Teri Bernstein, MBA, CPA has been teaching full time in the Business Department of Santa Monica College since 1985. Prior to that, she worked in Internal Audit and Special Financial Projects for the 1984 Los Angeles Olympics, CBS, Inc., and Coopers & Lybrand. She attended the University of Michigan and Wayne State University.
Placeholder for Intro To Business tags.
photo from the Los Angeles Times (link below)
The business environment is sensitive to inputs from global, economic, social, technological and competitive environments. The debt ceiling crisis that preceded the August 2, 2011 deadline created uncertainty in the global and economic arenas. During early July, 2011, business leaders, for the most part, stayed out of the conversation, trusting that the political process would find a resolution. But as the deadline approached, business leaders weighed in with one opinion in common: Solve this crisis! Businesses cannot thrive without stability. In the LA Times article, "Debt-ceiling threat has Wall Street scrambling," several business leaders voice strong opinions:
The government of the United States is a huge business itself, and the businesses and citizens who live and work here rely on its financial stability. Follow up:When you read this post, the resolution to the debt ceiling crisis may have been achieved, and a solution may be at least partially implemented. Nevertheless, resolution of this particular issue will not resolve all of the financial problems that face the United States over the next decade. The trickle-down effect of the economic policies will continue to affect business and individuals. Think about these questions:1. Have you borrowed money for your education, to buy a car, or for a business venture? What were the constraints on the amount you could borrow? What plans were put in place to pay the money back? 2. Investments in government bonds, which fund the borrowing that is being limited here, are sometimes viewed as "conservative" investments. This means that they do not have the possibilities of big gains, as some stock investments, and they also do not have the same risks. Do you think this debt crisis will effect the willingness of other countries and US investors to loan money to the U.S. government by buying U.S. bonds? Will investors expect higher interest rates of return? Why or why not?3. How do you think the debt ceiling issue will impact your life over the next few years or long-term?
photo from indyrebaterealestate.com
Dunkin' Donuts--by no means one of the technology stocks that are generally associated with IPOs--priced its initial public offering (IPO) at $19. Shares were available Wednesday, July 27, 2011. By the end of the trading day, the stock price of Dunkin' Brands (DNKN) had risen over 46% to close at $27.45. Ironically, this was during a week when the business environment, influenced by the "debt ceiling crisis" caused most stock prices to fall. As reported in the New York Times article "An IPO Built on the Basics: Sugar and Coffee," interest in this IPO was generated partly because the brand names associated with Dunkin' Brands--including Baskin Robbins--are well known. Also, a wide range of investors experience and understand Dunkin' Brands products--sugar and coffee--much better than they understand the new media businesses like Pandora and LinkedIn, which also have generated IPO excitement this year. Alas, by the end of the following day's trading, the stock price had fallen 5 cents per share, as reported in USA TODAY's article, "Dunkin Donuts Slips After Scorching Debut." Although there may be viable marketing opportunities for expansion of Dunkin' Donuts outlets in the western United States, the fall in price immediately brought to mind the downfall of another once-hot doughnut chain, Krispy Kreme.Follow up:1. When the stock market is falling, what other types of investments become more attractive to investors?2. Look up the companies with 2011 IPOs, including the ones mentioned above. You might also want to include other fairly recent offerings such as Facebook and Google. Track the stock prices from the initial trading date until the current date. Do you see any trends?
photo from geeky-gadgets.com
These movie-goers seem to be enjoying themselves...but do higher prices keep customers away from movie houses? In "Charging a Premium, at a Cost" (NY Times, August 1, 2011), reporter Michael Cieply interviews a family who had just been to see "Captain America: The First Avenger" in 3D. The tickets for adults were $15.75, and for kids: $12.75. At those prices, a movie outing for this family could only happen twice a month instead of every weekend. But even at these higher ticket prices, domestic box office is down, according to industry statistics.The explosion in higher-priced 3D movies has contributed to the ticket price increase, but prices for regular movies are also up. One theater chain described in the article has raised adult ticket prices for non-3D movies by 47% since 2001, and has raised children's ticket prices over the same period by 67%. 3D ticket prices are 200%-300% of the cost of a regular movie ticket 10 years ago. Even movie directors Steven Spielberg and Peter Jackson criticized the rise in prices when speaking at last month's Comic-Con International convention.Follow up:1. How often do you see a movie in a theater? Do you watch movies on your computer or other digital device instead? What are the cost factors that influence your decisions?2. Think of some of the other purchases that you make--for food, clothing, automobiles, or electronics, for example. Research the cost of those items 10 years ago. Calculate the percentage increase in cost over that time. If those items had doubled or tripled in price, could you still afford to buy them now? 3. Apply some of the percentages that you calculated to the current price you are paying, and project what might happen to the cost of these items in the future. How much is "too much"? When do price increases cause you to stop buying a product or service?
India's Widening Iron Ore Scandal Hurts Stocks: As a student, you probably don't think much about iron ore...let alone corruption on the other side of the globe. Nevertheless, iron ore is a key part of all manufacturing processes because it is a key component of steel. And issues of bribery and corruption must be addressed in all business environments. This story was published online by rssbroadcast.com on August 3, 2011. A story about the same issue appeared in the NY Times on August 2. Here are the basic facts: 1. A public ombudperson, Santosh Hegde, who was formerly an Indian Supreme court justice, published a 466-page report saying that public officials and businesses have been cheating Karnatake, a state in India, our of billions of dollars in payments related to iron ore trade. 2. The ore is an important raw material for export, especially to rapidly developing and nearby China.3. The report alleges that bribes were routinely paid to government officials because ore shipments were made from regions where mining operations may have been limited or prohibited. In addition, bribes were paid in lieu of royalties to government agencies. 4. Stock prices for Adani Enterprises have fallen as a result of this scandal. Government officials have also been forced to resign. Accused individuals have denied wrongdoing. Mining is a capital-intensive industry, requiring large up-front investments by corporations. This increases the risk and the uncertainty about attaining target profits. Additionally, because natural resources are involved, government relationships must be managed by the corporations who want to extract these resources. These environmental factors might increase the temptation to resort to bribes. For different reasons, there are issues relating to mining that affect American communities as well. In the documentary "The Last Mountain,"corporate interests and deception create a conflict with local citizens regarding the mining of a different mineral: Coal. ">iframe> Follow up:1. What kinds of political and business environments create an increased chance of bribery occurring? What kinds of environments would lessen the chances of bribery or other corruption?2. Imagine that you are working in a company that has been involved in bribing government officials. These transactions are carried out by individuals within corporations. What would you do if you were asked to participate in delivering a bribe? Try to think of three alternative courses of action you might take, and the pros and cons of each.
