?

·        By what amount can we expect revenues and profit to grow or heaven forbid, shrink over the next year?

·        What is the timing of payments from our major customers and how will they affect our cash flow?

These questions and others like them should constantly be on the minds of financial managers, CFOs, controllers, presidents, vice presidents and others who are responsible for ensuring that a business meets all its financial obligations. For this reason, managers conduct regular financial planning and forecasting sessions. There are two key kinds of financial forecasts and projections: short-term and long-term; in addition, many businesses regularly produce cash forecasts to keep closed tabs on the cash going in and out of the company. In the sections that follow we cover all three

 

SHORT-TERM FINANCIAL FORECASTS

If a financial forecast is for a period of one year or less, it's considered a short-term forecast. Many firms use a variety of short-term financial forecasts and pro forma informal financial statements to manage day-to-day operations.

These types of forecasts and financial statements include: cash, sales or revenue, profit and loss, income statement, balance sheet, receivables. Each of these short-term forecasts and others that an organization may select is important to the people in charge of monitoring a company's near-term financial position

 

LONG-TERM FINANCIAL FORECASTS

If you need to plan for a period that extends more than a year into the future, long-term Financial forecasts are just what the doctor ordered. But given how fast the business environment is changing why would you want to make plans for more than a year into the future? Won't things change at least five or ten times before? Then of course they will, but part of financial planning is planning for change.

Remember! Done Right, long-term plans can provide your business with a definite competitive Advantage. How? By giving your business focus and Direction. Business owners typically have a vision for where they want their companies to be in, say 10 years, so it makes sense to think about the financial Milestones you should cross along the way. In short, long-range plans require long-term Financial forecasts to support them. Although they can never be as accurate as short-term forecasts, they're often better than nothing.

Just as with short-term Financial forecasts, you can forecast all kinds of financial data into the future. Here are some of the most popular kinds of financial data subject to a long-term look: cash, sales or Revenue, profit and loss, income statement, assets liabilities and net worth, balance sheet.

Although long-range forecasting can help you support your long-range plans, the further out you forecast the more likely your figures will be inaccurate. That's why it's important to base your forecasts on sound numbers and an understanding of business trends.

Long-term Financial forecasts are comprised of much the same information as short-term forecasts, just with much longer Horizons. These longer Horizons require careful attention to long-range Trends in markets and technology and they assume the possibility of Greater swings. Here are some tips for putting together accurate long-term Financial forecasts:

·        Look for long-term trends in revenues and expenses  

Are your revenues and expenses gradually trending up or down over a period of five years or longer? Chart these Trends as graphs and make an educated guess as to where the trends will lead in the future.

·        Determine whether there are any business Cycles

A business cycle is a periodic variation in the economic activity, of your business resulting from such things as consumer demand which may rise in anticipation of the holidays and decline immediately thereafter. Many businesses and markets go through regular business Cycles. By looking at the big picture you should be able to pick out the cycles and Factor them into your long-term Financial forecasts.

·        Figure out what kinds of random events are most likely to disturb the long-term trends in revenues and expenses.

What would happen if your company bought out a key competitor? How would that affect revenues and expenses? What if a competitor develops a new process that cuts its cost of production in half? Random events are just that random by Nature they're hard to predict but the more you factor them into your long-term Financial forecasts the more accurate your forecast will be.

 

CASH FORECASTS

By far, the most important forecast for most companies is the cash forecast. As you can see, this type of forecast shows up in both short and long-term predictions. In business cash makes the world go round, especially for young startup companies. Cash or the lack thereof can mean the difference between success and failure.

Remember! Using similar cash forecasts, companies can determine when they'll be taking in more money than they pay out to meet their obligations. They can use this knowledge to guide many decisions such as when and how much to pay vendors; what levels of inventory can they comfortably keep in stock; timing investments in capital equipment.

The second part of the financial management process is the development and execution of budgets. Budgets are similar to financial forecasts, but much more detailed. Remember by comparing the budgeted totals versus the actual results you can quickly grasp exactly where company performance is better or worse than anticipated and redirect your resources accordingly.

 

FINANCIAL CONTROLS

Accounting systems and financial statements and reports are wonderful things. But they aren't worth the software they're built from nor the paper they're printed on if no one analyzes and interprets them. Numbers by themselves mean nothing. Numbers with context and justification mean everything.

Remember! The whole point of preparing financial forecasts and budgets is to attempt to predict future performance while creating baselines by which you can compare actual results. If results you experience are as predicted, terrific! You're right on track toward your goals. If the actual results are significantly less or significantly more than predicted however it's time to look for the sources of these variances.

Here are some ways that you can analyze your company's performance against expectations:

·        Variance analysis

By comparing your organization's actual results versus its budgeted results. For example: your actual revenues versus budgeted revenues you get a quick picture of whether your company is on or off track and by how much.

·        Ratio analysis

By comparing certain financial results within your company's financial statements particularly the income statement and balance sheet you can determine whether your company is operating within the normal limits for your industry. For example: dividing your company's current assets by its current liabilities results in a ratio.

·        The quick ratio

That tells you whether your company is solvent and can meet its financial obligations to your lenders.

·        Cost volume profit analysis

By determining what products or services are the most and the least profitable for your company, you can make decisions about where to invest your company's time and resources. There are a couple key approaches to cost volume profit analysis.

·        Break even analysis

A break-even analysis be allows you to determine at what sales volume you can earn a profit after paying all the expenses of producing your product or service. Be is the point at which the cost of the product or service equals the sales volume. Everything above that point is gross profit.

Using electronic spreadsheets you can run all sorts of what-if scenarios with a variety of different cost and price assumptions.

·        Contribution margin analysis

Contribution margin analysis compares the profitability of each of your company's products or services, as well as the products or services relative contribution to your company's bottom line. This analysis quickly points out underperforming products and services that your company should either restructure or terminate.

If your company is underperforming, you can redirect resources to boost performance or you can change plans to bring your expectations in line with reality. If your company is over performing you can identify the reasons why and do more of the same. At the same time, you can modify your budgets upward to accommodate the improved performance.

 

INVESTMENT RISK

As every manager and business owner knows, a company has limited resources to fund Capital Investments. Long-term investments in assets such as manufacturing equipment, office equipment, buildings and so on. Therefore, a company must analyze Capital Investments by using a set of simple mathematical equations. Equations that are part of the basic toolbox given to MBA students around the world. Managers and Executives regularly use these equations to help guide their investment decisions.

·        Net Present Value

Net Present Value (NPV) is the anticipated profitability of a particular investment. Considering projected cash flows discounted by a risk factor that takes into account inflation level of risk and returns required. In simpler terms, you compare a dollar invested today to projected dollars generated from the investment at some point in the future (the time value of the money). By calculating npv you can determine whether your company should pursue a particular investment in Capital Equipment or other assets.

Following is the official formula for calculating Net Present Value. However we suggest that you bypass much of the heavy lifting here by using tables readily available on the net or in financial reference books to obtain your discount rates, then you can simply multiply the discount rates from the tables times your annual cash flows to calculate npv.

¾    T is the time of the cash flow

¾    N is the total time of the project

¾    R is the discount rate

¾    C sub T is the net cash flow (the amount of cash at time t)

¾    C Sub Zero is the capital outlay at the beginning of the investment time  T equals zero

¾    Npv minus n over Sigma over T equals one

¾    Times C sub T over open parentheses 1 plus r close parentheses to the power of T minus C Sub Zero

Remember! When working with npv, you need to keep the following points in mind:

¾    When NPV is greater than zero the investment is adding value to your firm. If it offers more value than competing Investments, you should pursue it.

¾    When NPV is less than zero the investment is taking value away from your business and you should reject it.

¾    When NPV equals zero there's usually no advantage to pursue the investment unless you're investing for other factors such as positioning in your industry or securing important customers.

 

·        Internal rate of return

Internal rate of return (IRR) is another approach to determining whether the return of a particular investment makes it worthwhile to pursue. RR is simply the rate of return that the investment produces or the reward for making the investment.

IRR is related to the NPV. In that, it represents the discount rate in which the NPV of a cash flow stream inflows and outflows equals zero. In fact IRR and NBV are two sides of the same coin. With NPV you discount a future stream of cash flows by your minimum desired rate of return; with IRR you actually compute your break even rate of return. Therefore you use a discount rate above which you'd have a negative NPV and a poor investment and Below which you'd have a positive NPV and a great investment, all things being equal.

IRR often is used to compare a potential investment against current rates of return in the Securities Market.  When calculating IRR you make the present value of an investment's cash flow equal to the cost of the project.

·        Payback period

The payback period equation gives you a way to calculate how long it will take to earn back the money from a particular investment. You calculate payback period by using the following formula: a back period equals investment divided by annual cash inflow.

·        Profitability index

Profitability index also known as the benefit cost ratio gives you a way to evaluate different investment proposals that have determined Net Present values. You calculate profitability index by using the following formula: profitability index equals present value of future cash flows npv divided by initial investment. The higher the profitability index moves above 1.0 the better the investment is for your firm.

 

ANNUAL REPORT

The point of the annual report is to provide a summary of exactly how a company has performed in the preceding year, as well as to provide a glimpse of the future. The report is the best source of information for most people to determine the financial health of a company and to learn of any potential problems or opportunities.

Building a compelling annual report is a real art and science affair. And more than a few consulting firms are doing very well by hiring themselves out to create reports for all kinds of companies.

Reading an annual report can be a daunting prospect if you don't know exactly what you're looking for and where to find it. The good news however is that most reports are now standardized around a common model of nine key parts. This organization makes it easy to review any company's annual report after you get the hang of it. Here are the nine parts generally presented in the following order:

·        Letter from the chairman

The letter from the chairman of the board is the traditional place for a company's top management team to explain what a great job it did during the preceding year and to lay out the company's goals and strategies for the future. The letter also is a great place to find apologies for problems that occurred during the year which may or may not have been solved.

·        Sales and marketing

This section contains complete information about a company's products and services as well as descriptions of its major divisions and groups and what they do 10-year summary of financial results. If the company is at least 10 years old its annual report contains a presentation of financial results during that period of time.

This section is a terrific place to look for trends in growth or non-growth of revenues and profit and other leading indicators of a company's financial success

·        Management decision and analysis

This section is the place where a company's management team has the opportunity to present a candid discussion of significant financial trends within the company during the past couple years.

·        Letter of CPA opinion

To be considered reliable, a company's financial statements have to be reviewed and audited for accuracy by a certified public accountant (CPA). In this letter, a CPA firm states any qualifications that it has with the company's financial statements. These statements can have great bearing on the reliability of the data or of management's assessment of it.

·        Financial statements

Financial statements are the bread and butter of the annual report. This section. Is where a company presents its financial performance data. At a minimum, expect to see an income statement a balance sheet and a cash flow statement.

·        Tip

Be sure to watch for footnotes to the financial statements and read them carefully you often find valuable information about an organization structure and financial status that hasn't been publicized elsewhere in the report. For example: you may notice information on a management reorganization or details on a bad debt that was written off by the company.

·        Subsidiaries brands and addresses

Here you find listings of company locations: domestic and foreign, as well as contact information, brand names and product lines.

·        List of directors and officers

Corporations typically have boards of directors senior business people from both inside and outside the organizations to help guide them and provide a broader view of markets and business environments than what's seen by internal managers officers include the president chief executive officer ceo, vice presidents, chief financial officer cfo and so forth.

·        Stock price history

This section gives a brief history of the company's stock prices and dividends. Showing upward and downward trends over time included is information on a company stock symbol and the listing stock exchange. For example: the new york stock exchange, nyse or nasdaq.

If you want to read a company's annual report but can't find it you can go online. With the help of online search engines, finding a company's annual report is easier than ever. Many companies also have investor relations pages on their website where you can find copies of annual reports and quarterly filings with the securities and exchange commission.

 

ANALYZING THE ANNUAL REPORT

An annual report is the best tool that the public has to review the performance of a company. Most annual reports contain plenty of useful information. But now that you have all this terrific info, what should you do with it? You can analyze the information in a report to get a sense of the near and long-term health of a firm. Here are some definite musts when it comes to reading and analyzing an annual report:

·        Review the company's financial statements and look for trends in profitability growth stability and dividends.

·        Read the report thoroughly to pick out hints that the company is poised for explosive growth or on the brink of disaster. Places to look for such hints include: the letter from the chairman, the sales and marketing section and the management discussion and analysis, of course it also pays to keep an eye on the company through the business press and analyst reports.

·        Carefully read the letter of cpa opinion be sure that the firm agrees that the company's financial statements are an accurate portrayal of its financial reality.

·        Carefully read any footnotes to the financial statements. These footnotes often contain information about company assumptions that can be critical to a full understanding of the financial statements.

 

FINANCIAL MARKETS

The financial Market in which Securities are traded such as stocks and bonds is divided into two segments: a secondary Market which consists of existing securities; a primary Market which consists of new Securities created when companies seek investment capital in exchange for equity in their companies.

Within the secondary Market, you find the major stock exchanges that you often hear about in the news: the New York Stock Exchange NYSE, the American Stock Exchange Amex the NASDAQ stock market, the Tokyo Stock Exchange TSE and the Australian Securities Exchange ASX. You also find dealer or over-the-counter Market OTC where Securities are not listed on an exchange but are traded through a network of middlemen and numerous Futures exchanges for trading Commodities such as crude oils, soybeans and gold.

Most people think of the New York Stock Exchange NYSE when they think of the stock market. The NYSC is the largest Exchange in the world and only companies that meet specific and minimum requirements on earning power. Total value of outstanding stock and number of shareholders can join.

What exactly do we mean by a stock exchange? A stock exchange is simply a voluntary organization that's formed to provide a way to trade Securities and facilitate the payments of dividends and income. The members of the stock exchange owned seats on the exchange and they're the only people who can trade on the floor of the exchange. The memberships in the exchange are traded and their prices vary with the stock market ups and downs. Orders to buy and sell always go through members of The Exchange.

In exchanges that have trading floors such as the NYSE, you see a form of Controlled Chaos. The floor of a stock exchange is an actual place and it's a hotbed of activity. If you visit the floor of the NYSE, you'll see that it contains an enormous amount of communications equipment and computers because the members must have access to information from the outside as well as the capability to handle stock transactions from investors. You'll also see a variety of people on the floor from actual investors to wire Services people, exchange employees and brokers who take orders from the public at times, it looks as though they're all shouting at each other, but bona fide trading is actually going on.

Another type of secondary Market is the over-the-counter Market OTC in this market no trading floor exists and securities don't need to be registered with the SEC.  Traders are scattered around the country and their buyers deal directly with them. The Traders are much like retail. Stores that keep an inventory of stocks bonds. Commodities or derivatives for sale. A derivative is basically a security such as an option right to buy or Futures Contract contract to buy or sell at a specific date, whose value depends on how its underlying asset performs. Derivatives can be contracted for stocks, bonds, currencies and commodities, among other things.

The NASDAQ Market, a third type of secondary Market is the NASDAQ or National Association of Securities dealers automated quotation Market you may know it as the home of most high technology companies such as Electronic Arts and of course most of the big internet companies such as Yahoo and Google. NASDAQ is a derivative of the OTC market. But unlike the OTC, NASDAQ Securities must be registered with the Securities and Exchange Commission SEC. The

NASDAQ is the largest U.S electronic stock market and trading takes place via computer and mostly without telephone assistance. Many people trade on the NASDAQ via their computers, through discount brokers or at locations set up by companies with access to the exchange.

The PC and the internet have opened up a whole new category of stock investor: the day trader, an individual who buys and sells multiple times in a single day to make quick profits. However day Traders typically work on borrowed money which can be very risky if their bets don't pay off. Day trading is like gambling: If you have the stomach for it and the enormous amount of time it takes to monitor the market day, trading might be for you. Just make sure that you're trading with money you can afford to lose or you may be in trouble very quickly.

 

STOCK

A stock is essentially an ownership interest in a company that may be private or public and listed on one of the stock exchanges. Owning stock is a way to participate in the economic growth of the nation as well as the global economy. Purchasing stock traditionally is a great way to hedge inflation and achieve good returns on investments over the long term. Remember! The general rule is that you'll make money in stocks if you hold them at least five years.

Types of stock: two basic types of stock exist: preferred and common. Each is quite different from the other, so it's important that you understand these differences before you purchase.

·        Preferred stock

In general, preferred stock doesn't carry voting rights in a company but it does have a guaranteed dividend or payout usually quarterly that's a percentage of its par value. That guaranteed dividend is what you receive for giving up voting rights par value is simply the face value of the stock at purchase or at the date at which dividends are declared.

·        Common stock

Common stock is the basic form of ownership in a corporation. No corporation can exist without it. Common stock has what's known as a residual claim on the assets of a company. Residual claim means that common stockholders get paid after all other claimants are paid. Consequently common stock is more risky than preferred stock. But the shareholders liability is limited to the amount of the shareholders investment in the company. Common stockholders enjoy cash dividend rights and voting rights and they may also benefit from stock dividends and stock splits.

With a stock dividend, the company issues stock rather than cash. Usually as a percentage of the shareholders existing shares. For example, a company may issue 0.08 shares for each share an investor owns. In a stock split, the percentage increase in the number of shares you hold, goes up by more than 25 percent. Suppose that you hold 100 shares of stock in xyz corporation trading at sixty dollars a share, making the total value of your holdings six thousand dollars. Now suppose that the company declares a two-for-one stock split: this means that you now hold 200 shares but they're valued at thirty dollars each at the time of the split.

Remember! One reason companies choose to do stock splits is to keep their per share values at a level most investors can tolerate. It's conceivable that if a company didn't split its stock: the price could go beyond the affordability of most investors.

·        Stock quotes

A stock quote is simply a listing of prices for a stock at a specific point during the trading day. It provides the basic information you need to check on the status of any stock in your portfolio.

·        The peony ratio price per earnings

Which is the market value per share divided by the earnings per share. Typically reflects the company's last four quarters of earnings. A high peony ratio normally forecasts higher earnings growth in the future: making it a good way to compare one company with another within the same industry, sometimes called a multiple the ratio, tells you how much investors will pay per dollar of earnings.

Remember when investing don't ever make a decision to invest based solely on peony ratio, because the figure is only as good as the basis on which the earnings were determined. You need to go back to the financial statements to check how earnings were calculated the peony ratio is just one metric to consider before making a decision.

 

STOCK INVESTING

Everyone has an opinion on the best way to pick a winning stock. This section explains in detail three popular strategies for picking stocks value investing going for dividend growth and picking businesses you like.

·        Value investing

If you're the kind of person who never buys a new car so you can avoid the immediate depreciation and value as you drive it off the lot, or if you're the kind of person who spends hours looking for the best bargain; value investing may be for you.

Value investors in the stock market look for cheap stocks that don't make the news because either everyone has left them for dead or they're just not sexy enough. Well, some cheap stocks may make the news if they're particularly bad, but for the most part you'll find these stocks by looking for ugly boring securities with low price per earnings ratios: less than 10 times earnings during the past year. You also can discover them by looking for stocks that the analysts aren't crowding around.

Remember! Deciding when to buy is more art than science, but if you determine that a stock is a great, buy at 10. You can deduce, that it's an even better, buy hand eight. With a great stock you should buy more as it's going down and sell off when it goes up past your lowest average cost. Unfortunately, most investors do just the opposite they sell off a good stock as it's going down in price and buy as it's going up.

·        Investors seeking dividend growth

Investors seeking dividend growth aren't interested in the current yield on a stock. They're more interested in finding companies whose dividends increase on a regular basis during a long period of time. Rising dividends often are the signs of a successful company, because you need excess cash to distribute dividends. A regularly rising dividend, may indicate a friendly and somewhat stable business environment a very positive indicator.

Remember! Of course you don't want to focus on growing dividends in a vacuum, you also want to look at a company's peony price per earnings ratio to make sure that it's in line with other companies in the industry. The peony ratio is the ratio of the price of one share of stock to the earnings per share of the company. It's a multiple such as 5 or 10.

If a company you're considering for investment purposes has a multiple of five times earnings per share while similar companies in the industry have multiples of 10 times earnings per share, you may want to do some further investigation to find out why such a discrepancy exists.

·        Investing in companies you like

The strategy of investing in companies you like, is one followed by some very successful investors such as warren buffett, charlie munger and peter lynch. The strategy is to invest in companies that have products and services you use and believe in. The interesting thing about such companies is that they often also meet the criteria we discuss in the value investing section. So combining value investing with this strategy makes sense.

