Business in Action, Global Edition 2024 PDF - Pearson

PART Setting the Stage: 1 The Business of Business Start your exploration of business by understanding how companies create value to generate revenue and profits and then continue with a look at disruptive forces in business and...

PART Setting the Stage: 1 The Business of Business Start your exploration of business by understanding how companies create value to generate revenue and profits and then continue with a look at disruptive forces in business and life in the digital enterprise. Learn the basics of supply and demand, the definition of money, and the role of contemporary banking. Expand your horizons with an overview of global business strategies. Finish this part by considering the role of business in society and the dimensions of business ethics. C H AP T E R 1 Developing a Business Mindset C H AP T E R 2 Economics, Money, and Banking C H AP T E R 3 The Global Marketplace C H AP T E R 4 Business Ethics and Corporate Social Responsibility Shutterstock 49  1 Developing a Business Mindset LEARNING OBJECTIVES After studying this chapter, you will be able to Explain the concept of adding value in a business, and Summarize seven of the most important business 1 identify four useful ways to categorize businesses. 5 professions. List three steps you can take to help make the leap from 2 consumer to business professional. 6 Identify six components of professionalism. Discuss the five major environments in which every Describe the concepts of disruptive innovation and 3 business operates. 7 digital transformation. Explain the purpose of the six major functional areas in a Identify seven essential business skills that you will have 4 business enterprise. 8 the opportunity to develop during this course. Can Software That Reads Faces Create BEHIND THE SCENES a New Business? a goal she pursued from her undergraduate studies in Egypt to a PhD program at the University of Cambridge in England to her work as a research scientist in the Media Lab at the Massachu- setts Institute of Technology (MIT). She had become fascinated by the possibility of using artificial intelligence (AI) to identify emotional states by measuring facial expressions. Her motivation was to help people on the Affectiva, Inc. A Smart Eye Company autism spectrum who can struggle to pick up emotional cues when communicating with others. Could a system detect those cues and provide information to help people have richer social interactions? After el Kaliouby created software at MIT that could track emotional responses by comparing facial movements with a catalog of common expressions, she was surprised by how many of the lab’s corporate sponsors were interested in it. The inquiries ranged from Toyota, which wanted to know if it might help detect when drivers were getting drowsy, to Fox television As a university student, Rana el Kaliouby was fascinated by the possibility studios, which wanted to use it for audience-testing new shows. of using artificial intelligence to identify emotional states by measuring If you were el Kaliouby, what would be your next step? facial expressions. What kind of company could you and your partners create? How would you deal with the ethical questions associated with www.affectiva.com AI in general and something as personal as emotion measurement Like many college students, Rana el Kaliouby approached her in particular? How would you transform something as esoteric education with an important life goal in mind. In her case, it was as an AI algorithm into a commercially viable product, and how developing computer programs that could “read” people’s faces, would you communicate its value to potential customers?1 50  C H AP T ER 1 Developing a Business Mindset 51 INTRODUCTION Rana el Kaliouby’s introduction to business (see the chapter-opening “Behind the Scenes”) was unusual in that she didn’t set out to create a company. However, as you’ll read at the end of the chapter, she has become one of the most prominent business leaders in the exploding field of artificial intelligence (AI). This chapter prepares you for the whirlwind tour of the business world you’ll get in this course, starting with a quick overview of what businesses do and then some advice on making the leap from consumer to business professional. Understanding What Businesses Do 1 LEARNING OBJECTIVE The term business is used in multiple ways: Explain the concept of adding value in a business, and identify As a label for the overall field of business concepts, as in “I plan to major in business.” four useful ways to categorize As a collective label for the activities of many companies, as in “This legislation is businesses. viewed as harmful to American business.” As a way to indicate specific activities or efforts, as in “Our furniture business earned record profits last year, but our housewares business lost money for the third year in a row.” As a synonym for company, as in “Apple is a successful business.” Other common syn- onyms here are firm and enterprise. In this last sense, a business is any profit-seeking organization that provides goods and business services designed to satisfy customers’ needs. Any profit-seeking organization that provides goods and services designed to satisfy customers’ ADDING VALUE: THE BUSINESS OF BUSINESS needs. A good way to understand what any business does is to view it as a system for satisfying customers by transforming lower-value inputs into higher-value outputs (see Exhibit 1.1). If you want a loaf of bread, for instance, a silo full of wheat on a farm 200 miles away isn’t of much value to you. After that wheat is milled into flour, it gets one step closer but is valu- able only if you want to bake your own bread. A bakery can take care of the baking, but that helps only if you’re willing to travel to the bakery instead of going to the supermarket where you normally shop. At every stage, a company adds value to create the product in a way that makes it appealing to the next customer in the chain. Each company in this chain has made certain choices about what it will do to generate revenue, which is money the company brings in through the sale of goods and services. revenue The result of these decisions is a company’s business model, which is a clearly stated out- Money a company brings in line of how the business generates or intends to generate revenue. Of course, generating through the sale of goods and revenue isn’t enough. The business model must also indicate how the company is going to services. realize profit, the amount of money left over after expenses—all the costs involved in doing business model business—have been deducted from revenue. A concise description of how a business generates or intends to Competing to Attract and