Understanding Business PDF

Chapter 1 Taking Risks and Making Profits within the Dynamic Business Environment ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior...

Chapter 1 Taking Risks and Making Profits within the Dynamic Business Environment ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  Chapter Contents Business and Wealth Building The Importance of Entrepreneurs to the Creation of Wealth The Business Environment The Evolution of U.S. Business ©McGraw-Hill Education.  Learning Objectives 1 of 2 LO 1-1 Describe the relationship between profit and risk, and show how businesses and nonprofit organizations can raise the standard of living for all. LO 1-2 Explain how entrepreneurship and the other factors of production contribute to the creation of wealth. LO 1-3 Analyze the effects of the economic environment and taxes on businesses. LO 1-4 Describe the effects of technology on businesses. ©McGraw-Hill Education.  Learning Objectives 2 of 2 LO 1-5 Demonstrate how businesses can meet and beat competition. LO 1-6 Analyze the social changes affecting businesses. LO 1-7 Identify what businesses must do to meet global challenges, including war and terrorism. LO 1-8 Review how past trends are being repeated in the present and what those trends mean for tomorrow’s college graduates. ©McGraw-Hill Education.  Ann-Marie Campbell Home Depot Emigrated from Jamaica and began a job at Home Depot to pay for college Earned a Master of Business Administration Worked her way up to executive vice president in 2016 Works to provide opportunities for advancement to employees Sources: Doug Gillett, “Ann-Marie Campbell’s American Dream,” Georgia State University Magazine, accessed September 2017; Ellen McGirt, “How Home Depot’s Ann-Marie Campbell Rose from Cashier to the C-Suite,” Fortune, September 13, 2016; Henry Unger, “‘If You Have a Seat at the Table, Speak Up,’” Atlanta Journal Constitution, March 26, 2015; Paul Ziobro, “Home Depot Replaces Head of U.S. Stores Business,” The Wall Street Journal, January 19, 2016; Boardroom Insiders, “Ann-Marie Campbell,” accessed September 2017. ©McGraw-Hill Education. © Melissa Golden/Redux  Name that Company Even though this company had not been hacked itself, in 2017 it reported that some customer accounts were breached when the customers secured their accounts with the same passwords they used on other sites that were hacked. ©McGraw-Hill Education.  Business and Wealth Building 1 of 9 Business — Any activity that seeks to provide goods and services to others while operating at a profit. Goods — Tangible products such as computers, food, clothing, cars, and appliances. Services — Intangible products (that can’t be held in your hand) such as education, health care, insurance, recreation, and travel. LO 1-1 ©McGraw-Hill Education.  Business and Wealth Building 2 of 9 Successfully filling a market need means you could make money for yourself. Entrepreneur — A person who risks time and money to start and manage a business. LO 1-1 ©McGraw-Hill Education.  POLLING QUESTION _____ refers to the total amount of money a business takes in during a given period. A. Profit B. Loss C. Revenue D. Risk ©McGraw-Hill Education.  Business and Wealth Building 3 of 9 Revenues, Profits, and Losses Revenue — The total amount of money a business takes in during a given period by selling goods and services. Profit — The amount of money a business earns above and beyond what it spends for salaries and other expenses. Loss — When a business’s expenses are more than its revenues. LO 1-1 ©McGraw-Hill Education.  Business and Wealth Building 4 of 9 Matching Risk with Profit Risk — The chance an entrepreneur takes of losing time and money on a business that may not prove profitable. Not all enterprises make the same amount of profit. Businesses take risks, but with big risks could come big profits. LO 1-1 ©McGraw-Hill Education.  Risk and Reward In 1979, Geral Fauss took 5,000 oversized foam fingers to the Sugar Bowl in New Orleans not knowing if he would sell a single one. Fortunately, the Sugar Bowl crowd liked them. He sold every last finger and launched a company that is still going strong. What risks and rewards did Fauss face when starting his business? LO 1-1 ©McGraw-Hill Education. ©Tom Hauck/AP Images  Business and Wealth Building 5 of 9 Standard of Living and Quality of Life Standard of living — The amount of goods and services people can buy with the money they have. The United States has one of the highest standards of living in the world. Workers in other countries may make more money, but prices for products are higher. LO 1-1 ©McGraw-Hill Education.  Business and Wealth Building 6 of 9 Standard of Living and Quality of Life continued Quality of life — The general well-being of a society in terms of its political freedom, natural environment, education, health care, safety, amount of leisure, and rewards that add to the satisfaction and joy that other goods and services provide. High quality of life requires combined efforts of businesses, nonprofits, and government agencies. LO 1-1 ©McGraw-Hill Education.  