Here's how to make this strategy work for you: think about a product or service you currently use, investigate the company that makes it and determine whether the manufacturer is a public company; determine whether other people have also discovered this company. To find out, compare its price per earnings pe ratio, with its current growth rate or projected growth rate, typically you want to stock with a peony ratio lower than its earnings growth rate; call the company to ask about projected profits and anything else that may help you make a sound investment decision. Most public companies have designated shareholder liaisons who will answer your questions and see to it that you receive any materials you want to study.

 

MUTUAL FUNDS

A mutual fund is a portfolio of stocks that's managed by a professional company. Investing in a mutual fund is a way to avoid the risk of picking individual stocks. Fund manager strategy for selecting stocks depends on the goal of the mutual fund: growth, annuity and so forth. But in general, the manager wants to spread the risk over a fairly large number of stocks so that a loss on anyone's stock does not significantly damage the return on the entire fund.

Mutual funds are also probably the safest and least costly way to invest in lucrative foreign stocks which have different fee structures and reporting requirements. Mutual funds are very popular investment vehicles for several other reasons:

·        Finding the best mutual fund is now easier because many publications in print or on the internet are evaluating various funds and giving advice to consumers.

·        You can rely on the expertise of a professional money manager hired by the mutual fund.

·        You can achieve a diversified portfolio: one with a variety of different types of stocks and bonds. In other words, with relatively little money. Although you may not beat the averages in the short term you'll do well over the long term.

Warning! One substantial disadvantage of mutual funds has to do with the associated tax implications. When you invest in mutual funds, you receive an annual statement of investment gains in the form of income and capital gains distributions, as well as a report on any dividend distributions. Which are taxed as ordinary income. Whether or not you reinvest these gains, you have to pay taxes on them and it's difficult to know in advance how much you'll be liable for. If you invest in individual stocks on the other hand, you can decide when to take profits and when to pay taxes on them.

So many mutual funds, how can you possibly choose? Here's a simple guide to follow:

·        Decide which types of funds you want to own. Among the many choices are a single broad-based fund, that buys a variety of different types of stocks and bonds: specialized funds for example, high growth funds, foreign stock funds, an emerging market fund that focuses on new markets and newer companies. The choice of fund will depend on your financial goals, how old you are and how much you have to invest.

·        Identify the costs associated with the fund. Recognize that foreign stock funds generally have higher costs for instance. Don't choose funds that have costs higher than industry averages. Look at what other funds of the same type are charging.

·        We also suggest you look seriously at no load funds. These funds charge no sales fees and don't use brokers to deal with the public. All your money is invested in the fund.

·        Consider the risks associated with the fund. With a more diversified stock fund, you can better manage your risk, you can even choose funds that invest exclusively in more conservative stocks.

·        Look at the funds track record. Be sure to compare apples to apples or in stock funds with foreign stock funds for instance. Also make sure that the overall performance figure of the fund isn't based on one or two years. A good fund has consistently performed well over a protracted period of time.

·        Find out who's managing the fund. Every fund has one person who's a key stock picker make. Sure that this person has a successful track record and plans to be around for a while.

Remember! Mutual funds aren't perfect financial vehicles for investment. They often underperform the market while demonstrating fairly erratic performance behavior in general. Nevertheless if held over a long period of time, say 20 years or more, with regular investment, they'll typically outperform most professional investors. The key is holding them for a long time.

 

BONDS

Bonds are debt Securities, where the issuer of the bond promises to repay the holder of the bond: you, the principal, what was borrowed and interest at some future date. Unlike stock, the bondholder doesn't have Equity or an ownership stake in the company or governmental agency that issues the bond.

Basically three types of entities issue bonds: the U.S government, corporations and municipalities.

·        U.S government bonds

The U.S government is the largest debtor in the world: about nine trillion dollars as of press time. And you thought you had a lot of debt? The government borrows more money than anyone, through two types of debt instruments: treasury debt and federal agency debt.

¾    Treasury debt

We assume many of you have purchased treasury bills: t-bills notes and savings bonds. They're all debt instruments but they differ in their maturity date.

If you look at the Returns on bills and bonds over a long period of time, you find that treasury bill investors have never lost any money. Because the government typically pays these on time. On the other hand, those who have invested in treasury bonds have experienced the loss in a given year. Even though the government actually paid the bonds when due. What this means is that: in a year with a loss, the decrease in the bond price was greater than the interest income the investor received.

You can find out what the various treasure instruments are paying by looking in the financial section of a major newspaper such as the Wall Street Journal or the Los Angeles Times or by going online. Treasuries are sold through more than 150 competitive auctions throughout the Year.

¾    Federal agency debt

Many federal agencies called government-sponsored Enterprises or gses issued debt. Some include the government National Mortgage Association gnma pronounced Ginny May, Federal home loan Banks, Federal Farm Credit system Banks and the U.S Postal Service. Experts estimate that there's 2.3 trillion dollars in current outstanding agency debt, which is equivalent to the economies of several countries.

·        Corporate bonds

Corporate bonds are the smallest sector of the bond markets. This type of debt is issued by large corporations that promise to make payments to the bondholder over a period of time. In this type of investment, it's important that you check on the corporation's ability to repay. You can do this by looking at the standard and Poor's or Moody's Bond rating. The rating should give you an idea of how much risk you're facing.

·        Municipal bonds

Municipal bonds are issued by governments and governmental or quasi-governmental agencies that aren't at the federal level. The important thing to know about municipal bonds is that: they're exempt from federal income taxation which makes them very different from other types of bonds. Because they aren't taxed. Municipal bonds are most valuable to investors who want to enjoy that extra benefit from a bond investment.

To give you an example of the benefit: it's possible to achieve the same after tax return from a low-yield municipal bond that you do from a high yield taxable Bond. When you compare bonds that have the same interest rate and maturity, you should choose the one that has the highest after tax return.

How bonds are valued:

Bonds generally come in two flavors, pure discount bonds also known as zero coupon bonds and coupon bonds. The difference is simple zero coupon bonds make no payments to the holders between the dates they're issued and the maturity dates. In other words, you get nothing until the end coupon bonds make a series of equal payments throughout the life of the bonds. So if you are looking for an annuity, this is the way to go.

Remember! As soon as a bond is trading in the bond market, its future payouts are decided and the only thing that changes is the asking price. Your yield to maturity will go up if you can buy the bond at a lower price because bond prices and yields move in opposite directions.  

The amount that a bond pays at maturity is called its par value or Face Value, the discount amounts to the difference between the selling price of the bond and its par value. Whenever you're dealing with financial assets such as bonds, you need to understand that the price of a bond is equal to the present value of any future cash flows generated by the bond.

How bonds are rated:

Bonds are rated from AAA to D, depending on the rating agency. In general, a bond That's rated A is the most secure given, whatever fluctuations may occur in the economy. If your bond is rated in any of the B categories, there's a chance that your issuer May default on the interest payments. Bonds rated below Triple B are called Junk bonds and are pretty precarious Investments for the average person.

The two major rating agencies are Moody's and standard and Poor's. Many investors like bonds because they provide more immediate income than stocks; in terms of performance, they tend to be less volatile than stocks and they often climb while stock prices are falling; in addition, tax-free municipal bonds are one of a Dying Breed of tax shelters.

Every investment has a downside and bonds are no exception. Here are the four major negatives related to bonds:

1)     Companies and governments sometimes default on their interest payments. What that means to you, is that you get hit twice. You lose your income stream and the price of your bond may drop as well. To avoid this problem, be sure to select highly rated bonds. Bonds that are rated AAA are about as safe as those issued by the U.S treasury.

2)     Interest rates rise. Bond prices are inversely correlated with interest rates. That is when interest rates rise, bond prices fall and the earlier that happens the greater the loss to you.

3)     Investment costs are high. Not only do you have to invest in larger dollar amounts with bonds, but there are also fees associated with Bond purchases.

4)     Bonds are sometimes called or paid off before they mature. Sometimes Bond issuers choose to pay off the debt before the maturity date of the bond. For the bondholder or investor, this situation can cause a problem. Particularly if interest rates have dropped. When you go to replace the bond with another, you may not be able to find an equivalent interest rate

 

 

FINANCE BASICS FOR MBA

The term “plan” rears its ugly head when you start to figure out your financial needs. To successfully raise money for your business, you need to have a plan, as well as a backup plan and probably even a backup backup plan in today's business environment. Because your chances of getting it right the first time or two are very slim. The goal is a funding plan that will guide your search and help you make wise financial decisions.

A funding plan is really quite simple, it has four steps:

1)     Carefully determine exactly what your company needs to research your goals. You have to plan for several stages of growth and financing initially: you want to have enough cash to launch the business and survive until the company is generating enough revenues to cover expenses. Beyond that, you'll establish some milestones such as: multiple customer segments, multiple products and so forth

2)     Target your potential sources for each stage of financing, based on the needs you calculate for each stage. You can decide what kind of money you need and who could potentially be the supplier. Remember! Recognize that some first round money sources will want to be paid back or cashed out, get their investments back: in other words, before the next round of financing. So make sure that you plan for it.

3)     With the multi-stage plan defined, look at the various tasks you have to undertake to achieve your financing goals and get started before you need the money. Raising money takes time, so you shouldn't wait until you need it when it will be too late. For example: if you need briben investors, called angels, for your second round financing, you must start networking now. Angels don't just drop from the heavens when you need them. It takes time to build a business relationship so that you feel comfortable approaching the person about your financing needs and the person feels comfortable listening.

4)     Keep tabs on your progress against the timeline you set. If you're significantly off from your projections, you may need to reevaluate your plan. Perhaps you were a bit too aggressive in your expectations. Keep in mind that you're in a hurry, investors aren't. So allow for some slack in your overall plan. The kind of money you need to raise and the sources you need to consider depend on where you are in the life cycle of your company: every business goes through several stages, each with different financial requirements. The following list explains the three stages of financial need:

¾    The first stage this stage covers the  period of time from the conception of the product or service through early startup. This is where the business concept is tested to make sure that customers want what you're offering.

¾    The second stage this stage takes over when the concept is proven and your company is ready to grow to the next level by entering a new market, introducing new products or developing multiple locations.

¾    The third stage, you reach the third stage when your company is looking for a liquidity event. So investors can cash out or you want to acquire another company or be acquired by another company.

Each of these stages has different requirements and accomplishes different goals. Remember! You should know that high technology and internet companies often compress these three stages into very short time frames sometimes: months and possibly even skipping the first stage altogether. What this illustrates is that: to assess your financial needs, you need to understand the nature of the industry in which you're operating, the type of business you have and your attractiveness as a company to the capital markets.

 

FIRST-STAGE FINANCING

You know that you're in the first stage of starting your business when the easiest and most likely source of money comes from your own savings and friends, family and folks, in other words: people who believe in you and your business plan. Entrepreneurs aren't bootstrappers because they want to be, they do it because they have to. Bootstrapping means: finding money and resources, anything and everything they need by any means possible including begging, borrowing and bartering.

First stage money is hard to come by for several reasons:

·        New ventures don't have a track record, so everything that investors and lenders see in the business plan is pure speculation on the part of the entrepreneur.

·        New ventures often fail, so they represent perhaps the riskiest investments of all.

·        Most new ventures have no intellectual property rights, proprietary assets or secrets that would give them a competitive advantage in the marketplace.

·        The founders of the venture themselves often don't have a track record of successful business endeavors.

·        Most startups are merely metoo ventures, in other words: they haven't identified a significant unfair advantage that makes them valuable to customers and investors.

For these reasons and more, entrepreneurs have to bootstrap, rely on their own resources and the kindness of friends and family or anybody else who will listen to their stories. Remember bootstrapping for a new venture has three key principles:

1)     Hire as few employees as possible. Employees are the single biggest expense of most businesses.

2)     Lease share and barter everything that you can.

When you lease facilities and equipment, you avoid tying up precious capital that you could use to produce your product or service.

Bartering also has become a popular way to acquire needed resources. In the barter arrangement, you exchange a product or service that your company offers or something you need from another company

3)     Use other people's money. You can ethically use other people's money in many ways: getting customers to pay quickly is one way; convincing suppliers to give you more time to pay is another.

4)     Debt

Debt is a financing source that is unfortunately near and dear to many an entrepreneur's heart. You know all those credit card offers that you get in the mail? Many small businesses don't throw them away. Instead, they've started using credit cards as their credit line for quick cash. It's an expensive route, but in a banking environment that isn't always generous to small businesses going into debt--sometimes is the only route that owners can take.

5)     Commercial banks

Banks aren't very favorable sources of first stage money for new companies. Which isn't surprising when you consider that a banker's first concern is how a borrower will pay back the loan or credit line. If a startup company has little or no track record of sales and most new companies don't, and it's offering the bank only projected sales (in other words, blue sky), a banker won't have much confidence that repayment is possible.

Bankers operate under very strict guidelines, termed the five c's: character, capacity, capital, collateral and conditions. With no track record and only an estimate of expected sales, a new company has already violated at least two of the five c's (capital and capacity).

But what if you can show a track record from a previous business or from your personal financial status that's strong enough to warrant alone. Depending on how  you negotiate the deal, you'll receive either a secured or an unsecured note. We're betting that the note will be secured, meaning that getting the loan will require some form of collateral. Collateral is an asset of equivalent value that you pledge against the note, such as: your house or a savings account.

If you don't repay the loan, the bank has the right to repossess or foreclose on the asset. But even if that happens, your financial obligations don't stop. Just because you've lost the collateral for defaulting on the loan, doesn't mean that you aren't still liable for the loan amount. Most bankers will ask you to personally guarantee any loan you take out, which means that in addition to any business assets, you're also pledging your personal assets against the loan should you default.

Try to avoid this situation if at all possible. Of course savvy bankers want to cover themselves anyway possible and they're holding all the cards when you really need the dough. Take the following quiz before making a trip to the commercial bank: to see whether you and your business are ready to apply for a business loan:

¾    Does your management team have the skills and expertise to execute your business strategy?

¾    Does your company's financial picture look healthy: positive cash flow, reasonable profit, some assets?

¾    Does your personal financial statement look positive?

¾    Can you identify your first source of repayment of the loan?

¾    Do you have a second source for repayment?

¾    Do you have additional security that you can use to collateralize the loan?

¾    Do you clearly understand how your business and your industry work?

¾    Can you demonstrate your character and trustworthiness?

Make sure that you can answer yes to all these questions before you approach your banker. Set yourself up for success.

6)     Government sources

You can turn to governmental agencies to help fund your startup business. Which is a good thing, because it enables you to borrow back some of your tax that went into government programs to support small businesses.

Be forewarned however, that anytime you borrow from the government, you'll be dealing with a lot of paperwork and time-consuming procedures. Remember! It takes money to make money. Furthermore, the government moves at glacial speeds to respond to requests.

7)     Equity

When you seek equity sources of capital, you're asking people to invest in your company in exchange for ownership interests. Which means that you're willing to share ownership of your business. If you're wondering why you would do this, ask yourself the following: would you rather have total ownership of a company that struggles to get off the ground or majority ownership in a company that's really going places? We hope you answered the latter. Remember! It takes money to make money. When you give people equity stakes in your company, you give them the right to attend shareholder meetings and voice their opinions. So you must choose your equity stakeholders wisely.

Equity provides the investor or owner with four basic rights:

¾    The right to control the business

The person who has the majority of the stock controls. What happens to the business that's certainly true in a privately held company, in which the founder controls who gets stock and how much. In a publicly held company by contrast, shares are bought and sold on a stock exchange. So a group of people joining together can hold the majority shares and control the company. That group may or may not include the founder.

¾    The right to dividends

Depending on how you set up your stockholder agreements, most shareholders in an equity situation are entitled to dividends if and when the company declares them. Dividends are a distribution of earnings to the shareholders.

This is a critical point. Because most early stage companies don't distribute dividends, instead they retain earnings o grow the company which is a very prudent decision. Remember! Entrepreneurs shouldn't seek money from investors who want dividends before the company is well established.

¾    The right to vote

Assuming your investors received common stock, they're entitled to vote at the annual shareholders meeting on such issues as the election of directors and  officers and the direction of the company. In most cases, venture capitalists, professional investors, demand preferred stock. Which gives them preference in a liquidation over the common stockholders.

Normally, preferred stock is non-voting but in some instances the investor may demand voting rights with preferred stock (whoever supplies the money wins the right to company assets) depending on how you write up the shareholder agreements. Some shareholders could have claims on company assets in the event of dissolution of the company.

 

DEBT-EQUITY

Many factors come into play when you're deciding what kind of money you need for your Venture. The following sections take a look at some key factors to consider when contemplating the choice between debt and equity:

·        The purpose of the funds

Why do you need the money? That question sounds simple enough but few business owners really know why. They're seeking Capital beyond the very Basics to start the business, to grow the business and so on.

Certain types of capital work in some situations and not in others. For example, if you're seeking Capital to finish research and development on a new product called seed Capital, you can forget getting a loan from Banks. Most Venture Capital firms and frankly most every other kind of investor outside of riends and family. That's because rnd is a big sinkhole: it requires a lot of money without producing any return for a long time if ever.

On the other hand, if you have a successful business and are looking to grow into new markets, you probably have several funding choices. And in today's Global business environment, if you have a sexy internet business with a great business model or a high-tech Venture in the energy industry, the world of capital is yours for the asking. Well, maybe not quite that easily but you're certainly in a better position than 99 percent of other business owners.

·        Your preferences and goals for your business

As a business owner, you no doubt want to control your destiny and certainly that of your business. Some business owners aren't comfortable with debt, they're obviously not baby boomers, so loans and credit lines aren't options. Others don't want to share ownership with anyone, they want it all. So Equity isn't an option if you fall into both categories. You have a real problem: you now have to rely on your own resources and the internal cash flows of the company. That may mean that you start and grow much more slowly than you would have otherwise.

Nothing is wrong with that approach unless you're in a fast-moving industry. In that case, if you grow too slowly you'll probably miss the window of opportunity and give a competitor a chance to bypass you in the market. The important thing is that you choose the financing option that meets your personal needs and the goals of your business.

·        Your investors preferences and goals

Although your personal preferences and goals certainly are important, there by no means the only ones you have to consider. Your investors, if you choose that route, have their own goals which may be in conflict with yours. Unless you find that rare investor who has a philanthropic interest in seeing your business succeed, you'll deal with an investor who's in the deal for what it will return.

An investor is looking at three types of returns in about three to five years:

¾    Cash flow returns

A working investor or owner sometimes receives the perks of ownership, such as: an expense account, a company car, a salary and dividends.

¾    Stock appreciation

At some point, agreeable to everyone, an investor can sell off a portion or all of his or her interest in the company and harvest the capital appreciation that the business has achieved. This is a tax-free event, up to the cost basis of the original investment. Also if investors have held the stock the required length of time, they'll qualify or capital gains treatment on the gain. Which means their tax rate will be much lower.

¾    Tax benefits

In some forms of business, for example: a sub chapter as Corporation or a limited liability company LLC, losses and profits are passed through to the owners in proportion to their investment. So an investor can receive pass-through losses typical in the early years of a business and pay taxes on profits at the Investor's personal income tax rate which often is lower than the corporate rate

 

SECOND-STAGE FINANCING

Second stage or second round financing, generally is used to expand a business into new markets or new products to grow rapidly to the next level. Most businesses seek some form of expansion capital to cover the cost of building up inventories, hiring more sales people, carrying out marketing campaigns, ramping up manufacturing and so on. To name a few options in this section, we look at several ways you can raise expansion capital.

·        Getting an angel on your side.

We want to talk about angels, but the kind of angels we're talking about don't have wings and halos although, they sometimes grant wishes. In the capital acquisition arena, an angel is a private investor and part of what's known as the informal risk capital market which is the largest pool of investor money in the united states. Because the market is quite large, finding an angel doesn't seem like it would be a problem for an entrepreneur looking for funding. But it isn't that easy.

You see, angel investors aren't listed in the phone book. Frankly, they usually prefer to keep a low profile. Looking only at deals referred to them by people they trust. So the key to finding an angel investor is to get to know people who know them: professional advisor types such as attorneys, lawyers, bankers and accountants are possible sources. Other entrepreneurs are also good sources, because most angel investors have been entrepreneurs themselves. That's why they like helping other entrepreneurs by investing in their companies.

Today many angel investors band together in groups so that they can invest in larger deals and benefit from a shared experience. They generally have rules about how much their members must invest annually and they tend to fill the gap between friends and family money and venture capitalists vcs. One thing angels typically do that distinguishes them from vcs is to spend a lot of time mentoring the startups so that they're ready for money. They also link companies to vcs when the time is right.

