Characteristics of Business CHAPTER 6 Characteristics of Business 6.1 The Nature of Business 6.2 Changes Affecting Business 6.3 The Contributions of Business

6.1 The Nature of Business GOALS Explain the nature of business activities. Describe the general types of businesses. CHAPTER 6

Management of Business Activities Business – an organization that produces or distributes a good or service for profit Profit is the difference between earned income and costs Production – involves making a product or providing a service Manufacturing firms create products that customers purchase to satisfy needs Service firms use the skills of employees to offer activities and assistance to satisfy customer needs Service firms exceed the number of manufacturing firms CHAPTER 6

Management of Business Activities Marketing – activities between business and customers involved in buying and selling goods and services Finance – all the money involved in running a business CHAPTER 6

Management of Business Activities Supply and Demand Supply - the number of similar products that will be offered for sale at a particular time & at a particular price Demand - the number of similar products that will be bought at a given time at a given price CHAPTER 6

Types of Businesses Goods-producing businesses – produce goods used by other businesses, organizations, or consumers Companies that mine coal & extract oil from the earth provide resources that are used by other companies & consumers CHAPTER 6

Types of Businesses Service businesses – type of business that use mostly labor to satisfy customers Examples include firms engaged in marketing (wholesale and retailers), in finance (banks & investment companies), and in providing services (medical offices, fitness centers, & hotels) Industry – businesses in a category doing similar work Examples: automotive, school, health, government, movie/film CHAPTER 6

Expected Employment in Major Industries by 2018 CHAPTER 6

6.2 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. CHAPTER 6

Innovation’s Impact on Management Innovation - something entirely new Effects of innovation is the kind of products & services offered for sale by other businesses CHAPTER 6

Impact of Global Competition on Business Management Global competition - the ability of businesses from one country to compete with similar businesses in other countries CHAPTER 6

Focusing Management on the Right Things Effectiveness – making the right decisions about what products or services to offer customers and the best way to produce & deliver them Efficiency – producing products & services quickly, at low cost, without wasting time & materials CHAPTER 6

Focusing Management on the Right Things Achieving effectiveness Knowing what customers want Domestic goods – products made by firms in the United States Foreign goods – products made by firms in other countries Total quality management (TQM) – a commitment to excellence accomplished by teamwork & improvement of work procedures CHAPTER 6

Focusing Management on the Right Things Achieving efficiency 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 CHAPTER 6

Focusing Management on the Right Things Achieving efficiency Specialization When workers specialize, they become experts at their assigned tasks, this improves efficiency Technology and innovation With new discoveries and inventions, better-quality goods & services are built at a faster pace & lower cost CHAPTER 6

Focusing Management on the Right Things Achieving efficiency Reorganization of work Challenging way to increase efficiency Empowerment – letting workers participate in determining how to perform their work tasks & offer ideas on how to improve the work process Firms find the the quality of work often improves Re-engineering – redesign the work flow throughout the organization CHAPTER 6

6.3 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. CHAPTER 6

Business Growth and Prosperity Gross domestic product (GDP) – the total market value of all goods and services produced in a year GDP is the chief measure of a nation’s economic wealth Compared year to year and also with GDP of other countries In 2010, GDP in US reached $14.7 trillion, China is close to America in terms of GDP CHAPTER 6

Business Growth and Prosperity Underground economy – income that escapes being recorded in the GDP Working full or part-time for cash Size concerns government due to its illegal nature & activities are not taxed CHAPTER 6

Business Growth and Prosperity Individual well-being is the second measure of nation’s wealth US Department of Commerce gathers information that reveals the financial well-being of US citizens 66% families live in homes they own 80% of adults carry cell-phones in the US and families are giving to children under the age of 10 Human Development Index (HDI) measures life expectancy, education, and gross national product In 2010, US ranks 4th after Norway, Australia, & New Zealand CHAPTER 6

Business Growth and Prosperity Even though America is doing well economic and social problems exist Job shortages, layoffs, lack of skills causes income to drop Low income causes it difficult to buy homes, send children to college, save for retirement Over 14% of American families had income below the poverty level of $22,000 for a family of four CHAPTER 6

Business Ownership Entrepreneur – someone who starts, manages, & owns a business Popularity of small business Almost anyone who wishes to do so may start a business Small business describes companies that are operated by one or a few individuals In the US about half of all employed people work for small businesses CHAPTER 6

Business Ownership Growth of franchise business Franchise – a legal agreement in which and individual or small group of investors purchases the rights to sell a company’s product or service under the company’s name and trademark Franchisor – the parent company of a franchise agreement that provides the product or service Franchisee – the distributor of a franchised product or service CHAPTER 6

Business Ownership Growth of franchise business In a franchise agreement, the franchisee pays an initial fee—often $100,000 or more—to the franchisor & a percentage –usually 3 to 8 % of sales CHAPTER 6

Business Ownership Growth of franchise business In return, the franchisee gets assistance in selecting a location for the store or building, operating procedures & policies, & exclusive rights to sell the franchised product or service Services are valuable to inexperienced business owners 5-10% of franchised business fail, the failure rate is far lower than the failure rate of nonfranchised new businesses CHAPTER 6

Business Ownership Risks of ownership Success depends on managerial effectiveness Risk is the possibility of failure The Service Core of Retired Executives (SCORE) reports up to 70% of new firms with employees survive at least two years, & half survive for five years CHAPTER 6

Business Ownership Obligations of ownership Responsible to the entire community Economic and social responsibility Customers, employees, investors, competitors and the public CHAPTER 6