Business and Wealth Building 7 of 9 Responding to the Various Business Stakeholders Stakeholders — All the people who stand to gain or lose by the policies and activities of a business and whose concerns the business needs to address. A primary challenge is to recognize and respond to the needs of stakeholders. LO 1-1 ©McGraw-Hill Education.  Figure 1.1 A Business and Its Stakeholders Jump to long description in appendix LO 1-1 ©McGraw-Hill Education. Source: John Mackey and Raj Sisodia, Conscious Capitalism (Boston, MA: Harvard Business Review Press, 2013).  Business and Wealth Building 8 of 9 Responding to the Various Business Stakeholders continued Outsourcing — Contracting with other companies (often in other countries) to do some of the functions of a firm, like production or accounting. Many foreign companies are opening offices and factories in the United States, which is called insourcing. LO 1-1 ©McGraw-Hill Education.  Business and Wealth Building 9 of 9 Using Business Principles in Nonprofit Organizations Nonprofit organization — An organization whose goals do not include making a personal profit for its owners or organizers. Nonprofit organizations use financial gains to meet social or educational goals. LO 1-1 ©McGraw-Hill Education.  Management in Nonprofit Organizations The goals of nonprofit organizations are social and educational, not profit- oriented. The Red Cross, for example, provides assistance to around 30 million people annually, from refugees to victims of natural disasters. Why do good management principles apply equally to profit-seeking businesses and nonprofit organizations? LO 1-1 ©McGraw-Hill Education. © Jorge Guerrero/AFP/Getty Images  Well-Known Nonprofits in the United States United Way American Heart Association Salvation Army American Cancer Society American Red Cross LO 1-1 ©McGraw-Hill Education.  Keeping Strong Employees at Nonprofits 1. Offer flexible schedules. 2. Set ambitious, but realistic goals. 3. Allow all employees to work with the groups they are serving. 4. Give employees a break. Nonprofit work is draining. LO 1-1 ©McGraw-Hill Education. Source: Sumac, www.sumac.com, accessed November 2017.  Test Prep 1 1. What is the difference between revenue and profit? 2. What is the difference between standard of living and quality of life? 3. What is risk, and how is it related to profit? 4. What do the terms stakeholders, outsourcing, and insourcing mean? ©McGraw-Hill Education.  The Importance of Entrepreneurs to the Creation of Wealth 1 of 2 The Positives to Being an Entrepreneur The freedom to succeed Make your own decisions Possible wealth The Negatives to Being an Entrepreneur The freedom to fail No paid vacations No health insurance LO 1-2 ©McGraw-Hill Education.  Importance of Entrepreneurs To create wealth for its citizens, a country requires more than natural resources. It needs the efforts of entrepreneurs and the skill and knowledge to produce goods and services. How can government support entrepreneurship and the spread of knowledge? LO 1-2 ©McGraw-Hill Education. © Rosemarie Gearhart/Getty Images RF  Women in the Workforce Jump to long description in appendix LO 1-2 ©McGraw-Hill Education. Source: U.S. Department of Labor, www.dol.gov, accessed November 2017; and Forbes, www.forbes.com, accessed November 2017.  The Importance of Entrepreneurs to the Creation of Wealth 2 of 2 The Five Factors of Production Factors of production — The resources used to create wealth. The five factors: 1. Land (or natural resources) 2. Labor (workers) 3. Capital 4. Entrepreneurship 5. Knowledge What makes rich countries rich today is entrepreneurship and knowledge. LO 1-2 ©McGraw-Hill Education.  Figure 1.2 The Five Factors of Production LO 1-2 ©McGraw-Hill Education. Source: Drucker Institute, druckerinstitute.com, April 2017.  Test Prep 2 1. What are some of the advantages of working for others? 2. What benefits do you lose by being an entrepreneur, and what do you gain? 3. What are the five factors of production? Which ones seem to be the most important for creating wealth? ©McGraw-Hill Education.  The Business Environment 1 of 11 Business environment — The surrounding factors that either help or hinder the development of businesses. 1. Economic and legal environment 2. Technological environment 3. Competitive environment 4. Social environment 5. Global business environment LO 1-2 ©McGraw-Hill Education.  Figure 1.3 Today’s Dynamic Business Environment Jump to long description in appendix LO 1-2 ©McGraw-Hill Education.  The Business Environment 2 of 11 The Economic and Legal Environment Government can promote entrepreneurship by: 1. Allowing private ownership of businesses 2. Minimizing interference with the free exchange of goods and services 3. Passing laws that enable businesspeople to write enforceable contracts 4. Establishing a currency that’s tradable in world markets 5. Minimizing corruption LO 1-3 ©McGraw-Hill Education.  Differences between Countries Starting a business is more difficult in some countries than in others. In India, for example, it takes a time-consuming and bureaucratic process to obtain government permission. What do you think would be the effect of a little more freedom to create business opportunities in this country of over a billion people? LO 1-3 ©McGraw-Hill Education. © Partha Pal/The Image Bank/Getty Images  Corruption Worldwide Least Corrupt Most Corrupt 1. Denmark 1. Somalia 2. New Zealand 2. South Sudan 3. Finland 3. North Korea 4. Sweden 4. Syria 5. Switzerland 5. Yemen LO 1-3 ©McGraw-Hill Education. Source. Transparency International, www.transparency.org, accessed November 2017.  