Although we can't give you one complete description of what angels look like, we can say from our research that they have some common characteristics: they're usually educated males in their 40s and 50s; they typically have a net worth of more than one million dollars; they like to invest in companies near their homes so they can enjoy watching the companies grow; they seem to prefer certain types of businesses particularly in manufacturing energy and resources and service businesses. Of course they also compete with vcs for high technology businesses. They tend to make decisions more quickly than vcs and usually stay with ventures for longer periods of time.

You now have an image of an angel to go by. But don't make the mistake of thinking that all angels are alike, in fact today you may run into angels who have actually come looking for you. Trying to entice you to accept their money. A dream come true? Hardly. It's a symptom of a long bull market rising: stock market with plenty of newly rich entrepreneurs who like the idea of investing in up-and-coming young companies. These investors are looking less and less like angels and more like vcs. However, because they require more due diligence, seek a quicker return on investment time and set tougher screening criteria, angels have a much larger market now that vcs are scouting bigger deals. However many angels still find most of their deals through referrals so it all comes back to the importance of net working and becoming known within the venture community.

·        Taking the fast track with venture capitalists

Venture capitalists are placed in the same category with used car salesmen and real estate developers. Why is that? Probably because although entrepreneurs want to build great companies, venture capitalists are in business solely to make money and get out as quickly as possible. They also want the following: a huge equity interest to compensate for the risk they're taking; an enormous return on investment; a seat on your board of directors. Doesn't sound very attractive does it?

To be fair venture capital serves an important purpose: it provides the funding that fast growth companies need to expand. Warning! Although plenty of venture capital is out there for the taking, fewer than one percent of all businesses meet the very strict requirements of venture capitalists.

For high growth ventures however, vc money is an important source of funding. But it should be considered a second stage source and pursued: only if no private money is available. Some businesses: particularly high-tech businesses and those with heavy asset requirements such as plant and equipment, find it difficult to grow organically using internal cash flows. Growth is expensive and to do it effectively, you need to move quickly. There are additional people to hire, systems and controls to put in place, to manage growth and inventories, to build up in anticipation of demand by customers. All these things require large amounts of capital that most business owners don't want to divert from their current budgets. That's where vcs come in. This type of business is more attractive than a startup because it has achieved a certain level of success, some of the risk has been reduced and the business is positioned to grow.

What do vcs look for? Knowing what vcs generally look for, puts you in a better negotiating position. You'll know what's important to them and be able to address those issues in a way that makes sense to them. Most vcs are interested in three aspects in the following order:

¾    A great market

Market size in the hundreds of millions of dollars is the minimum. Billions of dollars is much better. From a fast-growing large market, a company can achieve high valuations that will give the investor the greatest possible return on investment.

¾    A great management team

Of course to take advantage of big markets you need a management team that can execute the business plan. An old  adage says that vcs would rather invest in an a team with a b product than in a b team with an a product. What that means is that people make the difference in a company. Vcs want to invest in a team that has a successful track record. Remember! Vcs also want to see a team that's fully committed to the company because a fast-growing company requires an extraordinary amount of time and effort.

¾    A great technology that you can protect

Traditionally, vcs have looked for the next great technology: product computer hardware, software, communications electronics, medical devices biotech and pharmaceuticals. For instance, they would prefer that you have patents to protect it. So your grandmother's brownie recipe probably won't qualify even if fairy tale brownies is a thriving arizona-based business.

Having said that vcs are now starting to do more of something they rarely did in the past, they're investing in non-technology companies with great protectable business models and huge growth potential. So you may not get money for your new brownies, but you may be able to create the next walmart. The reason vcs are doing this is because of the lack of great technology deals in the market.

Where do you find vcs? To work with venture capital firms, you need to be able to locate them. The best way to do so is through a referral. Although many venture capital firms are listed in the phone book, the worst thing you can do when searching for capital is to start calling and sending out your business plan. Vcs see hundreds of business plans every month so the best chance you have of getting some attention is through a referral from someone who knows a vc and knows you too.

To get a referral you need to have spent a lot of time networking in your community so that eventually you can meet the people who can help you: attorneys, bankers and accountants are good places to start. This type of contact won't happen overnight. However, you have to keep working at it.

After you find a vc whose requirements mesh with your ventures capabilities, deal with that investor alone. Don't shop your business plan to several vcs at once. It's a small world and vcs don't want to feel as though they're in a bidding war for your investment opportunity. You'll discover very quickly whether a vc firm is interested or not. Vcs aren't shy about telling entrepreneurs what they think of their great ideas.

What happens after you find a vc? The first thing vcs may ask to look at is the executive summary for your business plan. If they don't find the business concept sufficiently compelling and in line with their criteria, they won't waste their time reading the rest of the business plan. If they are interested, they may call for a meeting to check out your management team to see whether you are what you say you are. You may be asked to do a formal presentation at that time and you may be asked some very pointed questions to determine how you stand up under pressure.

The first meeting is really a getting to know you meeting others; will follow as the vcs begin to do their very thorough due diligence: background checks on your team and company. If the vcs are sold on the investment, you'll move into a period of going over legal documents and negotiating what they want and what you want. Typically, what they want: wins.

The nature and terms of the investment will then appear in a term sheet. When the deal is set however, it doesn't mean that the check is in the mail. Vcs usually manage pools of investor money so they have to do their own prospectus and legal documents for their investors. All this work can take several months. So the moral of the story is: don't begin the search for vc funding too late. Completing funding will take some time.

·        Private equity firms

Today private equity firms are receiving a lot of press. What exactly are they and how are they different from venture capital firms? Private equity firms are simply investment funds that traditionally have focused only on very mature low-risk companies seeking expansion capital.

·        Public offering

Considering a public offering. If your company is in need of second stage cash, another way you can raise capital is to do a public offering. A public offering is a complex version of a private offering that's regulated by the securities and exchange commission (sec): your company agrees to sell a portion of its issued stock to the public via a stock exchange. The first time your company does this, it's termed an initial public offering (ipo).

For a growing business, nothing is more exciting or glamorous than a public offering. It can be prestigious and very lucrative among many other benefits. The public offering provides a way for founders and investors to reap the rewards of their efforts by selling off a portion of their stock:

¾    It gives your business instant clout with lenders and others who may not have given you a second look before.

¾    It's a way to raise large amounts of interest-free equity capital that you probably couldn't raise by any other means.

¾    You can use stock in the company as an incentive to attract top people to your organization.

¾    Because of the prestige of being a public company, it's easier to negotiate deals with suppliers, customers and creditors and to form strategic partnerships with other companies.

Remember! With public offerings, market timing is everything. Ipos are subject to seasonality which means that sometimes markets are favorable to them and sometimes they're not. Timing for the business is important too. One rule says: to consider an ipo when your company's need for growth capital exceeds its debt capacity.

 

PARTNERSHIP

You can use methods other than debt inequity to raise capital or find the resources necessary to grow your business. Very simply put, a strategic alliance as a partnership between two or more businesses. As well as an excellent way to share core competencies and reduce the costs of research and development, marketing, manufacturing and distribution. Strategic partners invest time, money and expertise in your company. They're really more like stakeholders. Strategic partnerships have helped many companies grow without having to raise costly outside capital and without giving up any equity.

Strategic partnerships are particularly important to companies that do business in the global market. Often you can't even do business in a country without having a partner in that country that knows how to handle business there. Alliances also are critical to small companies looking to compete in a big market.

To be successful, a strategic alliance should be a win-win situation for both companies. To make sure that you create an effective partnership, here the following advice

·        Find a partner that's financially healthy, with or without your company.

·        Find a partner whose business practices are compatible with yours and whose customers and value chain members are satisfied with their relationships with the company.

·        Find a partner that has experience in strategic alliances. Just as with a sophisticated investor, an experienced partner understands the risks and knows how to make the partnership work.

·        If possible find a company that has excess capacity so that it doesn't have to expend extra capital in plant and equipment to partner with you.

 

 

MANAGEMENT BASICS FOR MBA

Management, in most organizations that have enough employees to Merit it, is split into three levels each with its own unique set of responsibilities and functions:

1)     Top management: the chairman of the board, President, Chief Executive Officer (CEO), Chief Operating Officer (CEO), Chief Information officer (CIO), Chief Financial Officer (CFO), vice presidents and other Executives comprise an organization's highest ranking management team.

Top management usually creates an organization's vision and key goals, communicates them to other managers and workers and monitors the organization's progress towards meeting them.

2)     Middle management: department managers, Deputy project managers, brand managers, assistant plant managers and many other kinds of managers (who report to top management make up the middle management level).

Middle management must create the plans systems and organizations to achieve the company's vision and key goals. Middle Managers generally report to top managers.

3)     Supervisors

Going by an amazing array of titles, supervisors are the employees closest to the front line workers and therefore often closest to the organization's customers and clients. Supervisors execute the plans developed by middle managers and monitor worker performance on a day-to-day basis. Supervisors generally report to Middle managers

Remember! As every MBA student learns during the course of his or her studies, four traditional functions of management exist. In today's Fast and Furious world of global business However, these traditional roles are undergoing significant change. To be successful, managers must learn to adapt to this new world of work. Today's workers are taking on roles that were once reserved for managers. This shift in the traditional roles of managers and workers has led to incredible productivity gains in Progressive companies.

 

PLANNING

Organizations need goals. Goals reflect what's most important to an organization, and they make it easy for managers to prioritize work and the allocation of resources (such as people, money and capital equipment). Management's key jobs include developing organizational goals and then planning the strategies and tactics that the organization will use to reach these goals.

 

ORGANIZING

Organizing is the allocation of resources (such as people money and Capital Equipment) to achieve an organization's goals. Managers allocate through organizational charts, Staffing plans and budgets.

As many of you have probably noticed, managers spend endless hours developing new and exciting Staffing and organizational configurations, only to change them again in six months. Why? Because doing so is part of the job. Today's organizations must be faster and more flexible than ever before. The days of the old-fashioned rigid organizational chart with its built-in bureaucracy and hierarchy are fast disappearing. In its place, Our self-managing work teams, cross-trained workers, virtual employees, flexible work schedules, hot groups and more. This makes organizing more challenging for managers of course.

One key to success in an increasingly competitive Global Marketplace, is the ability to adapt to rapidly changing business conditions and to do so quickly and completely. Putting new organizational plans into place as you strive to adapt is the job of managers.

 

LEADING

Leading employees means inspiring them, motivating them to higher levels of performance and directing their efforts. Managers have a wide variety of positive motivational tools at their disposal including the following: communicating a vision, rewarding and recognizing, encouraging, personally thanking employees. They also have negative motivational tools such as disciplining, threatening, coercing.

Today, simply being a manager isn't enough. Organizations need their managers to also be leaders to inspire employees and to encourage them to give their very best every day of the week.

 

CONTROLLING

Control is the process of monitoring and evaluating activities to ensure that a company's goals are being achieved. To plan, organize and lead, isn't enough. For managers to be effective, they must also review the organization's progress toward achieving its goals. This review indicates whether plans and goals need to be updated, modified or scrapped altogether.

Whether the organization as designed is up to the task and whether the manager's efforts at leading employees are having the desired impact. Picture this all common scenario: as managers review weekly departmental financial reports, they quickly realize that the reorganization they so painstakingly designed is in having its desired effect: sales are down, costs are up and employees morale is heading south. Something has to be done and soon the time to plan another management off-site meeting has arrived.

 

DESIGNING

Designing a better organization one of the four traditional roles of managers is organizing. A manager must continuously improve systems and processes to make them more efficient, more effective and less costly. Because the environment of business is always changing: new employees, new technology, news sources of supply, new competitors, managers have to be aware of the need to restructure their organizations to keep them competitive.

In the marketplace as you work to design a better organization, be sure to consider the factors in the following sections:

·        Division of labor

The very first step in organizational design is assigning specific employees to specific jobs. This is commonly called division of labor. In a one-person organization, say a home-based public relations agency, only one person completes all the jobs that need to be done: the business owner types the letters, answers the phone, places advertisements, designs promotional materials for clients, write press, releases schedules clients for media, interviews and radio and television appearances, does the accounting, pays the bills and even takes out the trash.

As soon as the sole owner and worker hires an employee however, he or she can make the operation more efficient through effective division of labor. The new hire can take on tasks that the owner isn't so good at or that require a lot of work but don't generate revenues: perhaps typing letters and answering phones. This way, the owner can concentrate his or her efforts on the tasks that he or she is best at, such as: the landing new customers and designing publicity campaigns and that have a better cash return on the investment of his or her time.

When you assign a specific job to an employee, ensure: that the duties of the job are clear and that the boundaries are well defined; the job isn't too complex or too simple for the particular employee; you give the employee the authority to execute the job without management interference; the job is kept interesting by varying tasks goals and approaches; the employee is well trained to do the job.

Although division of labor has a time-honored place in modern business, today's most successful organizations are going a step further: their cross-training employees in the jobs of their co-workers. Employees who know one another's jobs are more flexible and the organizations they work for can be much more responsive to changing market conditions or to the challenges of competitors. At the very least, a flexible employee can fill in for an absent worker. Also cross-trained employees often have higher morale because the varied tasks make their jobs more interesting.

·        Departmentalization and cellular manufacturing

In traditional organizations, after managers hand out individual jobs to employees, the managers then determine whether they can group any jobs into logical divisions called departmentalization. For example: the managers group every employee assigned a sales oriented task with other sales oriented employees to form a sales department; employees who have an accounting function: payroll, accounts receivable or accounts payable, come together to form an accounting department and so it goes throughout the organization. This method however is the old way of doing business: it put up organizational walls that led to massive production inefficiencies.

A newer method of structuring manufacturing concerns using manufacturing cells: cellular manufacturing, consists of closely linking work steps in a specific process. For example: if 20 work steps are involved in completing a piece of work (work in this case meaning making a product in a plant or processing paper in an office) cellular manufacturing places the people and the machines they use next to each other in a work cell. In a traditional manufacturing organization, these 20 work steps would have been accomplished in different functional departments spread throughout the business. Perhaps in different buildings, cities states or even countries.  

Thankfully this cellular approach also works for other types of businesses. Flexible work teams now comprise many functions within organizations and some  entrepreneurial type businesses aren't based on departments at all.

·        Span of control

Span of control refers to the number of employees reporting to a particular supervisor or manager. A narrow span of control consists of only a few employees, a wide span of control includes many employees.

One of authors once indirectly managed a staff of more than 200 employees, working at some 45 locations nationwide. For instance, if each employee had reported directly to him, his task would have been almost impossible. He would have spent almost every working hour on the phone, answering questions, walking workers through problems and discussing customer requests. Narrowing the span of control made author's job feasible: only four employees reported directly to him (three project managers and an administrative assistant) and each of the project managers managed a group of 10 or more site supervisors. This arrangement freed up the author to focus on the big picture: marketing to new customers keeping, current customers happy and ensuring that the company effectively utilize staff throughout.

Remember!  The tendency these days is to flatten organizations by widening the span of control and decreasing the layers of management, the hierarchy organizations, also rely more on employee teams to take on many of the roles formerly performed by managers.

Why flatten an organization? The flattering organization the fewer layers of management and less management leads to less bureaucracy and quicker decision making. The fewer layers of management the more money available to spend on more productive activities such as: the company picnic.

 

INNOVATION

Corporations today are spending millions of dollars hiring consultants and enrolling in workshops, all to create a culture of innovation within their organizations. Innovation depends on the creative efforts of an organization's employees. In today's fast-changing technology driven global marketplace, innovation isn't just something nice to have. It's essential. However, too many years of corporate conformity have made creativity a rare and valued commodity.

Smart managers are constantly on the lookout for new ways to release the hidden creativity in their existing employees. Why having a culture of innovation is important for your organization and what you can do to make your culture more creative.

ü  Recognizing why innovation is important

For a business owner or manager, asking if innovation really matters is sort of like asking if it matters whether earth's atmosphere has oxygen. Without innovation, organizations and people stagnate. They fall behind the competition and they eventually become irrelevant. Ever wonder why you see all those advertisements for a new and improved products that have actually been around for a million years? Innovation.

The people who produce thai detergent, coca-cola sodas or campbell's soup for example, know that they can't rest on yesterday's successes to thrive and to grow in the future companies must constantly innovate. There are five specific types of economic innovation

¾    The introduction of a new good product

A company can introduce a completely new product unfamiliar to customers or add new qualities to an already existing product. Think about all the advertisements for new and improved laundry detergents or cheeseburgers that taste better.

¾    The introduction of a new method of production

Innovation can come about through the adoption of a new way to manufacture a product which may or may not be based on new technology or scientific discoveries. For example: automobiles used to be mostly assembled by hand, today robots have taken on many duties formally assigned to humans.

¾    A new market in a country where the market hasn't previously existed

This includes the opening of a new market into which the particular branch of manufacture of the country in question hasn't previously entered. Whether or not this market has existed before, the conquest of a new source of supply of raw materials or half manufactured goods (this type is irrespective of whether the source already exists or must be created). An example is the discovery of petroleum-rich tar sands in canada: new ways of extracting the material from the ground required the introduction of innovative new approaches to oil production.

¾     the carrying out of the new organization of any industry

For example, a company can create a monopoly position or break up a monopoly position. Both at t and microsoft at various times in their respective histories had to innovate new ways of doing business as a result of government and court mandated curbs on their monopoly power.

If you were to spend any time in an mba program, you'd probably find out that the academics who specialize in innovation have gone well beyond schumpeter's five basic types of innovation. The following list presents some of the more specific types of business innovation you are likely to encounter:

1)     Business model innovation

Innovation in the way business is done usually resulting in the creation of new value. Dell's model of building personal computers to order rather than stockpiling them in a warehouse is a business model innovation that revolutionized the personal computer market and gave customers their computers quicker and at a lower price and at least until recently it brought the company great success. Remember!  Business environments change and businesses must too.

2)     Marketing innovation

Innovation in marketing methods specifically in the area of product, price, place, promotion and customers. Google's innovation of adwords the pay-per-click online advertising program has generated billions of dollars in revenue while filling a vital need for advertisers to access online customers in niche markets.

3)     Organizational innovation

Innovation in the design and execution of business structures practices and models which may involve innovation in other business areas as well. The internet for instance, enables people to do business anyplace anytime which results in entirely new organizational practices and structures that are independent of traditional fixed office space and hierarchies.

4)     Process innovation

Innovation in production or delivery methods. Henry ford's widespread application of the assembly line to automobile production, revolutionized the industry and it made automobiles affordable to most anyone.

5)     Product innovation

Innovation in products specifically a product or service that's new or significantly improved over whatever is in current use. Product innovation may touch on one of the following areas among others:  functional characteristics, works two times faster; smell new fresh scent performance works better than the other brand; technical abilities now cleans grass stains too; ease of use, look how easy it can be.

6)     Service innovation

This is the same as product innovation but is specific to services.

7)     supply chain innovation

Innovation in the sourcing of input products from suppliers and the delivery of output products to customers. Walmart revolutionized its supply chain creating efficiencies that put it far ahead of the competition and vaulting it into the position of the world's largest retailer.

 

CREATIVE

So you've decided that having a more creative and Innovative workplace wouldn't be such a bad thing. Either that, or you read that having one is necessary. Now what? Here are four sure ways you can up the creativity and Innovation quotient in your organization:

1)     Institute fluid and situational hierarchies

Fluid situational hierarchies quickly adapt to fast-changing environments. You want to be able to morph to fit tomorrow's needs instead of constantly playing catch-up with structures based on yesterday's needs. You can do this by being flexible, non-bureaucratic, attentive to shifts and markets and ready to respond to changes in the environment quickly and decisively.

2)     Value and Foster communication skills

Throughout the organization, communication is the lifeblood of any organization. When channels of communication are open and unfettered throughout an organization, information can travel quickly across operational boundaries from Frontline employees to management and Back Again.

3)     Solve problems by letting 1000 flowers blossom

This phrase is attributed to former Chinese leader Mao seitung. Smart leaders Empower people throughout their organizations to come up with ways to meet core organizational objectives: they let the chaotic environment determine the winners through the process of natural selection; they monitor workers very carefully, have rigorous criteria to evaluate them and kill off the failures fast; making it perfectly clear that they're killing off the failures and not the people who worked to create a solution. For instance, the original IBM personal computer was developed by a team of 12 employees who were given carte blanche to develop a revolutionary new product as quickly as possible. They were even given Express authority to ignore standard company policies when necessary to get the job done.

4)     Value and make use of improvisation

Just as musicians open up the gates to their personal creativity when they improvise the playing of their instruments, employees can Channel their personal creativity and strengthen. Their capacity to think on their feet by improvising as they seek solutions to solve problems. This means: looking beyond the tried and true in considering Alternatives that may not have been tested before. Remember! Innovation can be incremental; it occurs steadily on a step-by-step basis. Think gradual improvements in automobile fuel efficiency or radical, involving a large and sudden leap. Whether incremental or radical, Innovation can have a significant and positive impact on the fortunes of the businesses that Foster it.