"The Nikkei 225 in Tokyo and the Kospi in Seoul both closed 3.7 percent lower. The Taiex in Taipei slumped 5.6 percent, and the Australian market shed 4 percent. The Hang Seng in Hong Kong closed down 4.3 percent."
"Wall Street had the worst day in more than two years Thursday, with the Dow Jones industrial average ending down 4.3 percent, and the broader Standard & Poor’s 500 finishing 4.8 percent lower. The S.& P. 500 has now fallen 10.7 percent from 1,345 on July 22, underlining the new negative investment sentiment."Investors and commentators spent the evening of August 4th pondering: What happened? Why today? Some blamed it on the aftermath of the debt ceiling crisis. Some were slightly hopeful because of positive labor numbers. Many looked to the spreading problems in European economies. Read or listen to the report from Marketplace Public Radio by Kai Ryssdahl and Stacey Vanek-Smith: Global Economic Fears Rattle Financial Markets.Considering these factors, it is no surprise that the stock market was quite volatile on Friday, August 5th. By the close of trading, the Dow was up 77 points from the previous day's low, but still way below where it had been at the start of the week. Professional analysts disagree about the causes and the likely direction of the stock market. What is an individual investor to do? Patt Morrison spoke with Ron Lieber about this issue on her August 5th KPCC radio segment: It's happening again! How to protect your investments amidst a crashing stock market.
photo from NYT article referenced belowPeople need to eat. Even in turbulent financial times, business opportunities exist for companies who identify a particular need and figure out a way to satisfy that need in a predictable and cost-effective way. In the New York Times article, "Would You Like a Smile with That?" Stephanie Clifford, working with Francis Flynn of Stanford University, investigated the management practices of Pret A Manger, a sandwich company that started out in Great Britain. Several practices stand out: first, there is a emphasis on customer service that includes ensuring that staffing is adequate to get customers served in close to their 60 second goal. In addition, staff are trained to engage with customers on a human level--be it with small talk about the weather, or an inquiry about the customer's current needs. Staff members must also get along with other staff members--potential hirees must be voted "up" or "down" by their colleagues after a try-out day at work.
Staff are motivated to say "yes" to great potential employees, because these colleagues will have an impact on their compensation. An elaborate rewards system has been set up by Pret A Manger, that includes evaluations by "mystery shoppers" that may result in an "outstanding" rating and a shared bonus, and "shooting star" bonuses given to promoted employees--for them to give to co-workers that helped them succeed. Stores that are ranked highly by the mystery shoppers are also given money for employee parties and prizes. Enthusiasm, cheerfulness and collegiality are valued by the corporation and are rewarded with compensation and promotions. When it works as planned, this cheerful attitude creates an environment make customers feel welcome.Follow up:
1. What is most important to you if you grab a quick take out lunch? Sandwich taste? Price? Quick service? Customer service?
2. Categorize the factors that influence your decision regarding take out lunches into two categories: Quantitative (e.g involving measurable items like money and time) and Qualitative (the less tangible factors such as experience and feeling). Which factors influence your lunch decision? What other kinds of decisions are more motivated by Quantitative factors vs Qualitative factors and vice versa?
3. Do you think that money or peer pressure is a more compelling motivational factor in Pret A Manger's set up? Please explain your answer.
photo from the CNN link referenced immediately below
In the article "Psst...Have you heard? Rumors move markets," Richard Quest addresses the influence that false information about a crisis at Societe Generale, a French bank, had on European and international trading markets. Traders (who wanted to be the first to act on information) sent markets tumbling. Markets recovered only when the facts emerged that French sovereign debt still maintained its AAA rating and that there there was no impending failure at the bank.Sometimes information--true or false--make leak a day or two before a financial event or announcement. Sometimes these rumors influence traders to execute a "short sale" in a stock. This means that the trader is "betting" that a stock will decline in value, so he or she sells stock that they do not yet own, at today's price. His hope is that when he actually has to deliver the stock to the buyer, he will be able to quickly buy the stock at the gambled-on lower price, and immediately sell it at the higher agreed-upon price. Short sales have proliferated over the last few days of volatile market trading. Today, four European countries--France, Spain, Portugal and Italy--have moved to stop short sale trading in an effort to curb the downward pressure on markets that this practice may exacerbate. (thejakartaglobe.com)
1. Think about the gossip and rumors that you have encountered over the last several weeks, in your personal sphere, as well as at work or in finance. Have any of these rumors turned out to be false? Once a rumor has started to spread, is it possible to correct any errors? What are the reasonable remedies if this should occur?
