1. INTRODUCTION Foundations in Business

2. A SIMPLER TIME….. Meet Bob

3. 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.

4. 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).

5. 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

6. 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)

7. 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?

8. 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.

9. 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.

10. 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)

11. 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).

12. 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

13. 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

14. CHAPTER 1: BUSINESS NOW Change is the Only Constant

15. MOVING AT BREAKNECK SPEED 1965198519952008 1.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. Chevron 4. General Electric 5. Bank of America 6. ConocoPhillips 7. AT&T 8. Ford Motor 9. JP Morgan Chase 10.Hewlett-Packard Source:http://money.cnn.com The players have changedWhat consumers want has changedHow we buy has changed

16. IBM Gross IncomeProfitPeople 1954$ 570M$ 59M 50,225 1964$ 3.23B$ 431M149,834 1974$12.67B$1.83B292,350 1984$45.93B$5.48B394,930 1994$64.05B$3.02B219,839 2004$96.50B$8.40B329,009 2008$110.95B$12.33B398,455

17. 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. Non-profit organizations focus on causes not profit

18. ENTREPRENEURIAL SPIRIT – Richest Americans RankNameNet Worth ($bil)AgeSource 1 William Gates III 57.052Microsoft 2 Warren Buffett 50.078Berkshire Hathaway 3 Lawrence Ellison 27.064Oracle 4 Jim Walton 23.460Wal-Mart 5 S Robson Walton 23.364Wal-Mart 6 Alice Walton 23.259Wal-Mart 6 Christy Walton & family 23.253Wal-Mart inheritance 8 Michael Bloomberg 20.066Bloomberg 9 Charles Koch 19.072Manufacturing, energy 9 David Koch 19.068Manufacturing, energy 11 Michael Dell 17.343Dell 12 Paul Allen 16.055Microsoft, investments 13 Sergey Brin 15.935Google 14 Larry Page 15.835Google 15 Sheldon Adelson 15.075Casinos, hotels Source: The Forbes 400 09/17/08 People who risk their time, money, and other resources to start and manage a business are entrepreneurs.

19. ENTREPRENEURIAL SPIRIT (2009) NameNet WorthSource of Wealth Bill Gates$40 BillionMicrosoft Warren Buffett$37 BillionBerkshire Hathaway Carlos Slim Helu*$35 BillionTelecommunications Larry Ellison$22.5 BillionOracle Ingvar Kamprad*$22 BillionIkea Karl Albrecht*$21.5 BillionAldi Grocery Stores Mukesh Ambani*$19.5 BillionPetrochemicals Lakshmi Mittal*$19.3 BillionSteel Theo Albrecht*$18.8 BillionAldi, Trader Joe’s Amancio Ortega*$18.3 BillionRetail (apparel) * New to the list in 2009

20. 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 is likely build momentum as global competition intensifies

21. 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 I ndustrial 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

22. 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 Entrepreneurship

23. 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

24. 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

25. 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 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.

26. COMPETITION IS CHANGING Most Valuable Brands Coca Cola IBM Microsoft GE Nokia Toyota Intel McDonald’s Disney Google Biggest Gainers Google+43% Apple+24% Amazon+19% Zara+15% Nintendo+13% Global Brand Champions:

27. 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.

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

29. Population Projections for Tarrant County 2000-2040

30. 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

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

32. Assessment & Analysis FOUNDATION SIMULATION

33.  $40 Million electronic sensor manufacturer.  Market dominated by handful of firms.  No outside competitors or substitutes.  Benign environment.

34. Applications

35. FUNCTIONAL AREAS R&D Marketing Production Finance HR TQM

36. FOUNDATION HOMEWORK 1. Register at www.capsim.com www.capsim.com 2. Registration number is inside the Student Guide 3. Teams will be c ompleted by September 7 th

39. We need six (6) team leaders to Create a Company in the next week Everyone else will later Join a Company

40. After teams are final September 8 th, Company Name changes can be made