 

ETHICS

Ethics are the standards or beliefs and values that guide, conduct behavior and activities. In other words, a way of thinking that provides boundaries for your actions. In its most common usage, ethics is simply doing the right thing and not just talking or thinking about doing the right thing, but really doing it.

When you have high ethical standards on the job, you generally exhibit some or all of the following qualities and behaviors: honesty, integrity, impartiality, fairness, loyalty, dedication, responsibility, accountability. Remember! Ethical behavior starts with each person. Just because someone else is doing something that's unethical morally, wrong or illegal, legally wrong, doesn't mean that you should do it too. When you behave ethically whatever your position within an organization, others will follow your example and behave ethically too. And if you practice ethical conduct, it will reinforce and perhaps improve your own ethical standards.

As a leader, it's up to you to set a good example of ethical and honest behavior for your employees to follow. This means: working within the rules of your organization, not breaking the law and treating people fairly and honestly. People make ethical choices on the job every day. How do you make yours? Here are six keys to making better ethical choices:

1)     Evaluate circumstances through the appropriate filters. Filters include such things as: culture, laws, policies, circumstances, relationships, politics, perception, emotions, values, bias and religion.

2)     Treat people and issues fairly within the established boundaries. Fair doesn't always mean equal.

3)     Create an environment of consistency for yourself and your working group

4)     Seek counsel when any doubt is present, from those who are honest and who you respect.

5)     It's one thing to have a code of ethics. It's another thing altogether to behave ethically in all your day-to-day business transactions, and relationships.

6)     Each individual comes into a workplace with a unique sense of ethical values based on upbringing and life experiences.

In addition to the ethics that people bring with them, organizations and their leaders are responsible for setting an example of high ethical standards.

 

MOTIVATION

Why do people do what they do? Understanding personal motivation on the job has been a source of endless speculation on the part of legions of business theorists, academics and social psychologists. And as any good mba knows, you can point out about as many theories of motivation as you can stars in the sky. Remember! Regardless of which particular theories of motivation they ascribe to, experts generally agree that there are two primary sources of motivation on the job: (1) intrinsic motivation, which comes from forces within an individual. Examples include the pride that comes from doing a job well, the satisfaction felt when beating a deadline and the excitement derived from being part of a high performing team; (2) extrinsic motivation, which comes from forces outside an individual. Positive examples (carrots) include receiving a cash bonus for doing a particularly good job on a project and being publicly recognized by the boss in a staff meeting. Negative examples (sticks) include receiving a reprimand from the boss or getting fired.

Of these two sources of motivation, most experts in the art and science of motivation consider intrinsic motivation to be the strongest. If for example: you absolutely love your job and feel great satisfaction when doing it, intrinsic motivation; a cash bonus or a pan on the back, extrinsic motivation, will have little or no impact on your job performance (certainly not in the long run).  You'll still be motivated to do your job anyway. Similarly, if you absolutely hate your job, no amount of money or words of encouragement will make you like it more or improve your performance over the long haul. Well, million dollars may help, just a bit but not for long.

Therefore, matching the right employees to the right jobs and setting realistic attainable goals are absolutely critical tasks for managers. By completing them, you leverage the power of intrinsic motivation within each and every employee and rely less and less on extrinsic motivation (the carrots and sticks) to keep them engaged in their work.

Every professional has a deep well of intrinsic motivation. It's your job to help your employees find and tap into the well. If you want someone to do a good job, give them a good job to do. The best approach is to try a variety of different approaches, experiment until you find the approach that works best in your particular situation. Every employee is different, the key is to keep trying until you hit upon an approach that works best for each one of your employees.

 

HIRING

Creating the very best products and services requires having the very best employees to produce them and the most effective way to have the best employees on staff is to recruit and hire only the best. Instead of hiring average employees and hoping that they develop into exceptional employees, why not take the time and effort to hire only the finest employees from the start? This section shows you how.

 

DEFINING THE AVAILABLE JOB

Before you place an advertisement in the newspaper, post a job notice on the bulletin board at work and submit a job opening on the internet career search site, you must create a detailed job description. A job description explains the duties and responsibilities of a particular position and defines the special requirements or skills that the ideal candidate needs.

Here are some specific elements that every job description should contain regardless of the position:  

·        Job title; the name of a position, for example: mail, room clerk, programmer, sales, analyst;

·        Department or division, specifies the department or division in which the specific position is located. For example: in the accounting department or the operations division;

·        Responsibilities, the list of responsibilities isn't just a one or two sentence;

·        Summary of a job's, most important duties it should include every task included in the position;

·        Tip.

Writing a complete description of a position's responsibilities isn't a simple job. If you want to create a thorough job description, follow these simple steps:

(1)   Ask your employees exactly what they do, every single thing.

(2)   Compare your employees lists against what you think they should be doing.

(3)   Compile your final list of responsibilities within this section in a narrative or paragraph format or as a bulleted list.

 

REQUIRED SKILLS OR EXPERTISE

As a person need specific skills to do this job, perhaps experience with spreadsheet programs or the ability to build wooden forms for pouring concrete building foundations for instance. This part of the job description should include the skills expertise and number of years of experience required, required licenses or certifications.

Some jobs require the acquisition of specific licenses or certifications: messengers most likely need to have valid driver's licenses; certain kinds of accounting positions may require a cpa (certified public accountant); stock brokers may need to provide a series 7 or 63 license or both.

Don't put a requirement in this section unless it's truly essential to doing the job. Otherwise, you may be exposing yourself and your company to an ugly lawsuit. Also job descriptions that are too exact, may prompt lawsuits. Be sure that your explanations contain wording or clauses that allow you to expand tasks as necessary the most famous of these clauses and other duties as assigned works for many companies. But be sure to get advice from your legal counsel before including this terminology. Tip if you've never prepared job descriptions before or if you just want an easy way to deal with them, i suggest automating the process.

 

PAYING EMPLOYEES WHAT THEY'RE WORTH

All people from managers down to entry-level workers. Believe that they deserve to be paid what they're worth. But how do you know if each person in your organization is being paid what he or she is worth?  One way you can determine worth is by looking at the salaries of employees in similar positions in your geographic area or by determining the relative value of your employees’ contributions to your organization.

Remember! Paying employees what they're worth is particularly important when the job market is tight and unemployment is low.  If you aren't offering competitive pay rates and salaries, you'll have a tough time attracting the best employees to your firm and keeping them.

Other elements of an overall compensation package such as health benefits, retirement plans and stock options are also important and can enter into a candidate's decision about whether to accept a job offer. So you can't forget to include them. So how do you figure out how much to pay your employees?

First, you want to develop an overall compensation philosophy for your organization. This philosophy will become the guide for compensation decisions for all your employees:

·        Are you going to make your basic salaries simply competitive with the going rate for employers in your area or higher?

·        Are you going to establish a structured pay scale for specific jobs in your company or are you going to send salaries on an individual basis based on the quality and potential of the person filling the job?

·        To what extent are the monetary rewards you offer: your employees going to take the form of salary performance bonuses or benefits are salaries based on how well people perform or on other factors such as how long they stay with you or what credentials they bring to the job?

·        Are you going to award bonuses on the basis of individual performance, tie bonuses to company results or use a combination of the two?

After you've developed an overall compensation philosophy, you can decide how much to pay your employees. For example: if you want to base salaries on the going rate within your geographical area, your first step is to do a wage survey to determine exactly what those going rates are for. Each position within your organization wage information is available from a variety of sources including the internet state employment, offices chambers of commerce local business, newspapers and magazines and employment consulting firms.

 

HIRING PROCESS

It would be nice if you could simply snap your fingers and automatically hire the best and brightest employees whenever you wanted them. But the process isn't quite that simple. In fact, if you're serious about hiring the best employees to work in your firm, the hiring process is a lot of work. But the good news is that the rewards of making a good hire are tremendous and long lasting. These rewards include increased productivity, improved morale, better customer satisfaction, increased revenues, increased profit.in the following sections we explain the key steps in the hiring process and offer advice on how to conduct the process the right way, every time.

WHERE DO YOU GO TO FIND THE VERY BEST EMPLOYEES?

To some extent, the answer depends on the kind of position you have to fill and the kind of candidates you're seeking. To increase the chances of getting your message in front of the right people, first decide what kind of person you want to hire and then choose the most effective method for communicating your opportunity to that person. You can choose from a variety of ways to advertise a job opportunity to a targeted set of candidates. Here are some of the most commonly used methods:

·        The internet. The internet has exploded as a resource for those seeking work and for those doing the hiring. Hundreds of websites cater to people seeking and offering jobs. Many such websites are specific to different kinds of opportunities. For example here are some of the most well-established job hunting sites: monster.com, jobs.com, careerbuilder.com, jobs.net, craigslist.org, indeed.com, guru.com.

·        Newspaper advertisement want ads. The newspaper is traditionally the first place where employers think of looking for new employees and it's often the first place that job seekers go to look for new employers. But is placing an advertisement in your local newspaper the optimum way to find the people you are looking for? Maybe yes maybe no. Perhaps the best candidate for the job will see your advertisement but you may miss many other terrific candidates both locally and outside of your immediate geographic area.

·        Business and personal networks. You have networks of contacts both in your business and in your personal life, your friends and professional contacts can be excellent sources of job candidates. People in your networks know about your business and the kind of people you want. So they're unlikely to send you candidates who would reflect badly on them.

·        Associations. You can find all kinds of industry and professional associations out there: from the association for computing machinery (acm) to the society for human resource management (shrm) to the american bar association (aba), each one has its own specialized membership population. Most associations have their own job referral services which they offer to their members as a free benefit of membership. Many associations also post job listings on their websites which may be available only to association members as a benefit of membership.

·        Employment agencies. Although you may be required to pay to use their services, employment agencies including temporary agencies executive search firms and so-called headhunting firms can be terrific sources of job candidates. Many companies use temporary agencies to dry out new employees on a short-term risk-free basis. If a temporary employee doesn't work out, your organization can simply send the employee back to the agency and ask for another person. If a temporary employee does work out, you can hire the person directly from the agency sometimes for no fee. Be careful when using employment agencies! Some agencies prohibit a company from hiring a temporary employee for a specified period of time after his or her temporary employment stint or if they do permit it they may charge an exorbitant fee to do so.

·        Inside your organization. One of the best sources of top quality job candidates is looking within your own organization. The beauty of internal candidates is that you usually can get very candid references on their job performance, from their co-workers and past and present supervisors. Another plus is that internal candidates are familiar with company policies and procedures, as a result they can transition into their new position quickly.

Don't overlook this rich resource of job. Candidates remember recruiting is very much a numbers game: the larger your pool of candidates, the greater your chance of finding the employee who's just right for your organization. Unless you're specifically targeting only one candidate or a small group of candidates, cast your recruiting net as widely as you possibly can. The time, money and effort you put into finding the best candidates up front will pay off after you make the hire.

INTERVIEWING CANDIDATES

The interview is one of the most critical and often the most dreaded parts of the hiring process. For job candidates the interview presents an opportunity to answer detailed questions about their experience and to give their potential employers a glimpse of what kind of employees they will be. For employers, the interview presents a unique opportunity to ask questions that go beyond the one-sided marketing pitch of most resumes and get a feel for how candidates would fit into the organization.

From the employer perspective, here are the two main reasons for interviewing job candidates:

1)     To assess the candidate's personality and determine how that personality will fit into your existing work team.

2)     To test on a real-time basis: a candidate's enthusiasm, intelligence poise and ability to think quickly.  Remember! You can't guarantee that someone who shines during an interview will work out as a new hire. Every manager has tales of stellar interviewees who got the job but didn't last long. However, a well done interview will greatly increase your chances of landing the best candidate for the job

Here are some tips on conducting an effective interview:

·        Welcome the applicant and put him or her at ease. Most job applicants are more than a little nervous when interviewing for a job and it's no wonder job interviews often make or break candidates.

·        Conduct the interview in a quiet office or conference room that's free of interruption from phones, computers and other employees.

·        Greet the candidate warmly. Offer coffee, water or a soft drink and direct him or her to a seat instead of launching right into the interview. Spend a couple of minutes breaking the ice to take the edge off the interviewee's nervousness.

·        Summarize the position. Take a minute or two to give the candidate a brief summary of the position. Include the details of job responsibilities, how the job fits into the organization, reporting relationships and expected customer interactions.

·        Ask a variety of questions:  why are you here? What can you do for us? What kind of person are you? Can we afford you? Take plenty of notes during your interview. Better yet prepare an interview form in advance to guide you through your questions and to enable you to jot down notes on your candidate's responses. This advice is especially important if you have a lot of candidates to interview or if you won't have a chance to review the candidates performances immediately after the interviews.

·        Probe the candidate's strengths and weaknesses. Chances are you picked up on some of the candidate's strengths and weaknesses when you reviewed his or her resume before the interview. Now's the time to probe the candidate further about those strengths and weaknesses as well as any others that become apparent during the interview.

·        Conclude the interview on an up note. Ask your candidate whether he or she has any other information that you should consider in your decision process, give the candidate a chance to explain that information.

·        Thank the candidate for his or her interest in the job, no matter how well or how poorly the interview went and give the person some idea of when you'll be making a decision or whether you'll be conducting an additional round of interviews. Don't make any sort of promises such as: you're definitely the best candidate, will be making you an offer for sure. Not only are you setting yourself up for a potential lawsuit if you don't follow through on your promise, but also the next candidate you interview may be even better than the last.

CHECKING REFERENCES.

Although many employers are wary about providing reference information about former employees and understandably so, some employers have been sued for giving bad references. It's still very much worth your time to check out all available references. You just never know what kind of information will turn up in your investigation. You may uncover info that will have great bearing on whether you extend a job offer to a candidate. Reference checks most often occur after the initial round of interviews when the employer narrows the list of candidates to just a few people.

When you make a reference call, don't forget that the person you're calling is doing you a big favour by telling you anything at all about the candidate. Be patient, polite, and thankful when someone provides the information you need. Here are some of the best places to dig deeper to find out how your candidate may fit in the job in your company:

·        Current and former supervisors

·        Current and former customers or clients

·        College universities and other schools

·        Networks of common acquaintances such as industry associations or professional groups

·        Public sources such as the internet or local newspapers

·        Increasingly popular are companies that verify a candidate's resume or references for a fee. If you decide to go this route, be sure that you pick an experienced reputable firm and that you notify all candidates in advance that you'll be using such a service if required to do so by your state or locality, check with your state employment office to be sure.

·        Using the internet to research candidates. Wouldn't it be nice to get more information about your job candidates than the 400 or 500 carefully crafted words on their resumes. Well, with the power of the internet at your fingertips, you may be able to do just that. The latest generation of job seekers lives much of their lives online, so they leave online crumbs for recruiters to track down and read. We're talking about a quick and easy background investigation that you can do yourself for no cost, beyond the short amount of time it takes you to do it. Some sites that you can check out for personal information about potential candidates include the following: google.com, facebook.com, linkedin.com.

RANKING YOUR CANDIDATES

After you've completed your interviews and conducted your reference and research checks, you must rank each of your candidates against the others. The easiest way to rank is:

·        To put the name of each candidate along the left side of a piece of paper and list your hiring criteria along the top of the page.

·        You can create a grid for a hypothetical group of three candidates.

·        Rank each employee on each of the hiring criteria.

·        Go through each of your hiring criteria and assign rankings in this manner.

·        After you've ranked all the candidates and the total for each employee and note it on the worksheet. The candidate with the lowest score is the one you should consider hiring.

MAKING THE HIRE

Congratulations, now you can make your job offer to your top candidate. However before you do, be sure to check your organization's policies on hiring new employees. Some companies allow managers to make a verbal offer on the phone or in person and others insist that any job offers be in writing. Still, others insist not only that job offers be in writing but also that they undergo review by the human resources department or legal counsel before going out to candidates.

My advice is to always use written job offers. After the written job offers signed and on its way to the candidate however, i also encourage you to call him or her with the good news. The candidate may be weighing more than one offer so you want to be sure your offer gets to the candidate before any others here are.

The key elements to include in a written offer letter: job title, the candidate's name, date employment will start, terms on which employment is offered, salary full-time versus part-time, probationary period and so on.  Any conditions that must be met before hire can be made: pre-employment physical, drug test, evidence of citizenship and so on. Any action required by the candidate:  make appointment with company drug test lab sign and return offer letter and so on.

If for some reason your top candidate declines the offer, you have three main choices. You can revise your offer to answer the objections of your top candidate. You can go to the next ranked candidate on your worksheet; you can initiate the entire hiring process all over again.

 You need to weigh the pluses and minuses of each avenue. For instance, if you have just one strong candidate and your positions aren't too far apart, revising the offer may make more sense than offering the job to a weaker candidate or starting the hiring process all over. Again remember, don't allow desperation to rule your hiring decisions. Leaving a position unfilled usually is better than hiring an inferior candidate. If your first round of recruiting and interviews doesn't uncover the right candidate for the job, by all means, try it again. It's far less painful to interview more candidates than to terminate someone who doesn't work out the way you hoped.

 

TEAMS

Business teams don't just happen. As with a primordial organism, the teams evolve becoming stronger and more effective over time. If you've spent any amount of time on a team, you've probably experienced the different stages of team growth: in the beginning, team members are tentative and little real work gets done; as time passes however, the team becomes extremely cohesive and productive. Do you recognize which stage your team is in?

·        Stage one: forming

During the first stage of team growth known as forming, team members get to know one another while cautiously testing the boundaries of the team and its leadership by interacting and noting reactions or lack. Thereof participants generally are energized and excited by the prospect of getting their task accomplished. But they're a bit nervous about how the team will go forward. In this stage, the team actually accomplishes very little

·        Stage two: storming

The second stage of team growth, storming, is marked by a panic among team members as they begin to realize the difficulty of the tasks the organization expects them to accomplish. Participants become impatient about the lack of progress in the first stage. They react by arguing with one another, questioning the team's leadership and choosing sides. In this stage, progress toward accomplishing the team's goals is minimal. However, team members are learning more about and becoming more comfortable with one another.

·        Stage three: norming

During the third stage of team growth called norming, team members finally begin to accept the makeup of the team and follow the team's ground rules. Members establish roles and start supporting each other in their efforts. The fear encountered in the storming stage disappears and is replaced by the belief that the team will accomplish its goals.

·        Stage four: performing

In the fourth or performing stage of team growth, team members feel fully comfortable in their relationships with one another: they begin to have insights into the behavior and thought processes of their teammates team; members are happy with the team's progress, they should be making substantial strides toward goals and working at peak efficiency; the team is truly performing as a team: every member supports every other member and the team is pulling together to create an entity that can achieve more than any one person can do alone.

 

EMPOWERMENT

Although everyone was talking about the power of empowerment, few companies actually put their words into action. For those that did though, the result was an unleashing of employee energy unmatched in the history of business. And in the new millennium, empowerment is just as hot a concept but empowerment is much more than a management buzzword.

In business today, it's a concept that will separate the firms that thrive from those that fail. Empowering employees allows an organization to tap into the almost boundless energy and talents contained within every employee. The power is there, don't let it go to waste. Exactly how do you empower your employees? Is it good enough to simply declare your employees empowered? No it's not. You have to take several steps to give your employees the authority to make decisions that will have an impact on their work lives. The following list presents five easy tips for empowering your employees:

·        Clearly define your employees’ responsibilities. And be sure that they understand them as well as your expectations of performance.

·        Be sure that your employees have the training necessary to successfully undertake their responsibilities.

·        Give your employees the complete authority to successfully undertake all their responsibilities.

·        Treat your employees with respect at all times and trust them implicitly

·        Err on the side of giving your employees too much information rather than not enough

 

GOAL-PROGRESS

Everyone needs goals in their lives to provide Direction. Without goals, you may not be motivated to do anything in particular with your life; both at the office and away. With goals however, you give your life Direction and focus as you strive to achieve Milestones.

But although all employees need goals and companies need systems to monitor their progress, setting and monitoring goals is particularly important in team situations. Where Team Dynamics can cause loss of focus and confusion when clear goals are absent.

The best business goals direct employee effort. Which includes teams toward the tasks and behaviors that are most important to an organization's long-term success. Goals also should clearly indicate when an employee has achieved them. In this section, we consider how you can set effective goals with employees and how you can monitor employee progress toward achieving those goals.

·        Setting goals

Establishing goals is a necessary part of doing business. From strategic to Tactical to operational measures, goals are Central to an organization's planning process. Basically, setting goals is the way that work gets done. There are a number of steps involved in actually setting goals:

1)     Imagine the future desired state of your organization and determine what exactly you want to accomplish: do you want better customer service? Development of new product? Faster deliveries?

