1. part 6 PowerPoint Presentation by Charlie Cook Copyright © 2003 South-Western College Publishing. All rights reserved. All rights reserved. Social and Ethical Issues 21 Small Business Management 12e

2. Copyright © by South-Western College Publishing. All rights reserved. 21–2 Ethics and Small Business Doing the Right Thing –Ethical issues—questions of right and wrong Kinds of Ethical Issues –Ethical issues in business operations  Income and expense reporting (income tax fraud)  “Truth in advertising”—persuasion and deception  Bribing customers and rigging bids  Direct selling—pyramid schemes, bait-and-switch selling  Effects of owners’ ethics on their employees  Accurately reporting financial information

3. Copyright © by South-Western College Publishing. All rights reserved. 21–3 Ethics and Small Business (cont’d) Kinds of Ethical Issues (cont’d) –Ethical issues and employees  “To do an honest day’s work”  Fraudulent workers’ compensation claims  Theft of company property and embezzlement of funds  Violation of personal ethics to make a sale

4. Copyright © by South-Western College Publishing. All rights reserved. 21–4 Ethics and Small Business (cont’d) Internet ethics –Risks of buying and selling on the Internet –Maintenance of personal privacy  Monitoring employees’ e-mail and Internet access at work. –Protection of intellectual property  Original intellectual creations, including inventions, literary creations, and works of art, that are protected by patents or copyrights.

5. Copyright © by South-Western College Publishing. All rights reserved. 21–5 Ethics and Small Business (cont’d) International Ethical Perspectives –Bribery versus customary local business practices –Ethical imperialism  The belief that the ethical standards of one’s own country can be applied universally. –Ethical relativism  The belief that ethical standards are subject to local interpretation.  “When in Rome, do as the Romans do”

6. Copyright © by South-Western College Publishing. All rights reserved. 21–6 Difficult Ethical Issues Facing Small Firms Source: Justin Longenecker, Joseph A. McKinney, and Carlos W. Moore, “Ethical Attitudes, Issues, and Pressures in Small Business,” paper presented at the International Council for Small Business Conference, Sydney, Australia, June 1995.

7. Copyright © by South-Western College Publishing. All rights reserved. 21–7 Building an Ethical Business Strong Underlying Values –Unarticulated ethical beliefs that provide a foundation for ethical behavior in a firm.  Are based on personal views of the universe and mankind.  Strongly held views can lead to tough choices.  Ethics of the firm affects how outsiders view of the firm and their decisions about the firm.

8. Copyright © by South-Western College Publishing. All rights reserved. 21–8 Building an Ethical Business (cont’d) Ethical Leadership –Owner/leaders and their ethics have more direct and pronounced effects in small firms. –Owner/leaders can insist that ethical principles be followed by employees.

9. Copyright © by South-Western College Publishing. All rights reserved. 21–9 Building an Ethical Business (cont’d) A Supportive Culture –Building an ethical culture requires  Full commitment to ethical conduct by the firm  Strong, ethical managerial leadership –Code of ethics  Official standards of employee behavior set by the firm.  Foundation for ethical conduct by employees  Clarifies the rules and gives guidance to employees

10. Copyright © by South-Western College Publishing. All rights reserved. 21–10 Building an Ethical Business (cont’d) Better Business Bureau –Provides free buying guidelines and information about companies to consumers. –Attempts to resolve questions or disputes concerning purchases. –Bait advertising  An insincere offer to sell a product or service at a very low price, used to lure customers in so that they can be switched later to a more expensive product.

11. Copyright © by South-Western College Publishing. All rights reserved. 21–11 Social Responsibilities and Small Business Social Responsibility –The role of a small business as a good citizen in its community in meeting its ethical obligations to customers, employees, and the general community.  Regarded as the price of freedom to operate in a free economic system.  Frequently takes the form of personal contributions, volunteerism and the contribution of services by the firm and its employees.

