Chapter 1: Managing within the Dynamic Business Environment
I. BUSINESS AND ENTREPRENEURSHIP: REVENUES, PROFITS, AND LOSSES.
LEARNING GOAL 1
Describe the relationship of businesses’ profit to risk assumption and discuss how businesses and nonprofit organizations add to the standard of living and quality of life for all.
A. BASIC CONCEPTS:
1. A BUSINESS is any activity that seeks to provide goods and services to others while operating at a profit.
2. PROFIT is the amount a business earns above and beyond what it spends for salaries and other expenses.
3. An ENTREPRENEUR is a person who risks time and money to start and manage a business.
4. Businesses provide people with the opportunity to become wealthy.
5. In addition, businesses provide necessities such as food, housing, and medical care.
B. MATCHING RISK WITH PROFIT.
1. Profit is revenue minus expenses.
2. REVENUE is the total amount of money a business takes in during a given period by selling goods and services.
3. A LOSS occurs when a business’s expenses are more than its revenues.
4. Approximately 80,000 businesses in the U.S. fail each year, although this number may be overstated.
5. RISK is the chance an entrepreneur takes of losing time and money on a business that may not prove profitable.
6. REWARDS AND RISK ARE RELATED.
a. The more risks you take, the higher the rewards may be.
b. As a potential business owner, you should do research to find the right balance between risk and profit.
C. BUSINESSES ADD TO THE STANDARD OF LIVING AND QUALITY OF LIFE.
1. Entrepreneurs PROVIDE EMPLOYMENT for other people.
2. They also PAY TAXES that are used for schools, hospitals, and other facilities.
3. Businesses are a part of an economic system that helps to CREATE A HIGHER STANDARD OF LIVING and quality of life for everyone.
4. The term STANDARD OF LIVING refers to the amount of goods and services people can buy with the money they have.
5. QUALITY OF LIFE refers to the general well-being of a society in terms of political freedom, a clean natural environment, education, health care, free time, and everything else that leads to satisfaction and joy.
D. RESPONDING TO THE VARIOUS BUSINESS STAKEHOLDERS.
1. STAKEHOLDERS are all the people who stand to gain or lose by the policies and activities of a business.
2. Stakeholders include customers, employees, stockholders, suppliers, bankers, and people in the local community, environmentalists, and elected leaders.
3. The challenge for companies in the 21st century will be to BALANCE, as much as possible, THE NEEDS OF ALL STAKEHOLDERS.
4. Pleasing all shareholders is not easy and requires balancing many factors.
5. While providing what customers need, businesses must try to CAUSE MINIMAL DAMAGE TO THE NATURAL ENVIRONMENT.
E. USING BUSINESS PRINCIPLES IN NONPROFIT ORGANIZATIONS.
1. Nonprofit organizations such as government agencies, public schools, charities, and social causes make a major contribution to the welfare of society.
2. A NONPROFIT ORGANIZATION is an organization whose goals do not include making a personal profit for its owners or organizers.
3. You need the SAME SKILLS to work in nonprofit organizations that you need in business, including information management, leadership, marketing, and financial management.
4. Businesses, nonprofit organizations, and volunteer groups often strive to ACCOMPLISH THE SAME OBJECTIVES.
5. To accomplish these objectives, business must REMAIN COMPETITIVE with the best businesses in the rest of the world.
II. ENTREPRENEURSHIP VERSUS WORKING FOR OTHERS.
A. THERE ARE TWO WAYS TO SUCCEED IN BUSINESS:
1. One way is to RISE UP THROUGH THE RANKS of a large company, such as Meg Whitman of eBay did.
2. The more risky path is to START YOUR OWN BUSINESS.
3. An example of a successful business creator is Wu-Fu Chen, who created 11 companies, worth millions.
B. OPPORTUNITIES FOR ENTREPRENEURS.
1. Millions of people have taken the entrepreneurial risk and succeeded.
2. Entrepreneurs have come from all over the world to prosper in America.
a. The number of HISPANIC-OWNED BUSINESSES in the United States has grown dramatically.
b. Increases have also been made by ASIANS, PACIFIC ISLANDERS, AMERICAN INDIANS, and ALASKAN NATIVES.
3. AFRICAN-AMERICAN BUSINESSES have created numerous leaders.
C. THE IMPORTANCE OF ENTREPRENEURS TO THE CREATION OF WEALTH.
LEARNING GOAL 2
Explain the importance of entrepreneurship to the wealth of an economy.
1. The FACTORS OF PRODUCTION are the resources used to create wealth:
a. LAND (or “natural resources”.)
b. LABOR (workers.)
c. CAPITAL (e.g., machines, tools, and buildings; but not money—money is used to buy factors of production.)
d. ENTREPRENEURSHIP.
e. KNOWLEDGE.
