Chapter 1 Introduction to Business and Organization PDF

Chapter 1 Understanding the Role of Business  WHAT IS BUSINESS? All profit seeking activities and enterprises that provide goods and services necessary to an economic system.  WHAT IS PROFIT? Represent rewards earned by businesspeople who take the risks involved in ble...

Chapter 1 Understanding the Role of Business  WHAT IS BUSINESS? All profit seeking activities and enterprises that provide goods and services necessary to an economic system.  WHAT IS PROFIT? Represent rewards earned by businesspeople who take the risks involved in blending people, technology, and information to create and market want satisfying goods and services. Positive differences after deducting cost and expenses from total sales.  EXTERNAL ENVIRONMENT FACTORS Consist of everything outside an organization’s boundaries that might affect the business: Political factor Economical factor Sociocultural factor Technological factor Environmental and sustainability factor Legislation factor  ECONOMIC SYSTEMS An economic system is a nation’s system for allocating its resources among its citizen, both individuals and organizations. The key difference between economic systems is the way in which they manage the factors of production.  Factors of production Resources used in the production of goods and services to make a profit. 1. Land, 2. Labor, 3. Capital, 4. Entreprpeneurship  Types of economic systems The various types of economic systems differ in how they manage these factors of production and make decisions about production and allocation. Planned Economy: An economic system in which the government owns and operates all sources of production Market Economy: An economic system in which buyers and sellers interact based on freedom of choice  Planned economy Economy that relies on a centralized government to control all or most factors of the production and to make all or most production and allocation decisions There are two basic forms: 1. Communism 2. Socialism  Communism Political system in which the government owns and operates all factors of production. Central government planning determines what goods and services satisfy citizen’s needs, how the goods and services are produced and how they are distributed. Examples are Cuba, North Korea, and Vietnam.  Socialism Planned economic system in which government owns and operates only selected major sources of production The government owns and operates selected major industries like banking, communication, transportation, and industries that produce such basic goods such as oil and steel. Citizens have access to certain basic products and services. Examples are many Western Europe countries such as Sweden and France.  Market economy Individual producers and consumers control production and allocation by creating combinations of supply and demand. MARKET : A market is a mechanism for exchange between the buyers and sellers of a particular good or service. There are 3 forms of market economy: 1. Capitalism 2. Mixed market economy 3. Privatization  Capitalism An economic system whereby individuals own and operate the majority of businesses that provide goods and services. Competition, supply, and demand determine which goods and services are produced, how they are produced, and how they are distributed. Businesses can provide whatever goods and services and charge whatever prices they choose. Similarly, customers can choose how and where to spend their money. Example is United States of America. Capitalism: A Fundamentally Market-Based Economy Individuals Choose: Producers Choose: Where to work Who to hire What to buy What to produce How much to pay How much to charge Government supports private ownership and encourages entrepreneurship  Mixed market economy The economies of most countries include both planned and market elements. Worldwide trend is toward more market elements.  MIXED CAPITALIZATION A system featuring characteristics of both planned and market economies. Example is Malaysia. Permits limited government intervention. Tax the people and use the fund to provide essential public facilities, i.e. schools. Privatization The process of converting government enterprises into privately owned companies. Circular Flow in a Market Economy Figure 1–1 Supply and Demand Drive in the Economic System Supply: The willingness and ability of producers to offer a good or service for sale Law of Supply: Producers will supply (offer) more of a product for sale as its price rises and less as its price drops.  Supply and Demand Drive in the Economic System Demand: The willingness and ability of buyers to purchase a good or service Law of Demand: Buyers will demand (purchase) more of a product as its price drops and less as its price increases. Demand and Supply Schedules Quantity of Quantity of Price Pizzas Demanded Pizzas Supplied $2 2000 100 $4 1900 400 $6 1600 600 $8 1200 800 $10 1000 1000 $12 800 1200 $14 600 1300 $16 400 1600 $18 200 1800 $20 100 2000  $20 - 18 -  Demand 16 - Price of Pizzas and 14 - Supply 12 - 10 - 8- 6- 4- 2- ☺ 200 - 400 - 600 - 800 - 1000 - 1200 - 1400 - 1600 - 1800 - 2000 - Quantity of Pizzas Demanded  $20 - ☺ 18 - Demand Price of Pizzas 16 - and Supply 14 - 12 - 10 - Supply Curve 8- 6- 4-  1400 - 2000 - 1000 - 1200 - 1600 - 1800 - 600 - 800 - 200 - 400 - 2- Quantity of Pizzas Supplied  $20 - 18 - Demand 16 - Price of Pizzas and 14 - Supply 12 - 10 - ☺ Equilibrium Price 8- 6- 4- 2- 200 - 400 - 600 - 800 - 1000 - 1200 - 1400 - 1600 - 1800 - 2000 - Quantity of Pizzas per Week Demand and Supply Figure 1–2a Demand and Supply (cont’d) Figure 1–2b  Markets, Demand and Supply A surplus is a situation in which the quantity supplied exceeds the quantity demanded. A shortage is a situation in which the quantity demanded will be greater than the quantity supplied.  DIGITAL ECONOMY Refers to an economy that is based on digital computing technologies. Also known as Internet Economy, the New Economy or Web Economy. Is not simply about moving business transactions from face to face to online but transforming many facets of business interactions and transactions and also enabling economic innovation. It enable and given rise to the advent of new digital currencies and payment processes such as digital wallet.  