INTRODUCTION Foundations in Business

A SIMPLER TIME….. Meet Bob

Bob goes fishing every morning  Work: He creates something of value for his family through fish. (He catches them and he owns them)  Benefit: He and his family eat fish and live.  Costs: - They are sick of fish. - The fish stink after a day or two.

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 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

CHAPTER 1: BUSINESS NOW Change is the Only Constant

MOVING AT BREAKNECK SPEED General Motors 2.Exxon Mobil 3.Ford Motor 4.General Electric 5.Mobil 6.Chrysler 7.US Steel 8.Texaco 9.IBM 10.Gulf Oil 1.Exxon Mobil 2.General Motors 3.Mobil 4.Ford Motor 5.Texaco 6.IBM 7.DuPont 8.AT&T 9.General Electric 10.Amoco 1.General Motors 2.Ford Motor 3.Exxon Mobile 4.Wal-Mart 5.AT&T 6.General Electric 7.IBM 8.Mobil 9.Sears Roebuck 10.Altria Group 1.Wal-Mart 2.Exxon Mobil 3.General Motors 4.Chevron 5.ConocoPhillips 6.General Electric 7.Ford Motor 8.Citigroup 9.Bank of America 10.AIG In the last decade:  The players have changed  What consumers want has changed  How we buy has changed Source:

BUSINESS BASICS A business is any activity that provides goods and services in an effort to earn profit. Non-profit organizations focus on causes not profit

BUSINESS BASICS 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

NONPROFIT PARTNERSHIPS Many nonprofits work with businesses to improve the quality of life in society. Companies support their missions and improve society. The Business of Doing Good

ENTREPRENEURIAL SPIRIT

CREATIVITY MATTERS  Creativity is important to the economy  with global competition, the stakes are high  Many of the latest inventions have come from companies  this trend is likely build momentum as global competition intensifies

INVENTIONS WITH IMPACT Source: Encyclopedia Britannica Laptop Viagra Camcorder Cat Litter Bikinis Muzak Disposable Diapers Kool-Aid Astroturf

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

FACTORS OF PRODUCTION  Businesses rely on some combination of these factors  Entrepreneurship is a key factor  Most growing economies support and promote entrepreneurship Natural Resources Human Resources Capital Entrepreneurship

THE ELEMENTS OF THE BUSINESS ENVIRONMENT

DYNAMIC, CONSTANT AND ENGAGING, CHANGE  Companies must respond quickly and creatively  New Products  Integrating Technology  Creating Technologies  New Businesses  Innovative Processes  New Target Markets….. “ “ When the change on the outside exceeds the change on the inside, the end is near.” - Jack Welch

ECONOMIC ENVIRONMENT  Government takes an active role to support businesses  Low Federal Tax Structure  Small Business Administration  Federal Trade Commission  Legislation & Enforceable Contracts Economic Vulnerabilities CEO/Worker Pay Gap Consumer Debt Federal Debt Free Enterprise and Fair Competition Flourish in the United States

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 PRINCLIPLES 1.Avoid your competitors’ strengths and exploit their weaknesses. Don’t try and beat them at their game. 2.Always be a little paranoid. Never underestimate your competition. 3.Competitors will usually get better when pushed. 4.Competitors are sometimes irrational when pushed.

COMPETITION IS CHANGING

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.

AND CHANGES…… Teens today are much less likely than their parents to categorize people by race, religion, and sexual orientation. They’re more likely to notice similarities and differences in core values. Source: Diversity in Word and Deed: Most Teens Claim Multicultural Friends, press release from Teenage Research Unlimited, November 10, 2004, TRU Website,

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

GENERATION C  Creating Content  Customizing Products  Websites  Blogs  Photos  Ringtones  Music  Movies

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

TECHNOLOGICAL ENVIRONMENT More than 724,000 Americans report that eBay is their primary or secondary source of income, And an additional 1.5 million people say that they supplement their incomes by selling on eBay. Source: US Postal Service News Release, July 21,

GLOBAL ENVIRONMENT Terrorism is more of a threat today Job Migration China and India’s economies are growing Technology Free Trade Blurred lines between countries/world Technology is linking customers/suppliers worldwide

GLOBAL ENVIRONMENT According to investment bank CLSA, China manufactures 80% of the world’s clocks and watches, 50% of its cameras, 30% of its microwave ovens, a quarter of its washing machines, and a fifth of its refrigerators.

COOLEST BRANDS Nike 30.8% Sony 15.9% Adidas 15.1% BMW10.1% Microsoft 9.0% Coca-Cola 8.9% IBM 8.2% According to Chinese college students

BUSINESS AND YOU MAKING IT PERSONAL What are your passions? What are business careers that encompass your passions?

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

FUNCTIONAL AREAS R&D Marketing Production Finance

WHO ARE MY CUSTOMERS? Segmenting markets: target markets  What are the market segments in Foundation?  Low tech segment  High tech segment  In terms of units sold, what is the largest market segment in Foundation?  How fast is demand growing?

TWO MARKET SEGMENTS Large Small Slow Fast Size Performance Low Tech High Tech

PRODUCT WHAT DO THEY WANT?  Product is a bundle of physical, service, and symbolic attributes designed to satisfy customer wants  Electronic sensors characteristics - Size - Performance (processing speed) - Reliability (MTBF) - Age: how recently has it been updated

SEGMENT CRITERIA RANKING High TechLow Tech 1.Price 2.Age 3.Reliability 4.Positioning 1.Positioning 2.Age 3.Price 4.Reliability Different customers value different product characteristics

FOUNDATION HOMEWORK 1. Register at  Section F20047  Section F  Section F20048  Section F Teams Completed by September 12th

We need 9 volunteers to Create a Company today Everyone else can Join a Company (3 members per team)

When teams are finalized Sept. 12, changes can be made