Exploring Business

1
Exploring Business

• Chapter 1
• Characteristics of Business

2
Objectives of Chpt 1

• Explain the general types and changing nature of
  businesses.
• Describe how global competition has affected the
  way American businesses operate.
• Show how businesses have grown and improved the
  economic well-being of people.
• Discuss the role and nature of entrepreneurship
  and the opportunities, problems, and obligations
  of small businesses.
• Summarize the value of plans that allow employees
  to function like entrepreneurs inside businesses.
• Explain the importance of studying business
  principles and management.

3

• Business - an organization (home, office, store,
  factory) that produces or distributes a good or
  service for profit.

What is a business main purpose?

• Profit - difference between income and cost

4
Exercise 1 Label the following as either a
manufacturing or service firm A. A watch repair
shop B. Jewelry made by a group of Native
Americans C. Someone who mows lawns, shovels
snow D. Shop that makes minute timers E. List
three manufacturing and service examples
5
Business 3 major activities

• Production - making a product or providing a
  service
• Manufacturing firms - produce goods
• Service firms - provide assistance to satisfy
  specialized needs intangible labor
• Marketing - how goods and services are exchanged
  between producers and consumers
• Finance - all money matters related to running a
  business

6
Types of Businesses

• Industrial
• produce goods used by other businesses or
  organizations to make things
• Commercial
• marketing (wholesalers/retailers)
• finance (banks/investment)
• Furnishing (medical offices/hotels)

7
Industry

• A word used to refer to all businesses within a
  category
• Publishing industry - includes selling books,
  magazines, newspaper, and other printed document
  prepared by authors
• Government - Fire and police protection. All
  services provided by local, state and federal
  government would fall into this category.

8
Nature of Business

• Dynamic
• Constantly changing
• Business reacts to changing nature of society.
• Travel Modes
• - Horse
• - Rail (train)
• - Gasoline engines
• - shifted to car, bus, truck
• - Plane
• Innovations affect the kinds of products and
  services offered for sale. Review Figure 1-2, pg
  7.

9
Global Competition

• Ability of profit-making organizations to compete
  with business in other countries.
• America led the way in new goods/services for
  years
• Americans bought from American companies
• Over last 30 years, other countries learned how
  to invent and produce new products
• Americans began buying goods from abroad.
• Foreign organizations where able to offer goods
  at a much cheaper price. Why?
• American business leaders soon realized it was
  time for change.

10
Effectiveness/efficiency

• Effectiveness - making the right decision about
  what products or service to offer customers and
  how to produce and deliver them
• Efficiency - producing goods or services quickly
  and at a low cost
• Success formula Provide products at the lowest
  cost while maintaining desired quality.

11
Achieving Effectiveness

• Make the right decisions
• Use common sense
• Need to be skilled at decision making
• Forecast impact of decisions
• Must know what customers want and be able to
  offer it
• Tent example
• Billions of spent examining customers
  preferences
• Must keep them satisfied

12
Effectiveness cont

• Customers want high-quality products
• Major emphasis for American producers
• America has learned important lessons about
  quality from foreign countries
• TQM - total quality management
• Commitment to excellence that is accomplished by
  teamwork and continual improvement
• All employees receive a great deal of training on
  the topic of quality
• RESULT is well-made products

13
Achieving Efficiency

• Efficiency is measured by output--the quantity
  produced within a given time.
• Productivity -- producing the largest quantity in
  the least amount of time by using efficient
  methods and modern equipment

14
Efficiency achieved in 3 ways

• Specialization of effort
• Work is performed more efficient by having
  workers become specialists.
• Body repair work or transmissions or engines
• Workers become experts at tasks
• Specialization improves quality while increasing
  the amount produced
• Mass production - electronically driven
  equipment produce more items in less time

15

• Technology and Innovation
• New discoveries and inventions produce
  better-quality goods and services
• Built at a faster pace and often at a lower cost
• New technology found in everyday items
• Cars
• Clothing
• Computers
• Electronic appliances

16

• Reorganization
• Most difficult way to obtain efficiency
• Employees are most important resource
• Not bosses, not managers
• Empowerment -- letting workers decide how to
  perform their work tasks and offer ideas on how
  to improve the work process
• Companies empower their main workers
• Better trained skilled workers LESS managers
• Companies were able to reduce levels of
  management thus reducing salaries

17
Business Growth and Prosperity

• US is a prosperous nation
• Due to business growth
• Other countries admire and envy our economic
  strength
• How do we measure economic wealth and benefits?

