Chapter 1: Business Now - Business Basics

**1-1 BUSINESS NOW: MOVING AT BREAKNECK SPEED (tough competition)** The business world is changing rapidly, with industries and trends shifting quickly, often within months. Technology connects people globally, and new trends appear and fade in less than a year. In this fast-moving environment, bei...

**1-1 BUSINESS NOW: MOVING AT BREAKNECK SPEED (tough competition)** The business world is changing rapidly, with industries and trends shifting quickly, often within months. Technology connects people globally, and new trends appear and fade in less than a year. In this fast-moving environment, being adaptable is key to survival, as Charles Darwin said---it's not the strongest or smartest, but those who respond to change who succeed. Successful businesses actively adapt to change, focus on customer value, and balance risks and ethics to achieve long-term profits. In recent years, social media has been crucial in shaping business-customer relationships, while various trends are emerging to influence the business landscape: 1. **Instant Skills**: People now want tools that help them quickly create high-quality results, like Instagram did for photography. This trend reflects a desire for services that remove learning barriers. 2. **Fun and Games**: With decreasing attention spans, engaging customers and employees is challenging. Gamification---adding fun elements---proves effective, as shown by Slack's humor or Liseberg amusement park's app, which rewards users. 3. **Robolove**: Robots are becoming more common, helping with tasks like valet parking at Düsseldorf Airport. They offer efficiency and convenience, connecting to flight data for a seamless experience, without the need for tips. 4. **Virtual Experience Economy**: Digital experiences, like VR and holographic performances (e.g., Tupac's at Coachella), are increasingly valued, sometimes even as much as real-life experiences. 5. **Millennials (Born 1980-1995)**: This large demographic is both a major customer base and a growing employee pool. Despite stereotypes, millennials are essential for businesses as boomers retire, creating a leadership gap that millennials can fill. 6. **Generation Z (Born 1996-2011)**: Known as Digital Natives, Gen Z grew up with technology and was shaped by the Great Recession. They value thrift, are cautious spenders, and prefer authentic, no-frills brands. Tech-savvy, tolerant, and juggling (multitasking) multiple screens, they focus on working hard to succeed rather than expecting instant rewards. **(1-1a ) Business Basics: Some Key Definitions:** 1. **What is a Business?** - **A business is any group or activity that offers goods or services with the goal of making money (profit).** 2. **Profit and Loss** - **Profit is the money left after a business subtracts its expenses (like paying salaries or buying equipment) from its sales revenue.** - **If expenses are higher than revenue, the business incurs a loss. For instance, a music label would need hits to make a profit, or else it might lose money.** 3. **Entrepreneurs and Risk** - **Entrepreneurs are people who take on the risk of starting and managing a business, investing time, money, and resources with the hope of profit.** - **Recently, fewer new businesses are being started, as people feel less pressured to start businesses in a stable economy.** 4. **Impact of Entrepreneurs** - **Successful entrepreneurs not only create wealth for themselves but also benefit others by spending money locally, creating jobs, and paying taxes.** - **They create a \"ripple effect,\" boosting the economy by supporting other businesses and providing jobs.** 5. **Business and Society** - **Businesses improve people's standard of living (income level) and quality of life (overall happiness and well-being).** - **Beyond products and services, they contribute by creating jobs, paying taxes, and driving innovation (like inventing new technology).** - **Socially responsible businesses also focus on benefiting society directly by supporting community well-being and sustainability efforts.** **1-2 THE HISTORY OF BUSINESS:** **PUTTING IT ALL IN CONTEXT** Here's a simplified summary of the history of business in America, broken down into five main eras: 1. **The Industrial Revolution (Mid-1700s to Mid-1800s):** - New technology led to mass production in large factories, replacing small workshops. This created fast, efficient production but caused a loss of personal pride in work, as workers did repetitive tasks. 2. **The Entrepreneurship Era (Late 1800s):** - Big entrepreneurs, or "business tycoons," built huge companies and created wealth, raising living standards. However, some of them controlled markets unfairly, hurt competitors, and exploited workers. This led the government to create laws to balance the economy and protect consumers and workers. 3. **The Production Era (Early 1900s):** - Businesses focused on making production faster and cheaper, especially with innovations like Henry Ford's assembly line in 1913. This increased productivity but led to an aggressive "hard sell" approach when people bought less during the Great Depression and World War II. 4. **The Marketing Era (Post-World War II):** - As consumers had more choices, businesses shifted focus to the customer. Companies began developing unique brands and adopting a "marketing concept" --- putting the customer first. This customer-focused approach still influences businesses today, especially as competition grows. 