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Chapter Twelve: Establishing Operations
Table of Contents
Brief Chapter Outline...............................................................................................2
Chapter Outline and Lecture notes..........................................................................4
Key Terms.............................................................................................................. 12
Suggested Text Responses………………………………………………………………………..
…13
Class Activities and Sample Assignments.............................................................15
Discussion Questions for Online/Hybrid classes....................................................17
Lecture Links......................................................................................................... 20
Lecture Link 12.1: The Federal Reserve System (Fed)...................................20
Lecture Link 12.2: Federal Deposit Insurance Corporation (FDIC)..................22
Lecture Link 12.3: Time Management and Stress Reduction Techniques.......24
Bonus Internet Exercises....................................................................................... 25
Bonus Internet Exercise 12.1: Establish the Bank Relationship......................25
Bonus Internet Exercise 12.2: Bank Failures and the FDIC.............................26
Bonus Internet Exercise 12.3: Location Strategy and the New Small Business
....................................................................................................................... 27
Critical Thinking Exercises..................................................................................... 28
Critical Thinking Exercise 12.1: Planning and Operations Assessment..........28
Critical Thinking Exercise 12.2: Establishing Finance and Legitimacy............30
Critical Thinking Exercise 12.3: Critical Path Table and Charting...................33
Bonus Cases.......................................................................................................... 35
Bonus Case 12.1: Conferences and Operations Planning for the New
Entrepreneur.................................................................................................. 35
Bonus Case 12.2: Communication Enhances Operational efficiency..............37
Bonus Case 12.3: Contingency Planning for the New Small
Business……………………….…38
Endnotes............................................................................................................... 39
Brief Chapter Outline
IM 12-1
Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Chapter Twelve: Establishing Operations
I. Learning Objectives (text page 224)
.
Discuss the use of a critical path chart.
Describe how location can be used as a competitive advantage.
Discuss the important issues in the financing considerations of new firms.
Distinguish between the various methods with which a new firm establishes
legitimacy in the market.
Explain the importance of production management in start-up ventures.
Explain how production charting is accomplished.
Describe the importance f quality as a competitive tool.
Discuss the type and condition of equipment needed at start-up.
Explain how timing is a competitive advantage.
Recognize the issues related to time management in the starting of a new
business.
II. The Use of a Critical Path Chart (text page 227)
Learning Objective 12-1: Discuss the use of a critical path chart.
III. How Location Can Be Used as a Competitive Advantage
Learning Objective 12-2: Describe how location can be used as a competitive
advantage.
IV. The Important Issues in the Financing Considerations of New Firms
Learning Objective 12-3: Discuss the important issues in the financing
considerations of new firms.
V. The Various Methods with Which a New Firm Establishes Legitimacy in the
Market
Learning Objective 12-4: Distinguish between the various methods with which a
new firm establishes legitimacy in the market.
VI. The Importance of Production Management in Start-Up Ventures
Learning Objective 12–5: Explain the importance of production management in
start-up ventures
VII. How Production Charting Is Accomplished
Learning Objective 12-6: Explain how production charting is accomplished
IM 12-2
Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Chapter Twelve: Establishing Operations
VIII. The Importance of Quality as a Competitive Tool
Learning Objective 12–7: Describe the importance of quality as a competitive
tool
IX. The Type and Condition of Equipment Needed at Start-Up
Learning Objective 12–8: Discuss the type and condition of equipment needed at
start-up
X. How Timing Is a Competitive Advantage
Learning Objective 12–9: Explain how timing is a competitive advantage
XI. Issues Related to Time Management in the Starting of a New Business
Learning Objective 12-10: Recognize the issues related to time management in
the starting of a new business
XII. For Review (text page 241)
IM 12-3
Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Chapter Twelve: Establishing Operations
Chapter Outline and Lecture notes
1. Learning Objectives (text page 224)
Discuss the use of a critical path chart.
Describe how location can be used as a competitive advantage
Discuss the important issues in the financing considerations of new firms.
Distinguish between the various methods with which a new firm establishes
legitimacy in the market.
Explain the importance of production management in start-up ventures.
Explain how production charting is accomplished
Describe the importance of quality as a competitive tool
Discuss the type and condition of equipment needed at start-up
Explain how timing is a competitive advantage
Recognize the issues related to time management in the starting of a new
business.
2. The use of a Critical Path Chart (text pages 227 through 230)
Learning Objective 12-1: Discuss the use of a critical path chart.