2. Research "rumors business" online. Select a company from one of the articles and check the company's stock prices before and after the rumor you have researched. Calculate the profit (or loss...) that might have been made by an investor who did a "short sale" of 1000 shares of stock as a result of this rumor.
cartoon from icefnewstv6.blogspot.com
No matter how competent we may be at our jobs, an important influence on our work satisfaction is how well we get along with our co-workers. Whether it is a boss or a peer, a difficult co-worker requires special skills to manage--skills that are not usually taught in textbooks. In an August 15, 2011 article in the Financial Intelligencer by Carrie Brenner, "10 Ways to Deal with Difficult Coworkers" are delineated (this was previously published in May at allbusiness.com, where it is linked). These include both behaviors to avoid and actions to take, such as the following. DON'T:
In any event, your relationships with your co-workers influence your quality of life.
1. Have you ever had a job where you had a difficult co-worker? Did you speak up or take action? If you have a situation that is happening currently, can you apply any of these suggestions? Why do they work, or why won't they work? 2. Are you a difficult co-worker? Why or why not? If you have not had a job, please reflect on your own behavior as a classmate or student.2. Check out these books if you want some references for dealing with co-workers: What skills can you learn from reading books like these?
photo of Warren Buffett, LA Times Aug 16, 2011 (Anthony Bolante/Reuters / July 5, 2011)
In the New York Times, August 14, 2011, Warren Buffett, chairman of Berkshire Hathaway, wrote an op-ed piece titled, "Stop Coddling the Super Rich." This piece was not a surprise, as it was in line with Buffett's The Giving Pledge, which several wealthy individuals, including Bill Gates of Microsoft and Mark Zuckerberg of Facebook, signed earlier this year. In this op-ed piece, Warren Buffett notes the following:
Buffett feels that taxes should remain unchanged for 99.7% of taxpayers making less that $1,000,000, and that taxes should be raised on all types of income--including capital gains--for those earning above that amount. He says, "My friends and I have been coddled long enough by a billionaire-friendly Congress. It’s time for our government to get serious about shared sacrifice."The reaction in the media included sound bites saying the Buffett should just "write a big check today" rather than wait for Congress to act (Fox News). There were also different tax system alternatives presented, such as establishing a flat tax, eliminating loopholes and addressing Social Security and Medicare. In the Wall Street Journal's online piece, "Networks Embrace Buffett's Call for Higher Taxes on the Mega-Rich," David S. Logan of the Tax Foundation is quoted extensively, undercutting Buffett's position by looking at the percentage of the total taxes that are paid by the nation's wealthiest 1%.
The debate will continue as individuals and groups with varying positions try to influence Congress.
1. Do you have a "gut reaction" to reading about the editorial written by Warren Buffett? What is it? Is your reaction based on your political views? Your family's views? What are the beliefs that are behind your reaction?
2. Think of three to five questions that you could ask Warren Buffett (and/or David Logan) about where he got his information, and how he calculated his numbers.
3. What information would you like to see, so that you could draw your own conclusions about how much in taxes various groups are paying? What information source do you trust? Can you think of different ways that percentages can be used to support different opinions?
[video story begins after short ad]; for print story see NYTimes link below]
On Tuesday, August 16, 2011, a US Court of Appeals ruled in favor of Irving H. Picard, the trustee in charge of the assets and claims resulting from Bernard Madoff's Ponzi scheme. The ruling boiled down to this: investors could only claim the actual cash they had invested with Madoff--they had no right to any of the fictional profits that they were led to believe had accumulated in their accounts. (NY Times, August 17, 2011)
That seems fair, doesn't it? Here is the problem: several of Madoff's investors had withdrawn cash from their accounts in excess of what they had invested, thinking that these were legitimate profits. These investors are subject to "clawback lawsuits." This means that the trustee can sue them to return any of the excess withdrawals. This cash would then be distributed to investors to partially compensate them for the cash they had actually invested. Two of the NY Mets owners, Fred Wilpon and Saul Katz, may have to return approximately $300 million under this ruling. This story originally broke on December 11, 2008, when Bernard L. Madoff was arrested. The most elaborate "Ponzi scheme" in history was uncovered and Madoff was sentenced to 150 years in prison. Basically, Madoff had taken money from new investors, claiming to invest it in legitimate businesses, but had just paid the investment capital to older investors as though the money came from profits. This is illegal, and can be uncovered by a properly prepared Statement of Cash Flows.
Tavakoli Structured finance, Inc.
This court ruling will move the case closer to resolution for the investors who were harmed, and will set a precedent for resolving other Ponzi scheme cases.
1. Review the set-up for a basic Statement of Cash Flows. How would the cash in a Ponzi scheme be shown on that statement, if no real investments were being made? If $200,000 in new cash was received from investors, and $50,000 was paid out to old investors, where would this show up on the statement? What would net cash from operating activities and from investing activities look like if no real investments were being made? Remember the there are still operating expenses incurred by Madoff for running the business--let's say for the purpose of this illustration they totaled $80,000.
2. Do you think it is fair that people should have to pay back money that they received, inappropriately, from Madoff several years ago? Remember that this money was actually "stolen," since it was not earned as investment profit, and that money repaid would be used to partially compensate those whose funds were misappropriated. If paying the money back today would cause financial ruin, would that change your opinion? What is the underlying principal the court was addressing?
photo from mocketymock.com
The CBS.com story "Burger King's 'king' gets the ax" (August 19, 2011) reports that the smiling, golden monarch that has symbolized Burger King in ad campaigns for several years has lost his job. He will not be a part of the new product launch and there are no plans to include him in the future.
The toppling of the monarch mascot is part of a new ad campaign by McGarry Bowen (reported in the LA Times). This weekend the ads will roll out, and Monday a new product is being introduced: the "California Whopper," with guacamole as a garnish. The ad campaign featuring this new Whopper will be unique in other ways: there will be no words, only music, and the chopping and dicing of washed ingredients will constitute the main action. Still, it looks like a Whopper:
This new marketing comes at a time when McDonald's sales are up 3% for the first quarter this year and Burger King's sales are down 6%. Could this be due to McDonald's taking the lead on switching to a healthier menu? The Sunday Times of London reported back in October of 2006: "McDonald's celebrates healthy profit with new menu." Ronald McDonald, the clown mascot, appeared trimmer and juggled fruit while McDonald's added fruit and nut yogurt to its menu and published nutritional data. Admittedly, this was in response to negative publicity regarding its menu's influence on customers' diets and health. Nevertheless, McDonald's reacted to a trend in nutritional concerns before other fast food chains. It seems as though Burger King is attempting to catch up.