Satisfy Customers generate revenue. As businesses create value-added products and offer them for sale to customers, they profit Money left over after all the costs obviously don’t do so in a vacuum. Other companies are also trying to sell their products involved in doing business have to those same customers, and the result is competition. Competition gives customers a been deducted from revenue. wider range of options, and it tends to increase quality, improve customer service, and lower prices. In a free-market economy, companies usually have a lot of flexibility in deciding which customers they want to focus on and how they want to compete. For instance, one bakery might decide to compete on price and thus structure its business model in such a way as to mass-produce bread at the lowest possible cost. Another might decide to compete on quality or uniqueness and structure its business model around handcrafted “artisan” bread 52 PART ON E Setting the Stage: The Business of Business EXHIBIT 1.1 Adding Value to Satisfy Customers Every company in this chain adds value for the next customer and for the ultimate consumer. Converts soil, seed, Wheat 1 and time to wheat farm Flour Converts wheat 2 mill to flour Converts flour 3 Bakery to bread Grocery Makes bread easier 4 store to purchase Benefits from 5 value added at Consumer every stage that costs two or three times as much as the mass-produced bread. Each company seeks a competitive advantage competitive advantage that makes its products more appealing to its chosen customers. Some aspect of a company or its Consumers benefit from better products and more choices, and companies get to focus on operations that enables it to what they do best. create products with greater appeal to its target customers. Accepting Risks in the Pursuit of Rewards Take another look at Exhibit 1.1. Notice how every company from the farmer to the grocery store must accept some level of risk in order to conduct its business. Bad weather or disease could destroy the wheat crop. A shift in consumer behavior, such as cash-strapped families in a recession switching to bakery outlet stores instead of regular grocery stores, could leave some bakers, distributors, and retailers with bread nobody wants to buy. Businesses take these risks in anticipation of future rewards. This linking of risk and reward is critical for two reasons. The first and more obvious is that without the promise of rewards, businesses would have no incentive to take on the risks. And without entrepreneurs and companies willing to accept risk, little would get done in the economy. The second reason that the risk associated with business deci- sions needs to “stay attached” to those decisions is to encourage smart and responsible decision-making. If individuals and companies believe they can pursue rewards without facing the risks that should be attached to those pursuits, they are more likely to engage in irresponsible and even unethical and illegal behavior—a situation known as moral hazard (see Exhibit 1.2). IDENTIFYING MAJOR TYPES OF BUSINESSES The driving forces behind most businesses are the prospects of earning profits and build- ing assets, which are anything of meaningful value, from patents and brand names to real not-for-profit organizations estate and company stock. In contrast, not-for-profit organizations (also known as Organizations that provide goods nonprofit organizations) such as museums, most universities, and charities do not have a and services without having a profit motive. However, they must operate efficiently and effectively to achieve their goals, profit motive; also called nonprofit and successful nonprofits apply many of the business-management principles you’ll learn organizations. in this course.  C H AP T ER 1 Developing a Business Mindset 53 EXHIBIT 1.2 Risk, Reward, and Moral Hazard The relationship between risk and reward is fundamental to every modern economy. A company needs to see some promise of reward before it will decide to accept the risks involved in creating and selling products. However, to ensure responsible behavior, these risks need to stay attached to those decisions, meaning that if the decisions turn out badly, that company should suffer the consequences. If the risk gets disconnected from a decision—meaning someone else will suffer from a bad decision—a situation known as moral hazard is created. A significant recent example of this problem involved mortgage companies lending money to homeowners who were practically guaranteed to default on their loans but then selling those loans as investments and thereby transferring the risk of nonpayment to someone else. Healthy connection between risk and reward Company Company makes a decision that involves some risk. Outcome If outcome is positive, company reaps the rewards. If outcome is negative, company suffers the consequences. Moral hazard: Link between risk and reward is broken Company Company makes a decision that involves some risk. Outcome If outcome is positive, company reaps the rewards. If outcome is negative, someone else (including other companies, consumers, or taxpayers) suffers the consequences. Throughout this book, you’ll encounter a diverse range of businesses, from indepen- dent freelancers to gargantuan corporations that generate more economic activity than many countries. To get a sense of this diversity and to envision where you might want to take your career, here are four helpful ways to categorize businesses: Product types and ranges. In everyday usage, people tend to divide the output of companies into “products and services.” However, as Chapter 13 explains, from a business perspective, it’s often more useful to view all outputs of business as prod- ucts and divide these into goods and services. Most goods are tangible, meaning they have a physical presence. Other goods, such as software and downloadable music files, are intangible. Some companies offer only goods, and others offer only ser- vices; many firms offer a combination of the two. Companies also vary widely in the number and range of products they offer, from those with a single product to those with thousands of products in dozens of product lines, sometimes in completely unrelated industries. Company size. Big companies are truly big, employing hundreds of thousands of people and generating several hundred billion dollars of revenue every year. Amazon employs well over a million people, and Walmart more than 2 million.2 However, the vast majority of companies in the United States are much smaller. Of the roughly 6 million firms with employees, nearly 80 percent employ fewer than 10 people.3 54 PART ON E Setting the Stage: The Business of Business Geographic reach. Companies can do business locally, regionally, nationally, or