Business Administration Unit 1 Business and Its Environment Chapter 1 – Characteristics of Business

Controversial Issue In order to protect U.S. businesses from foreign competitors, should the federal government provide financial aid that would enable troubled businesses to survive? Own you own – 3-5 reasons for yes – 3-5 reasons for no Book – Read Page 3 – Income vs. Outgo: A Delicate Balance

Fact Over 22 million businesses in the U.S. Sized from 1 to 400,000 employees Assets from $1 to billions Few customers to millions throughout the world

Business/Profit Business – Organization that produces or distributes a good or service for profit Profit – Difference between earned income and costs

3 Activities Every business engages in 3 activities: – Production – Marketing – Finance

Production Making a product – Manufacturing firms produce goods U.S. Steel / Johnson & Johnson Providing a service – Assistance to satisfy specialized needs through skilled workers Doctor / Accountant / Taxi Driver Service firms far outnumber mfg. firms

Marketing How goods/services are exchanged between producer & consumer – Advertising – Transportation

Finance All money matters related to running a business – Money for Big Mac – Accounting records

Supply / Demand Supply – # of similar products offered for sale at particular time for particular price Demand – # of similar products bought at given time at given price

? ? ? ? Manufacturing or Service? 1.Watch repair shop 2.Jewelry made by group of Native Americans 3.Someone who mows lawns 4.Shop making minute timers

2 Types of Businesses Industrial Commercial

Industrial Produce goods used by other businesses to make things – Mine ore for metal – Construct buildings for businesses – Chemical company Third world nations have few mfg. firms – generally poor

Commercial Marketing – Wholesalers & Retailers Finance – Banks & Investment Companies Services – Intangible – labor intensive Mowing lawns, accountants, plane ride

Industry Refers to all businesses within a category – Publishing Industry Produce & sell books Magazines Newspapers Printed documents prepared by authors

Changing Nature Characteristics of business – Dynamic & constantly changing – Businesses must react quickly Horse to steam railroad to gas engine to airplanes to jets – Computers Produce products Billing, inventory & customer info

Global Competition Ability to compete with businesses in other countries – Other countries have industrialized – Americans purchasing foreign goods Efficient, greater variety, lower prices – American businesses had to change Global competition is the force behind major decisions of large companies today

Effectiveness Decisions about products/services to offer, produce & deliver – What customers want Domestic good – Made in U.S. Foreign good – Made in another country

TQM Total Quality Management – Commitment to excellence – Teamwork & continual improvement – Training from experts – Customers get well-made products – Learned lessons on quality from Japanese

Efficiency Producing goods/services low cost while maintaining quality – Output Quantity produced within given time – Productivity Producing largest quantity in least time using efficient methods & modern equipment

Malcolm Baldridge National quality award – Managed by federal government – Hundreds apply for this award Winners have an upturn in demand for products – Deming Award Japanese award, named for an American

? ? ? ? ? ? ? Fastest student to finish exam, but receives lowest grade: 1.Effective & efficient 2.Effective but inefficient 3.Ineffective but efficient 4.Ineffective & inefficient

3 Ways To Efficiency Specialization of effort Better technology & innovation Reorganization

Specialization Specialize in an area – Expert in assigned tasks Mass Production – Up-to-date equip. & assembly lines Computers & Robots – Large quantities of identical goods – Costs decrease to consumers

Technology & Innovation Technology includes – Equipment, manufacturing processes & materials Better quality goods/services Built faster at lower cost Materials that weigh less & last longer – Kevlar – Technology = staying ahead of competitors

Technology & Innovation Innovation – Development of new ideas, products & processes – Transform creativity into High-quality products/services Cost-saving benefits

Reorganization Late 70’s to early 90’s – Companies had slow growth – Competition from other nations Downsize – Cutting back goods/services & employees – Needed better way to compete

Reorganization Empowerment – Workers decide how to perform their jobs, ideas on improving processes – Drastically changed role of workers Past – narrow tasks, little decision making Improved quality of work & efficiency Fewer managers due to skilled workers

Reorganization Re-engineering – Assembly lines Steps eliminated, abbreviated, or given to employees – Customer complaints decreased – Well-trained workers – Most major firms adopted these practices