This report originally appeared in USA Today, and was picked up by several news carriers.
1. What are some of the mascots or logos that you associate with other products? Consider breakfast cereals, clothing, or other fast food chains. Have you noticed a change in any product mascots since your youth? Have these changes influenced your perception of the product?
2. Do "food trends" influence your eating choices? Research "food trends" and "nutritional food trends" on the internet. Will any of the current trends influence your food choices? Why or why not?
3. Do you eat food from fast food restaurants? Does television marketing influence your choices? If marketing is not a factor in your food choices, what are the factors, and what are the sources of information you rely on in making your decisions?
CNN.com reported on August 25, 2011 that Apple, Inc. is in the best financial shape it has been in the last 35 years. During the second tenure of Steve Jobs as CEO--from 1997 until his resignation this week--sales went from just over $7 billion to a forecast of $100 billion for 2011.
The product mix has shifted--newer products, such as the iPad, are outselling even classics like the Mac. But iPods have been outselling them all--until this year:
iPhone sales are also an important part of the current and future product mix. And iPod sales continue to peak dramatically in the holiday season.
Will Apple continue to be a good investment under new leadership? Its cash reserves and innovative product performance seem to support its continued growth.
1. Calculate the percentage increase in sales from 1997 until 2010.
2. Calculate the increase in sales from the time the iPhone was introduced until the iPad was introduced.
3. Read Meet the Man Who Will Replace Jobs, from www.cnn.com. How far in the future does Apple's business plan extend?
Labor unions at Southern California grocery stores voted overwhelmingly to strike last week, as reported by Reuters and the Labor Union Report. The union involved was the United Food and Commercial Workers union. The 90% vote in favor of a strike was well in excess of the 2/3 majority vote required.
In tough economic times, when many people are losing their jobs, news reporters often ask the question: Why are you (unions representing workers) asking for MORE when so many people don't even have jobs, and corporations are cutting back? Unions generally answer that corporations have the money and the clout to continue to maximize their profits, and that any profits made are based on excess money that is earned through worker's labor, but is not paid out to the workers. Corporations argue that capitalism means that individuals with money are taking a risk of losing that money by investing in a business, and they need to maximize their returns. Unions allow workers to unite with one voice in negotiating to maximize the salary and benefits for their workers. When contracts expire, or near their expiration date, the corporation vs. union debate heats up. When workers' actions might affect a broad swath of the public, their contract negotiations become newsworthy.
The four-and-a-half-month-long grocery worker strike in 2003 resulted in a loss to the industry of more than $1 billion and a dramatic change in customer shopping loyalties (laborunionreport.com). At stake in this year's contract are "take-backs": grocery stores want workers to pay more for health care benefits. Newsfeedresearcher.com reports that the union argues that most workers earn about $20,000 per year and cannot afford to pay more, and that the profits last year of over $4.5 billion collectively for the grocery store corporations involved in the negotiations show there is no need to make workers absorb this cost.
Workers will lose pay for the days they do not work when they are on strike. This type of confrontation is a risk for both sides.
1. Read the Wikipedia article on trade unions that is linked here: trade union history. How do you think American life would be different today if there had been no industrial unions in the automotive industry or the trucking industry? Are there any societal benefits to big unions that are delineated in the article? Are there detriments?
2. Have you ever belonged to a union? Do you know anyone who has? Find out what a union member sees as benefits of belonging to a union. Also talk to a small business owner or do internet research and find out what might be the detriments to unionization.
3. Do you cross lines of picketers when there is a strike? Why or why not?
As Hurricane Irene approached the East Coast on Friday, August 26th, 2011, reporter Catherine Clifford, in a CNN report , noted that some small businesses look forward to profiting from the disaster that may ensue in the wake of the major storm. This is no surprise. A basic principle of entrepreneurship is: see a need and fill it...and, let's face it, a disaster does create a lot of potential needs to fill.
One company, AdvantaClean, in North Carolina, has a history of increased service contracts following disasters. This makes sense, since the services that they provide include mold-abatement, water and fire damage repair and similar services. In preparation for the predicted storm, they have fueled up all of their vehicles and have reviewed their emergency response plans.
Further away from where the hurricane might strike land, a gourmet bakery in Massachusetts, Cakes for Occasions, has a specialty cupcake that honors the storm--and they are giving them away! They are betting that people coming into the store for a free cupcake will not be able to resist buying something more.
Surfers are probably one of the few groups of people who actually can benefit from the ocean conditions that accompany a hurricane. Of course, the business people who serve them are anticipating more sales of surf wax...but a decline in sales of towels and other accessories that might be purchased by less adventurous beach-goers.
These business people are hoping their optimism leads to profits, even in a dismal situation.
1. What other ways might businesses profit from the storm?
2. Are there any ethical dilemmas that may result from profiting from a disaster like Hurricane Irene? Give examples that delineate where business services in a disaster situation might cross the boundary into an ethical dilemma. How would you decide what to do?
The August 15th issue of Fortune magazine featured the inside story behind the exit of Jeff Kindler, who had been the CEO of Pfizer before being called before three of the board members in December 2010 and then forced into retirement.
Pfizer, one of the largest pharmaceutiical companies in the world, holds the patents for Viagra and Lipitor, which are very popular drugs that are near the end of their patent lives. Pfizer grew from a second-tier company to a skilled drug marketing company that bought up other drug companies. During its heyday, Pfizer's CEO was William Campbell Steere, who retired in 2001, but maintained a seat on the board and had a hand in the internal politics that both manipulated the elevation of Jeff Kindler to CEO and was involved in his ouster.