inter- nationally. Thanks to the internet, digital product formats, and global transportation services, geography is no longer the limitation it used to be, and even small companies can now serve customers around the world. Ownership. Firms can be owned and structured in a variety of ways, from sole pro- prietorships (one owner) to partnerships (typically several owners) to public corpora- tions (which can have thousands of owners). Chapter 5 looks at company ownership in more detail. CHECKPOINT LEARNING OBJECTIVE 1: Explain the concept of adding value in a business, and identify four useful ways to categorize businesses. SUMMARY: Businesses add value by transforming lower-value inputs to higher-value outputs. In other words, they make goods and services more attractive from the buy- er’s perspective, whether it’s creating products that are more useful or simply making them more convenient to purchase. Companies can be categorized by product types and ranges, company size, geographic reach, and ownership. CRITICAL THINKING: (1) What inputs does a musical group use to create its outputs? (2) Can not-for-profit organizations benefit from practices used by for-profit compa- nies? Why or why not? IT’S YOUR BUSINESS: (1) Think back to the last product you purchased; how did the companies involved in its creation and sale add value in a way that benefited you personally? (2) Can you see yourself working for a not-for-profit organization after you graduate? Why or why not? KEY TERMS TO KNOW: business, revenue, business model, profit, competitive advantage, not-for-profit organizations 2 LEARNING OBJECTIVE Making the Leap from Buyer to Seller List three steps you can Even if this course is your first formal exposure to the business world, you already know a take to help make the leap lot about business, thanks to your experiences as a consumer. You understand the impact from consumer to business of poor customer service, for example. You have a sense of product value and why some professional. products meet your needs and others don’t. In fact, you’re an expert in the entire experience of searching for, purchasing, and using products. SEEING BUSINESS FROM THE INSIDE OUT As you progress through this course, you’ll begin to look at things through the eyes of a business professional rather than those of a consumer. Instead of thinking about the cost of buying a particular product, you’ll start to think about the cost of making it, promoting it, and distributing it. You’ll think about what it takes to make a product stand out from the crowd and recognize the importance of finding opportunities in the marketplace. You’ll business mindset begin to see business as an integrated system of inputs, processes, and outputs. As Rana Adopting an insider’s view of el Kaliouby did when she cofounded Affectiva, you’ll start to develop a business mindset business with an appreciation for as you gain an appreciation for the many decisions that must be made and the many chal- the decisions to be made and lenges that must be overcome before companies can deliver products that satisfy customer challenges that managers face. needs (see Exhibit 1.3).  C H AP T ER 1 Developing a Business Mindset 55 EXHIBIT 1.3 The Business Mindset Your experiences as a consumer have taught you a great deal about business already. Now the challenge is to turn those experiences around and view the world from a manager’s perspective. Here are a few examples of how a business professional approaches some of the questions you’ve asked as a consumer. Consumer’s Perspective Manager’s Perspective What products should we make? Which product will meet my How should we make them? Function needs? Can we make them ourselves? Are there any safety issues? How can we reach potential buyers? How can I learn more about this What should we say? Marketing product? How can we rise above the noise? Do we need our own salesforce? What is our brand image? How will it make me feel about Do we need to change or improve it? Image myself? Do we need more than one brand? How do we protect our brand? How much will it cost to produce? Price What price will the market accept? Can I afford it? How much do competitors charge? Can we turn a profit? At what volume? Which are the best retail channels? Availability Will they carry our products? Where can I buy it? How much do these channels cost? Will they support our brand image? What support services do they expect? How much can we afford to offer? Can I get support after the sale? Service Will they pay for some services? What do our competitors offer? APPRECIATING THE ROLE OF BUSINESS IN SOCIETY Your experiences as a consumer, an employee, and a taxpayer have also given you some insights into the complex relationship between business and society. Chapter 4’s discussion of corporate social responsibility digs deeper into this important topic, but for now, just consider some of the major elements of this relationship. Business has the potential to contribute to society in many useful ways, including the following (see Exhibit 1.4): Offering valuable goods and services. Most of the goods and services you consider essential to your quality of life were made possible by someone with a profit motive. 56 PART ON E Setting the Stage: The Business of Business EXHIBIT 1.4 Positive and Negative Effects of Business The relationship between business and society is complex and far-reaching. Individuals, communities, and entire nations benefit in multiple ways from the efforts of businesses, but even responsibly managed companies can at times have negative impacts on society. Potential Potential contributions negative effects Offering valuable goods Generating pollution and and services creating waste Creating health and Providing employment safety risks Paying taxes Disrupting communities Contributing to growth, Causing financial stability, and security instability Providing employment. In addition to providing salaries, many companies help their employees meet the costs of health care, child care, education, retirement, and other living expenses. Paying taxes. U.S. businesses pay hundreds of billions in taxes every year,4 money that helps build highways, fund education, further scientific research, enhance public safety and national defense, and support other vital functions of government. Contributing to national growth, stability, and security. Beyond the mere dollars from taxes paid, a strong economy helps ensure a strong country. As one example, by providing job opportunities to the vast majority of people who want to work, busi- nesses help the country avoid the social unrest and family disruptions that can result from high unemployment. Unfortunately, businesses don’t always operate in ways that benefit society. As you