12. Copyright © by South-Western College Publishing. All rights reserved. 21–12 Social Responsibilities of Small Firms Social Responsibilities Consumerism Support of Education Compliance with Government Regulations Response to Community Needs Contributions to Community Organizations Obligations to Stakeholders Environmental Protection

13. Copyright © by South-Western College Publishing. All rights reserved. 21–13 Challenges of Environmentalism Environmental Issues –Environmentalism  The effort to protect and preserve the environment Positive impact of environmentalism –Builds customer loyalty –Improves firm’s image in the community –Provides business opportunities Negative impact of environmentalism –Entails cost of modifying facilities –Adds government regulation –Increases likelihood of lawsuits

14. Copyright © by South-Western College Publishing. All rights reserved. 21–14 Challenges of Consumerism Consumerism –A movement that stresses the needs of consumers and the importance of serving them honestly and well. Consumer Issues and Regulatory Legislation –No longer “Buyer Beware”  Product features: safety, reliability, durability  Product marketing: Truth-in-advertising, written warranties

15. part 6 PowerPoint Presentation by Charlie Cook Copyright © 2003 South-Western College Publishing. All rights reserved. All rights reserved. Managing Human Resources Small Business Management 12e

16. Copyright © by South-Western College Publishing. All rights reserved. 19–16 Recruiting Personnel The Need for Quality Employees –Employee performance affects the capability of the firm to service customer needs. –Employee performance affects profitability. –Payroll costs affect firm’s bottom line. –Quality of employees determines the long-term competitive potential of the firm.

17. Copyright © by South-Western College Publishing. All rights reserved. 19–17 The Lure of Small Firms Advantages of Employment in Small Firms –Quicker movement to decision-making levels of management –Greater managerial freedom –More opportunities for broad-based managerial experience –Flexibility in work scheduling and job sharing

18. Copyright © by South-Western College Publishing. All rights reserved. 19–18 Sources of Employees Walk-insWalk-ins SchoolsSchools Public Employment Agencies Executive Search Firms Employee Referrals Private Employment Agencies Internet Recruiting Help-Wanted Advertising Temporary Help Agencies

19. Copyright © by South-Western College Publishing. All rights reserved. 19–19 Diversity in the Workforce Workforce Diversity –Differences among employees in terms of such dimensions as gender, age, and race. –Diversity is increasing with higher proportions of women, older workers, and racial minorities entering the workforce.

20. Copyright © by South-Western College Publishing. All rights reserved. 19–20 Job Description –A written summary of the essential duties required by a specific job  Aids in personnel recruitment.  Helps focus employees on their work.  Provides direction in training.  Serves as the basis for performance review. Job Specification –A list of the skills and abilities needed by the job holder to successfully perform a specific job  Aids in selecting the most qualified job applicant.

21. Copyright © by South-Western College Publishing. All rights reserved. 19–21 Job Description for a Stock Clerk in Retail Food Store Title: Stock Clerk Primary Function: To stock shelves food products and other items Supervision Received: Works under direct supervision of store manager Supervision Exercised: None Duties: 1.Receive and store products in storage area. 2.Take products from storage, open outer wrapping, and place on store shelves. 3.Provide information and/or directions to customers seeking particular products or having other questions. 4.Monitor quantity of products on shelves and add products when supplies are low. 5.Perform housekeeping duties when special need arises—for example, when a container is broken or products fall on the floor. 6.Assist cashiers in bagging products as needed during rush periods. 7.Assist in other areas or perform special assignments as directed by the store manager. Title: Stock Clerk Primary Function: To stock shelves food products and other items Supervision Received: Works under direct supervision of store manager Supervision Exercised: None Duties: 1.Receive and store products in storage area. 2.Take products from storage, open outer wrapping, and place on store shelves. 3.Provide information and/or directions to customers seeking particular products or having other questions. 4.Monitor quantity of products on shelves and add products when supplies are low. 5.Perform housekeeping duties when special need arises—for example, when a container is broken or products fall on the floor. 6.Assist cashiers in bagging products as needed during rush periods. 7.Assist in other areas or perform special assignments as directed by the store manager. Figure 19.1

