MCE Study Guide Quiz 1 PDF

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Chapter One Porter’s 5 Forces Model 1. Consists of: a. Threat of new entrants b. Threat of substitutes c. Buyer power d. Supplier power e. Threat of existing firms 2. Helps us understand where the power lies, the strength of our current position, and the strength of a position we wish to move into. Stakeholder Theory 1. Stakeholder Theory- individuals and groups that can influence the performance of an organization, and are impacted by a firm’s strategies 2. Typical Stakeholders: Employees, Customers, Investors, Community 3. Orientations of Stakeholders: a. Reactive – act only when forced to do so b. Proactive – attempt to anticipate stakeholder concerns c. Inactive – ignore stakeholder concerns d. Interactive – engage with stakeholders on ongoing basis with respect and trust 4. Attributes: legitimacy, power, urgency Cognitive Bias 1. Halo v. Horns Effect- causes you to allow one trait, good or bad, to overshadow other traits, behaviors, actions, or beliefs a. Defense: every idea must stand on its own merit regardless of who proposes it Net Promoter Score (NPS) 1. Gauges loyalty to a firm: a. customers, suppliers, and employees 2. Directly correlates to the bottom line 

Firms can have a sole goal of maximizing profit, or they can have multiple goals.

Organizations 1. Social inventions, external boundaries, goals, deliberately structured ideas 2. B-Corps are for profit, but generally do positive things for the environment. 3. Firms- legally exist, have right and obligations, concerned with creation of econ. Wealth 4. Open Systems Hypothesis- firms must interact with environments to survive and thrive a. Transactions occur between environmental entities and inside the firm Drivers of Complexity in Environments 1. Rate of change (ex: Moore’s law) 2. Magnitude of change 3. Number of drivers 4. Dynamic nature of drivers

5. Make sure you consider these factors independently. Managing Uncertainty 1. Responsibility – held by all on multiple levels 2. Authority – functional and implied a. 4 main functions of a manager: plan, organize, control, budget 3. Routine Problems a. Applying standard tools b. Heuristics- simple, standard, typically successful solutions to problems that are known to arise on a regular basis 4. Non Routine Problems a. Tech changes, customer changes, competitor changes Profit 1. Accounting- “Net Income” a. Accounting Profit = Revenue – expenses b. Excludes the future c. Viewed over fixed periods, and doesn’t account for opportunity cost 2. Economic- “Rent” a. Income that is surplus over/above cost of all inputs b. Considers cost of capital and opportunity cost c. Indefinite past  indefinite future d. Mostly independent of accounting standards 3. Profit- “Net Income” a. surplus of revenue in an accounting period over all costs in the period b. revenue and costs are historical, and defined by standards of home country c. net profit margin- net income / net sales 4. Stakeholders have claim on profit a. Government – taxes b. Customers – lower prices c. Employees – jobs, benefits

Managing Uncertainty 1. Responsibility- obligation to be discharges 2. Authority- “rights” built into a position 3. VUCA- complexity, volitality, ambiguity, uncertainty Performance Criteria 1. Primary means to evaluate performance if only goal of business it to maximize profits 2. When you have multiple criteria, maximization on one reduces performance on another (zero sum gain)

Chapter Two Types of Goods Being Exchanged 1. Finished, Intermediate, Raw Goods 2. Labor 3. Real Property 4. Intellectual Property Markets 1. Market- can be physical or virtual; any arena in which a transaction occurs 2. Follow patterns of orderliness, meaning that there are laws of S&D enforced by pricing systems and regulatory mechanisms 3. Transactions- occur between firms, within firms, can be legal or illegal a. Third parties in transactions can be: i. Brokers – bring buyers and seller together ii. Infrastructure providers – provide method of transaction (ebay) b. Types of transactions: i. Barter – no money involved, can’t distinguish buyer from seller ii. Purchase – money involved, buyers and sellers iii. Some more: Distribution Channel, Professional Service, Garbage c. Generally, transactions are “input” focusing on the buyer, or “output” focusing on the seller d. Transfer pricing problem- prices usually lower than normal market price but higher than the cost of production Mechanisms 1. Price System- “market system;” people follow their own best interests, when the invisible hand fails, the government can intervene a. Capitalist systems – central planning isn’t used, relies on p.s. and r.m. b. Socialist systems – heavy government involvement 2. Regulatory Mechanism- mechanism can be like the FDA (a regulatory agency) or “human trust” which is very important, but free and easy to exploit 3. Markets usually rely on some combination of the price system and regulatory mechanisms to maintain orderliness.

Orderliness 1. Laws of supply and demand- both buyers and sellers can maximize benefit by pursuing self-interest, enforced by pricing systems and regulatory mechanisms 2. Most countries are not as orderly as the US. (Even slight fluctuations annoy us.) a. So orderly because prices are usually stable in PC with one product 3. Symmetric Info Circumstances: a. Identical Public Information- parties, buyers, and sellers know all the sellers and their prices b. Unique Private Information- known only to individual parties concerning their own info 4. Asymmetric Circumstances: a. Each party has inventive to acquire this in an ok way or a shady way b. Data mining is when sellers collect your on-line searches Competition 1. Seller – sellers in the same markets are your competitors 2. Buyer – buyers in the same market are your competitors 3. A party that is your competitor in one market can be your ally in another. a. Ford and Mazda are rivals in cars, and partners in IP Price Theory 1. Perfect Competition- one product, perfectly substitutable 2. Oligopoly- a few large sellers, many small buyers, one product in market 3. Monopoly- characterized by one seller, providing one product to a large number 4. Monopolistic competition- one seller per market segment, unique products 3 Ways Out of PC 1. Product differentiation 2. Process enhancement 3. Business model adjustment...