5. **The Relationship Era (Today):** - Businesses now focus on building long-term relationships with customers, who may become advocates and promote the business. Technology plays a big role, as companies use data to understand and serve customers better, creating a level of customer focus never seen before. ***1-3 Nonprofits and the Economy: The Business of Doing Good*** - **Role of Nonprofits**: - Nonprofit organizations significantly contribute to society by addressing areas like health, education, art, and culture. - Although not focused on financial gain, nonprofits function as businesses by employing workers, generating revenue, and contributing to economic stability. - **Economic Impact**: - Nonprofits employ approximately 10% of the workforce in the U.S., more than industries like construction or finance. Cultural nonprofits (e.g., museums and theaters) attract investments and bolster local economies. ***1-4 Factors of Production: The Building Blocks of Economies*** 1. **Natural Resources**: - Comprise land, water, minerals, and energy sources found in nature. - Demand and scarcity often dictate their value (e.g., rising energy costs due to global energy transitions). 2. **Capital**: - Includes physical tools (machines, technology) used to create goods or services. - Modern businesses heavily rely on digital infrastructure (e.g., AI and cloud computing in global companies like Amazon). 3. **Human Resources**: - Represent the skills, knowledge, and creativity of the workforce. - With automation increasing, roles requiring knowledge and innovation, like software development, are thriving globally (e.g., India\'s IT sector). 4. **Entrepreneurship**: - Entrepreneurs identify opportunities and take risks to create businesses. - Economic freedom (less regulation, lower taxes, and protection from corruption) is essential. - Examples: - **Hong Kong**: Limited natural resources but consistently wealthy due to entrepreneurial support. - **India**: Startups in the tech and fintech sectors are driving economic growth due to a supportive regulatory environment. - **China**: Relaxed regulations have led to significant growth (e.g., Alibaba and Tencent). - **Russia**: Struggles due to corruption, limiting entrepreneurial potential. **Global Examples of Economic Performance** - **China**: Recent emphasis on entrepreneurship has accelerated economic growth. - **Hong Kong**: Thrived economically despite limited resources due to a pro-business environment. - **Russia**: Despite abundant resources, corruption hampers economic prosperity. - **UAE**: Focus on diversifying beyond oil and fostering entrepreneurship through initiatives like Dubai Startup Hub. ***1-5 The Business Environment and Economic Context*** **1. Importance of the Business Environment** - Businesses are influenced by external factors that impact success or failure. - A healthy business environment is crucial for economic stability and growth. **2. The Economic Crisis of 2008** - The U.S. faced its worst fiscal crisis since the Great Depression, leading to: - Collapse of major financial institutions. - Unprecedented government bailouts. - A 30%+ drop in stock market value. - Unemployment reaching 11.1 million. - Record foreclosure rates and plummeting housing prices. - Global economic crisis followed due to U.S. turmoil. **3. Economic Recovery Efforts** - From 2010 to 2011, recovery was slow, with unemployment remaining high. - Key steps to encourage recovery: - Federal Reserve's proactive measures. - President Obama's economic stimulus package for job creation and infrastructure, focusing on renewable energy. **4. Government\'s Role in Supporting Businesses** - Ongoing steps to reduce business risks and promote free enterprise include: - Relatively low federal tax rates. - Special tax incentives in states like Alabama and Nevada. - Support agencies like the Small Business Administration (SBA). - Federal Trade Commission ensuring fair competition. **5. Legal Framework Supporting Business** - Enforceable contracts ensure compliance and reduce risks. - Example: Legal recourse available for contract breaches. - This legal security is lacking in many developing countries. **6. Corruption and Ethical Challenges** - Low corruption levels promote fairness and reduce risks. - Corporate accountability enhanced through regulations after ethical failures (e.g., Enron). - Ethical lapses and corruption increase costs for businesses. **7. Optimism for the Future** - The U.S. economy's resilience and adaptability provide cautious optimism for overcoming crises. - Further chapters will explore economic and ethical challenges in-depth. **1. The Competitive Environment** - **Customer Satisfaction as a Focus**: - Retaining and satisfying current customers is more cost-effective than acquiring new ones. - Loyal customers often act as advocates, promoting products more effectively than ads or discounts. - Examples: Amazon, Coca-Cola, and Northwestern Mutual lead their industries in customer satisfaction, translating to higher profits. - **Delivering Value**: - Value is determined by the gap between product benefits and price. - Quality drives value; successful firms consistently offer top-quality products compared to competitors. - **Speed-to-Market**: - Transforming concepts into products quickly provides a competitive edge. - **Leading-edge firms** launch products when the market is ready. - Example: Apple launched the iPod after observing existing market gaps. - **Bleeding-edge firms** launch products too early, risking failure. - Example: Webvan, a grocery delivery service, failed due to premature market entry. **2. The Workforce Advantage** - **Employee Satisfaction and Performance**: - Companies investing in employee satisfaction see better performance and stock market returns. - Example: Fortune's "100 Best Companies to Work For" outperformed the S&P 500 in stock returns. - Talent retention will become a critical issue as the baby boomer generation