22. Copyright © by South-Western College Publishing. All rights reserved. 19–22 Evaluating Prospects and Selecting Employees Steps in Recruiting Employees Application Forms Applicant interview Reference checking Applicant testing Physical Examination

23. Copyright © by South-Western College Publishing. All rights reserved. 19–23 Training and Developing Employees Purposes of Training and Development –Prepare recruit to perform the duties of the job. –Improve the performance of current employees. –Prepare employees for career advancement. –Improve morale of current employees. –Serve as an inducement to potential applicants. Factors in Establishing a Training Program –Determining the need for training –Creating a plan for training –Setting a timetable for training –Providing employee counseling

24. Copyright © by South-Western College Publishing. All rights reserved. 19–24 Types of Training and Development Development of Managers and Professionals Orientation of New Personnel Training to Improve Quality Training of Nonmanagerial Employees Training and Development

25. Copyright © by South-Western College Publishing. All rights reserved. 19–25 PREPARE EMPLOYEES Put employees at ease. Place them in appropriate jobs. Find out what they know. Get them interested in learning. PREPARE EMPLOYEES Put employees at ease. Place them in appropriate jobs. Find out what they know. Get them interested in learning. PRESENT THE OPERATIONS Tell, show, and illustrate the task. Stress key points. Instruct clearly and completely. PRESENT THE OPERATIONS Tell, show, and illustrate the task. Stress key points. Instruct clearly and completely. TRY OUT PERFORMANCE Have employees perform the task. Have them tell, show, and explain. Ask employees questions and correct any errors. TRY OUT PERFORMANCE Have employees perform the task. Have them tell, show, and explain. Ask employees questions and correct any errors. FOLLOW UP Check on employees frequently. Tell them how to obtain help. Encourage questions. FOLLOW UP Check on employees frequently. Tell them how to obtain help. Encourage questions. Steps in Job Instruction Figure 19.2

26. Copyright © by South-Western College Publishing. All rights reserved. 19–26 Compensation and Incentives for Small Business Employees Financial Incentives –Keys to developing an effective bonus plan:  Set attainable goals.  Set meaningful goals.  Bring workers in (employee participation).  Keep targets moving.  Aim carefully.

27. Copyright © by South-Western College Publishing. All rights reserved. 19–27 Compensation and Incentives for Small Business Employees (cont’d) Fringe Benefits –Supplements to compensation designed to be attractive and beneficial to employees.  Benefits are a substantial portion of payroll costs.  Small firms tend to provide fewer benefits.  Small firms are increasingly outsourcing the administration of their benefits programs.

28. Copyright © by South-Western College Publishing. All rights reserved. 19–28 Employee Stock Ownership Plans Employee Stock Ownership Plans (ESOPs) –Plans through which a firm is sold either in part or in total to its employees.  Employees’ performance is motivated by their sharing of ownership in the firm.  Owners can cash out and withdraw without selling to outsiders.  ESOPs offer tax advantages to owners and employees.

29. Copyright © by South-Western College Publishing. All rights reserved. 19–29 Special Issues in HRM Employee Leasing –The “renting” of personnel from an organization that handles paperwork and administers benefits for those employees  Leasing allows small firms to provide employee benefits.  Leasing makes small firms subject to additional government regulations. –Professional Employment Organization  A personnel-leasing company that places employees on its own payroll and then “rents” them to employers on a permanent basis.

30. Copyright © by South-Western College Publishing. All rights reserved. 19–30 What Employee-Leasing Companies Offer to Small Firms Better health insurance Preparation of paychecks Payment of payroll taxes Analysis of government regulations Preparation of government reports Monitoring of vacation and sick days

31. Copyright © by South-Western College Publishing. All rights reserved. 19–31 Special Issues in HRM (cont’d) Legal Protection of Employees –Employment (Equal Pay for Men and Women) Act December 1, 1975  Legislation that prohibits discrimination of compensation based on sex –THE LABOUR RELATIONS AND INDUSTRIAL DISPUTES ACT Legislation that clarifies how industrial disputes should be resolved and required relations between employee and employer

32. Copyright © by South-Western College Publishing. All rights reserved. 19–32 Special Issues in HRM (cont’d) Legal Protection of Employees (cont’d) –Sexual harassment policy guidelines  Establish clear and meaningful policies regarding sexual harassment in the workplace.  Meet with employees and supervisory personnel to discuss the policies.  Investigate any and all complaints of sexual harassment fairly and thoroughly.  Take timely and appropriate action against all violators.