2)     Write a concise measurable and achievable statement, your goal. This can mobilize employees to work toward the desired future. For example: improve customer satisfaction ratings by 20% during the next six months; or develop a new low voltage memory chip within one year or shorten the time; it takes to deliver packages from three days to two days.

3)     If necessary, break the goal into sub goals that can be assigned to the appropriate people or departments.

·        Monitoring progress toward goals

Setting goals is an important step in the process of getting things done at work. But it's only the beginning. To ensure that your organization's goals are met, you have to monitor and track specific task performances during the course of completion. Monitoring and tracking is important because you need to know if there are problems that are interfering with Goal accomplishment. The sooner you identify such problems, the sooner you can take action and avoid major problems down the road. Fortunately you have several ways to monitor your progress toward goals:

1)     Milestones

To monitor progress toward a goal, you can break a project into a series of individual tasks. The completion of which will comprise the achievement of the intended project goals. Milestones are scheduled events that indicate delivery or completion of some part of a task or goal by breaking down a project into its individual tasks. You can easily track employee performance to ensure that the project stays on schedule. Close monitoring of the project Milestones helps prevent any unfortunate surprises along the way.

2)     Charts and graphs

As your projects become more complex, using a graphical format to chart Milestones can be extremely useful. Charts and graphs make project monitoring much easier than eyeballing pages of text. With just the glance, you can quickly assess project progress and pick out problem areas that may require more management attention.

When monitoring project performance, a picture really does tell a thousand words. A variety of graphing options are available to you and your teams including the following:

¾    Gantt charts, also known as bar charts. Gantt charts are the most commonly used method for monitoring project completion graphically.

¾    Flow charts, some projects especially complex ones require more than simple Gantt charts to keep track of performance. By following the longest path in terms of operations, activities or tasks, you can determine the critical path of the project. Which determines the overall duration of your project plan. The critical path generally represents the shortest time in which you can complete a project.

3)     Software

If you manage projects as a key part of your job, be sure to take a look at project management software. Several software programs are available that are devoted to tracking projects. They provide all kinds of tools to those who need it. Including but not limited to the following: project planning and scheduling; task assignment; graphical reporting; task grouping; web publication; indeed, the business world has recently seen a veritable explosion of project management software Solutions both Standalone software programs and web-based solutions.

 

MEETING

Meetings allow not only individual employees to communicate with organizations but also the teams they work on. Although individual team members work on their tasks outside of meetings, team meetings give members the opportunity to come together to: determine the team's goals; its plans for achieving its goals; who will do what and when and so on.

You've probably experienced more than your a fair share of both good and bad business meetings. What makes some meetings terrific and others the pits. The following list presents the positive side of business meetings:

·        Meetings can be empowering. Meetings provide a forum for employees to have their voices heard. No matter their position in the hierarchy or their seniority or experience, employees in a well-run organization can even call their own meetings if they like. They don't need to wait around for someone else to do it.

·        Meetings can be a great way to communicate. When a message needs to reach a large number of people at once, a meeting is a great way to accomplish that task. Have you ever been to a company meeting where the ceo sketched out his or her vision of the future? Such meetings can be extremely inspirational and can galvanize an entire group of people to take action, to achieve the vision.

·        Smaller meetings can be just as effective. When you want a solicit employee ideas and focus employee efforts on developing solutions to problems.

·        Meetings can develop work skills and leadership. Becoming full and active participants in meetings requires employees to develop their work skills and to become leaders: when they're assigned tasks and meetings complete them and then report their progress and results in follow-up meetings, employees learn to work with others on teams and under deadline stress; meetings also give employees a chance to present their results in front of others thus boosting their self-confidence.

·        Meetings can be morale boosting. Good employees want to know what's going on in their organization and they want to feel like they're important parts of the organization's present and future. Effective managers lay out their plans for the future in meetings and engage employees in the organizational changes that will be necessary to move from the present to the future state.

Unfortunately, we also have some bad news to present about many poorly run meetings here's the negative side of meetings along with tips to make meetings better:

·        Meetings may not have focus. If you've been to a meeting that wandered all over the place from topic to topic with little or no focus. Meetings without focus rarely achieve the goals that require the meetings in the first place. The solution: keep focused on the topics at hand.

·        Companies can have too many meetings. One of the biggest complaints about meetings is that companies have too many of them. The key is to have fewer meetings and to make those meetings more efficient and more effective. The solution: fewer and better meanings.

·        Attendees may come unprepared. Unprepared attendees are unproductive attendees and unproductive attendees do little to help you accomplish the goals you've set for your organization or team. The solution require employees to come prepared.

·        Most meeting time is wasted. Research shows that on average 53 percent of all meeting time is wasted for most organizations. This percentage amounts to thousands of hours of wasted time a year. The larger the organization, the more time it wastes. You can make your team's meetings better, the power is within you: whether you're a meeting leader or a low-level participant, you don't have to tolerate meetings that accomplish little or nothing. Here are some surefire ways to ensure that you'll hold or participate in better business meetings:

¾    Be prepared

Meetings are work so just as with any other work activity. The better prepared you are for them, the better the results you can expect. For example: suppose that the topic is the next fiscal year's budget, before the meeting dig up your budget for this fiscal year and become totally familiar with it; review any budget reports that you may have received along the way.

¾    Have an agenda

An agenda a list of the topics to be covered during the course of the meeting can play a critical role in the success of any meeting. It shows participants where they're going but leaves it up to them to figure out how to get there. Be sure to distribute the agenda and any pre-work in advance so participants can prepare and you can avoid wasting time.

¾    Start and end on time

Sitting through a meeting that goes way beyond the scheduled ending time would be fine if the participants had nothing else to do at work. But in these days of faster and more flexible organizations, everyone always has plenty of work on the to-do list. If you announce the length of a meeting and then stick to it, fewer participants will stare at their watches and more participants will take an active role.

¾    Have fewer but better meanings

Call a meeting only when it's absolutely necessary. Before you call a meeting, ask whether you can achieve your goal in some other way: perhaps through a one-on-one discussion a telephone; conference call or a simple exchange of email.

¾    Include rather than exclude

Meetings are only as good as the ideas the participants bring forward. Great ideas can come from anyone in an organization, not just its managers.

¾    Maintain focus

Meetings that get off track and stay off track don't achieve their goals. Meeting leaders and participants must actively work to keep meetings focused on the agenda items topics. When you notice the meeting drifting off track, speak up and push the other attendees to get it back in focus.

¾    Capture and assign action items

Unless meetings are held purely to communicate information or for other special purposes, most meetings result in action items tasks or other assignments for participants. Don't assume that all participants will take their assignments to heart and remember all the details. Instead, have someone record: every action item on a sheet of paper flip charts are great for this or you can use regular notebook paper. If some action items haven't been assigned to specific individuals for completion do, so before the meeting adjourns.

¾    Get feedback

No meeting is perfect. Be sure to solicit feedback from meeting attendees on: how the meeting went right for them and on how it went wrong; was the meeting too long; did one person dominate the discussion or attendees unprepared; were the items on the agenda unclear. Whatever the problems, you can't fix them if you don't know about them. You can use a simple form to solicit feedback or you can speak informally with attendees after the meeting.

 

INFLUENCING

Five key sources of power exist in an organization. Every employee wields one or more of these sources of power within his or her own job, and the sources can change from situation to situation. Power gives managers the ability to influence others to do what they ask of them. Which of the following sources of power do you use to get things done at work:

1)     Personal power, comes from within you. This power springs from your personality, your charisma, the strength of your beliefs and convictions and your ability to express them. For example: a hard-working frontline employee who inspires her co-workers to work harder by her example, has personal power.

2)     Relationship power, comes from the strength of your network of friends, contacts and business associates. Have you ever heard the phrase “i've got friends in high places”? An example of relationship power in an organization is the incredible power that assistance to ceos and other top managers wield. They often have as much or perhaps even more real power as the executives to whom they report.

3)     Position power, comes from your place within a company's hierarchy: a company's president has high position power; the mail room clerk has low position power.

4)     Knowledge power, comes from your experience: training, schooling and expertise in your particular job within your organizational unit and in the organization as a whole. This power includes technical prowess as well as your ability to manage the personalities of those you work with. Because computer networks and their care and maintenance have become extremely important in most organizations, information technology professionals have very high knowledge power.

5)     Task power, comes from the job itself. For example, in an advertising agency, account reps who sell new clients on the agency and who have a direct impact on bringing in revenue have higher task power than employees in the accounting department whose job it is to send out invoices and collect payments.

 

DELEGATION

No manager can do everything alone. Managers leverage themselves, multiplying the work they can accomplish many times by delegating work responsibility and authority to employees. Delegation is a great tool for managers to increase the amount of work they can get done and it often achieves better results so. Why do so many managers have such a hard time delegating work to their employees? Fear causes part of the reluctance: fear that employees can't or won't do the work as well as the managers can; some managers also feel that they're too busy to take the time to train employees to do the tasks well. Therefore simply tackling the jobs themselves seems easier and perhaps the desire to bask in the spotlight alone for completing important tasks contributes to some managers reluctance to delegate.

 in any case, delegation is the first choice for managers to get work done through others. It can be an incredibly effective tool when done right and remarkably destructive tool when done wrong. Here are six steps for delegating the right way:

1)     Communicate the task

Describe exactly what you want done, when you want it done and the end results you expect. Be clear and invite your employee to ask a lot of questions until you're convinced he or she understands what you want done.

2)     Furnish the context for the task

Most people want you to know the reasons why they should do something. Explain to your employee why the task needs to be done. Its importance in the overall scheme of things and any possible complications that may arise during its performance. Again, invite questions and don't get defensive if your employee pushes you for answers.

3)     Determine standards

We all need to know when we cross the finish line. Agree on the standards that you'll use to measure the success of a task's completion. These standards should be realistic and attainable and you should avoid changing them after performance has begun.

4)      grant authority

You must grant the employee the authority. Necessary to complete the task without constant roadblocks or standoffs with other employees.

5)     Provide support

Determine the resources necessary for your employee to complete the task and then provide them successfully. Completing a task may require money, training advice and other resources.

6)      get commitment

Make sure that: your employee has accepted the assignment; confirm your expectations and your employees understanding of the commitment to complete the task.

One of the biggest problems with delegation occurs when a manager delegates responsibility for a task but not the authority and resources necessary to carry it out effectively. Inevitably, the task becomes much more difficult to carry out than it needs to be, perhaps impossible and the employee becomes frustrated and even angry. Don't forget that we all want happy employees.

Happy employees lead to happy customers and clients. Be sure that when you delegate a task to an employee, you also give the employee the authority that must go along with it.

 

 

MARKETING BASICS FOR MBA

You can't sell a product or deliver a service if you don't know who your customer is. Simply put, your customer is the individual or business who pays you. But it's more than that, your customer is the segment of a market that needs your product or service most because it solves a real problem he or she is having. Because if a customer needs what you have, the sale will be easy.

There is no secret to understanding your customers needs all you have to do is ask. What a concept. Yet interacting with customers is something many businesses do very badly if they do it at all. Why is that? We can point to two fundamental reasons.

1)     Owners assume that because they started the business, they must know what their customers want. Wrong.

2)     They assume that if they're getting their products or services out on time and with good quality, they've done all they need to do to satisfy customers. Wrong again.

Today, just keeping your customers satisfied isn't enough. You have to build long-term relationships with them. Why? Because the world has changed. Today's customers are jaded: they're bombarded with an endless variety of products and services, so many in fact, that they end up frustrated and ultimately choose based on the best price; couple that with the power that the internet search engines have given to customers by enabling them to compare products online and find the best price anywhere in the world. And you have a challenging situation for businesses trying to stand out from the crowd. Even if you do manage to stand out with your product, a competitor that can sell your product more cheaply may win the customer. Competing on price alone however, is a no-win situation for everyone.

Your best bet is to show your customers that your company offers intangible benefits that make it a better choice than the competitors. To do so, you need to understand who your customer is and what his or her needs are. You can't meet a customer's needs if you don't know who the customer is. If you agree that the customer is the person or business who pays you, the one who controls the purchasing decision, defining who your customer is will be easier.

Customers want benefits not products. We're amazed at how many companies take the field of dreams approach to the products and services they offer. They figure that if they build it, the customers will come. Nothing could be further from the truth: customers are very smart people, they know exactly what they want, when they want it and how they want it and the main thing they want are benefits.

Remember! Assuming that customers buy based on the features of your product or service, is a mistake. Customers are more interested in what the product or service can do for them. They want to know “what's in it for me”.

 

MARKETING PLAN

A marketing plan is really just one part of your overall business plan. A marketing plan is a living guide to your goals for starting and building a loyal and sustainable customer base. It contains your marketing goals and the strategies and tactics you'll use to achieve them. But don't think that you can write one marketing plan that will be good for the life of your business or even for a year for that matter. Rather, an effective marketing plan should evolve with your business, your customers and the market.

Before you sit down to outline your marketing plan, do some preparation to make your job easier. First of all it's very important that you include all the members of your management team as well as key frontline employees in the planning process; people from marketing; finance; manufacturing and distribution. More input you get from all the functional areas of your business, the more successful your plan will be. And don't forget to include the customer in your planning: ask some of your best customers to give you feedback by inviting them to participate in the planning process; let them know that what they have to say is important.

A kickoff meeting is probably a good place to start at the meeting. You can share ideas and assign duties that individuals or teams can undertake on their own. But be sure to regularly meet as a large group, to make sure that everyone is on target. Here are some tips for getting started:

·        Brainstorm a list of possible marketing strategies and tactics.

This list can help you see all the possibilities before you narrow down the choices. You need to have a good understanding of which previous strategies have been successful and which ones have not. You can gain that understanding by looking at other companies in the industry, find this information in popular business magazines such as inc and fast company. It's some of the major business resource sites on the internet.

Your goal is to collect as many strategies and tactics as you can. At this point, don't worry about whether they're feasible for your company. You really want to make sure you haven't missed a great strategy or a tactic. You can judge feasibility after your list is complete.

·        Tried to think like a customer.

Look at your company, its products and services and its employees from the customer's perspective. In other words, step outside of yourself for a bit and look objectively at your business and what it offers.

·        Know your competition as well as you know your own company.

Look at what your competitors are doing right and what they're not doing, that maybe you should be doing. Can you think of ways to improve on what your competitors are doing? Begin analyzing your options and ranking them. Start by eliminating quickly those options that aren't possible for your company: at this time perhaps, they cost more than you have in your budget or maybe they just aren't appropriate for your customers. For example if your customers aren't regular television watchers, you probably don't want to waste money advertising on that medium.

After you've followed these tips, you can begin to write your marketing plan

 

MARKETING PLAN COMPONENTS

Your marketing plan can be as elaborate as a complete 50-page business plan or a Spartan as a one paragraph plan. In fact, starting with one paragraph that says it all isn't a bad idea. Many very experienced marketers suggest using this approach because it forces you to keep your plan focused and to identify the key components. A good one paragraph marketing plan has the following seven components:

1)     Purpose, what's the marketing plan supposed to accomplish

2)     Benefits, how will your products and services satisfy the needs of your customers

3)     Customer, who is your primary customer and what's your strategy for building long-term relationships with that customer

4)     Company, how will the customer see your company. Remember, customers are some of the many people who will contribute to positioning your company in the marketplace.

5)     Niche, what's the niche in the market that your company has defined and will serve

6)     Tactics, what specific marketing tools will you use to reach customers

7)     Budget, how much of your budget will you allocate to marketing efforts

 

TARGET MARKET

You've probably heard the term target market before. Target market represents the segment of the marketplace whose needs your product or service will satisfy. To put it another way, the target market consists of the customers who are most likely to purchase your product or use your service.

It's important to target a specific market rather than try to hit the whole market at once. Why is this? The answer is simple: marketing to customers is a very costly undertaking for any business. So you want to be sure that you reach the customers who will actually buy from you. And who are those first customers? The ones in the most pain because they have the problem that you're solving; they're the ones who have their credit cards out when your product or service hits the market. This section helps you identify and serve your target market.

In your search for your target or customers, you'll encounter many types of potential customers. So it won't always be obvious which group you should target first. One quick and easy way to help segment all your potential customers is to create a customer matrix. A customer matrix is a table that compares all the categories of customers you identify across several characteristics or variables. The typical characteristics used to compare customers are:

·        The benefits that a particular customer seeks from your products and services

·        The distribution channel you can use to deliver those benefits

·        The marketing strategy that's appropriate for that customer

Of course you can add any other type of comparison category you want. These three categories however, will get you started. Likewise, it follows that if you're reaching different customers through different distribution channels, you'll probably also use different marketing strategies and tactics to create awareness and motivate them to buy.

After you pinpoint your potential target customer, it's time to create a customer profile. An in-depth description of the customer market research can help you find out more about that customer and the size of the market for that customer.

 

TARGET CUSTOMER

Before you do your market research to learn about your Target customer and possibly reinvent the wheel, it's a good idea to find out what others have said about your customer. There are four broad ways to segment a market which i outline in the following list. These methods are guides for you, don't forget that the best way to understand and Define your customers is to get out there and talk to them.

1)     Demographics

Demographics are the most common type of segmentation. Good market research firms can tell you down to the precise neighborhood: what people buy, when they buy, how much they buy and how much they earn. These firms also can give you information on standard characteristics such as sex, age, disposable income, ethnicity and so forth.

2)     The benefits of the product or service

Market research can tell you which types of customers are seeking convenience, wanting to save time or looking for superior quality and are willing to pay a premium for it. If such a benefit is what you're selling with your products and services, you want to know about these customers because they're your most likely purchasers.

3)     Location of your customers

Customers in various parts of the world have different purchasing habits and different needs naturally. Then the location of customers will affect your distribution and marketing strategies and probably even the design of your product.

4)     Psychographics

When you look at the personality traits, Lifestyles and behavioral patterns of customers; you're looking at psychographics. Psychographics are very important in deciding which types of marketing tactics will catch your customers attention.

Remember! If you describe your customer by using the four segmenting variables we discussed in this section, you'll have a better picture of whom you're dealing with.

 

MARKET RESEARCH

Market research is about gathering information about potential customer and market segments that can help you understand your customers and their needs. Market research is a lot like doing your taxes: you dread doing them, put them off to the last minute and then revel in what you learn about your finances as a result of doing them. If you can discipline yourself to do marketing research, it can reward you with customer intelligence that will get that revenue stream flowing.

In the early stages of market research, your target market description will be quite broad and based on samples of the population done by others. But as you get out in the market and talk to your potential customers, your definition of the target market may actually change and you may find that your potential customer is really someone quite different from what you originally thought.

Another important reason to do some of your own market research is that you know best what types of information you need for your business. In fact, defining the kind of information you require is actually the first step in doing effective market research. This section explains what information you need to gather and how to find it.

Smart market researchers always identify the information they need before they go out to talk to customers. Think of how frustrating it would be to have to finish a bunch of customer interviews only to discover that you forgot to ask a very important question. Remember, here's a list of the kinds of information that most businesses need. Of course you should modify it to suit your specific needs.

·        What do your potential customers typically buy?

·        How do they hear about products and services?

·        How do they like to buy your particular type of product or service?

·        How often do they buy?

·        How can your company best meet their needs?

Also make sure that you collect data that gives you a sense of trends in the market and the level of demand for the product or service you're offering. The toughest question facing any company introducing a new product or service to the market is: how do we figure out how much we'll sell? Unfortunately there is no totally accurate way to get the answer. You have to triangulate, come at it from three different directions to get a number that seems to make sense. Trust me, no one gets it right all the time. The following list presents some tips to help you get as close as possible to the real demand for your product or service.

·        Look at substitute products.

If your product or service isn't unique or one of a kind, and most aren't, you may be able to find a similar existing product. Study its demand patterns and extrapolate that information to your own situation. Be sure when choosing a substitute product or service that you choose one that uses your distribution channel. The number of intermediaries a product goes through to reach the customer affects the final price.

·        Talk to industry experts.

The people who deal with your type of product or service every day. Have a good handle on demand, so talk to distributors retailers, suppliers, anyone that deals with your category of products or services.

·        Do a test market.

Many companies particularly those dealing in consumer products do test markets in cities where the population is generally representative of the united states at large, denver for example. Manufacturing a limited production, run and employing limited advertising, enables you to see whether the product catches on before you incur the huge cost of large-scale production and advertising.  

When you add your own experience and understanding of the customer and the market to this list, you've probably done the best you can to predict demand.

