Chapter 1 Characteristics of Business 1 Chapter 1 Characteristics of Business ©2008 Thomson/South-Western

Chapter 1 Characteristics of Business 2 Lesson 1.1 The Nature of Business Goals Explain the nature of business activities. Describe the general types of businesses.

Chapter 1 Characteristics of Business 3 Business and Profit Business — an organization that produces or distributes a good or service for profit – Profit — difference between earned income and costs

Chapter 1 Characteristics of Business 4 THE NATURE OF BUSINESS Three Business activities 1. Production- making a product or providing a service Manufacturing Firm- create products that customers purchase to satisfy needs Service Firm- use skills of employees to offer activities and assistance to customer needs – Ex. Doctor’s Offices, Airlines, Restaurants – Service Society

THE NATURE OF BUSINESS 2. Marketing- activities between business and customers involved in buying and selling goods and services 3. Finance- deals with all of the money matters involved in running a business Chapter 1 Characteristics of Business 5

Types of Businesses Types of businesses – Industrial businesses- produce goods used by other businesses or organizations to make things. Examples of Industrial Businesses: – Companies that mine coal or ore – Companies that build buildings and bridges – Farmers/Agricultural Producers Chapter 1 Characteristics of Business 6

Types of Businesses – Commercial businesses- engaged in marketing, finance, and in providing services as their primary activities. Service businesses-type of commercial business that uses mostly labor to offer mostly intangible products to satisfy consumer needs. Ex. Lawn Mowing Business Chapter 1 Characteristics of Business 7

Types of Businesses Industry- refers to all businesses within a category doing similar works – Types of Industries Publishing Automotive Government Chapter 1 Characteristics of Business 8

QUESTIONS 1. What is the difference between manufacturing firm and a service firm? 2. List an example of an industrial business, a commercial business, and a service business. Chapter 1 Characteristics of Business 9

Chapter 1 Characteristics of Business 10 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.

Chapter 1 Characteristics of Business 11 Changes Affecting Businesses Innovation-something entirely new. – Affects the kinds of products and services offered for sale by other businesses. – Affects business operations Types of Innovations – Clothing – Technology

Changes Affecting Businesses Impact of global competition – Global Competition-the ability of business from one country to compete with similar businesses in other countries – One of the biggest challenges facing American businesses Chapter 1 Characteristics of Business 12

Changes Affecting Businesses Focusing on the right things – Achieving effectiveness — making the right decisions about products or services to offer and the best ways to produce and deliver them – Achieving efficiency — producing products and services quickly, at low cost, without wasting time and materials Chapter 1 Characteristics of Business 13

Achieving Effectiveness Knowing what customers want – Customers choose between domestic (products made in the US) and foreign goods (products made in other countries). – Businesses focus on gathering customer information to make sure their needs are satisfied – Major focus- QUALITY Total Quality Management (TQM)- commitment to excellence that is accomplished by teamwork and continual improvement of work procedures and products. Chapter 1 Characteristics of Business 14

Chapter 1 Characteristics of Business 15 EFFICIENCY Measured by output- the quantity produced within a given time. Productivity- refers to producing the largest quantity in the least amount of time by using efficient methods and modern equipment. – More productive when they are well equipped, well trained, and well managed.

EFFICIENCY Efficiency is achieved in three ways: Specialization of effort Better technology and innovation Reorganization of work activities Chapter 1 Characteristics of Business 16

EFFICIENCY Specialization – When workers become experts at their assigned tasks. – Improves quality and increases amount produced Mass Production – Produce large quantities of identical goods – Combines the use of technology, specialized equipment, and an assembly line. Chapter 1 Characteristics of Business 17

EFFICIENCY Technology and Innovation – Technology includes equipment, manufacturing processes, and materials used – Better quality goods and services are built at a faster pace and lower cost – Stay ahead of competitors – Businesses spend billions of dollars annually on inventing, buying, and using new technology Chapter 1 Characteristics of Business 18

EFFICIENCY Reorganization of Work – With slow growth businesses will downsize (reducing the amount and variety of goods and services produced and the number of employees needed to produce them) – Employees are the most important resource resulting in EMPOWERMENT (letting workers participate in in determining how to perform their work tasks and offer ideas on how to improve the work process.) Chapter 1 Characteristics of Business 19

EFFICIENCY Reorganization of Work (cont’d) – Results of Empowerment: improved quality of work increase in production Reduced number of levels of management (day-to-day decisions went to workers) Workers were taught to use computers, work in teams, and be responsible for quality Re-engineering-redesigning the work flow throughout their organization Chapter 1 Characteristics of Business 20

QUESTIONS What are two ways that innovations affect businesses? Identify two major types of changes that present challenges to business. Why must companies be concerned about both effectiveness and efficiency? Chapter 1 Characteristics of Business 21

Chapter 1 Characteristics of Business 22 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.

