     

CHARACTERISTICS OF BUSINESS

CHAPTER 1

OBJECTIVES

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.

NATURE OF BUSINESS



Business

 An organization that produces or distributes a good or service for profit 

Profit

 The difference between earned income and costs Income – Costs = Profit

NATURE OF BUSINESS

 1.

2.

3.

3 Business Activities Production  Making a product or providing a service  Manufacturing – produce good  Service Firms – provide assistance to satisfy specialized needs Marketing  Deals with how goods or services are exchanged between producers and consumers Finance  Deals with all the money matters related to running a business

NATURE OF BUSINESS

  Supply  The number of similar products that will be

offered

for sale at a particular time and at a particular price Demand  The number of similar products that will be

bought

at a given time at a given price

Supply vs. Demand

Supply Demand Price will decrease Demand Supply Price will increase

Types of Businesses

 2 major types of businesses  Industrial businesses  Produce goods used by other businesses or   organizations to make things Highly Industrial – US, Japan, Germany Third World Nation – Usually poor and few manufacturing firms (Peru, Chile, Nigeria, Pakistan)  Commercial businesses  Engage in marketing (wholesalers and retailers), in finance (banks and investment companies), and in services (medical offices or motels)

Types of Businesses

   Services  Intangible products that use mostly labor to satisfy consumer needs (mowing the lawn) Industry  Refers to all businesses within a category What Industry?

 Produces and sells books, magazines, newspapers, and other printed documents?

 Publishing Industry  Produces services such as fire and police protection  Government (include all services provided by local, state, and federal governments)  Provides sporting events, live theater, movies, night clubs, concerts, and casinos  Entertainment Industry

Service or Manufacturing?

    A watch repair shop  Service Jewelry made by a group of Native Americans  Manufacturing Someone who mows lawns, shovels snow, and removes fallen trees  Service A shop that makes minute timers  Manufacturing

Changing Nature of Business

    Businesses are constantly changing Must be able to react quickly to change Innovations affect the kinds of products and services offered for sale  Clothes (natural vs. synthetic fibers) Innovations also affect business operations  Computers  Internet Sales

IMPACT OF GLOBAL COMPETITION ON BUSINESS

   Focusing on the right things Achieving effectiveness Achieving efficiency  Specialization  Technology and innovation  Reorganization

IMPACT OF GLOBAL COMPETITION ON BUSINESS

       Americans have led the way Consumers purchased new products that were invented in the US Workers from other countries came by the thousands to find jobs Over the last 30 years, other countries have become more industrialized Americans now purchase foreign products Excellent products in greater varieties at lower prices Global Competition  The ability of profit-making organizations to compete with businesses in other countries

Focusing on the right things

    Effectiveness  Making the right decisions about what products or services to offer customers and how to produce and deliver them Efficiency  Producing needed goods or services quickly and at low cost Goal = provide products at the lowest cost will maintaining quality Good managers focus on BOTH

  Effectiveness – Doing the right things Efficiency – Doing the right things well

Achieving Effectiveness

    Focus attention on customers’ needs Choices have increased because of competition among domestic and foreign firms  Domestic Firm  Products made by firms in the US  Foreign Firm  Products made by firms in other countries Provide excellent customer service  Companies spend millions of dollars researching customers’ preferences Keeping customers satisfied after the sale = customer loyalty

Achieving Effectiveness

   Offer high-quality goods and services  New designs, different shapes and colors, readable instructions, and simplicity of products Americans learned quality lessons from the Japanese (cars) Total Quality Management (TQM)  Commitment to excellence that is accomplished by teamwork and continual improvement   Receive a great deal of training from experts Result = well-made products

Achieving Efficiency

 Must produce the products efficiently (measured by output)  Output  The quantity produces within a given time  Productivity  Refers to producing the largest quantity in the least amount of time by using efficient methods and modern equipment

PRODUCTIVITY PER WORKER (page 9)

120 105 90 75 60 45 30 15 0 USA 1980 France 1985 Germany Japan 1990 Canada 1996 England

Achieving Efficiency

 3 ways Efficiency can be achieved 1.