COMPONENTS OF DIGITAL ECONOMY E-Business Infrastructure hardware, software, telecoms, networks, human capital E-Business how business is conducted, any process that an organization conducts over computer-mediated network E-Commerce transfer of goods, such as when a book is sold online  12 THEME OF THE NEW ECONOMY 1) Knowledge 2) Digitization 3) Virtualization 4) Molecularization 5) Integration/ Internetworking 6) Disintermediation 7) Convergence 8) Innovation 9) Prosumption 10) Immediacy 11) Globalization 12) Discordance  CHARACTERISTICS OF DIGITAL ECONOMY 1. Knowledge Is the driver to generate tangible and intangible value and other traditional resources are secondary Organization will be forced to change their old opinion of employees and try to retain and develop the capabilities of knowledge workers People who worked with their minds rather than their hands.  CHARACTERISTICS OF DIGITAL ECONOMY Activities in knowledge economy Academic institution: research and development Programmers developing new software and search engine Health workers use digital data to improve treatments Farmers use apps and digital solution to manage crops  CHARACTERISTICS OF DIGITAL ECONOMY 2. Digitization Knowledge can be stored in digital form (1 or 0) Information can be squeezed or compressed and transmitted at the speed of light. Information can be stored and retrieved from around the world.  CHARACTERISTICS OF DIGITAL ECONOMY 3. Virtualization Convert physical and tangible things into virtual Virtual alien People working on participating in one country’s economy who are physically located somewhere else Virtual business park Business resources on the net to help companies rapidly create virtual corporation. Virtual government agency Government agencies which have similar purpose linked by networks to deliver service through single window to the public.  CHARACTERISTICS OF DIGITAL ECONOMY 4. Molecularization When molecular activity is extended to the economy as a whole, we can see very different kinds of relationships. For example, the mass media will become the molecular media, where readers, listeners and viewers access and interact with millions of channels.  CHARACTERISTICS OF DIGITAL ECONOMY 5. Integration/ Internetworking The new economy is a networked economy, integrating molecules into clusters which network with others for the creation wealth. For example: collaboration between the intel and Microsoft.  CHARACTERISTICS OF DIGITAL ECONOMY 6. Disintermediation Disintermediation of middle functions between consumers and producers are being eliminated through digital networks. Disintermediation is changing the signal pattern. Government is also a candidate for disintermediation.  CHARACTERISTICS OF DIGITAL ECONOMY 7. Convergence Dominant economic sector is being created by 3 converging industries: Computing Communications Content  CHARACTERISTICS OF DIGITAL ECONOMY 8. Innovation Innovation drives every aspect of economic and social life. In the innovation economy, human imagination is the main source of value. Customer intimacy may be one way to win in the innovation economy.  CHARACTERISTICS OF DIGITAL ECONOMY 9. Prosumption Producers must create products that reflect the requirements and tastes. Every consumer on the information highway becomes a producer by creating and sending a message to a colleague of individual consumers.  CHARACTERISTICS OF DIGITAL ECONOMY 10. Immediacy The time lapse between ordering of a product and its creation and delivery is shrinking dramatically  CHARACTERISTICS OF DIGITAL ECONOMY 11. Globalization Global customers demand for global products. Computer networks allow companies to provide 24-hour service as customer requests are transferred from one time zone to another. Global businesses need to be able to link with customers, suppliers, employees and partners throughout the world.  CHARACTERISTICS OF DIGITAL ECONOMY 12. Discordance The new economy is bringing highly paid and high- value jobs but there is little job mobility between old and new. Knowledge workers require motivation and trusting team relationships to be effective. If not managed properly this situation will severely increase social stratification, creating a new underclass. Competition Competition motivates businesses to produce their products better or cheaper Degrees of Competition Table 1–1  Pure Competition All firms in the industry must be small and the numbers of firms in the industry must be large. The products offered by each firm are so similar that buyers view them as identical to those offered by other firms. Both buyers and sellers know the prices that others are paying and receiving in the marketplace. Because each firm is small, it is easy for any single firm to enter or leave the market. Going prices are set exclusively by supply and demand and accepted by both sellers and buyers. Example: wheat Monopolistic COMPETITION Fewer sellers are involved than in pure competition. There are still many buyers, sellers try to make their products appear to be different than their competitors. Businesses may be big or small, but still able to easily enter or leave the market. Example: clothing, fast food.  Oligopoly It is when an industry has only a handful of sellers. These sellers are quite large. The entry of new competitors is difficult because large capital investment is necessary. Examples: automobile, airline, steel industries. Individual oligopolists have more control over their own strategies than monopolistically competitive firms. The actions of any one firm can significantly affect the sales of every other firm.  Monopoly A monopoly exists when an industry or market has only one producer. Obviously, a sole supplier enjoys complete control over the prices of its products. It’s only constraint is the fall of consumer demand in response to increased pricing. Example: many local electric companies are natural monopolies because they can supply all the power needed in their local area. Looking to the Future Three Major Forces: The information revolution will continue to boost productivity. Technological breakthroughs will create new industries. Increasing globalization will create larger markets and tougher competition. THANK YOU