18
Gross Domestic Product (GDP)

• How our nations economic wealth is measured
• GDP - total market value of ALL goods and service
  produced in one year
• Compared from year to year
• Compared to other countries
• Comparisons provide a measure
• Recently, GDP of US exceeded the total GDP of
  four countries--Japan, German, England and Mexico

19
Underground Economy

• Products/services sold or done but not reported
  to the gov.
• Drug sales
• Student with a law mowing service

20

• Business Innovation
• Pg 12
• Read the story and answer the questions 1-4 (8
  pts)
• Make sure name is on paper
• Hand in when done

21
Individual Well Being

• GDP figures are helpful in judging the overall
  growth of economy
• Not of individuals
• Can make generalizations of groups
• 65 of families own homes (vs. leasing)
• Own items once considered to be luxuries
• Fridges, color TVs, microwaves, washers, cordless
  phones
• 50 own answering machines
• 33 own PCs
• Most have higher levels of education
• Americans do well compared to others from other
  countries.

22
Entrepreneurship

• Entrepreneur - someone who starts, manages, and
  owns a business
• Many are highly skilled managers who were
  displaced by large firms
• Small businesses - any business that is operated
  by one or few individuals
• Popular
• Few gov. controls
• Anyone who wishes may start a business
• Many each year
• Many are one-person or family operations with few
  Es
• Restaurants, gift shops, gas stations, bakeries
• Community Examples --

23

• Computers/Internet made it possible for small
  businesses to operate from home
• - Many small businesses earn less than 250,000
  per yr
• Growth - small businesses
• Many large businesses were small at one time
• Grew
• Supplied products/services consumers desired
• Well managed
• Subway, McDonalds, Holiday Inn
• Extra Credit -- Why is McDonalds so successful.
  What is their secret?

24
Franchise

• Legal agreement where a person buys the right to
  sell a companys product/service under the
  companys name or trademark
• Popular way to launch a business
• Franchisor - parent company - provides the
  product/service
• Franchisee - distributes the product/service
• How it works
• Franchisee pays an initial fee plus a of weekly
  sales. In return he/she gets help in selecting a
  store site, rights to a geographic location,
  training, advice
• Very valuable to inexperienced entrepreneurs
• Better chance of success than a firm starting out
  on its own

25

• Franchise - Cons
• Fraudulent dealers
• MUST buy items from franchisor -- substantially
  higher price than available elsewhere
• Doesnt secure geographic location
• Despite drawbacks, franchises have grown steadily
  over the years
• - 12 of all businesses
• - Mostly auto/truck dealerships and gasoline
  stations

26
Risks with Ownership

• Managerial effectiveness SUCCESS
• A well managed business will likely earn an
  adequate income
• Going to be an entrepreneur?
• Have to assume the risk of success or failure
• Failure - causes
• Competition, changes in prices and styles, new
  products, economic conditions
• Thousands fail yearly - Why
• Financial reasons

27
Business Failure

• 25 fail within 3 years
• 50 fail within 6 years
• Most often, due to economic and financial factors

28
Obligations of Ownership

• Responsibility to entire community
• Customers, Es, suppliers, even competitors
• Failed businesses create an economic loss that is
  shared by others in society
• Debts owed cannot be collected
• Thus the business that cannot collect is placed
  in a weakened financial condition
• At some point, review obligations listed at top
  of pg 21.

29
Consumer Obligations

• Realize prices of goods/services are affected by
  expenses that arise from operating a business
• Each worker must be properly trained and eager to
  work
• Economic health of community is improved when
  groups in community are aware of each others
  obligations

30
Intrapreneurship

• Intrapreneur - an E who is given funds and
  freedom to create a special unit or department
  w/i a company in order to develop new
  products/services
• Main company finances new venture
• Intrapreneurers enjoy freedom with little or no
  interference from upper management
• Value Es provide company with innovative products
• IBM and 3M (post-it notes) and GE

31

• Es risks neither salaries nor savings to launch a
  new business
• Companies benefit by keeping creative Es who
  might have left to start a competing business
• ESOP - E Stock Ownership Plan
• Permits Es to directly own the company
• Es highly motivated to make their company a
  success
• Companies benefit because Es buy stock

32
Importance of Chpt 1

• Whether you plan to own or operate a business,
  you must be well informed about the production,
  marketing and financial activities of a business
• Basic understanding of business principles will
  help you become an effective E or a successful
  business owner