Text Book Read page 12 – Business Innovation

GDP Gross Domestic Product – Total market value of all goods/services produced in a country in a year – 1 st measure of economic wealth Compare year-year & to other countries – Purchased $ amount reported to gvt. $8.8 trillion in recent years

GDP Underground Economy – Income that escapes being recorded in GDP – Transactions not recorded or illegal Lawn mower, babysitter, drug dealer – Not reported: 5% (brisk economy) to 20% (lagging economy)

Fact Joint agreements between domestic & foreign firms – Ford & Mazda make parts/cars for other Difficult to classify a product domestic – Honda Civic made in U.S., parts made in Japan & Canada

Fact Average yearly family income exceeds $42,000 Average individual income for male – w/o high school diploma =$16,000 – with high school diploma =$25,000 – College graduates =$39,000+

Entrepreneurship Entrepreneur – Person who starts, manages & owns a business – Few gvt. Controls prevent starting a business – New businesses may have: Physical facility (store), individual working in home office, internet business

Small Business Business operated by one or a few – Few employees Gas station, bakery, restaurant – Computers – easy to work from home Consultants – Craftspeople – sell on internet – Many earn less than $250,000 in yearly revenue

Franchise Business Legal agreement where distributor buys rights to sell franchising company’s product/service under company’s name & trademark – McDonald’s, Pizza Hut, Sir Speedy Franchisor – parent company Franchisee – distributor of franchised product/service

Franchise Business Franchise agreement usually includes initial fee to franchisor and % of weekly sales (3-8%) Franchisee gets in return – Help selecting location, exclusive rights to sell in specific geographic area, training & advice

Franchise Business 5-10% fail – far less than non- franchised businesses Check-out franchisor Employee over 8 million people Account for ½ retail store sales Approximately 12% of all businesses are franchises

In-Class Work On the internet, look up a franchise business you might be interested in buying Determine costs and location availability Print out a copy Share with class

Risks of Ownership Managerial effectiveness – Earn adequate income – Pay all expenses & earn a profit Entrepreneur assumes risk of success or failure – Risk Competition, changes in price & style, economic conditions

Risks of Ownership Businesses fail for many reasons – 1 out or 4-5 fail within 3 years – ½ close within 6-7 years Some voluntarily close – Sell to another – Economic & financial factors cause failure

Failure Reasons 64.1% - Economic causes – Low profit/sales, industry weakness 23.9% - Finance Causes – Expenses & debt 6.7% - Disaster & Fraud Causes – Hurricanes, floods, theft

Failure Reasons 3.7% - Neglect Causes – Family problems, poor work habits 0.9% - Strategy Causes – Over expand & collecting from customers 0.8% - Experience Causes – Inadequate planning & experience

Controversial Issue Because the failure rate among new businesses is high, should potential entrepreneurs be required to pass a test on how to run a businesses? On your own… – 3-5 reasons for yes – 3-5 reasons for no

Obligations To entire community – Customers – lowest cost – Workers – welfare not sacrificed – Competitors – fair competition – Investors – informed – Public – promote general welfare & obey laws of the land

Intrapreneurship Employee given funds & freedom to create a special unit/department in company to develop new product/process/service – Main company finances venture Intrapreneurs have freedom to run “business” with little or no interference

Intrapreneurship Employees benefit – Don’t risk salary or savings – Innovative abilities & skills are encouraged Employers benefit – Keep creative employees, could be competition otherwise – New, better products introduced

Fact IBM created an intrapreneurship to make a small computer – Short period of time, IBM’s personal computer soon outsold other brands

Fact 3M encourages employees to experiment – Post-It notes were invented due to this company policy

ESOP Employee Stock Ownership Plan – Employees directly own the company by buying shares in it – Companies obtain funds Employees highly motivated – ESOP’s show increased productivity

Fact Avis has an ESOP – Employees participated in focus groups to solve problems – Employees worked harder & better Knew they’d share in profits

Group Work Text Book – Page – Solve Business Problems 3-4 students in a group Case 1-1 – 5 questions Case 1-2 – 4 questions Check if done Review in class

Individual Work Work Book – Page 1 & 2 – Study Guide Turn in for grade – Pages – Problems Check if done Review in class

End of Chapter 1