2. Some experts believe that the most important factor of production is KNOWLEDGE.
3. It is important to get a much education as possible to prepare for knowledge-oriented jobs.
4. What makes rich countries rich is not land, labor, or capital; it is a combination of entrepreneurship and the effective use of knowledge.
5. Entrepreneurship also helps make some states and cities rich while others remain relatively poor.
III. THE BUSINESS ENVIRONMENT.
A. The BUSINESS ENVIRONMENT means the surrounding factors that either help or hinder the development of business; they are:
1. Economic and legal environment.
2. Technological environment.
3. Competitive environment.
4. Social environment.
5. Global business environment.
Businesses grow and prosper in a healthy environment.
B. THE ECONOMIC AND LEGAL ENVIRONMENT.
LEARNING GOAL 3
Examine how the economic environment and taxes affect businesses.
1. People are willing to take the risk of starting businesses if they feel that the risk is not too great.
2. Entrepreneurs are looking for a high RETURN ON INVESTMENT (ROI), including the investment of their time.
3. GOVERNMENTS CAN LESSEN THE RISK of starting a businesses thereby increasing entrepreneurship and wealth by:
a. Allowing private ownership of business.
b. Passing laws that enable businesspeople to write contracts that are enforceable in court.
c. Establish a currency that is tradable in world markets.
d. Minimize corruption in business and government.
4. CORRUPT AND ILLEGAL ACTIVITIES—such as seen with Enron, WorldCom, and Tyco—negatively affect the business community and the economy.
5. The capitalist system relies heavily on honesty, integrity, and high ethical standards.
C. THE TECHNOLOGICAL ENVIRONMENT.
LEARNING GOAL 4
Illustrate how the technological environment has affected businesses.
1. Few technical changes have had a more lasting impact on businesses than INFORMATION TECHNOLOGY.
2. The INTERNET is a major force in business today.
3. HOW TECHNOLOGY BENEFITS WORKERS AND YOU.
a. TECHNOLOGY means everything from phones and copiers to computers, medical imaging devices, personal digital assistants, and various software programs that make business processes more efficient and productive.
b. PRODUCTIVITY is the amount of output you generate given the amount of input (e.g. hours worked.)
c. Tools and technology greatly improve productivity.
d. Technology affects people in all industries.
e. Farmers use high technology to increase production and profit.
f. U.S. workers have access to technologies that make them more productive, enabling them to earn more money.
4. THE GROWTH OF E-COMMERCE.
a. E-COMMERCE is buying and selling of goods over the Internet.
b. There are two types of e-commerce transactions: BUSINESS-TO-CONSUMER (B2C) and BUSINESS-TO-BUSINESS (B2B).
c. B2B (BUSINESS-TO-BUSINESS) E-COMMERCE is five times as big as B2C e-commerce.
d. Many Internet companies have failed in the last few years, however.
e. Traditional businesses will have to learn how to deal with competition from B2B and B2C firms.
5. USING TECHNOLOGY TO BE RESPONSIVE TO CUSTOMERS.
a. The businesses that are most responsive to customer wants and needs will succeed.
b. One way businesses can respond is to use technology to become more responsive.
c. A DATABASE, an electronic storage file where information is kept; one use of databases is to store vast amounts of information about consumers.
d. Databases let businesses tailor products and marketing to customers.
e. Databases also allow stores carry fewer items and less inventory.
D. THE COMPETITIVE ENVIRONMENT.
LEARNING GOAL 5
Identify various ways in which businesses can meet and beat competition.
1. Making quality products is not enough to stay competitive in world markets—now you have to offer QUALITY PRODUCTS and OUTSTANDING SERVICE at competitive prices.
2. COMPETING BY EXCEEDING CUSTOMER EXPECTATIONS.
a. Customers today want good quality at low prices and great service.
b. Business is becoming
CUSTOMER-DRIVEN— customers’ wants and needs come first.
c. Successful companies must LISTEN TO CUSTOMERS to determine their wants and needs and then adjust their products, policies, and practices to meet these demands.
3. COMPETING WITH SPEED.
a. Usually, the companies that provide speedy service are those that are winning.
b. However, speed needs to be accompanied by good quality and reasonable prices.
c. To businesses TIME IS MONEY, and businesses expect fast service.
d. Businesses must develop new products faster than before.
e. To keep up, business people need continuing education on the latest concepts and tools.
4. COMPETING BY RESTRUCTURING AND EMPOWERMENT.
a. To meet the needs of customers, firms must enable their front-line workers to respond quickly to customer requests.
b. EMPOWERMENT is giving frontline workers the responsibility, authority, and freedom to respond quickly to customer requests.
c. To implement EMPOWERMENT, businesses must train front-line people to make decisions.
d. Many firms use CROSS-FUNCTIONAL TEAMS that work without close supervision.
e. Empowerment has resulted in the ELIMINATION OF MANAGERS as lower-level workers learn to work in self-managed teams.
f. Empowered employees may demand increased compensation, even partial ownership of the firm.