move into positions of increasing responsibility in your career, be aware of the potentially negative effects that business can have on society: Generating pollution and creating waste. Just like individuals, companies consume resources and produce waste and therefore have an impact on the natural environment and the soil, air, and water on which all living creatures depend. Creating health and safety risks. Many business operations involve an element of risk to the health and safety of employees and surrounding communities. For instance, some of the products you use every day, including phones and computers, contain toxic materials. If these materials are not created, handled, and disposed of properly, they can cause serious illness or death. Disrupting communities. From occupying land to displacing existing businesses to overloading schools and roads with employees and their children, growing businesses can disrupt communities even as they provide employment and other benefits. Con- versely, when businesses fall into decline, they can destabilize communities that have been depending on them. Causing financial instability. Irresponsible or poorly managed companies can become a liability to society if they are unable to meet their financial obligations and need assistance from the government, for example.  C H AP T ER 1 Developing a Business Mindset 57 The potential negative effects of business are serious matters, but the good news is that you have a say in how business operates. Even as an employee early in your career, you can conduct yourself in ways that balance the profit motive with society’s shared interests. And as you climb the corporate ladder or perhaps launch your own business, you’ll be in a position to make decisions that help your company prosper in an ethical and sustainable manner. USING THIS COURSE TO JUMP-START YOUR CAREER No matter where your career plans take you, the dynamics of business will affect your work and life in innumerable ways. If you aspire to be a manager or an entrepreneur, knowing how to run a business is vital, of course. If you plan a career in a professional specialty such as law, engineering, or finance, knowing how businesses operate will help you interact with clients and colleagues more effectively. Even if you plan to work in government, education, or some other noncommercial setting, business awareness can help you; many of these organizations look to business for new ideas and leadership techniques. Social entrepreneurs, people who apply entrepreneurial strategies to enable large-scale social change, use busi- ness concepts as well. As you progress through this course, you’ll develop a fundamental business vocabulary that will help you keep up with the latest news and make better-informed decisions. By par- ticipating in classroom discussions and completing the chapter exercises, you’ll gain some valuable critical-thinking, problem-solving, team-building, and communication skills that you can use on the job and throughout your life. This course will also introduce you to a variety of jobs in business fields such as account- ing, economics, human resources, management, finance, and marketing. You’ll see how people who work in these fields contribute to the success of a company. You’ll gain insight into the types of skills and knowledge these jobs require, and you’ll discover that a career in business today can be fascinating, challenging, and often quite rewarding. In addition, a study of business management will help you appreciate the larger context in which businesses operate and the many legal and ethical questions manag- ers must consider as they make business decisions. Government regulators and society as a whole have numerous expectations regarding the ways businesses treat employees, shareholders, the natural environment, other businesses, and the communities in which they operate. CHECKPOINT LEARNING OBJECTIVE 2: List three steps you can take to help make the leap from consumer to business professional. SUMMARY: To accelerate your transition from consumer to professional, develop a business mindset that views business from the inside out rather than the outside in, recognize the positive and negative effects that business can have on society, and use this course to develop a business vocabulary and explore the wide variety of jobs in the field of business. CRITICAL THINKING: (1) How can consumer experiences help a business profes- sional excel on the job? (2) If organized businesses didn’t exist and the economy were composed of individual craftspeople, would the result be more or less pollution? Explain your answer. IT’S YOUR BUSINESS: (1) How might you contribute to society as a business profes- sional? (2) What is your view of business at this point in your life? Negative? Positive? A mixture of both? What experiences have shaped your view? KEY TERM TO KNOW: business mindset 58 PART ON E Setting the Stage: The Business of Business 3 LEARNING OBJECTIVE Recognizing the Multiple Environments Discuss the five major of Business environments in which every business operates. The potential effects of business, both positive and negative, highlight the fact that no busi- ness operates in a vacuum. Every company operates within several interrelated environ- ments that affect and are affected by business (see Exhibit 1.5). THE SOCIAL ENVIRONMENT social environment All business activities take place within the broad social environment—the trends and Trends and forces in society at forces in society at large. The social environment influences business in two important large. ways. First, social trends can affect the composition of the workforce and demand for goods and services. For example, if young adults wait longer to move out of their parents’ homes or if young couples wait longer to have children, this situation can influence the number of people in the workforce and the demand for everything from housing to cars to health care. Second, business has a huge impact on society, and various segments of society have expectations about the appropriate ways for businesses to operate. The responsibility of a com- stakeholders pany to its stakeholders—all those groups affected by its activities, from employees to local Internal and external groups communities to advocacy groups—is a subject of ongoing controversy. A growing number affected by a company’s decisions of employees and company leaders believe that a company should strive for something more and activities. than just making money, giving rise to the concept of the purpose-driven business. You can read more about these issues in Chapter 4’s discussion of corporate social responsibility. No upheaval in recent memory has affected society more than the COVID-19 pandemic, and its effects