 

MARKET P’S—MERKET MIX

We know that marketing texts refer to the “four Ps” of marketing: product, price, place and promotion. But it has always seemed a little odd to us that the four Ps never include the most important P of all: people, namely the customer.

·        People (Customer)

If you don't understand the customer, all the rest is just a waste of time. The customer determines the price, how you deliver the product, what the product looks like and how you promote it.

·        Products 

Products include features and benefits. Your product or service is really a bundle of features and benefits in the eyes of the customer. Recall that features, include such things as Quality Service, warranties options, characteristics and so forth. Benefits are the intangible aspects. In other, words what's in it for the customer.

Remember! If you take these advice and include customer input when designing your product or service, you'll have a big jump on the product side of marketing. The fact that customers design your products and services is in and of itself a strong marketing message about your company.

·        Positioning

You need position not only your product or service, but also your company. One helpful tactic is to write a positioning statement that explains how customers see your company relative to your competitors. After you've written your statement, test it on your customers, make sure that it is really how they view your company. If you find that you're off base, go back and revise your positioning statement and test it on your customers. Again, you want to make sure that the image you present in all your advertising and promotion reflects what customers expect to see.

·        Packaging and labeling make a difference.

Maybe you never thought of packaging and labeling as part of your marketing strategy, but the way you package your products says a lot about your company. Particularly if you're selling consumer products, packaging should reflect: the culture of your company; the nature of the product you're selling and the channel through which you're selling it. But remember! When you Market on a global basis packaging takes on a whole new meaning because what's acceptable in one country may not be in another.

 

PRICE

No matter what else you're doing right, if you don't price your product or service correctly, it won't sell in enough quantity to allow you to make a profit and survive. Pricing is a real challenge for most businesses especially when you introduce a new product.

Customer price tolerance determines where your price should be, but the customer isn't the only arbiter of price. Here are some other things to consider:

·        You usually can command a higher price if demand for your product or service is greater than you can supply. If you're distributing a product or service that people will buy no matter what it costs. In economic terms: the price is inelastic, you're free to charge more. A simple example of this type of product is milk.

·        You may have to hold your price down if you have a lot of competition. In this case, you can show intangible benefits to your customers. They may pay more for your product just to get benefits that they can't get from your competitors. You usually can charge more for added features but only if customers perceive them as value.

·        If you're introducing new technology, you probably want to charge a higher price. Initially to recover your development costs and then bring it down as competitors enter the market.

·        If you successfully position your product among higher priced items you may be able to command a higher price.

Remember! The strategy you use, the price your products, may change over time depending on where they are in the product life cycle:

·        Cost based pricing is based on adding a profit margin to the cost of producing the product. Of course you also need to consider how competitors are pricing their products as well as market demand.

·        Sliding on the demand curve is a strategy in which you introduce a product at a high price and then as technological improvements let you achieve economies of scale, you reduce the price. This strategy enables you to maintain an advantage over competitors.

·        Penetration is a strategy that's effective in a very competitive market with similar products. Employ it when you need to gain quick acceptance and broad-based distribution. Penetration involves introducing the product at a low price which produces very minimal profit then you gradually raise the price as customers accept the product. This strategy requires huge expenditures for advertising and promotion.

·        Demand based pricing focuses on finding what customers are willing to pay for the product.

·        Loss leader pricing calls for you to price your failing or obsolete products below cost to attract customers to other products in your line.

Choose a strategy that reflects the type of customer you have; your costs related to the product and the competitive environment.

 

PLACE

Place is more than location. In marketing terms, place has to do with where your customers find your products and services. Having a good product or service isn't enough. You need to get it to customers in the manner that's best for them: whether that be a retail outlet, mail order, direct from the manufacturer or via the internet.

Just because your business is located in a particular place doesn't mean that customers will automatically seek that location when they're looking for your product. Talking to your customers will tell you where they want to find your product or service. Doing anything other than what the customer expects is a recipe for disaster.

 

PROMOTION

The purpose of the promotion part of your marketing plan is to firmly establish the identity and vision of your company in the customer's mind. Promotion is perhaps the most creative and important aspect of marketing. It includes: personal selling, public relations, gorilla advertising (usually limited resources and creative methods), sales promotion and publicity.

You can't plan an effective promotion strategy if you don't know your customers. Talk to your customers. I say that a lot don't i? Doing so will pay big dividends and save you a lot of time and money.

 

ADVERTISING

At its heart, advertising is communication with consumers. More specifically, advertising is non-personal mass communication intended to encourage potential customers to buy a company's products or services. Why advertise? For one thing: companies lose on average 25% of their customers every year. This lost creates an ongoing need to encourage new customers to buy products or services.

Companies spend billions of dollars each year to advertise their products and services for other reasons as well. In addition to attracting new customers, here are the key objectives of advertising:

·        Improve brand recognition

·        Persuade potential customers to buy from you rather than from a competitor

·        Generate sales leads

·        Promote special events and sales

·        Improve the image of the business

·        Increase the quality of items or services purchased

·        Increase the amount spent per order

The right advertising viewed by the right people at the right time and place can achieve all the goals in the preceding list. However, you have no guarantee that the right people will see your ad or that they'll see it at the right time and place; but making this happen is critical to advertising success and it's central to the focus of advertising agencies and clients alike. This section shows you how to place the right message with the right people where they are most likely to notice it

 

AD CAMPAIGNS

Companies spend billions of dollars and Powerful advertising agencies work thousands of hours to fine-tune ad campaigns for consumers. Advertising has evolved into a fine art of creating a response from people who are a company's potential customers.

Advertising usually is an expensive proposition and if it isn't done properly, it can be an incredibly easy way to waste money. Just like owning a boat, an advertising budget can become a big hole in which you dump all your money. Don't let your company's money go to waste and your customers slip through your fingers and into the competition's hands. Plan your advertising efforts and Target your best audiences. Be sure to follow these steps:

1)     Set goals for your advertisement

Are you trying to create a good feeling about your company among people who view your advertising? Are you trying to get people to buy more of your products or services? Are you trying to convince readers that you put quality at the very top of your list of priorities? You should develop your advertisement after you understand why you're advertising, not before

2)     Develop a budget

Before you advertise, decide how much money you can devote to the effort and create a budget based on this estimate. After you decide on a budget, stick to it. Avoid the temptation to load your campaign full of unnecessary extras at the last minute.

3)     Choose a target market

Who are your most likely customers or clients: stay-at-home moms and dads who watch soap operas on television? Golfers who love to spend loads of money on vacations to Exotic destinations? Tech files who absolutely must have the latest and greatest Gadget? Whatever it may be, people in your target market should be your number one priority when it comes to advertising.

4)     Pick a medium

No not a fortune teller, we're talking about picking which of the various kinds of media you'll use for your advertisement. Your decision will be based in large part on your target market.

5)     Create your advertisement

Although you can design your own advertisements, you'll likely be well served by bringing in a professional advertising firm to take on this important task. The best firms can work closely with you to ensure your input into the creative process and your ultimate satisfaction with the final result. This is a case where getting a referral from a colleague or other trusted source is a very good idea.

6)     Place your advertisement

Although designing an effective advertisement, isn't necessarily an easy task. Placing the ad Generally is quite easy members of the media. Place a very high priority on Advertising sales and they'll be quite happy to take your money. As a result, most media Outlets have made placing ads simple: they'll provide ample sales, people and customer service to help you through the process.

7)     Track your response

Closely track the results of your advertising campaign to find out whether it has the desired effect. In most cases, getting results means people buying your product or service. Is there an uptick? In sales, after your advertisement runs for a week on a local radio station, are you getting lots of click-throughs on your web-based ad and are these people actually purchasing your products? These kinds of results tell you almost immediately whether you've taken the right approach. They also reveal whether you should continue with a particular ad or whether you should dump it and move on to something else.

8)      Adjust and repeat as necessary

After you have the results of your advertisement, you can adjust your ad: including the ads design and where and how often it runs and then repeat steps one through seven. Ads that run more frequently for example, on television once every hour or once a month in a monthly magazine get a better response from consumers. However, this effect is offset by your budget and how much you can afford. When you assess your campaign, a positive change tells you that you're on the right track; a negative response tells you that you've got your work cut out for you. Remember! Running a successful advertising campaign isn't an accident. If you take the time to create a plan to organize your own efforts, your advertising dollars will go further and your money will hold out longer.

 

AD PLACEMENT

The answer to the question where's the best place to advertise is simple. Advertise where your potential customers are. If your target customers are buyers of cutting-edge computer equipment, chances are you'll find them surfing the web or reading a variety of computer magazines that cater to their particular tastes and interests. If you spend your advertising dollars in places where you have no potential customers, you're wasting your money. Surely one of these places will work for your company's advertisements based on where your potential customers are:

·        Internet

websites are currently the hottest but also the most uncertain places for companies to advertise and despite early indications, banner ads those pesky advertisements at the top side and bottom of many websites are only marginally effective with click-through rates of no more than 0.5%.

The internet can be the least expensive place to go for advertising: with programs such as google adwords you pay a small amount of money often much less than a dollar each time a potential buyer clicks on your ad. Expect advertising on the internet to continue its dramatic growth into the future but be aware that this form of advertising may be the most appropriate for brand building that is when you are trying to increase customer awareness of your brand.

·         newspapers

Although newspapers traditionally have been the first stop for many company advertising campaigns, their popularity is declining as a media outlet. Which means, they're also becoming less popular as an advertising medium. More people than ever are getting their news directly in near real time from the web or from 24-hour cable news networks such as cnn and msnbc.

Many newspapers have established a strong online presence to retain old readers while attracting new ones and tapping into new sources of advertising money.

·        Magazines

Magazines are terrific places to advertise because they're typically targeted to specific audiences. You can choose from among car magazines, sewing magazines, news magazines, stereo equipment magazines, sailing magazines and many more. Each publication has its own unique demographic of readers just waiting to read your advertisement and don't forget that many magazines are also online and you may be able to leverage your advertising money into both venues at a nominal additional cost

·        Direct mail

With direct mail you get to choose who receives your marketing piece and you get to decide exactly what message to send and how often to send it. Although not particularly effective by itself, the response rates for successful direct mail campaigns are measured in the low single digits.

Direct mail can play an important role as part of an overall marketing campaign. Email direct marketing has much higher response rates up to 15%. So many companies are choosing this less expensive route to reach potential customers.

·        Radio

When you have a good idea of who your prospective customers are, you can target them through the selective use of radio ads. Different radio stations have different kinds of listeners: a station that plays classical music all day long for instance, has a much different listener profile than a station that plays alternative rock all day long.

·        Television

Television advertising can easily be shown at specific times and days of the week. Depending on your audience's demographics, a company that advertises on a midday television game show may never advertise on a late night comedy show and vice versa. Keep in mind that television advertising is the most expensive form of advertising. So try the other forms first if you can.

·        Outdoor signs

Billboards: the sides of buildings and buses, baseball stadium outfield walls, all are examples of outdoor advertising. At its best, if you can put an ad on it you can bet that someone already has somewhere.

 

PROMOTIONAL MATERIALS

Whether you focus on advertising campaigns or not, the bulk of your company's marketing efforts and cash probably go into creating and distributing promotional materials. Promotion is the conveying of information about your company and its products and services. Although most promotional materials are written or printed for inexpensive and easy distribution, they can also take the form of email messages and websites.

Chances are, you've already used one or more of the following promotional items in your business:

·        Sales letter

A sales letter is a written appeal to a customer to consider buying a company's products or services. A sales letter may contain information about the products or services as well as special offers for buying sooner rather than later: a sales letter often is accompanied by brochures product sheets or other promotional materials.

·        Brochures

Brochures generally present detailed information about a company product or service. They can take the form of a simple piece of paper folded in half or in thirds or they can be slick full color multi-page marketing pieces or reports.

·        Product sheets

 got a product? If so you should have a product sheet to go along with it. A product sheet is a one page often front only but sometimes front and back description of a product along with a photo and key specifications. A product sheet should be complete enough to answer your customers initial questions without overwhelming them.

·        Publicity photos

Publicity photos give your customers and the media a good idea of what you and your products or services look like. Generally, publicity photos are accompanied by other promotional literature: perhaps brochures or press releases

·        Audio or video

Although brochures product sheets and publicity photos for instance are static, audio tapes and videotapes are dynamic. Which means they can convey much more information than a simple piece of paper can. Today, audio or video promotional materials usually take the form of cds or dvds. However, with the rise of high quality streaming video on the web, the use of online promotional materials is surging.

·        Promotional kit

A promotional kit is a folder that contains some or all of the preceding items in the list. A kit for your company's latest disposable camera for example, may contain a sales letter, a brochure, a product sheet, a publicity photo, a video and a working sample of the camera. The purpose is to give potential customers an in-depth look at your product. Which hopefully will generate interest and sales.

·        Websites

Many companies are transferring their promotional materials to their websites for a couple reasons: first, doing so costs little or nothing because you've already invested the money to create the promotional materials; second, a website is on 24 hours a day, 7 days a week, it doesn't sleep and it doesn't take breaks (well unless the server goes down). However, because websites depend on people making an effort to discover and visit them, you need to find ways to help consumers along: plaster your url everywhere possible on your products, in your advertising on blogs where your prospective customers hang out on, the side of the goodyear blimp wherever people might see it and be compelled to take the time to visit your site.

Remember as with all marketing materials, you should tailor the use of your promotional material specifically for your intended recipients. Figure out what kinds of materials your target customers will most likely respond to and then provide them with these materials.

 

SALES

In transaction marketing, buyers and sellers usually have no ongoing relationship with one another and Communications are limited: the primary goal is short-term sell something and sell it now. What? You don't like that pink Cadillac, how about if we repaint it for you? What do we need to do to get you to buy this car right now? Many sales people and the companies that employ them including car dealerships are now trying a new approach. Because people are becoming less responsive to the old one

This new approach is based on relationships, not transactions. Indeed, more and more companies are discovering that creating ongoing long-term relationships with clients and customers can pay off. In increased sales and in decreased marketing costs over the long run and these results mean a much healthier bottom line.

With this new approach called relationship-based selling, the focus is on building a long-term relationship with a customer: selling the benefits of your product or service; providing medical customer service; being totally committed to the customer; talking to the customer continuously.

Why the change in emphasis from transactions to relationships? It's really quite simple: people prefer to buy from companies with which they have relationships. They want to do business with companies that show they care about their customers. You can show that you care through: your commitment to your customers; your Superior customer service and the importance you place on maintaining a relationship rather than simply selling a product.

So suppose that you want to change your company's sales approach from transaction based to relationship based. Exactly how do you do that? Here are the Four Keys to building relationships with your clients and customers. Put these to work in your organization right away:

1)      Build trust

The first step in developing long-term relationships with your clients and customers is to build trust by doing what you say you're going to do. Trust is the glue that holds business relationships together and makes them stronger and deeper over time.

2)     Create bonds

Long-term business relationships depend on the creation of bonds between organizations and customers or between two organizations. Bonds are formed when organizations and people find that they have mutual goals and interests and they decide to work together to take advantage of them. As relationships grow, these bonds get stronger.

3)     The empathetic

Being empathetic means that you see a situation Through The Eyes of another party. If you're empathetic as a salesperson, you'll develop an understanding of a customer that goes much deeper than a relationship focused only on a transaction. Empathy is an emotional link that builds trust between parties.

4)     Encourage reciprocity

Sometimes you have to give a little to get a lot. Reciprocity is giving up something that you want to get, something that you need. When reciprocity is present in the business selling process from customers to suppliers and vice versa, the result is a stronger business relationship that's built to last.

5)     Customer relationship management (CRM)

Is the latest and greatest way to manage your business's relationships with your customers. In essence, a CRM is simply a computerized database that tracks information about customers. In the old days, customer information: names, addresses, phone numbers and so on was filed away on index or Rolodex cards or on sheets of paper stapled into file folders. Today, digitized CRM systems are light years ahead of those old approaches to doing business and a number of computer systems on the market specialize in capturing storing and analyzing customer information. Here's a list of the functions you'll find in a typical CRM system:

·        Company and contact management

·        Lead management

·        Activity management

·        Opportunity management

·        Charting

·        Reporting

·        Email marketing and mailing list management

·        Sales forecasting

·        Microsoft Outlook

·        Email integration

·        Notes

·        Business intelligence management

Remember! Computerized CRM systems offer the following benefits to the businesses that use them. Enables companies to provide better customer service by centralizing customer information and making it more readily: available to those who need it; makes it easy to share customer information throughout an organization, just down the hall or around the world (you can quickly Share info because of its ready availability on most any company computer or even data enabled phones such as Trio and blackberry); help companies give customers exactly what they want, when and where they want it.

As customer ordering information is compiled over a long period of time, sales people can better anticipate future customer needs, makes the entire selling process more efficient, it saves both time and money that used to be wasted in trying to coordinate a variety of customer. Information systems often paper-based in scattered offices, helps companies retain their current customers by keeping them satisfied while they search to find new ones

6)     Identifying your best customers

Remember! Who are your best customers? Very simply, they're the customers who account for the greatest percentage of your sales: the loyal, repeat customers who cost you the least to maintain and send more dollars to your bottom line. You like these customers.

If you adopt a good customer relationship management (CRM) system, finding the best customers and the worst ones will be easy. Tip: you can devise your own measures for determining who's a valuable customer but one way to do it, involves statistics. This suggestion is for people who like to crunched numbers. For the rest of you, look at the total revenue generated by the customer and the frequency of its purchases compare those figures against other customers. You may decide to take the top 25 percent of your customers and see what they contribute to your totalrevenues.

 

SALES STRATEGY

After you identify your best customers and do what you can to reward and keep them in the short term, you should consider how to keep them happy for Life. The strategy i recommend is based onthe characteristics of this new business world we live in. If you apply this win-win strategy in your business, you'll sell to satisfied customers who keep coming back for more. Specifically, the strategy is centered on four principles of the new Marketplace:

1)     Owning your Market

To be successful in business today, you have to create your own niche in the market and be the leader. When you're the market leader, people look at you differently: you have an automatic Edge over your potential competitors, you set the standards in the market and can encourage others to develop products and services that are complementary to yours. That was Microsoft strategy when it carved out a niche in computer operating systems with its Windows product.

If you find that competitors aren't meeting certain customer needs in your industry, you found a niche that your business can serve.

2)     Positioning your company

Products come and go but if you run your business correctly, your company will last for a long time. Therefore, it makes sense to spend as much or even more time positioning your company in the market than your products and services.

Positioning is attempting to control the way customers perceive your company and its products and services. Taking a proactive approach to positioning your company is important because if you don't position it your customers, Distributors, suppliers and competitors certainly will and they may not position your company the way you want.

Remember! With positioning, perception is reality. Whether what's perceived is true or not, the customer makes decisions based on his perceptions. So it's important that the perception of your company and its products and services is a positive one. Customers can perceive two identical products differently depending on how they're marketed. For example, you've probably seen a brand name product in a store located right next to a generic brand that has the same ingredients. Many consumers purchase the name brand for more money just because they perceive a difference, even though one doesn't exist.

3)     Mass customizing

No this isn't an oxymoron. One great benefit of technology is that it allows businesses to customize their products and services to meet the specific needs of customers. Mass customization is giving your customers what they want, when they want it and in the specific way they want it. Anything that can be digitized can be customized. Manufacturers that use computer-aided manufacturing techniques for instance, can program in customer changes by pushing a few buttons. Here's another example: companies that produce written documents can easily customize wordingto speak directly to specific customers.

Remember! The fundamental requirement for Mass customization is a good relationship with your customers. When they trust you, they can guide you in your efforts to give them exactly what they want.

4)      Focusing on things you can't touch or see

Businesses often become so product or service focused that they can't see or they ignore. What's really significant? The most important things about your company and its products or services are the things you can't see or touch the intangibles. In other words: quality, customer focus, reliability. Remember! When your competitors start competing based on price alone, the only way you can gain an advantage is by adding value with intangibles. Customers tend to buy from businesses with which they have ongoing relationships and where they perceive value. Because they've invested time and effort.

5)     Getting rid of bad customers

It may sound harsh to encourage you to get rid of your bad customers but the reality is that they're holding your business back. They're: the ones who have a bad debt history with your company; they buy infrequently and in so little volume that if you ran the numbers you'd fine; that keeping them actually is costing you money. The most valuable customers on the other hand, are making you money. Every company has good customers and bad customers. Your goal is to keep the good customers and get rid of the bad ones there are two key ways to get rid of your bad customers:

·        Convert your bad customers into good ones. ideally it would be great if you could simply convert your bad customers into good ones. In some cases, you may want to give it a try how sometimes you just need to give a bad customer a wake-up call to let them know that the party is about to end. For example, you can say if you know an order at least ten thousand dollars worth of coffee beans? Within the next month we'll have to ask you to take your business elsewhere or you can try giving your bad customer special incentives to buy more of your products or services such as a one-time discount for signing on to a long-term buying program. Fire your bad customers by refusing to do business with them.