E. THE SOCIAL ENVIRONMENT.
LEARNING GOAL 6
Demonstrate how the social environment has changed and tell what the reaction to the business community has been.
1. DEMOGRAPHY is the statistical study of the human population in regard to its size, density, and other characteristics, such as age, race, gender, and income.
2. MANAGING DIVERSITY.
a. The U.S. of the future will be very different from what it is today.
i. An increasing percentage of the population in the future will be minorities.
ii. The Hispanic and Asian populations will increase.
b. Businesses have responded to this diversity by hiring a MORE DIVERSE WORKFORCE.
c. DIVERSITY means more than recruiting and keeping minorities and women—many more groups are now included.
d. There are also differences in the attitudes of BOOMERS (born between 1946 and 1964) and GENERATION XERS (born between 1965 and 1980.)
3. THE INCREASE IN THE NUMBER OF OLDER AMERICANS.
a. By 2030, the baby boomers will be senior citizens.
b. U.S. citizens aged 45 to 54 are the richest group in U.S. society.
c. Think of the career opportunities of providing goods and services for older adults.
d. Businesses that cater to the aging baby boomers will have the opportunity for exceptional growth.
4. TWO-INCOME FAMILIES.
a. The high costs of housing have made it difficult for many households to live on just one income.
b. Many companies are implementing programs TO ASSIST TWO-INCOME FAMILIES.
i. Many employers provide child care benefits of some type, some through cafeteria benefits packages.
ii. Other companies provide parental leave, flexible work schedules, and elder care programs.
c. Some companies are increasing the number of part-time workers by allowing workers to stay
home and send in their work by telecommunications, a practice known as TELECOMMUTING.
5. SINGLE PARENTS have encouraged businesses to implement family-friendly programs such as FAMILY LEAVE and FLEXTIME.
F. THE GLOBAL ENVIRONMENT.
LEARNING GOAL 7
Analyze what businesses must do to meet the global challenge, which includes war and terrorism.
1. The global environment of business affects all other environmental influences.
a. An important global environmental change today is the GROWTH OF INTERNATIONAL COMPETITION and the increase in free trade among nations.
b. Competition from global companies producing better-quality products has hurt many U.S. industries.
c. Manufacturers in countries such as China and Mexico can produce HIGH-QUALITY GOODS AT LOW PRICES because their WORKERS ARE PAID LESS than U.S. workers.
d. Better technology and education enable each worker to be more productive.
e. Some businesses have gone beyond simply COMPETING with organizations in other countries to learning to COOPERATE with international firms.
2. WAR AND TERRORISM.
a. The terrorist attack on the World Trade Center on September 11, 2001 dramatically affected U.S. businesses.
b. The THREAT OF TERRORISM makes people more fearful and cautious and adds to a business’ organizational costs.
c. Some businesses, like the travel industry, have suffered; others, like the defense industry, stand to gain.
3. HOW GLOBAL CHANGES AFFECT YOU.
a. Many think that the fair trade agreements will lead to many CAREER OPPORTUNITIES for American college graduates.
b. Students must PREPARE themselves to compete in changing global environments.
IV. THE EVOLUTION OF AMERICAN BUSINESS.
A. Businesses in the U.S. have become so productive that fewer workers are needed in the industrial sector to produce GOODS, or tangible products, such as computers, food, clothing, cars, and appliances.
B. PROGRESS IN THE AGRICULTURAL AND MANUFACTURING INDUSTRIES.
LEARNING GOAL 8
Review how trends from the past are being repeated in the present and what such trends will mean for the service sector.
1. The use of TECHNOLOGY allowed the agricul-tural industry to become so PRODUCTIVE that the
number of farmers dropped from about a third of the population to less than 2%.
2. AGRICULTURE is still a major industry in the U.S., but MILLIONS OF SMALL FARMS HAVE BEEN REPLACED BY FEWER AND LARGER FARMS.
3. Many farmers lost their jobs and went to work in factories.
4. TECHNOLOGY made manufacturing more productive and workers again lost their jobs.
C. PROGRESS IN SERVICE INDUSTRIES.
1. Many workers who lost their manufacturing jobs found jobs in service industries.
2. SERVICES are intangible products (i.e., products that can’t be held in your hand.)
3. Since the mid-1980s, the SERVICE SECTOR HAS GENERATED ALMOST ALL OF OUR ECONOMY’S INCREASES IN EMPLOYMENT.
4. Service-sector growth has slowed, but is still the largest area of growth.
5. There are more high-paying jobs in the service sector than in the goods-producing sector.
D. YOUR FUTURE IN BUSINESS.
1. The service sector now seems to be losing out to a new era.
2. This information-based global revolution will alter the way business is done in the future.
3. Most of the CONCEPTS AND PRINCIPLES that make business more effective and efficient are also applicable in government agencies and nonprofit organizations.