33. Copyright © by South-Western College Publishing. All rights reserved. 19–33 Special Issues in HRM (cont’d) Legal Protection of Employees (cont’d) –Factories Act (to be replaced by Occupational Safety and Health Act)  Legislation that regulates the safety of workplaces and work practices.

34. Copyright © by South-Western College Publishing. All rights reserved. 19–34 Special Issues in HRM (cont’d) Legal Protection of Employees (cont’d) –Maternity Leave Act (1979)  Legislation requiring firms to provide up to twelve weeks paid maternity leave –Holiday with Pay Act  Legislation requiring firms to provide employees with up to 3 weeks of paid vacation leave  Requires firms to pay employees during periods of illness up to 2 normal working weeks

35. Copyright © by South-Western College Publishing. All rights reserved. 19–35 Special Issues in HRM (cont’d) Formalizing of Employer-Employee Relationships –Employee handbook contents  Expression of company philosophy  Recruitment  Selection  Training  Vacations  Grievances  Discipline  Performance reviews

36. Copyright © by South-Western College Publishing. All rights reserved. 19–36 Special Issues in HRM (cont’d) The Need for a Human Resource Manager –Conditions favoring the appointment of an HR manager:  A substantial number of employees (100+)  Unionized employees  A high labor turnover rate  A strong need to recruit skilled and professional employees  Supervisors or operative employees in need of training  Low employee morale  Intense job market competition for personnel

37. part 6 PowerPoint Presentation by Charlie Cook Copyright © 2003 South-Western College Publishing. All rights reserved. All rights reserved. Quality Management and the Operations Process 20 Small Business Management 12e

38. Copyright © by South-Western College Publishing. All rights reserved. 20–38 Looking Ahead After studying this chapter, you should be able to: 1. Explain the key elements of total quality management (TQM) programs. 2. Discuss the nature of the operations process for both products and services. 3. Explain how reengineering and other methods of work improvement can increase productivity and make a firm more competitive. 4. Discuss the importance of purchasing and the nature of key purchasing policies. 5. Describe ways to control inventory and minimize inventory costs.

39. Copyright © by South-Western College Publishing. All rights reserved. 20–39 Quality Goals of Operations Management Quality –The features of a product or service that enable it to satisfy customers’ needs. –A perception of the customer as to the suitability of the product or service of a firm. Total Quality Management (TQM) –An aggressive, all-encompassing management approach to providing high-quality products and services.

40. Copyright © by South-Western College Publishing. All rights reserved. 20–40 Fig. 20.1 Successful Quality Management Supportive Organizational Culture Appropriate Tools and Techniques Focus on Customers Essential Elements of Successful Quality Management

41. Copyright © by South-Western College Publishing. All rights reserved. 20–41 Customer Focus on Quality Management Customer Expectations –Quality is the extent to which a product or service satisfies customer’s needs and expectations.  Product quality  Service quality  Product and service quality combinations –“The customer is the focal point of quality efforts.” Customer Feedback –Customers are the eyes and ears of the business for quality matters.

42. Copyright © by South-Western College Publishing. All rights reserved. 20–42 Organizational Culture and TQM Organizational Culture –The behavior, beliefs, and values that characterize a particular firm. Continuous Quality Improvement –A constant and dedicated effort to improve quality. Benchmarking –The process of studying the products, services, and practices of other firms and using the insights gained to improve quality internally.

43. Copyright © by South-Western College Publishing. All rights reserved. 20–43 Tools and Techniques of TQM Employee Participation –Employee performance is a critical quality variable. –Quality circle  A group of employees who meet regularly to discuss quality-related problems.

