Chapter 1 Characteristics of Business

Lesson 1.1 The Nature of Business Objectives Explain the nature of business activities. Define in your own words the term ‘profit.’ Describe the general types of businesses.

Goals of Most businesses Business – An organization that produces or distributes a good or service for profit Profit – the difference between earned income (ie: sales) and costs (ie: expenses) The goal of MOST companies Non-Profit – A company where profits are not the main motivator of the business The goal is Impact – Community service / volunteer work

2. THE NATURE OF BUSINESS ACTIVITIES Centers around THREE Main Business activities Production – making a product OR providing a service Manufacturing companies – create products that customers use Service companies – use the skills of employees to offer activities and assistance to customers Which do you think we have more of?!? Marketing – activities between business and customers involved in buying and selling goods and services Examples Finance – Deals with all of the money matters involved in running a business

Basics of Supply and Demand 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 Scenarios

Checkpoint! What is the difference between a manufacturing firm and a service firm? Name the 3 major business activities every company engages in.

Types of Businesses Two main TYPES of businesses Industrial – produce goods used by other businesses or organizations to make things Manufacturing, Construction, Agricultural Commercial – engaged in the three main types of business activities Service, retail, wholesale Industry – term used to refer to all businesses within a category doing similar work Examples

Checkpoint! Complete Assessment 1.1 on page 6 Explain the three main types of business activities. Define in your own words the term ‘profit.’ Describe the general types of businesses.

Lesson 1.2 Changes Affecting Business Goals Describe how innovations affect businesses. Identify the impact global competition has had on U.S. businesses. Discuss ways in which businesses can improve their business practices.

5. Changes Affecting Businesses Innovation – developing something NEW Affects the KINDS of products / services offered Examples – cell phones Affects business operations Examples – computers

Impact of Global Competition on Business For years, the US led the way in producing new goods and services In the past 50 years, other countries have become industrialized and now compete with cheaper products Global Competition – the ability of businesses from one country to compete with similar businesses in other countries

Checkpoint! Identify two major types of changes that present challenges to business. Who are global competitors with the US? What products are they producing to compete with the US?

7. Focusing on the Right Things Effectiveness – making the right decisions about what products or services to offer customers and the best ways to produce and deliver them Efficiency – producing products and services quickly, at a low cost, without wasting time and materials

Achieving Effectiveness KNOW what your customers want Businesses spend MILLIONS of dollars analyzing buying patterns and customer satisfaction Domestic goods – products made by US firms Foreign goods – products made by firms in other countries

TRIVIA! Name the company that is responsible for the largest oil spill in US history.

Think about it… Customers want QUALITY How does this apply to the automotive industry? How does this apply to electronics? TQM emerged – Total Quality Management – a commitment to excellence by continual improvement

Achieving Efficiency 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 Three main methods Specialization of Effort Better technology and innovation Reorganization of work activities

Specialization When workers specialize, they become expert at their assigned tasks Can include the use of an assembly line What specialization do you think occurs within a large automobile repair shop? What specializations are you aware of in the medical field?

Technology and Innovation Includes equipment, manufacturing processes, and materials from which products are made Allows for items to be made faster and usually cheaper

Reorganization of Work Downsizing – Reducing the amount and variety of goods and services produced and the number of employees needed to produce them Laying off workers Dropping unprofitable products Increasing the use of technology

Re-engineering – redesigning the work flow throughout an organization Empowerment – letting workers participate in determining how to perform their work tasks and offer ideas on how to improve the work process Work quality and efficiency improves Can cut down on middle management Re-engineering – redesigning the work flow throughout an organization

Trivia! How old was Bill Gates when he founded Microsoft?

Checkpoint! Why must companies be concerned about both effectiveness and efficiency? Describe how innovations affect businesses. Identify the impact global competition has had on U.S. businesses. Discuss ways in which businesses can improve their business practices. Complete Assessment 1.2 on page 12 Focus on Dell – page 13, 1-3 Innovation Timeline – Create a Timeline with your favorite invention from each decade, beginning with 1930 Give the product, inventor, and specific year invented

Lesson 1.3 The Contributions of Business Goals Identify two ways a nation measures its economic growth and prosperity. Describe the benefits of business ownership to the nation and individuals.

13. The Contributions of Business We measure business growth and prosperity in two ways: Gross domestic product (GDP) — total market value of all goods and services produced in a country in a year Individual well-being — home ownership, consumer products, self-improvement, savings

GDP Types of transactions that are not reported Working ‘under the table’ Illegal activities (selling drugs) A teen hired to babysit or cut grass for a neighbor *All referred to as the underground economy 5% of the GDP in a strong economy 20% of the GDP in a slow economy

Which 3 countries in the world have the highest GDP? Trivia! Which 3 countries in the world have the highest GDP?

COUNTRIES WITH LARGEST GDPs

Individual Well-Being % of families that own their home % of people who own flat-screen TVs, washer / dryer, refrigerator, cell phones, etc. Investments in self-improvement: education, exercise and fitness

Checkpoint! What does gross domestic product measure?

16. The Contributions of Business Business ownership – few government controls, so many new businesses Popularity of small businesses Growth of franchise businesses Risks of ownership Obligations of ownership Intrapreneurship Studying business principles and management

Franchises A legal agreement in which an individual or small group of investors purchases the right to sell a company’s product or service under the company’s name and trademark Examples Franchisor – the parent company Franchisee – the distributor of a franchised product

How does it work? Examples Franchisee pays an initial fee (usually $100,000) plus a % of sales (usually 3-8%) to the franchisor Franchisor gives special training and advice on location selection and operations Significantly smaller failure rate! Examples

What is the fastest growing franchise, as of April 2009? Trivia! What is the fastest growing franchise, as of April 2009?

Risks of Ownership Risk – the possibility of failure Competition from other businesses Changes in prices Changes in style Competition from new products Economic conditions

Quick Stats… 1 in 4 businesses fails within the first 2 years Half fail within 6 to 7 years Who assumes the risks of a business?!?

Obligations of Ownership To customers To employees To management To competitors To investors To the public

20. 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 What are the advantages of this compared to entrepreneurship?

To Do… 1.3 Assessment on page 21 Case 1-1 on page 25