are still reshaping the world of business. The pandemic disrupted supply chains, EXHIBIT 1.5 The Multiple Environments of Business Every business operates in an overlapping mix of dynamic environments that continuously create both opportunities and constraints. Economic Market environment environment Conditions and forces Target customers, buying that affect the cost and influences, and competitors availability of goods, services, and labor Company Technological Social environment environment Forces resulting Population trends, from the practical social values and application of behaviors, science to relationship of innovations, society and products, and business processes Legal and regulatory environment Laws and regulations that restrain, support, and protect businesses at local, state, national, and international levels  C H AP T ER 1 Developing a Business Mindset 59 forced millions of employees to work from home, pushed companies to take a stance in bitter public feuds over masking and vaccination policies, drove some companies out of business while boosting others to record sales levels, and prompted many people to reexamine their most fundamental values regarding work and family. Moreover, these disruptions are likely to amplify and accelerate some seismic shifts that were already in motion when the pandemic hit, including the rapid adoption of AI and various forms of automation.5 In the coming chap- ters, you’ll get a closer look at how the pandemic has influenced leadership and management, organizational strategies, employee motivation, business operations, and more. THE TECHNOLOGICAL ENVIRONMENT The technological environment stems from the practical application of science to innova- technological environment tions, products, and processes. It’s difficult to imagine a business these days that doesn’t rely Forces resulting from the on technology, even if it’s only using mobile communication to stay in touch with customers. practical application of science Many of the biggest and most influential companies in the world today are firms that either to innovations, products, and make advanced technologies or use these innovations to achieve market dominance. processes. Technology is essential to business, but it can also be an extremely disruptive force. This chapter’s “Thriving in the Digital Enterprise” section looks at disruptive innovations, develop- ments that are powerful enough to create, reshape, or destroy entire industries. THE ECONOMIC ENVIRONMENT Directly or indirectly, virtually every decision a company makes is influenced by the economic environment, the conditions and forces that affect the cost and availability of economic environment goods, services, and labor and thereby shape the behavior of buyers and sellers. For exam- The conditions and forces that ple, a growing economy can help companies by increasing demand and supporting higher affect the cost and availability of prices for their products, but it can also raise the costs of labor and materials the compa- goods, services, and labor and nies need. A shrinking economy, on the other hand, can damage even well-run, financially thereby shape the behavior of buyers and sellers. healthy companies by limiting demand for their products or the availability of loans or investments needed to expand operations. The economic and technological environments are closely intertwined, partly because many innovations aim to reduce the costs of various business operations. Labor is typically one of a company’s biggest expenses, for instance, so companies keep an eye out for new technologies that can reduce labor costs or improve labor productivity. Doing so can be good for business, but it can be bad for the workforce and society in general if fewer workers are needed. You’ll be hearing a lot of discussion in the coming years about the potential for workers at every skill level to be displaced by AI, robotics, and other technologies. At the same time, technology can create economic opportunities for workers. Many people now work in jobs that didn’t exist before the internet came into being, for example. In addition, millions of people now work full- or part-time in the gig economy, composed gig economy of people who work as independent contractors on a series of short-term projects or tasks Portion of the economy (colloquially known as “gigs”).6 Much of the work in the gig economy is either technology composed of people who work based or enabled by technologies such as website services and mobile apps. Work in the as independent contractors on a gig economy varies widely, from household tasks to software development to the sharing series of short-term projects or tasks. economy of home- and ride-share services such as Airbnb and Lyft. THE LEGAL AND REGULATORY ENVIRONMENT Every business is affected by the legal and regulatory environment, the sum of laws and legal and regulatory regulations at local, state, national, and even international levels. Some businesses, such as environment electricity and other basic utilities, are heavily regulated, even to the point of government Laws and regulations at local, agencies determining how much companies can charge for their services. The degree to which state, national, and even various industries should be regulated remains a point of contention year in and year out. international levels. The policies and practices of government bodies also establish an overall level of support for businesses operating within their jurisdictions. Taxation, fees, efforts to coordinate multi- ple regulatory agencies, the speed of granting permits and licenses, labor rules, environmental restrictions, protection for assets such as patents and brand names, roads and other infrastruc- ture, and the transparency and consistency of decision-making all affect this level of support.  