·        Unfortunately some bad customers aren't worth saving. These customers will be bad forever no matter what steps you take. Do what you can to identify these customers, as soon as you can and then simply refuse to do business with them. You don't need to be nasty about it, just tell them that they need to find other companies to do business with.the breakup may sting for a little bit but short-term hurt is well worth the long-term gain to your business

 

 

STRATEGIC PLANNING BASICS FOR MBA

COMPARING STRATEGY AND TACTICS:

A strategy is a plan for achieving a major organizational objective. Objectives are important for a number of reasons: they give everyone a set of guidelines and a focus; they help motivate everyone to achieve; they provide a basis for measuring achievement. Tactics on the other hand, are the methods for carrying out the strategy.

Marketing guru, seth godin uses a skiing analogy to explain the difference. He says that negotiating turns on a ski slope requires great tactical skill that must be executed perfectly. But choosing the right place to ski is a strategy. He claims that everyone skis better in utah. Basically, the strategy sets you up so you can perform the tactics flawlessly. All conditions being perfect. Which they never are.

The boundary between top management and middle management and who does strategy; and who does tactics is quickly eroding in today's dynamic and complex marketplace. Today, strategy has seeped down into the lowest levels of management in the organization. At the same time, the CEO who doesn't understand tactics can't ensure that strategies are properly executed. The following sections take a more in-depth look at the various categories of organizational goals and the strategic planning process.

 

STRATEGIC GOALS

Strategic goals generally are developed by top management and focus on Broad issues that affect the company overall. Some examples of strategic goals are: growth, raising Capital, reducing employee turnover, new product development. But more and more the responsibility for Designing and implementing strategic goals is being shared with lower level management and operations people: people closest to the market. In a time when global market conditions fluctuate rapidly, it's a very dangerous practice to rely on strategic plans and goals developed solely in the Ivory Towers of upper management far removed from the street.

For example, product planners often have difficulty forecasting demands so that they can order the correct amount of raw material and schedule production efficiently. Some companies have formed Departments of analysts to crank out copious volumes of numbers in an effort to correctly forecast needs. But the only thing you can ever be certain of is that the forecast will always be off. Consequently, many companies are for the most part over stocked with costly inventory.

Today Smart, Companies are approaching this problem not with forecasting tools but with a strategy focused on more efficient and faster production times: they respond to actual market demand with rapid production; they order raw materials as needed and produce products as needed. So strategic planning for production is now done on the factory floor rather than in the executive penthouse.

 

TACTICAL GOALS

Tactical goals generally are developed by middle managers or those directly responsible for executing a strategy. The purpose of tactical goals is to work out ways to make strategies happen. The metaphor most commonly used to describe tactics is that: tactics are to the battle.

What strategy is to the war. Strategy is the big picture and tactics are the steps taken to achieve the strategy: where strategy generally is concerned with resources, market environment and the mission of the company; tactics usually deal more with people and actions. In essence, tactics are about execution to effectively execute. A tactical plan requires that you take the following actions:

·        Look at all the possible alternatives before proceeding

·        Give all those involved in executing the tactical plan, the resources and the level of authority. They need to do their part

·        Make sure that effective modes of communication are in place to minimize conflict or overlap of activities

·        Continuously monitor progress to ensure that you're on target

 

OPERATIONAL GOALS

Line managers, those who deal directly with the product, typically create operational goals which are usually very narrow in focus and can be accomplished relatively quickly. Operational goals and plans come in many forms. Want to see them all at a glance?

 

PLANNING

Don't make the mistake of thinking that strategic planning takes place only inside the organization. Preferably behind closed doors in rooms with plenty of coffee, bagels charts, spirited banter and brainstorming. That's only one way that strategic planning takes place and it may not even be the most important way. A whole host of external environmental factors have a major impact on the planning you do for your business. This section takes a look at three of the most important factors: customers, dynamic markets and competition.

·        Customer

Do you really know your customers? Customers are jaded by a selection of products and services that overwhelm them with choices. In some markets, customers no longer rush to buy things on sale because a sale is always going on somewhere.

Because customers have so many choices, they're more demanding. Levels of quality that were considered above and beyond only a short time ago, are now considered minimum quality standards. You now have to go way beyond those old standards to grab your customers attention.

Remember! Brand loyalty is declining, so businesses have to work much harder to keep their customers. Keeping customers is paramount because a customer becomes more valuable over time: from repeat purchases and referrals. Therefore, the solution to planning in this new very complex marketplace lies in: building long-term customer relationships; built on trust and you can't gain the trust of your customers if you don't interact with them.

·        Dynamic markets

Market research has been the foundation of most strategic planning. Unfortunately, traditional market research has formed the basis for most of the market information that companies have used to do their planning. That kind of information typically is too general to be of much use in specific markets. The information you really need for planning purposes comes directly from the customer.

A classic case of the failure to listen to the voice of the customer, is the introduction of new coke, the beverage that taught coca-cola some important lessons. Coca-cola in an effort to break out of the coke pepsi wars decided to tweak its famous formula. It based the decision on faulty market research in which they asked consumers if they would buy a product that tastes better than pepsi but was still a coke. Consumers without ever having tasted the product responded with a resounding yes. However, coca-cola failed to ask the most important question: why? The company went ahead and launched the product based on its feedback and it was a disaster at the end of days. Coca-cola reintroduced classic coke with great fanfare telling its customers that it had made a mistake. Fortunately for coca-cola, their loyal customers became even more loyal.

Customers however, sometimes don't readily reveal what they really want. Often, they give the easiest most expedient answer to a question such as: what do you think of this product? No one wants to intentionally hurt someone's feelings even if it is a big company like coca-cola. If you don't spend time out in the market listening to real people, you're taking a big chance that the information being used by your company doesn't reflect the real feelings of the customer. If the info doesn't match up the strategies you devise won't hit the mark.

·        Keeping up with the changing competition

In the past, a business could create a sustainable competitive advantage relatively easily through, such things as: a unique market segment, lower costs, product and service differentiation and superior execution. In today's fast-changing global marketplace, staying ahead of the competition isn't that easy. Superiority in one or more of those areas can certainly get you started, but you won't be able to sustain an advantage with those factors alone. Many businesses now say that you literally have to ignore the competition to gain a competitive advantage.

 

SWOT ANALYSIS

One of the traditional jumping off points in the development of strategies is a SWOT analysis. SWOT is an acronym that stands for strengths, weaknesses, opportunities and threats. The analysis is merely a guide for organizing your thinking about your company and the environment in which it operates.

Strengths and weaknesses are part of the internal analysis of your organization; opportunities and threats are part of the external analysis of the environment in which your company operates. In short, everything outside your organization that may affect it.

To conduct a SWOT analysis for your company, answer the following questions and see where your company stands and to see how the four components of a SWOT analysis interrelate:

·        What are my company's strengths

·        What are my company's weaknesses

·        What opportunities do I see for the future

·        What are the threats that could prevent us from achieving our goals and how will we deal with those threats

 

EXAMINING YOUR COMPANY'S STRENGTHS

Your company's strengths are its skills capabilities and core competencies that work together to enable you to achieve your goals and objectives. Examples of strengths are: an extraordinary team that works well together; a patented technology that you develop or control of; key distribution components.

Successful companies such as search engine company (google) capitalize on their strengths. One of google's biggest strengths is its corporate culture. Its frequently labeled one of the best companies to work for and it takes pride in its creative and family-oriented environment. Why is culture a strength? One of the biggest costs to any business is employees and employee turnover. If you keep employees happy, they won't want to leave and they'll work harder to make sure your company succeeds. It's as simple as that, yet most companies don't spend much time thinking about a strategy for improving their corporate cultures.

Remember! One or more of your strengths may become your competitive advantage in the marketplace. For example: suppose that your company is really good at coming up with innovative designs for new products, it's probably in your best interest to focus your efforts and resources on that strength to differentiate your company in the marketplace.

Scattering scarce resources across too many diverse capabilities only weakens your competitive stance. You can outsource your weaknesses to other companies and focus on what you do best. For example, many companies today outsource expensive manufacturing, distribution and even payroll functions. Plenty of companies are leasing their employees back from peo’s, professional employer organizations, which take the tedious and time-consuming task of human resource management from the companies so they can focus on their core competencies.

 

EVALUATING YOUR COMPANY'S WEAKNESSES

Your company's weaknesses and every company has them, also play a role in your ability to achieve your goals. Ceos often can more easily describe their businesses strengths than their weaknesses generally because they don't like to admit that they have any weaknesses.

Weaknesses are those skills capabilities and competencies that your company lacks and that prevent you from achieving your goals and objectives. If your company doesn't have a critical skill or capability that it needs to achieve a particular goal, you have three choices:

1)     Modify the goal to something achievable with the skill set you have

2)     Raise the capital needed to acquire the skill or capability you need.

3)     Find another company that has the core competency you need and outsource that need or collaborate through a strategic partnership

Suppose for example that you have a fast food company, that's known for its food and the ability to get it to the customer very quickly. Your weakness however, is administering the business side of the business accounting, payroll and so forth. You should consider outsourcing those weaknesses to a company that specializes in providing these services to businesses.

 

RECOGNIZING YOUR COMPANY'S OPPORTUNITIES AND THREATS

Opportunities are those things that help your business grow to new levels. Threats are barriers to that growth. The classic books of michael porter on competitive strategy, provide a framework for looking at the environmental factors that can affect every business: competitive strategy; techniques for analyzing industries and competitors and competitive advantage; creating and sustaining superior performance. These factors are worded as threats but their corollary is really an opportunity.

When you see a way around a barrier or threat, you're seeing an opportunity to move forward in the market. Porter's basic assumption is that sustaining high performance levels requires a well-conceived strategy and a tactical plan based on how your industry works. He asserts that five forces affect the ultimate profit potential of a company. Here are porter's five forces:

1)     Threat of new entrants

Barriers to entering an industry, include: economies of scale; brand loyalty; capital requirements; switching costs (the costs buyers incur in time and money to retrain staff and learn a new product or relationship); access to distribution channels; proprietary factors (for example, technology owned by someone else) and government regulations. If these barriers are very high, your company will need to be well funded. It takes a long time to tear down barriers and find strategic partners to overcome them.

2)     Threat from substitute products

Substitute products may come from other industries but they accomplish the same basic function as your product, in a different way or at a different price. You need to know the likelihood that customers will use these substitutes and what it will cause them to switch to your product. If switching to your product is difficult or costly to the customer, you'll need to ensure that your marketing strategy educates the customer on the value of switching to your product.

3)     Threat from buyers bargaining power

Volume buyers in an industry can force down prices. In a world where a simple internet search can provide buyers with an enormous amount of price information, buyers have a lot of bargaining power. Your ability to create complex products and services that can't easily be compared on price and that convey a strong benefit to the buyer will help you avoid competing solely on price.

4)     Threats from suppliers bargaining power suppliers can exert pressure by

Threatening to raise prices or change quality or volume of supply, here's where strategic improvising can really help. You should always have more than one supply source for anything you have to purchase to make your product. That way if your main supplier hikes prices or runs a low on materials, you can quickly switch to a backup supplier.

5)     Threat from the rivalry among existing

Industry firms, a highly competitive industry drives down profits and prices airline price wars are a good example of this situation. Competing on price is a no win proposition. You need to compete on value. So making sure that buyers understand the benefit they receive from dealing with your company will be critical to your success.

Again, a marketing strategy that's focused on a value message is important. By looking at your industry from the five forces perspective, you can get a better sense of the opportunities and threats facing your business. Even when the environmental forces seem negative and threats appear to be more prevalent than opportunities, your business can still do well.

 

INNOVATION

One of the biggest Trends in business during the past few years has been process or operational Innovation: redesigning every aspect of a business in new ways to reduce costs, save time or provide better service. What's the reasoning behind operational Innovation? All systems which include business organizations are subject to entropy a natural degradation that occurs over time. If your business strives to maintain its current status, never a good idea. Ultimately, you'll begin consuming your own resources just to survive and then you can't respond quickly when change occurs.

What operational Innovation is all about? Be careful not to confuse the strategy of operational Innovation with operational Improvement which really is just a way to achieve higher performance by using current methods. Operational Innovation is about coming up with brand new ways of doing whatever processes are part of your business. The advantage of this strategy is that it's very difficult for a competitor to copy your operational plan. Process Innovations produce faster time to Market and lower costs which result in higher customer satisfaction and retention; a big payoff for any company that practices this strategy.

Process Innovation itself is quite simple, it has five components:

1)     Develops goals and a plan for fostering innovation in your company

2)     Ensures that top management conveys its total commitment to the effort

3)     Makes sure that everyone feels a sense of urgency

Remember operational Innovation usually has a better chance of working if it occurs under conditions of urgency an urgent need is more easily felt by everyone in the organization and the only way that Innovation can be successful is if everyone commits to it.

4)     Starts the Innovation effort by looking at your company as if you were starting from scratch

5)     Anything goes takes perspectives from the top of the organizational chart and the bottom. Meet in the Middle With A New Perspective that's comprised of the best of both positions.

Remember, of course any Innovation strategy must begin with your customers, you need to ask your customers what are you trying to accomplish then begin to find and put into place procedures and systems designed to meet those needs

 

 

RISK MANAGEMENT BASICS FOR MBA

MANAGING RISK: YOU CAN AND SHOULD

Manage risk to protect your company; in fact, many insurers make the development of a risk management process or plan: a condition of granting insurance coverage. No risk management process can prevent every possible setback from occurring. But a good risk management process can minimize the financial loss your business will suffer; as well as help prevent injuries and death.

You can take precautions in case something bad does happen and this section gives you some pointers including: how to create a risk management process; how to determine what risks You're vulnerable to and how to take action.

A formal risk management process greatly reduces your company's exposure to risk and undoubtedly saves your organization time, money and loss of employee productivity. Creating a risk management process requires the concerted effort of one or more employees during an extended period of time. These employees include: top management, as well as individuals tasked with leading the risk management process. Here are seven steps for developing a risk management process that really works:

1)     Get the commitment of top management

To create a risk management program that will work over the long haul, you must have the support of top management. An explanation of the potential risks to the company of ignoring this vital process supported with hard facts and figures, will generally be enough to gain the support of even the most reluctant manager.

2)     Assign one person to lead your company's risk management efforts

One person should have ultimate responsibility for your organization's risk management. Process such a policy ensures accountability and prevents finger-pointing if something goes wrong and the business isn't prepared for such an event. This individual will be in charge of leading and implementing the steps that follow.

3)     Establish a risk control committee

Employees can participate in the risk management process by helping to identify risks and by taking actions to minimize their potential impact on your organization. The committee should also track risk and employee injury, Trends and take action to reduce risks and injuries. Make sure that the committee includes a broad cross-section of employees from all levels and all parts of the organization.

4)     Create an emergency action plan

If the unthinkable: a fire and explosion; a natural disaster; a terrorist attack happens; will all your employees know exactly what to do and where to go to protect themselves and your organization's property from damage or destruction. An emergency action plan ensures that they will.

5)     Establish a formal self-inspection program

Is your workplace safe? Are you sure? A self-inspection program should identify potential safety hazards and take action to make repairs or Corrections. Conduct a vulnerability analysis and use members of your risk control committee to conduct inspections throughout your organization.

6)     Establish an accident and safety incident investigation program

The most well-protected organizations learn from accidents and incidents and they use this information to help prevent future accidents and incidents. Appoint someone in your organization to investigate every accident and safety incident to determine what lessons you can learn from the mishap.

7)     Develop a training and education program

Train and educate your employees to identify hazards prevent injuries to themselves and others and respond appropriately in case of emergency or disaster.

The previous steps are the basics of establishing a strong Foundation of risk management in your organization. You may wish to do even more; you may want to tap into the expertise of Consultants who specialize in Risk Management as you go through the process. Whatever you decide to do, don't forget that sufficient foresight and planning can help prevent losses and reduce risk.

 

VULNERABILITY ANALYSIS

Before you can effectively manage the risks that your organization is or will be exposed to, you need to understand the specific risks you're up against. The goal of vulnerability analysis is to assess the probability and potential impact of the different risks that you identify.

Use the vulnerability analysis chart to score your organization. The lower your score the better. If you identify risks with a high score, give them a high priority in your organization and address those risks immediately. If you haven't already taken care of them, make the following steps adapted from processes developed by the federal emergency management administration (fema) a part of your vulnerability analysis

·        Step 1 list potential risks

In the first column of the chart, list all the potential risks that could affect your facility and the people in it. Be sure to consider risks that could occur in your facility or within your community. Bring your risk control committee into the process to help ensure all possible risks are brought to light. As you consider the different risks that could possibly occur, think in terms of the following potential areas of risk:

¾    Human error

One potential employee error driven risks: are your business exposed to? Are your employees trained to work safely? Do they know what to do in an emergency? Consider potential risks as a result of poor training, poor maintenance, carelessness, misconduct, substance abuse, fatigue

¾    Business

What kinds of risks does your organization face that are uniquely business risks? The risks that a business faces can be quite different from the risks that an individual faces. Consider potential risks as a result of malpractice, embezzlement, product liability, fraud, loss of key person, errors and omissions, construction defects, worker injury and death, non-performance.

¾     historical

What types of risks have your community your facility and other business facilities in your area faced in the past. Consider potential risks as a result of fires, severe weather, hazardous material spills, transportation accidents, earthquakes, hurricanes, tornadoes, terrorism, utility outages.

¾     geographic

What can happen as a result of your facility's geographic location? Consider potential risks as a result of: your proximity to floodplains, seismic faults and dams; your proximity to companies that produce, store, use or transport, hazardous materials; your proximity to major transportation routes and airports; your proximity to nuclear power plants.

¾    Technological

What could happen if you experience a process or system failure? Consider potential risks as: a result of fire, explosion or hazardous materials incident; safety system failure; telecommunications failure; computer system failure; power of failure; heating or cooling system failure; emergency notification system failure.

¾    Physical

What types of risks does the design or construction of the facility pose? Does the physical facility enhance safety or detract from it? Consider potential risks as a result of the physical construction of the facility, hazardous processes or byproducts, facilities for restoring combustibles, layout of equipment, lighting, evacuation routes and exits, proximity of shelter areas.

·        Step 2 estimate the probability of the risks

In the probability column of the chart, rate the likelihood of each risk's occurrence by using a simple scale of one to five with one as the lowest probability and five as the highest. You need to rely on your own experience and the experience of others in your company or industry to develop reasonably accurate numbers.

·        Step 3 assess the potential human impact

Analyze the potential human impact of each potential risk: the possibility of death or injury. In other words, assign a rating in the human impact column of the chart by using a one to five scale with one is the lowest impact and five as the highest. Again, draw on your experience or on the experience of others in your company or industry to develop reasonably accurate numbers.

·        Step 4 assess the potential property impact

In the property impact column of the chart, consider the potential for property losses and damage assign a rating by using a one to five scale with one being the lowest impact and five being the highest. Consider potential risks in terms of cost to replace, cost to set up temporary replacement, cost to repair. For example, although a utility outage will likely have a low probability of property loss or damage perhaps a one or two; a terrorist attack resulting in physical damage would score higher perhaps a four or five.

·        Step 5 assess the potential business impact

Consider the potential laws of market share, due to the potential risks you identify. Assign a rating in the business impact column, by using a one to five scale with one being the lowest impact and five being the highest. Consider potential risks in terms of business interruption, employees who can't report to work, customers who can't reach your facility, company in violation of contractual agreements, imposition of fines and penalties or legal costs, interruption of receipt of critical supplies, interruption of product distribution (for example, an earthquake could potentially result in your offices being made off limits by authorities for days, weeks or even months creating a major and potentially long-lasting business interruption).

·        Step 6 assess internal and external resources

Assess your company's resources and your ability to respond to situations. Assign a score to your internal resources and external resources by using a one to five scale, with one representing a lack of resources to respond and five representing more than sufficient resources to respond. To perform this evaluation consider: each potential risk from beginning to end and evaluate each resource that you need to respond. For each risk, ask these questions:

¾    Do we have the needed resources and capabilities to respond

¾    Will our external resources be able to respond to us in adverse times as quickly as we may need them

¾    Will they have other priority areas to serve

If the answers are yes you, can move on to the next assessment. If the answers are no, identify what you can do to correct the problem. For example, you may need to develop additional risk management procedures, conduct additional training, acquire additional equipment, establish mutual aid agreements, establish agreements with specialized contractors.