retires. - **Challenges of Workforce Demographics**: - Baby boomers (77 million) are retiring at high rates, while the next generation has only 46 million. - Some boomers continue working part-time or delay retirement due to financial constraints. **3. The Technological Environment** - **Technology as a Competitive Advantage**: - Firms leveraging technology improve efficiency (e.g., robotic manufacturing, digital processes). - Companies slow to adopt technology face risks of obsolescence. - **Impact of E-Commerce**: - E-commerce enables global customer access and comprises a significant share of business profits. - Businesses integrate digital networks with suppliers for seamless operations. - **Personalized Marketing and Products**: - Online tools (e.g., Amazon recommendations, eBay reviews) enable personalized customer experiences. - Companies like Burton and Nike offer customizable products online. - **Rapid Evolution**: - Technology changes at unprecedented speed; companies adaptable to change will succeed. **4. The Social Environment** - **Social and Demographic Factors**: - Social environments reflect shared values, beliefs, and customs within populations. - Demographics (e.g., age, gender, income) vary significantly across and within countries. - U.S. diversity results in multiple social environments influencing businesses. **1-5d The Technological Environment** - **Definition:** Business technology includes tools like computers, telecommunications, and digital tools for efficiency and effectiveness. - **Transformative Impact:** - Emergence of new industries; disappearance of others. - Significant changes in fields like travel, banking, and music. - **Process Optimization:** Use of technology like computerized billing, digital animation, and robotic manufacturing enhances efficiency. - **E-Commerce:** - Revolutionized business operations; provides access to global markets. - Business-to-business sales dominate e-commerce profits. - Integration of digital networks with suppliers and distributors ensures seamless operations. - **Personalized Marketing:** - Platforms like Amazon and eBay offer personalized recommendations and reviews. - Leading firms provide customized products at competitive prices (e.g., NikeID, Burton snowboards). - **Adapting to Change:** Companies that embrace and manage technological advancements effectively are better positioned to succeed. **1-5e The Social Environment** **Key Aspects:** 1. **Diversity:** - The U.S. is becoming more ethnically diverse, with Hispanics and Asians growing faster than other groups. - Businesses targeting ethnic groups (e.g., Miller Lite for Latinos) or diverse cultures (e.g., hip-hop products) can achieve success. - Workforce diversity in gender, age, and background offers competitive advantages. 2. **Aging Population:** - Aging trend in the U.S. and globally (e.g., China's population challenges due to the one-child policy). - Opportunities for industries like healthcare, pharmaceuticals, and financial management. - Threats include a shrinking labor pool, higher recruitment costs, and increased tax burdens. 3. **Rising Worker Expectations:** - Workers demand flexibility, higher salaries, and more meaningful roles. - Reduced loyalty among employees with shorter tenures. - Smart firms focus on open communication and training to foster mutual respect and long-term performance. 4. **Ethics and Social Responsibility:** - High-profile scandals have led to greater demand for transparency and accountability. - Sustainability is a growing priority, influencing business policies and consumer behavior. **1-5f The Global Environment** **1. Global Economic Interconnectivity:** - U.S. economy is deeply integrated with the global economy. - Technology and free trade have blurred national economic boundaries. - Outsourcing jobs to countries like India and China for cost efficiency and high-quality output. **2. Global Job Migration:** - **China:** - Attracts manufacturing jobs due to low wages (\$3.50/hour vs. \$19.50 in the U.S.), though wage gaps are narrowing. - High population fuels manufacturing growth. - **India:** - Excels in attracting high-tech jobs due to English-speaking, highly educated workforce willing to work for less. **3. Free Trade Movement:** - 1995 General Agreement on Tariffs and Trade (GATT): Lowered tariffs and reduced trade restrictions worldwide. - Regional Free Trade Blocs: - NAFTA: Free trade between the U.S., Canada, and Mexico. - European Union: 25-member free trade zone, though weakened by financial crises. - **Impact:** Lower prices, higher product quality due to global competition. **4. Global Threats:** - **Terrorism and War:** - Events like 9/11 and other attacks devastated industries, particularly tourism. - Ongoing conflicts in Afghanistan and Iraq dampened economic potential. - **Natural Disasters:** - Tsunamis, hurricanes, and typhoons (e.g., Hurricane Katrina, Sandy, and Typhoon Haiyan) caused massive economic damage. - **Health Crises:** - Epidemics like SARS, Ebola, and others disrupted economies globally. - **Economic Instability:** Nationalism, religious, and ethnic tensions threaten global economic growth. **1-6 Business and You: Making It Personal** **1. Career Influence:** - Business and economic trends significantly affect individual financial success. **2. Career Strategy:** - Experts recommend pursuing careers aligned with personal passions. - Following passions leads to better performance in areas requiring creativity, communication, and empathy. **3. Long-Term Benefits:** - Passion-driven careers may not guarantee wealth but improve chances for financial and personal success. - Routine, programmable skills are becoming less valued in a technology-driven economy.