Foundations in Business

Foundations in Business Introduction

A simpler time….. Meet Bob

Bob goes fishing every morning Work: He creates something of value for his family through fish. (He has created wealth for his family) Benefit: He and his family eat fish and live. Costs: - They are sick of fish. - The fish stink after a day or two. (benefit vs. cost)

Too many fish…... Bob’s wife and children become cranky. Risa is a corn grower - she has too much corn - and wants some fish. Transaction: An exchange fish for corn both Risa and Bob are better off (profit).

Bob keeps fishing... Bob wants a fishing pole made by George. George doesn’t want fish - he wants corn. Risa still has fish and doesn’t want more - she wants cookies. Fred has cookies and he wants fish: Fish – cookies – corn – pole Value - function of scarcity and need

Evil Ralph - The net fisher Ralph loves to fish and he’s good at it. His net catches 10 times more fish in less time. Bob curses the new technology. (technological innovation) Ralph gives everyone 2 times the number of fish Bob does. (What happens to value of Bob’s fish?) Bob decides to get up earlier and fish with three poles. (process innovation)

An earlier start & 3 poles ... Bob doubles his catch - Before: 10 fish in 5 hours = 2 fish / hour Now: 20 fish in 5 hours = 4 fish / hour (Increased productivity) Evil Ralph the net fisher - 100 fish in 4 hours = 25 fish / hour Bob can’t compete – Bob has to respond … but how?

What should Bob do? Bob could kill Ralph, but that would be really wrong. Bob could cut Ralph’s nets, but that would also be unfair. But -- while Bob is thinking - He carves a bird for his wife.

Birds…. Risa wants Bob to do something about the stinking fish. Risa sees Bob’s bird carving and wants to trade. Her friends see Risa’s bird and they want to trade also.

Stop fishing - start birds Competition - invisible hand of the market Efficient allocation of resources An inefficient fisher becomes an efficient bird carver Community - more products (2x as many fish) new products (additional wealth)

Business and Creating Wealth In a private enterprise system: Individuals (acting in their own self-interest) will compete to participate in transactions in a market. The terms of the transaction (price and quantity) will be determined by the supply of and demand for that good or service. This system will produce an efficient allocation of resources (greater productivity), the lowest price, and pressure for innovation (technological and procedural).

Creating Wealth-transactions Exchanges occur only when you are made better off (wealth) Competition to be a part of exchanges results in: Pressure for lower prices Pressure for newer / better products Pressure for more efficient ways to do things

To manage the economic part of your life... You have to understand : - How the system works (basic principles) - The current complexity To be an informed as: - An owner - An employee - A consumer - A citizen Stakeholders

Change is the Only Constant Chapter 1: BUSINESS NOW Change is the Only Constant

MOVING AT BREAKNECK SPEED 1965 1985 1995 2013 General Motors Exxon Mobil Ford Motor General Electric Mobil Chrysler US Steel Texaco IBM Gulf Oil DuPont AT&T Amoco Exxon Mobile Wal-Mart Sears Roebuck Altria Group JP Morgan Berkshire Hathaway Wells Fargo Bank of America Apple Citigroup Chevron Discuss the the changes that took place from 1995-2007 were much greater. Prompt students to discuss what they spend money on; was that something that consumers purchased 5, 10 years ago? How are the products and especially services they buy different than in the past? How much do they spend on cell phone service? Internet service? These are all “new” inventions that are actually changing how we buy (and sell) everything. They are changing business. The players have changed What consumers want has changed How we buy has changed In the last decade: Source:http://money.cnn.com

Gross Income Profit People 1954 $ 570M $ 59M 50,225 1964 $ 3.23B $ 431M 149,834 1974 $12.67B $1.83B 292,350 1984 $45.93B $5.48B 394,930 1994 $64.05B $3.02B 219,839 2004 $96.50B $8.40B 329,009 2012 $104.50B $17.60BB 434,246

Non-profit organizations focus on causes not profit BUSINESS BASICS A business is any activity that provides goods and services in an effort to earn profit. Profit is the financial reward that comes from starting and running a business… the money that a business earns in sales (or revenue), minus expenses. Discuss the concentration of US industry in services. Examples of non-profits: United Way, Planned Parenthood, Red Cross, YMCA, USAID. Discuss the role non-profits play in the economy. Non-profit organizations focus on causes not profit

The Business of Doing Good © The Studio Dog/Photodisc/Getty Images Many nonprofits work with businesses to improve the quality of life in society. Business-like establishments whose primary goal is not profits. Employ 1 out of 10 workers. Contribute to the economy Work with businesses to improve quality of life