44. Copyright © by South-Western College Publishing. All rights reserved. 20–44 Tools and Techniques of TQM The Inspection Process –The examination of a product to determine whether it meets quality standards. –Inspection standard  A specification of a desired quality level and allowable tolerances. –Attribute inspection  The determination of product acceptability based on whether it will or will not work. –Variable inspection  The determination of product acceptability based on a variable such as weight or length.

45. Copyright © by South-Western College Publishing. All rights reserved. 20–45 Statistical Methods of Quality Control Acceptance Sampling –The use of a random, representative portion to determine the acceptability of an entire lot. Statistical Process Control –The use of statistical methods to assess quality during the operations process. Control Chart –A graphic illustration of the limits used in statistical process control.

46. Copyright © by South-Western College Publishing. All rights reserved. 20–46 International Certification for Quality Management ISO 9000 –The standards governing international certification of a firm’s quality management procedures.

47. Copyright © by South-Western College Publishing. All rights reserved. 20–47 The Operations Process The Nature of the Operations Process –Operations management  The planning and control of the operations process  Involves acquiring inputs and overseeing their transformation in products and services

48. Copyright © by South-Western College Publishing. All rights reserved. 20–48 Fig. 20.2 Inputs Operations Outputs DesigningProcessingTreatingStoringAdvising FabricatingRefiningAssemblingShippingInstructing Clothing Baked goods Paint Dry cleaning Appliance repair Automobile painting Products Services Money Labor EquipmentInformationEnergy Raw Materials Examples: The Operations Process

49. Copyright © by South-Western College Publishing. All rights reserved. 20–49 The Operations Process (cont’d) Manufacturing Versus Service Operations –Productivity is more easily measured in manufacturing than service operations –Quality is more difficult to establish in service than manufacturing operations. –Customers are more involved in service than manufacturing operations. –Manufacturing can produce goods for inventory; service operations cannot store or bank services.

50. Copyright © by South-Western College Publishing. All rights reserved. 20–50 Types of Manufacturing Job Shops –Operations characterized by short production runs of small quantities of unique items. Repetitive Manufacturing –Operations in which long production runs are used to produce a large quantity of a standardized product. Batch Manufacturing –An intermediate form involving more variety in volume and products than job shops and less than repetitive manufacturing.

51. Copyright © by South-Western College Publishing. All rights reserved. 20–51 The Operations Process (cont’d) Operations Planning and Scheduling –Attempting to achieve the orderly, sequential flow of products to market.  Production operations  Service operations Plant Maintenance –The role of maintenance  To correct equipment malfunctions and prevent breakdowns –Types of maintenance  Preventive maintenance  Corrective maintenance

52. Copyright © by South-Western College Publishing. All rights reserved. 20–52 Competitive Strength Through Improved Productivity The Importance of Improving Productivity –Productivity is the efficiency with which inputs are transformed into outputs. –Productivity is more difficult to increase in service industries than in manufacturing sectors.

53. Copyright © by South-Western College Publishing. All rights reserved. 20–53 Competitive Strength Through Improved Productivity (cont’d) Reengineering for Improved Productivity –Reengineering  A fundamental restructuring to improve the operations process.  Asking “Why?” is important in the reengineering process.

54. Copyright © by South-Western College Publishing. All rights reserved. 20–54 Competitive Strength Through Improved Productivity (cont’d) Operations Analysis –Laws of motion economy  Arranging work in the most cost-effective and efficient manner possible. Methods of Work Measurement –Motion Study  An analysis of all the motions a worker makes to complete a given job. –Time Study  A determination of the average time, it takes to complete

55. Copyright © by South-Western College Publishing. All rights reserved. 20–55 Purchasing Policies and Practices Purchasing –The process of obtaining materials, equipment, and services from outside. The Importance of Purchasing –The process of acquiring quality raw material inputs affects:  The timely and consistent production of quality products.  Retailer sales of finished products to customers.  The costs of products, their profitability and their selling prices.