60 PART ON E Setting the Stage: The Business of Business THE MARKET ENVIRONMENT Within the various other environments just discussed, every company operates within a market environment specific market environment composed of three important groups: (1) its target customers, A company’s target customers, (2) the buying influences that shape the behavior of those customers, and (3) competitors—other the buying influences that shape companies that market similar products to those customers. the behavior of those customers, The nature of the market environment varies widely from industry to industry, from and competitors that market markets that are relatively stable with clearly defined boundaries to markets that are shifting similar products to those and dynamic. The commercial airplane market, for instance, is relatively stable compared to customers. many other industries. There are a handful of well-established competitors (Boeing, Airbus, and a few others), there is little risk that an entirely new type of product will appear out of nowhere and threaten to replace airliners, and customers (airlines) behave in predictable ways. The pandemic slowed air travel for a couple of years and temporarily stalled demand for new aircraft, but industry planners have already set their sights on a return to solid growth for the coming years.7 barriers to entry Much of the stability in the air travel market comes from high barriers to entry, which Resources or capabilities a are resources or capabilities a company must have before it can start competing in a given company must have before it market. Airline manufacturing is a capital-intensive business that requires enormous amounts can start competing in a given of money, huge facilities, large workforces, and complex production equipment. Other bar- market. riers to entry include government testing and approval, tightly controlled distribution, strict licensing procedures, limited supplies of raw materials, and highly skilled employees. In contrast, markets with low barriers to entry can be highly dynamic, with new suppliers appearing almost over- Richard Clement/ZUMA Press/Alamy Stock Photo night. The music industry used to have high barriers to entry because a small number of record companies controlled the recording and distribution of music. With the advent of low- cost digital recording and online distribution, however, virtu- ally anyone can now produce and distribute music. Lowering barriers to entry and leaping over the bound- aries that separate and define markets are two recurring themes of business innovation and disruption. Given the rate of change in today’s business world, companies can find themselves under attack from competitors they never imag- ined. Google and Amazon illustrate this in startling ways. Google started out as a search engine, but the conglomerate of companies it grew into (called Alphabet) now competes or The market for jetliners has such huge barriers to entry that only a handful of companies can pull together the resources to compete in plans to compete in such diverse areas as operating systems, this sector. home automation, self-driving cars, health care, AI, and even urban planning.8 Amazon started out as a bookstore and now competes in just about every sector of online retailing and is also a major player in cloud computing services (essentially renting computing capacity to other companies), television and movie pro- duction, online music, brick-and-mortar grocery retailing, video games, consumer elec- tronics, and shipping and delivery services through its vast network of ocean, air, and road transport capacity.9 CHECKPOINT LEARNING OBJECTIVE 3: Discuss the five major environments in which every business operates. SUMMARY: Business influences and is influenced by (1) the social environment—the trends and forces in society at large; (2) the technological environment and its ability to create and destroy markets and alter business processes; (3) the economic environment— the conditions and forces that affect the cost and availability of goods, services, and labor and thereby shape the behavior of buyers and sellers; (4) the legal and regulatory environ- ment, composed of all the rules and regulations relating to business activities; and (5) the market environment, composed of target customers, buying influences, and competitors.  C H AP T ER 1 Developing a Business Mindset 61 CRITICAL THINKING: (1) Is it wise for cities and states to compete with each other to be more business friendly, specifically with regard to lower tax rates on businesses? Why or why not? (2) Even though it never sells directly to consumers, does a company such as Boeing need to pay attention to population trends? Why or why not? IT’S YOUR BUSINESS: (1) How has technology made your educational experience in college different from your experience in high school? (2) In what ways are you a mar- ket influencer? Do your buying choices and recommendations affect the decisions of other consumers? KEY TERMS TO KNOW: social environment, stakeholders, technological environment, economic environment, gig economy, legal and regulatory environment, market environment, barriers to entry Identifying the Major Functional Areas in a 4 LEARNING OBJECTIVE Business Enterprise Explain the purpose of the six major functional areas in a Throughout this course, you’ll have the opportunity to learn more about the major func- business enterprise. tional areas within a business enterprise. In the meantime, the following sections offer a brief overview to help you see how all the pieces work together (see Exhibit 1.6). Not every firm has all these functions, and some give them different names, but these six are the basic building blocks of business in general. EXHIBIT 1.6 Major Functional Areas in a Business Enterprise The functional areas in a business coordinate their efforts to understand and satisfy customer needs. Note that this is a simplified model, and various companies organize their activities in different ways. Accounting (monitors, controls, and reports on spending) Marketing Strategy Production, Sales Operations Finance (plans for Customer and Customer Support provides funds) Marketing R&D Research Product Planning Human Resources (supports all other functional areas) Business Services (performs a variety of specialized functions)  62 PART ON E Setting the Stage: The Business of Business RESEARCH AND DEVELOPMENT research and development Products are conceived and designed through research and development (R&D), some- (R&D) times known as product design or engineering. Of course, not all companies have an R&D Functional area responsible for function; many companies simply resell products that other firms make, for example. How- conceiving and designing new ever, for companies that do develop products, R&D is essential to their success because it products. provides the ideas and designs that allow these firms to meet customer needs in competitive markets. Companies that rely heavily on science and technology must devote considerable resources to ongoing R&D. Firms can also engage in process R&D to design new and better ways to run their operations. MANUFACTURING, PRODUCTION, AND OPERATIONS Variously called manufacturing, production, or operations, this function concerns whatever the company makes (for goods-producing businesses) or does (for service businesses). In addi- tion to supervising the actual production activity, operations managers are responsible for a wide range of other strategies and decisions, including purchasing (arranging to buy the necessary materials for manufacturing), logistics (coordinating the incoming flow of materi- als and the outgoing flow of finished