Chapter 1 Characteristics of Business 23 The Contributions of Business Business growth and prosperity – Gross domestic product (GDP) — total market value of all goods and services produced in a country in a year Compared year to year and with other countries The comparisons provide an ongoing measure of economic success – Underground economy- income that escapes being recorded in the GDP

Chapter 1 Characteristics of Business 24 COUNTRIES WITH LARGEST GDPs

Chapter 1 Characteristics of Business 25 Business Ownership Business growth and prosperity – Individual well-being — home ownership, consumer products, self-improvement, savings – Economic and Social Problems still exist -Health and well-being of both a country’s businesses and its citizens are important to its long- term success.

Chapter 1 Characteristics of Business 26 Business Ownership Two reasons for business growth 1. Individuals strong desire to start their own business 2. Ease of starting a business Entrepreneur- someone who starts, manages, and owns a business

Chapter 1 Characteristics of Business 27 The Contributions of Business Business ownership – Popularity of small businesses – Growth of franchise businesses – Risks of ownership – Obligations of ownership – Intrapreneurship – Studying business principles and management

Chapter 1 Characteristics of Business 28 Business Ownership Popularity of small businesses Businesses operated by one or a few individuals Extremely IMPORTANT part of our economy Examples: – Restaurants – Gift shops – Gas stations – Bakeries

Chapter 1 Characteristics of Business 29 Business Ownership Growth of franchise businesses Franchise- 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. Franchisor- the parent company of a franchise agreement that provides the product or service Franchisee- the distributor of a franchised product or service

Chapter 1 Characteristics of Business 30 Business Ownership Growth of franchise businesses 1. Franchisee pays an initial fee ($100,000 or more & percent of sales) 2. Franchisee receives assistance in selecting location 3. Franchisor will also provide tested policies, procedures, training and advice 5 to 10 percent of franchises fail, however, it is lower than trying to start a nonfranchised business

Chapter 1 Characteristics of Business 31 Business Ownership Risks of ownership – Risk involves new business competition, changes in prices, changes in style, new product competition, changes that arise from economic conditions – When risks are high, risk of business failure is also high

32 Business Ownership Risks of Ownership Reasons for Failures Percent of Failures Economic Causes64.1 Finance Causes23.9 Disaster and Fraud6.7 Neglect Causes3.7 Strategy Causes0.9 Experience Causes0.8

Chapter 1 Characteristics of Business 33 Business Ownership – Obligations of ownership To Customers: that they may have the best at the lowest cost, consistent with fairness to all those engaged in production and distribution To Employees: that their welfare will not be sacrificed for the benefit of others, and in their employment relations, their rights will be respected To Management: that is may be recognized in proportion to its demonstrated ability, considering always the interest of others

Chapter 1 Characteristics of Business 34 Business Ownership – Obligations of ownership To Competitors: that there will be avoidance of every form of unfair competition To Investors: that their rights will be safeguarded and they will be kept so informed that they can exercise their own judgment respecting their interests To the Public: that the business will strive in all its operations and relations to promote the general welfare and observe faithfully the laws of the land

Chapter 1 Characteristics of Business 35 Business Ownership 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

Chapter 1 Characteristics of Business 36 Business Ownership Intrapreneur Benefits: – Employees: there is ZERO risk to their salary or savings – Employers: keeping creative employees who might have started successful competing businesses – Employers & Consumers: new and better products, processes, and services are introduced at a quicker pace

Chapter 1 Characteristics of Business 37 Business Ownership Intrapreneur In a global economy, to increase employee productivity and commitment businesses used two methods: 1. Sharing Profits with employees 2. Offering employees the opportunity to become owners of the company through the purchase of stock

Chapter 1 Characteristics of Business 38 QUESTIONS What does GDP measure? What is the main difference between an entrepreneur and an intrapreneur?

Assignment Pg. 6 #1-4 Pg. 12 #1-4 Pg. 21 #1-4 Once completed turn your work into the box. Chapter 1 Characteristics of Business 39