Jeff Kindler, trained as an attorney, seemed to have two distinct sides to his personality--one side was charismatic, brilliant and visionary; the other side was micro-managing, indecisive and divisive. Over the course of his tenure, he aligned himself with an unpopular Human Resources director who had been fired from her previous company, and against some very competent top managers who comprised the Executive Leadership Team (ELT). He also had several episodes of losing his temper in public--once with a board member.
The interpersonal issues might not have been such a major factor if the business and product-mix aspects of the business had been thriving. Kindler had championed a large research and development budget while he was CEO--seeing it as a necessary risk for the long term fortunes of a Big Pharma company. The big risk with R & D is the amount of time it takes before the company knows if it has a product "winner." Two of the products that had looked promising for Pfizer ended up being yanked from the market. One was an insulin drug that could be inhaled rather than injected called Exubera. Unfortunately, it did not catch on with consumers. Another was torcetrapib, which was supposed to raise "good cholesterol," but was correlated with higher death rates in clinical trials.
Nevertheless, the immediate factors surrounding the ouster of Jeff Kindle were more related to his perceived management style. After the dust from the drama settled, the board of Pfizer promoted Ian Read, who had been with the company over thirty years, and had come up through the ranks as an accountant. His approach has been to cut costs, shrink the company and promote an internal environment of stability and improving morale. Pfizer's stock price has risen since he has taken over. There are still some questions about the future, as drugs that were developed under Kindler's tenure will be released over the next few years, and only time will tell how they will fare in the market. Maybe more importantly for the long run, it remains to be seen if a low-key management approach can inspire the kind of product development that will be needed for long-term profits.
Article from Fortune, via www.cnnmoney.com
1. Please read the complete article linked above. Are you surprised by the interpersonal drama described in the article? Please comment on the dissonance between the behind-the-scenes action described in the article, and the press releases that are quoted.
2. Are you interested in working for a large multi-national corporation as a top manager? Which of the top managers (in the ELT) would you have sided with in this situation, without knowing the outcome? What do you think the role personal temperment plays in successful management? Can the temperment of a "leader" be different from a "manager"?
3. Have you been in a work situation where you have not had a good relationship with your contacts in the Human Resources department? What are the risks of alienating the Human Resources department if you are an underling? How might things be different for a top executive?
In the New York Times opinion piece, "New Farmers Find Their Footing," (August 17, 2011) Mark Bittman relates the experiences of two New England farmers--Brenna Chase, 33, and Eliot Coleman, 71. They each run "sustainable" farms, which Bittman defines as organic without the costly certification. Eliot Coleman's business, the 1.5 acre Four Season Farm, is described as "intensely" planted, and generates $125,000 in income per year. That's gross--not net--income. He has to subtract his labor and supply costs from that. His book sales and speaking engagements, as well as his wife's income as a garden writer, are needed to generate enough money to live on. Even with negligible profits, they are very happy in their work, and they see improving opportunities for sustainable farmers like themselves.Farmers work hard. And organic farmers are producing food in a way that keeps the land fertile for future plantings. (Check out the Maine Organic Farmers website , the Mayo Clinic website, or the Center for American Progress website for an education on the differences between sustainable and non-sustainable farming practices). But few business students would look to farming as a business that could produce a "good" income. Since there is a high demand for food, why doesn't farming pay better?
The short answer is that food prices are not high enough to cover the real cost of food production. Conventional farming techniques often strip land of its nutrients, and government subsidies of commodity crops keep conventionally farmed food prices lower than the true cost of production. Eating cheap means eating conventionally. But as consumers become more aware of health and environmental concerns, demand for foods grown without pesticides or genetic engineering is growing. Many of these foods are sold through farmer's markets rather than chain grocery stores. In another opinion piece from the NYT, "A Farm Around The Corner," the growth in farmer's markets is noted. The piece quotes two statistics from the US Department of Agriculture that support the growing interest in the US for food that is fresh and locally grown. First, there has been a 17% growth in the number of farmer's markets in the USA in the last year. In addition, the number of online "hits" has tripled for the USDA webpage used to search for local markets.
Even with the potential markets expanding, the would-be sustainable farmer has to know what he or she is getting into. The USDA also has another website that gives guidance to small farmers, their Alternative Farming Systems Information Center. Here is a key bit of wisdom:
Of course, conventional agribusinesses--not sustainable farms-- dominate food production in the USA. But that is another story altogether.
1. Read the material on the differences between conventional and organic farming practices. What is your opinion regarding any difference between food grown organically and food grown conventionally? Research one food that you would normally eat--say, an apple. What is the difference in cost of this food between and organic and conventionally grown?
2. How does the concept of sustainability affect the calculation of the cost of a product, whether it be a farm commodity like corn or wheat, or a manufactured product like a cell phone? Select a product and do the following:
a) Make a list of the costs that are associated with the production of that product in the short run, considering only the costs of getting that product initially to market.
b) Make a list of the additional costs that would be included in a sustainability cost accounting for the product--including all waste products of manufacture and long term disposal. Include the social and environmental costs as well.
The Oscar, Emmy and Grammy Awards have been televised for several decades. Like all commercial television shows, the "Sales" or "Revenue" associated with each program comes from advertising dollars. Advertising rates are different for each program, based upon the number of viewers and the demographics of the viewers. Ad rates are higher if the viewership is a specific demographic, and if these viewers influence purchasing decisions and have discretionary income to spend.