products), and facilities management (everything from planning new buildings to maintaining them). Chapter 9 explores operations management in more detail. MARKETING, SALES, DISTRIBUTION, AND CUSTOMER SUPPORT Your experience as a consumer probably gives you more insight into marketing, sales, distribution, and customer support than any other functional area in business. Although the lines sepa- rating these three activities are often blurry, generally speak- ing, marketing is charged with identifying opportunities in the marketplace, working with R&D to develop products to address those opportunities, creating branding and advertising strategies Rawpixel.com/Shutterstock to communicate with potential customers, and setting prices. The sales function develops relationships with potential custom- ers and persuades customers to buy the company’s goods and services. The distribution function is responsible for delivering products to customers (if a company sells directly to its cus- tomers) or to intermediaries such as retailers (if it relies on these business partners to deliver products to end customers). After Work in marketing encompasses a wide range of strategic and products are in buyers’ hands, customer support goes to work, tactical activities, from defining new products to generating creative making sure customers have the support and information they ideas for advertising. need in order to be successful. You’ll read more about all these functions in Chapters 12 through 14. FINANCE AND ACCOUNTING The finance and accounting functions ensure that the company has the funds it needs in order to operate, control how those funds are spent, and write reports for company man- agement and outside audiences such as investors and government regulators. Roughly speaking, financial managers are responsible for planning and funding, whereas accounting managers are responsible for monitoring and reporting. Accounting specialists work closely with other functional areas to ensure profitable decision-making. For instance, accountants coordinate with the R&D and production departments to estimate the manufacturing costs of a new product and then work with the marketing department to set the product’s price at a level that allows the company to be competitive while meeting its financial goals. Chapters 15 and 16 address accounting and finance.  C H AP T ER 1 Developing a Business Mindset 63 HUMAN RESOURCES As you’ll read in Chapter 11, the human resources (HR) function is responsible for recruiting, hiring, developing, and supporting employees. Like finance and accounting, HR supports all the other functional areas in the enterprise. Although managers in other areas are usually closely involved with hiring and training the employees in their respective departments, HR generally oversees these processes and supports the other departments as needed. The HR department is also charged with making sure the company is in compliance with the many laws concerning employee rights and workplace safety. BUSINESS SERVICES In addition to these core functions, a wide variety of business services exist to help compa- nies with specific needs in law, banking, real estate, and other areas. These services can be performed by in-house staff, external firms, or a combination of the two. For example, a company might have a small permanent legal staff to handle routine business matters such as writing contracts but then engage a specialist law firm to help with a patent application or a major lawsuit. Similarly, all but the smallest companies have accounting professionals on staff to handle routine matters, but companies that sell shares of stock to the public are required to have their financial records audited (reviewed) by an outside accounting firm. CHECKPOINT LEARNING OBJECTIVE 4: Explain the purpose of the six major functional areas in a business enterprise. SUMMARY: (1) Research and development (R&D) creates the goods and services that a company can manufacture or perform for its customers. (2) Manufacturing, production, or operations is the part of the company where the firm makes whatever it makes or performs whatever services it performs. (3) The related group of functions in marketing, sales, distribution, and customer support are responsible for identifying market opportunities, crafting promotional strategies, and making sure customers are supplied and satisfied with their purchases. (4) Finance and accounting plan for the company’s financial needs, control spending, and report on financial matters. (5) Human resources recruits, hires, develops, and supports employees. (6) Various business services provide expertise in law, real estate, and other areas. CRITICAL THINKING: (1) Do companies that deliver services rather than creating tangible goods ever need to engage in research and development? Why or why not? (2) Why is good customer support essential to the success of marketing and sales activities? IT’S YOUR BUSINESS: (1) Think of a strongly positive or strongly negative experience you’ve had with a product or company. What feedback would you like to give the company, and to which functional area would you direct your feedback? (2) Have you already chosen the functional area where you want to work after graduation? If so, what led you to that choice? KEY TERMS TO KNOW: research and development (R&D) Exploring Careers in Business 5 LEARNING OBJECTIVE Whether you’re getting ready to start your career or you’ve been in the workforce for a Summarize seven of the while, use this course as an opportunity to explore the many career track options in the most important business world of business. To help stimulate your thinking, this section offers a quick overview of professions. seven major business fields.10 However, don’t limit yourself to these seven by any means. For just about any professional interest you might have, you can probably find a business- related career to pursue, from entertainment and sports to health care and sciences and  64 PART ON E Setting the Stage: The Business of Business everything in between. Also, pay attention to employment trends; as the business environ- ment evolves, employment opportunities in various fields grow and shrink at different rates. OPERATIONS MANAGER operations management Operations management encompasses all the people and processes used to create the Management of the people and goods and perform the services that a company sells. The work can involve a wide range processes involved in creating of tasks and disciplines, including production engineering, assembly, testing, scheduling, goods and services. quality assurance, information technology, forecasting, finance, logistics, and customer support. Some degree of technical acumen is always required, and many operations