·        Step 7 add the columns total the scores you've rated for each potential risk

The lower your score, the better risks. With a high score, should be given a high priority in your organization and addressed immediately. Although this is a subjective rating exercise, the comparisons help determine your risk planning and resource priorities.

 

INSURANCE

When you buy insurance for your business, you shift the risk of loss to a third party. In this case, an insurance company. The insurance company essentially is betting that you won't suffer a loss due to the risk. It hedges its bets by collecting a sufficiently high premium at rates, based on the statistical predictions of actuaries (people who specialize in the mathematics of risk), to make money off your business even if you do suffer a loss at some point down the road.

Here are the most important and common kinds of insurance to consider buying and maintaining for your business.

·        Liability

If someone is injured or has property damaged or destroyed while on your premises or while using your product or service, your organization may be sued for millions of dollars in damages. Liability insurance protects your organization from these kinds of financial losses. If you lease your office or manufacturing space, your landlord probably requires you to carry a certain amount of liability insurance for protection.

·        Property

Natural disasters such as earthquakes, floods and tornadoes wreak billions of dollars worth of property damage every year. But an estimated 70% of all business property losses happen not as a result of natural disasters, but because of employing negligence, errors or lack of planning. Property insurance generally covers the risk of property loss due to fire, smoke, wind and other sources of damage or destruction.

·         business interruption

If property damage or another situation forces your business to close until you can repair or rebuild your facility, business interruption insurance covers you for the risk of lost sales.

·        Technology risk

Most businesses today have information technology exposure to their business operations. Companies are at risk from invasion by electronic intruders whether the damage occurs on an external website or an internal internet accompany network. Cyber insurance describes a group of insurance policies that protect a company against losses from hacked computers, virus attacks, copyright infringement, web content liability and other technology related risks.

·        Environmental

If your business has anything to do with construction landfills, underground storage, tanks chemical production, recycling facilities, maintenance facilities or anything else that may have or come into contact with a negative environmental impact, environmental insurance designed to protect your company if it's found responsible for damaging the environment is right up your alley.

·        Malpractice

Also known as errors and omissions (e and o) or professional liability insurance. Business malpractice insurance covers professionals who give advice during the normal course of business, doctors, lawyers, consultants, accountants and stock brokers are among those who need malpractice insurance in case their clients are injured physically, financially or emotionally as a result of their work errors and omissions. Insurance have received much greater attention as a result of the financial misdeeds of enron, tycho and other companies similar to them.

·        Fidelity bond

This is a specialized but widely used form of insurance that protects employers from theft, larceny or embezzlement, committed by covered employees. Ocean marine, the oldest form of insurance in existence. Ocean marine insurance covers four key areas pertaining to transporting goods via ship. The vessel or hull the cargo earnings such as freight passage, money, commissions or profit and liability, also known as protection and indemnity.

·        T person

Smaller businesses that depend on one person perhaps the founder or chief executive to lead the organizations and bring in business, usually carry key person insurance. In the event of this person's death or incapacity, key person coverage pays a fixed amount to the business. Much as a life insurance policy pays a fixed amount of money to a surviving spouse or other beneficiary.

 

ACTIONS

After you've assessed your potential risks and prioritize them by their urgency and potential impact, you need to take action to reduce them or eliminate them entirely. Consider four basic strategies when selecting your risk management tools. Keep them in mind as you decide what strategies you'll pursue to reach your risk management goals.

·        Shift the risk

One way of dealing with the risk of loss is to shift the risk to someone else: when you buy an insurance policy, you shift the risk to the insurance company; when you draft contracts with subcontractors that require them to carry liability insurance, you shift the risk to your subcontractors and their insurance companies.

·        Avoid the risk

By identifying and correcting hazardous situations, say for example, by repairing the brakes on a company delivery truck, you can avoid potential risks altogether.

·        Reduce the risk

Although you can't entirely avoid some risks, you can reduce them. For example, training your employees in the proper techniques for lifting heavy objects, substantially reduces the incidence of back injuries which result in loss productivity.

·        Assume the risk

In some cases, an organization may decide to bear the financial burden of a risk by self-insuring for workers compensation claims for example or by paying higher deductibles on insurance policies, an organization assumes all or part of a risk of loss. This course of action should be taken only after a very careful assessment of the risk, along with a detailed cost benefit study

Remember! Whatever you do to address risk, do something after you've determined that a potential risk of injury or loss exists. You have to take action by shifting, avoiding, reducing or assuming the risk. Don't waste time hoping that the risk will go away. If you just ignore it, it won't.

 

TRAINING

Employees are some of the most powerful tools in the toolbox of any company that's looking to reduce its risk of loss. Employees can not only proactively identify and cure potential risks, but also can train others to do the same. The result is a much safer workplace, with improved employee morale and productivity.

Safety training can cover any potential risk in the workplace. Because each company and industry is different, you should tailor your employee training to the exact needs of your organization. Typical topics include: bloodborne pathogens, correct lifting techniques, ergonomics, adapting working conditions to better suit employees, respiratory safety, forklift safety, electrical safety, office security, first aid and cpr evacuation plan.

The key to employee safety is the behavior of the employees themselves. Human error is reported to be the single largest cause of workplace emergencies. Incentives can play a role in rewarding safe employee behavior, thereby decreasing the amount of incidents that take place. Here are some guidelines for using incentives to encourage safe behavior at work.

·        Customize the incentives for your organization

What works for one company may not work for yours. Each organizational culture has its own unique needs and motivators. If you pick the right incentives: things that your employees themselves value, your safety program will be much stronger than a program that uses no incentives or the wrong incentives.

·        Distribute the incentives fairly

Incentives must be distributed fairly, avoid contests that reward only a few people or that reinforce the view that safety is a matter of chance or luck

·        Make your incentives meaningful and timely

Incentives are meaningful when they're well-proportioned to specific behaviors or results. In other words, employees who exhibit safe behavior during the course of an entire year should receive a more significant reward than employees who exhibit safe behavior for only a month. Although you should still reward and encourage these employees for their safe behavior, also give rewards whether they're material gifts or verbal acknowledgments in a timely manner. Soon after employees reach their goals. Doing so, boosts the impact of the incentive

 

 

ECONOMICS BASICS FOR MBA

An economic system is simply a set of laws institutions and activities that guide decision making. Every economic system seems to answer the questions about how to allocate scarce resources. We summarize the different systems for you here:

·        Traditional economic system

Economies that are based on farming and use simple barter trade have traditional economic systems. This system remains only in remote areas such as some parts of tribal africa.

·        Pure market system

This system is based on supply and demand with little or no government control. The ebay reverse auction system is a form of a pure market system.

·        Command economy

This system is run by a strong centralized government and focuses on industrial goods instead of consumer goods. The former soviet union had a command economy.

·        Free enterprise system

Most democratic nations have this economic form where individuals can make economic choices. This system is also called capitalism or market economy. It's characterized by competition and a profit motive. Entrepreneurs love this. Competition comes in four flavors:

1)     Perfect competition: you have a lot of buyers and sellers and no one giant company can affect price.

2)     Monopolistic competition: many sellers produce differentiated product and their goal is to dominate a niche in the market.

3)     Monopoly: a particular commodity has only one seller who controls supply and prices. Free market economies don't like monopolies.

4)     Oligopoly there are a few competitors that dominate an industry. The automobile industry is a great example of an oligopoly

The united states and the european union don't have pure free enterprise systems, they have mixed economies which means that they combine the principles of market and command economies: they have a centralized government for things such as national security and regulations for the common goods, but in business they generally display a free enterprise system.

 

THE LAW OF SUPPLY AND DEMAND

in a free enterprise system or mixed economy, the marketplace determines the price of a product. Supply and demand interact to produce a price that customers are willing to pay for the number of products that manufacturers are willing to make.

In a nutshell, supply and demand affects pricing in the following ways:

·        If a product is in great demand but is in short supply, the price will rise

·        If there is a large supply for a product and little demand for it, the price will go down

·        Prices stabilize when demand equals supply

 

ECONOMY CYCLES

The economy isn't really in equilibrium for very long. It's subject to many changes in the form of business cycles. If the economy is in a period of prosperity and inflation of prices and incomes, it will eventually taper off and a contraction will take place; during which activity slows. If the contraction lasts long enough, the economy will slide into a recession or collapse into a trough called a depression. The slow recovery from a trough is called expansion.

·        Inflation

Inflation is simply a period when prices rise sharply. During times of inflation, your dollar purchases less in terms of goods and services. Not all prices rise, but on average they do. So if you get a 3% raise and the price of the goods and services you buy goes up 7% for instance, you won't be able to buy as much with the same dollars.

Two different scenarios cause inflation:

1)     When there's too much demand and too little supply, prices rise. This is known as demand pull inflation. It often happens when: the government cuts taxes or when consumers save less.

2)     When production costs skyrocket, cost push inflation occurs. Manufacturers usually push the costs along to the customer in the form of higher prices. Of course then workers demand higher wages so that they can pay for these higher prices. As a result, unemployment typically is high during this time: because the higher costs aren't driven by demand, so companies aren't hiring.

·        Recession or depression

When the economy doesn't grow for a period of at least six months, it's said to be in a recession.both the 1980's and the 1990's started with recessions. During a recession, people typically cut their spending. A behavior that in turn causes the recession to get worse: because it slows down the economy even more. A very bad recession can turn into a depression which is: when many businesses failed, prices drop and supply exceeds demand.

How can your business prepare for change in the economy? Here are some tips: stay aware of what's going on by reading newspapers and surfing the web. The following websites are good places to start:

¾    The new york times;

¾    The wall street journal;

¾    Bloomberg;

¾    The department of commerce;

¾    Cnn money.

Watch for leading indicators for example: the leading index which consists of such things as the producer price index; the consumer confidence index and the manufacturer's order for durable goods index; declines for about nine months prior to the onset of a recession; the consumer price index; interest rates and unemployment; typically declined for thirteen months prior to the onset of a recession. You'll also hear these indices referred to regularly on national news programs, so watch for them. Stay as liquid as possible, you want to be able to have cash on hand to expand in good times and a cushion to help you survive the bad times.

 

ECONOMY HEALTH

Economists regularly measure the health of the economy during the year. What they find determines everything from whether the government raises interest rates to whether you get a raise, the sections that follow look at some of the more common indicators of economic health.

·        Gross domestic product

The gross domestic product also known as the gdp is the total dollar value of all goods and services produced in the country. It's essentially a record of how much workers produced for consumers to purchase.

·        The cost of living

Gdp looks at only new goods for example, new cars.

·        Consumer price index

The consumer price index also known as the cpi or the cost of living index, represents the change in price of a specific group of goods and services over time. This group of goods and services is called a market basket and it includes about 400 items in such categories as: food, housing, transportation, clothing, entertainment, medical care and personal care.

As a business owner you need to be aware of the cpi because it affects the rent you pay on your facility or the wages you pay your employees. The cpi actually is a measure of inflation when you read that inflation has gone up a certain percentage, more often than not, a change in the price of things people typically buy has taken place.

·        Income

Income is a way of measuring how much money is available to be spent by individuals and businesses. National income includes such things as wages and salaries self-employed income, rental income, corporate profits and interest on savings and investments. Economists are most interested in disposable and personal income. Personal income is all income received before taxes are paid and disposable income is what's left over after taxes.

·        Unemployment

The united states seems to take the issue of unemployment very seriously. And why not? It represents the percentage of the labor force that's actively looking for jobs. If the number is low, most everyone is happy but if the number is high people start to get nervous about their own jobs. From an economist's point of view, the united states is at full employment when the unemployment rate is less than 6.5%

·        Balance of trade

In the current global economy, you hear a lot about things such as balance of trade because nearly every business is affected by global conditions. The difference between the value of the united states is exports to other countries and its imports from other countries is termed the balance of trade.

In an ideal situation, a country wants to bring in more money from exports than it spends on imports. This situation is considered a positive balance of trade or a trade surplus. If on the other hand, a country spends more for imports than it takes in from exports it has a negative balance of trade or a trade deficit.

If you have a product that's suitable for exporting to other parts of the world, the department of commerce is ready and willing to help you. Actually far more ready and willing than if you were wanting to import products. Go to the doc website at doc.gov to find out what's available to you.

·        National debt

The united states as a whole hasn't done much better than its individual people about staying out of debt. For years the united states has been running a national debt in the trillions of dollars which means that the government is spending much more than it's taking in. The us government gets money to spend not by earning it the way you and i do but by selling various types of bonds. Perhaps you've even invested in some of these savings bonds and treasury bonds. Each time the government issues new bonds, it adds to the national debt. When you purchase a bond you're actually lending the government your money and the government agrees to pay you interest on that money over a specified period of time so you'll get back more money than you put in.

 

THE LAW OF SCARCITY

When you consider the three economic questions, the economic principle in play is the law of scarcity. That's because economic organizations wouldn't have to answer the questions if they had unlimited resources. Because organizations don't have unlimited resources they have to allocate their scarce resources between necessities and luxuries.

Your business certainly is an economic organization that must make decisions about scarce resources; which products or services to produce; how to produce them; and for whom. These will become key questions that you have to answer before you can successfully negotiate the marketplace.

How do you answer those questions? You answer all three by answering this one: who is your customer. Your customers target or current tell you: what to produce, when to produce it and how to get it to them. In addition, your suppliers and other entities in your industry can help you choose the most cost effective means to produce the product. Bottom line to answer the questions pound the pavement and talk to people in your industry

 

THE LAW OF DIMINISHING RETURNS

The law of diminishing returns describes how much extra return you get on your output as you add extra units of input. Suppose that you have a factory that produces widgets, as you add labor to the production process your ability to produce more goods increases to some point and then begins to diminish. This means that each person you add produces less than the previous person.

Maybe you can think of it this way: the first taste of ice cream is always better than the last. That's the law of diminishing returns. Remember! In business, you need to figure out the point at which your most productive. That point determines when you achieve the biggest gains for your efforts.

 

 

NEGOTIATION SKILLS BASICS FOR MBA

Eventually, every negotiation comes down to this question: what is the right thing to do? Assuming that you're The Negotiator, the answer depends on your value system and how you believe the other party will respond. The answer also stems from a series of questions that you should ask yourself. There are no right or wrong answers to these questions, you simply need to decide if the answer you choose is compatible with your ethics and value system.  Following list presents a few of these questions:

·        How much Candor is required for a successful negotiation?

For example, we advise you not to reveal your walk away price or your batna. Because doing so will put you in a weaker position to negotiate. One could say that you're failing to disclose material information but one could also argue that disclosing too much information may make a win-win solution impossible.

·        Are you required to ensure that the ultimate outcome is fair

If the outcome is win-win you can assume fairness. But how do you judge a win-lose outcome as fair? You probably don't consider it fair. That's why win lose should only be undertaken when win-win isn't a possibility.

·        Is the use of economic pressure unethical

Most people are inconsistent in their views of this answer. People may resent the store owner who increases the price of generators and lumber just before hurricane season. But they're okay with the airlines charging more for the same seat a week before the flight than they charged two months before.

Only you can decide how you would respond to these questions. You also need to recognize that your opponent may have a different value system. For example, your opponent May believe that a win-lose negotiation is fair and a good resolution. Figuring out your opponent's value system isn't easy but you can get a clue from her tactics after you've spent some time in negotiation with that person.

 

NEGOTIATION ELEMENTS

To understand what really goes on in a negotiation, you need to consider the three critical elements of any deal: power, time and information. You'll be successful in your negotiating efforts to the extent that you can control these three factors. Playing the negotiation game is much easier if you know the rules and you think about how you're going to play before the negotiation starts.

Season negotiators recognize the natural sequence of activities that take place during a negotiation. A sequence that assumes you've done the necessary preparation. The reason the sequence is natural is that it makes sense and the order is logical. When you don't follow the sequence, things can get crazy and negotiating becomes more difficult. The simple sequence of negotiation has four parts:

1)     Set the stage and chat with the players.

Creating an environment conducive to good negotiation is important. Often this environment is a neutral playing field, so that one side doesn't have the home court advantage over the other. You also want to spend some time on pre-negotiation chatter to put everyone at ease and to establish procedures for the negotiation process.

2)     Separate interest from positions.

Most negotiations start with the parties stating their positions such as “i must get 45 dollars per unit” however, position statements reflect a win-lose attitude and don't leave the door open for other potentially more effective negotiating strategies. You must get beyond position statements to discover what the other party really wants. Their interests in the negotiation separate the people from the problem. Perhaps the other party's real goal is to cover his costs. If that's the case, you may be able to satisfy this interest in many ways. As a result, you have the potential for a mutually beneficial outcome.

3)     Create alternatives that can offer a win-win solution.

After you understand each other's interests, you can begin to develop proposals that can meet them all. Don't worry about making a proposal complex and legally correct at this point. You merely want to establish agreement on the fundamental points of the negotiation. It's important however, that you consider all possible solutions that fall into the win-win category.

4)     Construct a winning agreement.

The final stage of the negotiation is where all the fun happens. If the negotiation is typical, you'll be running up against the deadline (yours or the other parties) now it takes some trading bargaining, swapping and perhaps even compromising to mold the agreement into a form that's acceptable to both sides.

If you can find some objective criteria for making decisions that suit your situation, you'll be more likely to reach a fair agreement. Each time you reach final agreement on a point. Have both parties initial that point of agreement so you feel like you've accomplished something and can move forward.

 

NEGOTIATION GOALS

One of the biggest problems people have in negotiations is that they don't know what they want to have achieved by the time the negotiation is over. How do you successfully negotiate when your target keeps moving? If you can't define a goal for a negotiation, don't negotiate. You can become a more effective negotiator if you consider the following tips:

·        Go in with a plan

Negotiating for something important isn't the time to wing it. Set some objectives that you want to achieve and decide what you're willing to give up to make things work. Put yourself in the other person's shoes, try to figure out the other party's interests and needs, ask questions and try to see things from the other person's point of view.

·        Be a super listener

You always learn more by listening than by speaking. In fact, talking too much in a negotiation can hurt you because you give away too much information. Always let the other party begin and do most of the talking.

·        Never threaten or intimidate

Explaining your point of view is necessary, but don't issue subtle threats about what will happen if the other party doesn't accept your proposal. This only serves to alienate the other party. In addition, you're less likely to achieve an amicable solution.

·        Be patient

“patience is a virtue” is certainly true in negotiation. The japanese for instance, use their incredible patience as a negotiating tool and it works. Most people have deadlines and are in a rush to make things happen. If a japanese negotiator discovers your deadline, he or she won't even begin the actual negotiation until just before your deadline so that you'll agree to almost anything to close the deal and meet your deadline.

·        Define an acceptable backup strategy

What if you can't come to a win-win agreement? This is a very important question because you need to know whether you can afford the luxury of walking away from a negotiation. If you've defined an acceptable backup strategy, you put yourself in a better position to walk away from a bad situation.

 

NEGOTIATION OUTCOMES

How many times have you heard people boasting about great wins at the negotiating table? Usually they attribute their wins to some great tactical skill on their part. A negotiation is successful to the extent that it achieves the goals set by the parties involved. In other words, both parties in the negotiation must define what success means to them.

The following list looks at some signs of a good outcome:

·        A good outcome beats your other choices

Working on an agreement with the other party must be more valuable than your best alternative to the negotiation, or negotiating doesn't make sense. Your backup option your batna or second choice should be a good one but the outcome from a negotiated deal should have much greater value because you put more effort into it.

·        A good outcome makes everyone happy

To get the other party to accept your deal, you must satisfy his or her interests at least in part. The classic story of two siblings fighting over an orange illustrates this idea. Each sibling wants the entire piece of fruit but each is willing to accept something less rather than get nothing at all. So they divide the orange in half. First sibling proceeds to throw away the fruit and use the peel to bake half a pie; the second sibling throws away the peel and eats the fruit. Of course if they had understood each other's interests, they could have found a better way to satisfy them both.

·        A good outcome is the best solution among many

Generating more than one solution to a situation and then choosing the best of the alternatives is an important step in negotiating. With this method, you're more likely to choose the most optimal solution. In the case of the siblings with the orange, a much better solution would have been to give one sibling the whole fruit and the other the whole peel. That additional option would have satisfied both their interests and provided a win-win outcome.

·        A good outcome occurs when no one is

Taken to the cleaners, everyone should come away from the negotiation feeling that given the circumstances, the achieved outcome is the best possible end. If both parties don't clearly understand the rationale for the outcome, you haven't achieved an optimal outcome.

·        A good outcome tells everyone what to do and how

After you've reached an agreement, ensuring that both parties understand what to do and when is important. Coming up with some action steps is a good way to make sure that both parties carry out the agreement in the way that everyone expects.