Some programs have expanded this revenue model by taking aggressive steps to ensure that the viewership is in a defined demographic that will appeal to certain advertisers. At the same time, they have added additional advertising opportunities that add separate revenue streams. The MTV Video Music Awards (VMAs) are one example. First of all, unlike the big awards shows mentioned in the first paragraph, voting for the VMAs is not done by a few thousand members of an exclusive club. Voting is open to everyone...that is, everyone who is willing to log onto the VMA website or use their Twitter account or mobile phone to get involved in the voting. Here is just one voting opportunity noted on their website:
"Vote For Best New Artist: Who do you think should win The Moonman for Best New Artist? Text BNA to 66xx3 and let your voice be heard! (Message and data rates may apply.)"Involvement in the process increases the chances that voters will also be viewers of the show, and encourage their friends to participate. "Winners" are then not only the celebrities that are on the ballot, they are also the viewers who voted for them. Texting establishes a connection for two-way interaction, initiating reminders of events and additional opportunities to vote--as well as inspiring the voters to log into the site. And when the viewers get to the site...what will they see? Additional advertising space that was sold by MTV to generate additional revenue.
Using marketing techniques to increase their viewership in a direct way lets MTV more efficiently influence the viewership numbers that will increase its ad rates for the awards program...and may also be used to generate increased viewership for other programs as well.
MTV isn't the only company division that wins from this type of marketing. The division that provides the "Flux platform," which processes all the voting and provides the data and social media connections is called The Social Project, Inc. Once again, "thinking out of the box" leads to expanded business opportunities.
1. What other television shows let viewers vote on the outcome of contests that are broadcast? Have you ever voted in one of these? What additional outreach, feedback, email or advertising did you experience after you voted?
3. Would you be more interested in the Oscar, Emmy, or Grammy award programs if you had the opportunity to vote? Why or why not?
Robert Greene had several dozen jobs, including working as a screenwriter, before he wrote the book The 48 Laws of Power in 1998. That book earned him several fans, including rappers Kanye West and Jay-Z, basketball player Andrew Bynum, film producer Brian Grazer, and the mercurial CEO of American Apparel, Dov Charney. Greene's relationship with Charney is the subject of the Los Angeles Times article, "A Kindler, Gentler Warrior" (August 31, 2011).
After Dov Charney read The 48 Laws in 2001, he contacted Greene. They have been in a mentor/mentee relationship ever since. Charney hired Greene as a paid consultant for several years and then installed him as a board member when American Apparel went public in 2007. The support and advice that Greene has given Charney over the years has helped Charney navigate public relations fiascos, employee issues, and the challenges of running a fast-growing business. One of Charney's favorite "laws" is Law 28: "Enter action with boldness."
Some of the other laws that appear in the book are:
Some of those laws don't appear "kindler and gentler" to me. What do you think? We may all get a chance to experience a broader discussion of these laws--if the TV series that HBO has optioned materializes.
Meanwhile, if you want more information about the book itself, you can check out The 48 Laws of Power.
1. Please read the LA Times article. What does Greene say about his own relationship to the "Laws" he delineates in his book? Based on your own relationship to your beliefs and your actions, do you think that Greene is being straightforward, or is he fooling himself?
2. A Reuters article related to American Apparel appeared in the Business section of the LA Times on the same day. Check out that article HERE. It says in the article that Dov Charney could not be reached for comment. How do you think that Charney might have responded, based on The 48 Laws?
The US Justice Department sued to block the purchase of T-Mobile USA by AT&T this Wednesday, as reported by Joelle Tessler and Pete Yost of the Associated Press ["Government Sues to Block AT&T, T-Mobile Merger" via yahoo news, 8-31-11]. The Justice Department claimed that the merger of the #2 wireless company with the #4 wireless company would stifle competition in the industry even further. The purchase would make AT&T the top wireless company in the United States, superceding Verizon.Deutche Telekom, T-Mobile's parent company, has already decided not to invest further in T-Mobile USA upgrades. This strengthens AT&T's argument that T-Mobile is already, in fact, out of the business of being a viable competitor. On the other hand, representatives from the Justice Department asserted that the merger would result in "tens of millions of consumers all across the United States facing higher prices, fewer choices and lower quality products for mobile wireless services." Because of its underdog status, T-Mobile has been a leader with innovations like wifi hotspot access, the first Android phones, Blackberry wireless email, and unlimited service plans. T-Mobile describes itself as "the No. 1 challenger of the established big guys in the market." T-Mobile has spurred competition among all providers.
Others have weighed in on the merger. In a Forbes article, "DOJ is Wrong to Try to Stop the AT&T / T-Mobile Merger" Geoffrey Manne details "the spectrum argument," which is supported by the FCC's 15th Annual Wireless Competition Report. FCC Chairman Julius Genachowski asserts: "Demand for spectrum is rapidly outstripping supply. The networks we have today won’t be able to handle consumer and business needs...To avoid this crisis, the National Broadband Plan recommended reallocating 500 megahertz of spectrum for broadband, nearly double the amount that is currently available."
AT&T's acquisition of T-Mobile would partially alleviate the spectrum problem by creating less overlap and more efficiency. This efficiency, however, is what would create the anti-trust issues that caused the Justice Department to file the lawsuit in the first place. The judge who will be hearing the case, Judge Ellen Segal Huvell, is an experienced anti-trust jurist who has decided cases on both sides during her 12 years on the United States District Court.
1. If the deal between AT&T and T-Mobile is blocked, what will T-Mobile receive in payment from AT&T? What will it cost AT&T to purchase T-Mobile USA if the deal is approved?
2. In what other industries is the market structure an oligopoly? Pick an oligopoly that has a product you consume. What do you notice about prices in this type of market structure? Does anything ever go "on sale"?
3. How easy or difficult is it to start up a new company in an oligopoly? What are the barriers? What is the easiest market structure in which to start a new business?