A. Defining a critical path chart (text page 228)
i. A critical path chart demonstrates how the activities necessary to
start the firm fit together and build on each other. The chart allows
you to understand which activities can occur concurrently and
which must already be in place before the next activity can occur
B. The purpose of a critical path chart is to focus the owner’s efforts so there
are no slow downs
C. A small business owner establishes criteria to construct a critical path
chart
i. The amount of time needed to complete the key tasks required to
open new business
ii. The amount of time the owner needs to be involved in new
business activities
iii. The prerequisite tasks
iv. Identification of the person responsible for task implementation
D. A small business owner lists the critical tasks needed to meet the required
deadlines in order to develop the new business
IM 12-4
Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Chapter Twelve: Establishing Operations
E. The critical path chart demonstrates how the criteria of critical tasks are
linked together
F. The longest path in the critical path chart reveals the set of activities that
are dependent on other activities and which activities take the longest time
to complete
G. The critical path chart reveals the activities that can be accomplished at
the same time
i. i.e. Opening a bank account and setting up the financing activities
for the new small business
H. A critical path chart assures the entrepreneur that they have all the
important business activities necessary to establish the new business
have been covered
I. A critical path chart to provide the amount of data that is deemed
necessary to initiate the new small business
J. Some charts are simple while others are quite complex
K. Software packages can be purchased to help develop a task chart to
produce a critical path chart
3. How Location Can Be Used as a Competitive Advantage (text pages 230
through-232)
Learning Objective 12-2:Describe how location can be used as a competitive
advantage
A. An important step in the critical path chart is the identification and
purchase/lease of location for the new business
B. Defining a strip shopping center
i. A small retail center that is located typically along a major road. The
center has only small businesses and the center itself occupies
only a small strip of land along the major streets
ii. Other characteristics include cheap rent and, typically one-story
retail centers, usually parallel to a well-traveled street
C. Defining anchor stores
i. Major retail store which anchor(s) other retail stores
D. Doing location analysis
i. It is used to evaluate the amount of traffic in a location
ii. It is used to analyze the amount of money needed to reach
short-term and long-term goals
iii. It considers expansion options
iv. A proper location provides the business with legitimacy
E. Commercial real estate firms provide useful information
IM 12-5
Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Chapter Twelve: Establishing Operations
i. They have reputable agents
ii. The costs for the realtor are paid by building owner
4. The Important Issues in the Financing Considerations of New Firms (text pages
232 through 233)
Learning objective 12-3: Discuss the important issues in the financing
considerations of new firms
A. These are the financial issues related to start-up operations
B. The new business requires capital to establish the business and acquire
resources (text pages 232 through 233)
i. Security deposits
ii. Utility set-up fees
iii. Purchase/lease of initial equipment and installation
iv. All licenses and inspections
v. All initial supplies
vi. Hiring and training of the initial staff
vii. Initial advertising expenses
viii. Bank relationships
1. Establish great relationships with the bank
2. Establish a revolving line of credit, also known as working
capital
3. Acquire a business credit card
4. Set up a business checking account
a. Should have a primary signatory and a confirmation
signatory
b. Should limit the amount of a check written without a
countersignature
5. Select a local bank
6. Select a bank with expertise understanding small business
cash flow
7. Compare the expertise of banks with other small business
owners
5. The Various Methods with Which a New Firm Establishes Legitimacy in the
Market (text pages 233 through 234)
Learning Objective 12-4: Distinguish between the various methods with which a
new firm establishes legitimacy in the market
A. Defining legitimacy
IM 12-6
Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Chapter Twelve: Establishing Operations
i. The acceptance by key stakeholders such as customers and
suppliers that you are a genuine business that will still be in
operation next year
B. Perception of legitimacy is critical to long-term survival of the business
C. Professionalism projects legitimacy
D. Items that establish legitimacy
i. Business checking account with the name of the business
1. Possibly starting with a high check number
ii. Business credit card
iii. Bank line of credit
iv. Professional business cards
v. Business stationary
vi. Professional advertising material
vii. Business address uniformly listed on stationary, business cards,
letterhead, and other correspondence
viii. Job titles used liberally
ix. Telephone answering support
x. High-quality web page
xi. Board of directors or advisors with excellent community visibility
xii. Endorsements from well-recognized and respected individuals
6. The Importance of Production Management (text page 234)
Learning Objective 12-5: Explain the importance of production management in
start-up ventures
A. Defining production management systems (text page 234)
i. The process or steps that are involved from production to actually
receiving money
B. All businesses have production systems
C. All production systems have preferred operations
D. Production systems may or may not be codified
E. Consistent handling of unusual circumstances is assured
F. Employee focus is enhanced by production management
7. How Production Charting Is Accomplished (text pages 235 through 237)
Learning objective 12–6: Explain how production charting is accomplished
A. A production chart is defined
i. A chart that provides a detailed understanding of a firm’s production
process
IM 12-7
Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Chapter Twelve: Establishing Operations
B. Franchises are successful because their methods of operation are well
established
C. A production chart is similar to a critical path chart
i. Production charts detail steps that occur in the production process
ii. Step by step visualization of process to provide customer with
product
iii. Some steps occur simultaneously and others occur concurrently
D. Process is sequential because firms have limited personnel
E. Charts can be complex
F. Retail firms have production processes
i. Goods enter store
1. Counted
2. Tagged
3. Stocked
4. Sold
5. Detagged and bagged
6. Goods that are not sold moved to clearance area
G. New small business owners discuss popular production process systems
with other business owners in their industry
H. Not feasible to start a new production process system
i. Waste of time and money
8. The Importance of Quality as a Competitive Tool (text pages 237 and 238)
Learning Objective 12-7: Describe the importance of quality as a competitive tool
A. New small businesses invest in quality
B. Quality is assumed to be standard in most industries
C. Dr. W. Edwards Deming is the father of quality movement in the United
States
i. Argued that quality needs to be constantly and consistently
improved
ii. Developed a continuous set of measures for various processes in
organizations
iii. Stated that the performance of processes cannot be judged without
recorded data
iv. Stated that organizational goals for quality should not drive all
actions
1. Firms might make short-term decisions detrimental to
overall direction of the company
v. Suggested that firms be guided by the scientific method
IM 12-8
Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Chapter Twelve: Establishing Operations
1. Focus is to change only one thing at a time and
measure the impact of that change
2. Results reveal the firm is moving in the right direction
and that the each change has a true impact
3. Rather than focusing on suppliers with the lowest
prices, firms should focus on the quality of the
supplier’s inputs. Deming argues that without quality
inputs the output has no chance to be high quality
vi. Defining strategic alliances
a. Firms join together to form long-term, mutually
beneficial relationships
i. Firms seek out long-terms relationships with
suppliers to meet price, supply, and
high-quality product.