56. Copyright © by South-Western College Publishing. All rights reserved. 20–56 Purchasing Policies and Practices Purchasing Practices and Profitability –Making or buying  A firm’s choice between producing and purchasing component parts for its products. –Reasons for making:  Increased utilization of plant capacity  Assurance of supply of critical components  Maintaining secrecy in designs and processes  Saving on transportation costs and supplier profits  Closer coordination and control of overall process  Higher quality components for inputs

57. Copyright © by South-Western College Publishing. All rights reserved. 20–57 Purchasing Policies and Practices Purchasing Practices and Profitability –Outsourcing  Purchasing products or services that are outside the firm’s area of competitive advantage. –Reasons for Buying  Supplier’s part/service is cheaper and/or higher quality  Investment savings on space, personnel, equipment  Greater flexibility in matching supply and demand  Increased focus on production of core product/service  No risk of equipment obsolescence

58. Copyright © by South-Western College Publishing. All rights reserved. 20–58 Purchasing Policies and Practices Purchasing Practices and Profitability –Buying on the Internet  Small firms save on inputs by using the Internet to seek out the lowest cost suppliers.

59. Copyright © by South-Western College Publishing. All rights reserved. 20–59 Purchasing Policies and Practices Diversifying sources of supply –Reasons for having a sole supplier  Outstanding supplier quality  Quantity discounts for volume purchases  Single orders too small to divide among suppliers  Quality of supplier-customer relationship –Reasons for having multiple suppliers  Choice of best quality, price, and service  Supplier competes for business  Insurance against input interruptions

60. Copyright © by South-Western College Publishing. All rights reserved. 20–60 Purchasing Policies and Practices Relationships with suppliers –Selecting suppliers  Price and quality  Location and delivery reliability  Services offered—credit, product support, promotion Building good relationships with suppliers –Purchasing practices  Pay bills promptly  Be courteous to sales representatives  Avoid abrupt cancellations of orders  Maintain a professional relationship

61. Copyright © by South-Western College Publishing. All rights reserved. 20–61 Purchasing Policies and Practices Developing Strategic Alliances –Strategic alliance is an organizational relationship that links two independent business entities in a common endeavor. Involves close coordination of buyers and sellers to:  Reduce product introduction lead time  Improve product quality  Engage in joint problem solving  Make joint adjustments to market conditions  Involve the supplier early in product development

62. Copyright © by South-Western College Publishing. All rights reserved. 20–62 Ensuring Continuous Operations Maximizing Sales Protecting Assets Minimizing Inventory Investment Fig. 20.3 Inventory Management and Operations Objectives of Inventory Management

63. Copyright © by South-Western College Publishing. All rights reserved. 20–63 Inventory Management and Operations Inventory Cost Control –Economic order quantity (EOQ)  The quantity to purchase in order to minimize total inventory costs. Total inventory costs Total ordering costs Total carrying costs =+

64. Copyright © by South-Western College Publishing. All rights reserved. 20–64 EOQ Total Costs Ordering Costs Carrying Costs Order Quantity (Units) Cost ($) Fig. 20.4 Graphic Portrayal of the Economic Order Quantity

65. Copyright © by South-Western College Publishing. All rights reserved. 20–65 Inventory Management and Operations ABC Inventory Analysis –A system of classifying items in inventory by relative value –Category A (close/continuous control)  High-value or critical production component items –Category B (moderate control)  Less costly, secondary importance items –Category C (periodic control)  Low-cost and noncritical items

66. Copyright © by South-Western College Publishing. All rights reserved. 20–66 Inventory Management and Operations Just-In-Time Inventory (JIT) System, also Kanban –A method of reducing inventory level to an absolute minimum.  New items arrive at the same time that the last inventory item is placed in service –JIT promotes:  Closer coordination with suppliers  Consistent quality production  Lower safety stock levels

67. Copyright © by South-Western College Publishing. All rights reserved. 20–67 Inventory Management and Operations Inventory Record-Keeping Systems –Physical inventory system  A method that provides for periodic counting of items in inventory –Cycle counting  A system of counting different segments of the physical inventory at different times during the year. –Perpetual inventory  A method for keeping a running record of inventory.