2.

3.

Specialization of effort Better technology and innovation Reorganization

1. Specialization

   Workers become an expert at their assigned task (car mechanics) Improves quality while increasing the amount produced Mass production  The use of up-to-date equipment and assembly line methods to produce large quantities of identical goods  The cost decreases

2. Technology & Innovation

  Advances in technology Businesses spend billions of dollars annually on inventing, buying, and using new technology  Innovation  Refers to the development of new ideas, products, and processes that contribute to satisfying customers

3. Reorganization (most difficult)

   Downsize  Cutting back on the goods and services provided and the number of employees needed to produce them Employees are the most important resource Empowerment  Letting workers decide how to perform their work tasks and offer ideas on how to improve the work process  Quality of work improved  Fewer managers needed

  If a student was fastest to finish an exam but received the lowest grade, would you say the student was 1.

2.

3.

4.

Effective and efficient Effective but inefficient Ineffective but efficient Ineffective and inefficient Answer 3

BUSINESS GROWTH AND PROSPERITY

   Gross domestic product (GDP) Underground economy Individual well-being

GDP

   GDP (Gross Domestic Product)  The total market value of all goods and services produced in a country in a year Measures a nation’s economic wealth Underground Economy  Income that is not recorded in the GDP   Illegal activities – drugs A student babysitting

UNITED STATES GROSS DOMESTIC PRODUCT

10 8 2 0 6 4 4.7

1987 5.8

1990 6.3

7.1

7.8

8.8

1992 1994 1996 1998

Individual Well-Being

      Another measure of the nation’s wealth Economic wealth of individuals Average yearly family income  More than $42,000 Male with no high school diploma  $16,000 Male with a high school diploma  $25,000 College graduate  More than $39,000

INDIVIDUAL WELL-BEING

Percentage of U.S. Households Owning Selected Items

Personal Computers Answering Machines Cordless Phones Clothes Washers Microwave Ovens Color Televisions Refrigerators 0% 35.0% 20% 40% 58.4% 61.4% 77.4% 83.0% 60% 80% 99.8% 99.9% 100%

ENTREPRENEURSHIP

     Popularity of small business Growth of small business Growth of franchise business Risks of ownership Obligations of ownership

Entrepreneur

  Someone who starts, manages, and owns a business 2 reasons for business growth 1.

2.

Individuals want to own their own business The ease in which a business can be started

Popularity of Small Business

 Small Business  A business that is operated by one or a few individuals

Growth of Franchise Business

  Franchise  Legal agreement in which a distributor buys the right to sell the franchising company’s product or service under the company’s name and trademark 2 parties:  Franchisor – the parent company of a franchise agreement that provides the product or service  Franchisee – the distributor of a franchised product or service

Franchise (cont)

       Franchisee pays initial fee Pays 3-8% of weekly sales Get exclusive rights to sell the franchised product/service Get special training and advice Failure rate = 5-10% (much lower than non franchised businesses) 12% of all businesses are franchises Greatest # of franchises are in auto/truck dealerships and gasoline stations

Risk of Ownership

     Success – depends on managerial effectiveness Risk – the possibility of failure  Competition from businesses  Changes in prices  Changes in style  Competition from new products  Changes in economic conditions 1 out of every 4 to 5 fail within 3 years About half cease in 6-7 years  This includes businesses that voluntarily go out of business, sell the business, or add new owners Failure Category = 18%

The Results of 814,000 Firm s 8 Years After Starting (in %)

28% 54% 18% Voluntarily Closed Failed Still Surviving

Obligations of Ownership

       To Customers To Workers To Management To Competitors To Investors To the Public Page 21

INTRAPRENEURSHIP



Intrapreneur

 An employee who is given funds and freedom to create a special unit or department within a company in order to develop a new product, process, or service  Employee Stock Ownership Plan (ESOP)  Permits employees to directly own the company in which they work by allowing them to buy shared in it  Highly motivated to make their company profitable