The recovery of the construction trades could be a major factor in the rebuilding of the overall economy. Juli Niemann, a Marketplace analyst from Smith, Moore and Company, says, "The construction trade is really the only thing that's going to bring this out. The problem with that: it's longer-term. There's no short-term fix for the mess that we're in." She says that the economic gains we saw earlier this year were tied to manufacturing, and primarily affected export markets. Investment in the country's infrastructure could have more of an impact. Ms Niemann also says, "Thirty-five thousand jobs are created for about every billion dollars spent on transportation -- that's very effective. You've got a multiplier effect of 2 to 1." The "transportation" she is talking about is construction repairs to ports, highways and bridges. Read the transcript or listen to the radio segment at: Marketplace Morning Report Sept 6 2011
If construction jobs have the most positive impact, what is the outlook for the economy? Construction in the private sector does not look good. According to the AIA Consensus Construction Forecast, nonresidential and commercial construction will continue to decline in 2011 and will not pick up again until sometime in 2012. The bleak economic outlook has a circular effect, as investing in new construction seems riskier, which in turn depresses the economy further as it does not create the needed construction jobs.
In addition to the private sector, there is public spending on infrastructure projects. The American Recovery and Reinvestment Act of 2009 [ARRA] was an economic stimulus package based on the debatable principle that "during recessions, the government should offset the decrease in private spending with an increase in public spending in order to save jobs and stop further economic deterioration." (Keynesian macroeconomic theory, quoted in the Wikipedia article on ARRA)
This Act "needs a booster shot" said two Iowan legislators in an August 2011 roundtable in Cedar Rapids about re-building the middle class. They called for "more federal investment to stimulate the sluggish economy and put Iowans to work," according to an article by James Q. Lynch in The Gazette.
Has this approach been shown to be effective? According to a report by the Committee for a Responsible Federal Budget at the 2-year anniversary of ARRA, the investment by the government, primarily in infrastructure projects, has had a positive impact on the jobs market and on the economy:
exists about the magnitude of and, to a lesser extent, the direction of the
impact of ARRA, general consensus among economists is that it significantly
helped the economy. CBO's latest estimate in November 2010 said that through
the third quarter of 2010, ARRA had lowered the unemployment rate by somewhere
between 0.8 percent and 2.0 percent and raised real GDP by between 1.5 percent
and 4.2 percent. CBO's employment estimates from ARRA correspond to between 1.4
and 3.7 million more people (or full-time equivalents) employed as a result of
Nevertheless, controversy will always exist when government spending is involved.
Marketplace is produced by American Public Radio.
1. When the Federal government grants money to improve and repair highways in a state, what kinds of jobs are created? Think about planning, construction, ancillary supply businesses, and service businesses that will be impacted.
2. What may be the negative impacts of this type of government spending?
3. What do the following acronyms mean? CBO, GDP, AIA
photo by David Johnson: Shama Kabani of the Marketing Zen Group, from the article linked below
It is the dream of many business students to launch a successful business in their twenties. Shama Kabani has done that. She took an academic paper on Twitter (which had only 2,000 followers when she wrote her paper) and turned it into a book and a business, according to an article in the September issue of Entreprenuer magazine.
In 2009, she started her business, the Marketing Zen Group, which is a social media marketing firm in Texas. Her goal is to "cultivate relationships" with a client's "trusted audience." She has a three-pronged approach:
Even competitors recognize that Kabani's "legitimate engagement" concept is special. She trains her clients to develop a two-way communication with their customer base. Kabani helps her clients understand that they are part of a community that includes their customers.
One interesting feature of her business is that several of her employees were hired virtually and work from the Philippines.
Shama Kabani is now 26. Her business plan includes becoming a multi-million dollar company by 2014.
Read the full article at: "From Grad Student to Social Media Millionaire," by Matt Villano, September 5, 2011or in print under the title "Social Media's Zen Master of Marketing," Entrepreneur, September 2011
1. How does social media affect your business decisions? Do you tweet recommendations (pro and con) of products and services that you purchase? Do you act on the recommendations of others?
2. Read the book: The Zen of Social Media Marketing: An Easier Way to Build Credibility, Generate Buzz and Increase Revenue by Shama Kabani, which is widely reviewed and available online.
photo from apa.org: Young person doing her tax return
Taxes can always get headlines--who gets taxed, how much they get taxed, corporate vs individual, earned income vs capital gains. The Los Angeles Times article by Michael Hiltzik, "More Rhetoric to Attack the Poor," published August 31, 2011, delineates the various ways that pundits use language to tell the story that "the undeserving poor" are not paying their fair share.
Business communication about taxation--pro and con--is not always straightforward. Particularly when topics are controversial, partially true but misleading labels--as well as facts taken out of context--can be used to inflame a debate. According to the article mentioned in the first paragraph, one of the current labels used to demonize the poor is "non-taxpayer." Technically, this label refers to those people who pay no federal income taxes. The claim being made is that these "non-taxpayers" should not have any voice in the taxation debate, because they have a special advantage: they do not pay federal income taxes under the current system.
Mr. Hiltzik notes that articles focusing on poor non-taxpayers ignore the wealthy non-taxpayers. He quotes the non-partisan Tax Policy Center: "in 2009, about 123,000 tax returns reporting cash income
over $200,000 also reported owing zero federal income tax — including 6,000
returns showing income over $1million."
As Mr. Hiltzik notes in passing, many students who work part-time (as well as senior citizens and other low-income earners) fall into the category of "non-taxpayer"--that is, they do not pay federal income taxes. But the term "non-taxpayer" is not entirely accurate. Let me illustrate this with my own example:
A student who works part-time as an employee and makes $6,000 per year is subject to payroll taxes. These include Social Security and Medicare taxes that total 8.8% from the first dollar earned. There is no exemption for those taxes. $6,000 x 8.8% = $528. If the student spends $2,000 on non-taxable food items, and the spends the remainder [$6,000 - $528 - $2,000 = $3,472] on toiletries, supplies, books, gas, restaurants, entertainment, etc. which are taxed at, for example, 9%, that's $312 in additional taxes.