ii. Consistent inputs help the firm produce a
consistent output
9. The Type and Condition of Equipment Needed at Start-Up (text pages 238 and
239)
Learning objective 12-8: Discuss the type and condition of equipment needed at
start-up
A. Acquire equipment for the new small business
i. It is very expensive to purchase new equipment.
ii. The new small business owners must evaluate equipment needs
1. When will the equipment be needed?
2. When will equipment need to be replaced?
3. What is the long-term outcome of whether or not to purchase
new equipment or used equipment
iii. Various methods of acquisition
1. Purchasing new equipment guarantees it is the most current
in the market
a. It will be most expensive
b. It’s delivery may be delayed
c. New equipment depreciates as much as fifty
percent in the first year
2. Purchasing older equipment is risky
a. Quality may be poor
b. It may not be available
c. Older equipment should be researched
IM 12-9
Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Chapter Twelve: Establishing Operations
iv. Develop a comparison chart
1. Compare prices
2. Compare advantages and disadvantages of buying new,
used, or leased equipment
3. Assess overcoming a cash flow crunch
4. Determine the impact on the quality output of the firm
5. Determine the long-term impact of the purchase if small
business grows and prospers
10.How Timing Is a Competitive Advantage (text page 239 and 240)
Learning objective 12-9: Explain how timing is a competitive advantage
A. New small business owners must evaluate their timing strategies to
determine the appropriate time to initiate the business
B. Start-up timing should be determined by several factors
i. General environment
ii. Competitor moves
iii. Cyclical considerations in regards to purchasing and supply
patterns
iv. Lifestyle issues
C. The economy should be evaluated for cyclical trends
i. Boom
ii. Slowdown
iii. Recession
iv. Growth
D. Competitor moves should be taken into account
i. Direct competitors
ii. Other competitions
iii. Business failures competitors
11. The Issues Related to Time Management in the Starting of a New Business (text
pages 231 through 232)
Learning objective 12-10: Recognize the issues related to time management in
the starting of a new business
A. Evaluate the steps in the time management process
IM 12-10
Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Chapter Twelve: Establishing Operations
i. Write down what needs to be accomplished in all parts of the
business
ii. Prioritize which tasks are critical and which would just be helpful
iii. Segment items to be done between short term and long term
iv. Allocate time for dealing with operational issues
v. Make a check list of critical items to be completed and check them
off when they are complete
1. Notebooks
2. PDA’s
12.For Review (text page 241)
Key Terms
Anchor Stores: Major retail stores, such as department stores in a mall. They serve as
the anchor for the retail establishment. (LO 12-2)
Critical Path Chart: Chart that demonstrates how the activities necessary to start the
firm fit together and build on each other. This chart allows you to understand which
activities can occur concurrently and which must already be in place before the next
activity can occur. (LO 12-1)
Legitimacy: The acceptance by key stakeholders such as customers and suppliers that
you are a genuine business that will still be in operation next year. (LO 12-4)
Production Chart: A chart that provides a detailed understanding of a firm’s production
process. (LO 12-6)
Strategic Alliances: The joining together of firms to form long-term, mutually beneficial
relationships. (LO 12-7)
Strip Shopping Center: A small retail center located typically along a major road. The
center has only small businesses and the center itself occupies only a small strip of land
along the major street. (LO 12-2)
IM 12-11
Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Chapter Twelve: Establishing Operations
Suggested Text Responses
Opening Vignette “Weed maps – The Yolk Ox Marijuana Buying – p. 225
Student responses will vary.
Exercise 1 – p. 230
Student responses will vary.
Ethical Challenge – p. 231
Student responses will vary.
IM 12-12
Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