The Business Environment 3 of 11 The Technological Environment Technology — Everything from phones to computers and the various software programs that make business processes more effective, efficient, and productive. How Technology Benefits Workers and You Effectiveness — Producing the desired result. Efficiency — Producing goods and services using the least amount of resources. Productivity — The amount of output you generate given the amount of input (e.g., hours worked). LO 1-4 ©McGraw-Hill Education.  The Business Environment 4 of 11 The Technological Environment continued The Growth of E-Commerce E-commerce — The buying and selling of goods over the Internet. Business-to-consumer (B2C) Business-to-business (B2B) LO 1-4 ©McGraw-Hill Education.  Cyber Attacks on Businesses 100 percent of businesses that suffered a cyber attack in 2015 experienced viruses; 97 percent were through malware. 59 percent were victims of phishing. Only 36 percent were victims of stolen equipment. Cyber attacks costs are expected to reach 2 trillion dollars by 2019. Most of the damage is due to business disruption and information loss. LO 1-4 ©McGraw-Hill Education. Source: The Wall Street Journal, www.wsj.com, accessed November 2017; and Forbes, www.forbes.com, accessed November 2017.  The Business Environment 5 of 11 The Technological Environment continued Using Technology to Be Responsive to Customers Database — An electronic storage file for information. Identity theft — The obtaining of individuals’ personal information, such as Social Security and credit card numbers, for illegal purposes. LO 1-4 ©McGraw-Hill Education.  Using Technology for Customers Walt Disney World introduced MyMagic+, a convenient way for guests to create their ideal vacation experience. The key element is the MagicBand, providing an all-in- one way to effortlessly connect all the vacation choices guests make online. The MagicBand uses RF technology. LO 1-4 ©McGraw-Hill Education. © Jennifer Blankenship RF  Protect Yourself from Identity Theft Follow these steps to help protect yourself: Protect your Social Security Number. Shred financial documents and items with personal information. Don’t give out personal information unless you know whom you are dealing with, especially online or over the phone. Use strong passwords. Use passcodes on all devices. Never click links in suspicious emails. Monitor your credit report. LO 1-4 ©McGraw-Hill Education. Source: Lisa Gersterner, “How to Thwart Identity Thieves,” Entrepreneur, November 2016; and Federal Trade Commission, www.ftc.gov, accessed November 2017.  The Business Environment 6 of 11 The Competitive Environment Customers want good quality products at low prices with great customer service. Because business is more customer-driven, some managers give frontline employees more decision-making power. Empowerment — Giving frontline workers the responsibility, authority, freedom, training, and equipment they need to respond quickly to customer requests. LO 1-5 ©McGraw-Hill Education.  POLLING QUESTION With the definition of empowerment in mind, do you think you were empowered in your most recent job? A. yes B. no ©McGraw-Hill Education.  The Business Environment 7 of 11 The Social Environment Demography — The statistical study of the human population with regard to its size, density, and other characteristics such as age, race, gender, and income. LO 1-6 ©McGraw-Hill Education.  Demography of the U.S. by Age LO 1-6 ©McGraw-Hill Education. Source: U.S. Census Bureau, www.census.gov, accessed November 2017.  Current Demography of the U.S. by Race LO 1-6 ©McGraw-Hill Education. Source: U.S. Census Bureau, www.census.gov, accessed November 2017.  Projected Demography of the U.S. by Race in 2050 LO 1-6 ©McGraw-Hill Education. Source: U.S. Census Bureau, www.census.gov, accessed November 2017.  The Business Environment 8 of 11 The Social Environment continued Managing Diversity Diversity has grown from just recruiting minority and female workers. The Increase in the Number of Older Citizens People aged 65 to 74 are currently the richest demographic group. Retired people will be draining the economy of wealth due to Social Security. The Increase in the Number of Single-Parent Families Growth of single-parent households has encouraged businesses to implement programs such as family leave and flextime. LO 1-6 ©McGraw-Hill Education.  Diversity in Age The U.S. workforce is widely diverse in terms of age, which means that managers must adapt to the generational demographics of the workplace. What are some challenges of working with someone much younger or much older than you? LO 1-6 ©McGraw-Hill Education. © Cathy Yeulet/123RF  Single-Parent Families More and more working families consist of single parents who must juggle the demands of a job and the responsibilities of raising children. What can managers do to try to retain valued employees who face such challenges? LO 1-6 ©McGraw-Hill Education. © Julie Toy/Photographer’s Choice/Getty Images  Who Will Support Social Security? Number of Workers per Retiree LO 1-6 ©McGraw-Hill Education. Source: U.S. Census Bureau, www.census.gov, accessed November 2017.  