Therefore, that student making $6,000 pays taxes of $840 ($528 + $312). $840 divided by $6,000 is 14%. Paying 14% of one's income in taxes does not equate to being a "non-taxpayer."
Does the student earning $6,000 deserve to be treated as a non-taxpaying villain? Should this student be forbidden to participate in the debate about tax policy? Some policy analysts demonize all "non-taxpayers" and advocate for reform where everyone pays their fair share (see "Tea Party's principle for tax reform is for all to pay their fair share"). "Fairness" is a commonly shared value, but it means different things to different people. It might not carefully communicate the realities for everyone concerned.
Business communication can be used for many purposes. It can be used to communicate information clearly--business-to-business or employer to employee. It can also be used to sway public opinion through advertising and public speech and writing. Business communication can sometimes be used to maximize benefits for oneself or one's group. Economic policies that surround taxation are often incompletely understood, and imprecise language and name-calling can mislead us into drawing conclusions that don't tell the whole story.
1. Reality check: What do you pay in taxes? Estimate and list the following amounts:
2. Calculate how much of your income you pay in taxes: Take the total amount you spend in taxes, calculated in #1, and divide it by your estimated annual income.
3. Use your favorite search engine to find articles about "tax reform" or "tax policy." Find two articles on EACH side of the debate about some aspect of tax law--for example: flat tax, estate tax, tax increases or tax cuts, etc. Evaluate the language in each article. Is there any rhetoric or name calling used to appeal to emotion? What criteria can you use to know what information you can trust?
Saab workers, courtesy of scandasia.com
Saab makes hip and trendy cars that have cache with today's young people. But they are in a tough situation. As reported by the Associated Press in a September 8, 2011 article, "Saab denied bankruptcy protection," it looks as though the Swedish courts will deny Saab the protection that it seeks, and bankruptcy seems to be the next step.
Workers have not been paid. Bankruptcy can arise when a company is in violation of laws or if creditors force that bankruptcy. In this case, the creditors are the employees, who have not been paid their wages on a timely basis--Saab is 14 days in arrears, according to the AP article. A more complete story of the issues Saab faces was reported in the New York Times article, "Countering Unions, Saab Seeks Creditor Protection" (online as "Saab files for bankruptcy protection as it awaits Chinese cash").
Saab has been awaiting an infusion of Chinese funds to avert bankruptcy. The company that owns Saab is Swedish Automobile. A company that is considering a bailout investment is Zhejiang Youngman Lotus Automobile.
I was surprised to see that Saab was not, in fact, a Swedish company, but rather it was owned by a corporation in the Netherlands I felt a tad attached to Saab because I learned to drive a stick shift car on a Saab and it was great fun.
That is neither here nor there, at this point: Saab is fighting for its life. It remains to be seen if Chinese investors can bail it out.
1. Forget what you are driving. What is your favorite or fantasy car? Who owns the company that make that car? Is it a corporation that is headquartered in the country you live in? Is it profitable? Have you identified who really owns the company?
2. Google "Spyker," the Netherlands company that owns Saab. If you were the Chinese company that was approached to invest, would you put your money into this venture? Why or why not?
3. As an Introduction to Business student, are you interested in companies that are having trouble, or approaching bankruptcy? Or are you interested in companies that are thriving in spite of the current economic climate? Do people make money where companies are already thriving, or where they are not? Where do you see your own opportunities?
Work-life balance: what is the answer? Many managerial and professional workers have the luxury to ponder this dilemma, but rarely do those at the lower end of the pay-scale have the flexibility and autonomy to make choices that can improve their lives...as well as improve the bottom-line for their employers.
The article, "Work-Life Balance Benefits Low-Wage Workers, Employers" by David Villano, describes an experiment being conducted by clothing retailers in Chicago. These employers, as part of a "Scheduling Intervention Study," are granting expanded choices to those at the bottom of the pay-scale. So far, the ongoing study has shown that family-friendly policies for workers reduce stress, build employee loyalty, and lower turnover.
Susan Lambert, an associate professor at the University of Chicago, is one of the researchers studying this topic. “We’ve been talking about work-life balance for a long time, but we haven’t been talking about who has been excluded from these kinds of arrangements,” she says. “The people who really need flexible arrangements often don’t have them.” These flexible arrangements include maternity leave and other family leave time, monthly scheduling rather than scheduling that occurs a few days or a few hours in advance, and even telecommuting. The trend in tough economic times has been to do the opposite of granting scheduling autonomy. One trend has been to use "just-in-time" scheduling--originally developed as a process costing technique to save on inventory costs--as a way to manage the work force at the lower end of the pay scale. This is particularly hard on part-time workers who are juggling more than one job to make ends meet, as well as trying to deal with personal responsibilities. This under-employed, low-wage work force tends to have high turnover, a large amount of absenteeism, and other issues with job performance.
Employers may save money in the short run by utilizing cost-cutting policies, but several employers are finding that dealing with high turnover and a lack of mutual trust is not sustainable. Lambert believes that by providing the kind of hard evidence that she has been gathering from her research, she will enable company managers to see that work-life balance issues not only hold value for employees, but are cost-effective for employers. She sees this research-based solution as a better alternative than federally mandated programs imposing minimum standards on employers' treatment of part-time, low wage-earning employees.
1. What is the "flexibility stigma" that is mentioned in the article? Why do you think it might exist in certain companies? What management policies would influence workers' participation in those programs?
2. What percentage of "net new job creation" in the past year has been in low-wage jobs, according to the article? In what industries are these jobs?
3. What is your own personal ideal of work and life balance? What kind of flexibility would you like to have in a job? Do you have it in your current job, if you are working now?