ENTREPRENEURIAL SPIRIT – Richest Americans People who risk their time, money, and other resources to start and manage a business are entrepreneurs. Rank Name Net Worth ($mil) Source 1 Bill Gates $67 B Microsoft 2 Warren Buffett $53.5 B Berkshire Hathaway 3 Larry Ellison $43 B Oracle 4 Charles Koch $34 B Diversified 5 David Koch 6 Christy Walton $28.2 B Wal-Mart 7 Michael Bloomberg $27 B Bloomberg LP 8 Jim Walton $26.7 B 9 Sheldon Adelson $26.5 B Casinos 10 Alice Walton $26.3 B 11 S. Robson Walton $26.1 B 12 Jeff Bezos $25.2 B Amazon.com 13 Larry Page $23 B Google 14 Sergey Brin $22.8 B 15 Carl Icahn $20 B Leveraged Buyouts Source: The Forbes 400 2012

CREATIVITY MATTERS Entrepreneurs create wealth for themselves ripple effect enriches everyone around them Creativity is important to the economy with global competition, the stakes are high Many of the latest inventions have come from companies this trend will likely build momentum as global competition intensifies

THE EVOLUTION OF BUSINESS Long-term Relationships Satisfied Customers Use of Technology Consumer Power Growth in Consumerism Product Differentiation Customer Focus Assembly Line Refining Production Productivity Gains Decrease Costs Hard Sell No Customer Focus Industrial Titans Wealth Creation Increase in Living Standard Manipulation/Competition Exploitation Mass Production Factories Work Specialization Efficiency Industrial Revolution 1700-mid 1800s Entrepreneurship Era Mid 1800s Production Era Early 1900s Marketing Era 1950s Relationship Era

(machines, tools, buildings, information, technology) FACTORS OF PRODUCTION Human Resources (physical & mental) Capital (machines, tools, buildings, information, technology) Natural Resources (land, fresh water, wind, minerals, etc.) Entrepreneurship (Risk takers, opportunists) Businesses rely on some combination of these factors Entrepreneurship is a key factor Most growing economies support and promote entrepreneurship Discuss each factor of production. Highlight the key role entrepreneurs as risk takers and innovators play in strong economic systems

DYNAMIC, CONSTANT AND ENGAGING, CHANGE Companies must respond quickly and creatively New Products Integrating Technology Creating Technologies New Businesses Innovative Processes New Target Markets….. Business Competitive Environment Social Environment Economic Environment Global Environment Technological Environment Discuss ways in which companies respond. Highlight the quote and who Jack Welch is. Use the quote to further discuss the importance of managers responding to the changing environment.

2008 Economic Crisis The stock market tumbled and millions lost their jobs Housing prices plummeted and foreclosures reached record levels Economic turmoil in the U.S. spread around the world The economy began to recover in 2009 although unemployment remained high The Federal Reserve took steps to encourage a turnaround President Barack Obama spearheaded economic stimulus to create jobs, build infrastructure and stabilize the economy The stimulus also added to the debt

ECONOMIC ENVIRONMENT Free Enterprise and Fair Competition Flourish in the US Government takes an active role to support businesses Federal Tax Structure Small Business Administration Federal Trade Commission Legislation & Enforceable Contracts Economic Vulnerabilities CEO/Worker Pay Gap Consumer Debt Federal Debt The US economy has favorable systems and support for business as free enterprise is a key driver of the economy. But the US economy and strong with a solid foundation, there are economic vulnerabilities. Note that many states are extremely “business-friendly”

COMPETITIVE ENVIRONMENT Today’s competition is intense Companies must focus on customer satisfaction Build Long-Term Relationships Provide Value Customer Satisfaction = Profitability Cheap Doesn’t Equal Value Competitive Principals Avoid your competitors’ strengths and exploit their weaknesses. Don’t try and beat them at their game. Always be a little paranoid. Never underestimate your competition. Competitors will usually get better when pushed. Competitors are sometimes irrational when pushed. Highlight the Jack Trout quote on today’s competition. Note the companies that do this well: Google, Southwest Airlines and Toyota (from the text).

SOCIETY CHANGES What are our changing values and beliefs? How does the integration of other cultures change/add to values and beliefs? What demographic influences are changing the environment globally? Companies must respond to these changes in the products they sell and how they sell them.

SOCIAL ENVIRONMENT Diversity Aging Population Rising Worker Expectations Ethics & Social Responsibility

Population Projections for Tarrant County 2000-2040

TECHNOLOGICAL ENVIRONMENT Technology has transformed businesses and consumers How Companies Do Business Telecommunications Robotics Flexible Manufacturing Alternative Selling/eCommerce How Consumers Shop Online Information/Content Alternative Buying/eCommerce Some industries have responding slower than others while some remain at the cutting edge. Think about successful companies and how they use technology. Think about companies that are suffering financially, what opportunities have they ignored?

GLOBAL ENVIRONMENT Technology Free Trade Technology is linking customers/suppliers worldwide China and India’s economies are growing Terrorism is more of a threat today While the world is becoming more global amongst rapid change, there are advantages and disadvantages and at the same time the multiprong threat of terrorism and job loss. Job Migration Blurred lines between countries/world

FOUNDATION SIMULATION Assessment & Analysis

Foundation Simulation $40 Million electronic sensor manufacturer. Market dominated by handful of firms. No outside competitors or substitutes. Benign environment.

Applications

Functional Areas R&D Marketing Production Finance HR TQM