What Is Diversity? The U.S. Equal Employment Opportunity Commission prohibits laws discriminating against: Age Disability Genetic information National origin Pregnancy Race Religion Sex LO 1-6 ©McGraw-Hill Education. Source: United States Equal Employment Opportunity Commission, www.eeoc.gov, accessed November 2017.  The Business Environment 9 of 11 The Global Environment Globalization has grown due to efficient distribution systems and communication systems such as the Internet. War and Terrorism They have drained trillions of dollars from the U.S. economy. Money was diverted to the war effort. Adds to the cost of insurance and security. LO 1-7 ©McGraw-Hill Education.  The Business Environment 10 of 11 The Global Environment continued How Global Changes Affect You As businesses expand to serve global markets, new jobs will be created. Rapid changes create a need for continuous learning. LO 1-7 ©McGraw-Hill Education.  The Business Environment 11 of 11 The Global Environment continued The Ecological Environment Climate change — The movement of the temperature of the planet up or down over time. Greening — The trend toward saving energy and producing products that cause less harm to the environment. Many companies say the evidence for climate change is overwhelming. General Electric, Coca-Cola, Shell, Nestlé, DuPont, Johnson & Johnson, British Airways, Shanghai Electric LO 1-7 ©McGraw-Hill Education.  Test Prep 3 1. What are four ways the government can foster entrepreneurship? 2. What is the difference between effectiveness, efficiency, and productivity? 3. What is empowerment? 4. What are some of the major issues affecting the economy today? ©McGraw-Hill Education.  The Evolution of U.S. Business 1 of 2 Progress in the Agricultural and Manufacturing Industries In the 1800s, the agricultural industry led economic development. Technology, like the harvester and cotton gin, made large-scale farming successful. This led to fewer farmers with larger farms. Industrialization in the 19th and 20th centuries moved jobs from farms to factories. As technology improved productivity, fewer workers were needed in factories. LO 1-8 ©McGraw-Hill Education.  Technology and Agriculture Technology has increased productivity and made farmers more efficient, allowing for larger farms. This trend has helped reduce the increase in price of some foods for consumers, but has also reduced the number of small, family-run farms. Does the new technology also help smaller farms compete? If so, how? LO 1-8 ©McGraw-Hill Education. © Richard Hamilton Smith/Newscom  The Evolution of U.S. Business 2 of 2 Progress in Service Industries Services make up over 80 percent of the value of the U.S. economy. Since the mid-1980s, the service industry generated almost all the increases in employment. There are more high-paying jobs in service industries. Your Future in Business We’re in the midst of an information-based global and technical revolution. LO 1-8 ©McGraw-Hill Education.  Test Prep 4 1. What major factor caused people to move from farming to manufacturing and from manufacturing to the service sector? 2. What does the future look like for tomorrow’s college graduates? ©McGraw-Hill Education.  Appendix of Long Image Descriptions ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  Appendix 1 Figure 1.1 A Business and Its Stakeholders Typical U.S. business stakeholders are: Stockholders Customers Surrounding community Environmentalists Dealers (retailers) Employees Government leaders Suppliers Media Bankers Return to original slide ©McGraw-Hill Education.  Appendix 2 Women in the Workforce In 1970, women made up 35 percent of the workplace, 11 percent were college graduates, 4 percent earned more than their husbands, and women contributed about 27 percent to the household income. In 2017, however, women made up 47 percent of the workplace, 40 percent were college graduates, 29 percent earned more than their husbands, and they contributed 36 percent to the household income. Return to original slide ©McGraw-Hill Education.  Appendix 3 Figure 1.3 Today’s Dynamic Business Environment A circle shows Business Management and Job Creation in the center. Surrounding this are four quadrants for the four environments. The Economic and Legal Environment: 1. Freedom of ownership 2. Contract laws 3. Elimination of corruption 4. Tradable currency 5. Minimum taxes and regulation The Technological Environment: 1. Information technology 2. Databases 3. Bar codes 4. The Internet The Social Environment: 1. Diversity 2. Demographic changes 3. Family changes The Competitive Environment: 1. Customer service 2. Stakeholder recognition 3. Employee service 4. Concern for the environment The global business environment affects the economic, legal, and technological environments. Global competition and free trade affect the competitive environment. The quality imperative affects the social environment. Return to original slide ©McGraw-Hill Education.