manag- ers begin their careers in technical positions such as industrial engineering. The work can be demanding as the organization deals with fluctuating demand levels and with process and supply problems. On the other hand, if you want to balance your business interests with being involved in creating a company’s products, one of these man- agement positions might be perfect for you. HUMAN RESOURCES SPECIALIST HR specialists and managers plan and direct personnel-related activities, including recruit- ing, training and development, compensation and benefits, employee and labor relations, and health and safety. HR managers develop and implement systems and practices to accom- modate a firm’s strategy and to motivate and manage diverse workforces. HR also oversees talent management efforts, making sure the company can attract, develop, and retain people with the types of talent the company needs in order to compete in its chosen markets. INFORMATION TECHNOLOGY MANAGER Every company relies on timely, accurate information across all functional areas, and get- ting information to the right people via computer and communication systems is the job information technology (IT) of the information technology (IT) function. IT is such an important function in today’s A functional area of business as business environment that many corporations have a top-ranking executive known as a well as the systems responsible chief technology officer (CTO) or chief information officer (CIO) in charge of IT strategy. Jobs in IT for gathering, processing, and typically require a degree in a technical field, but an understanding of business processes, distributing information where finance, and management is also important, particularly as you move up through the ranks needed throughout an of IT management. A master of business administration (MBA) is expected for IT managers organization. in many organizations. MARKETING SPECIALIST A wide range of career opportunities exist in the interrelated tasks of identifying and understanding market opportunities and shaping the product, pricing, and communication strate- gies needed to pursue those opportunities. Whether your inter- ests lie in branding strategy, online retailing, advertising, public relations, creative communication, interpersonal relations, or social media, chances are you can find a good fit somewhere in the world of marketing. Oleksiy Mark/Shutterstock Many small companies and virtually all midsize and large companies have a variety of marketing positions, but many of these jobs are also found in advertising agencies, public rela- tions (PR) firms, and other companies that offer specialized services to clients. Some marketing jobs are highly specialized (advertising copywriter and e-commerce architect, for instance), Information technology managers are responsible for the systems whereas others encompass many aspects of marketing (brand that collect, process, and distribute vital information throughout the managers, for example, deal with a variety of marketing and organization. sales functions).  C H AP T ER 1 Developing a Business Mindset 65 SALES PROFESSIONAL If you thrive on competition, enjoy solving problems, and get energized by working with a wide range of people, you should definitely consider a career in sales, becoming one of the professionals responsible for building relationships with customers and helping them make purchase decisions. As a consumer, your exposure to sales might be limited to the retail sector of professional selling, but the field is much more diverse. Salespeople sell everything from design services to pharmaceuticals to airliners, and many become valued advisers to their business clients. Many salespeople enjoy a degree of day-to-day freedom and flexibility not usually found in many other careers. On the other hand, the pressure can be intense; few jobs have the immediate indicators of success or failure that sales has, and most salespeople have specific targets, or quotas, they are expected to meet. ACCOUNTANT If working at the intersection of mathematics and business sounds appealing, a career in accounting or finance could be just right for you. Accounting tasks vary by job and industry, but in general, management accountants are responsible for col- lecting, analyzing, and reporting on financial matters, such as analyzing budgets, assessing the manufacturing costs of Image Source/Alamy Stock Photo new products, and preparing state and federal tax returns. Internal auditors verify the work of the company’s accounting effort and look for opportunities to improve efficiency and cost-effectiveness. Public accountants offer accounting, tax preparation, and investment advice to individuals, compa- nies, and other organizations. External auditors verify the financial reports of public companies as required by law, and forensic accountants investigate financial crimes. Accounting professionals need to have an affinity for Sales can be a highly rewarding career path for motivated profession- numbers, analytical minds, and attention to detail. Their als who enjoy taking on challenges and working with people. work can have wide-ranging effects on investors, employees, and executives, so accuracy and timeliness are critical. Communication skills are important in every accounting function. Computer skills are also increasingly impor- tant, particularly for accountants involved with the design or operation of financial information systems. FINANCIAL MANAGER Financial managers perform a variety of leadership and strategic functions. Controllers over- see the preparation of income statements, balance sheets, and other financial reports; they frequently manage accounting departments as well. Treasurers and finance officers have a more strategic role, establishing long-term financial goals and budgets, investing the firm’s funds, and raising capital as needed. Other financial management positions include credit managers, who supervise credit accounts established for customers, and cash managers, who monitor and control cash flow. Unlike accounting tasks, for which there is a long tradition of outsourcing work to independent accounting firms, the work of financial managers is generally kept in-house, particularly in midsize and large companies. The work of a financial manager touches every part of the company, so a broad understanding of the various functional areas in business is a key attribute for this position. The ability to communicate with people who aren’t financial experts is also vital. Moreover, awareness of information technology developments is important for chief financial officers (CFOs) and other top financial man- agers so that they can direct their companies’ investments in new or improved systems as needed. 66 PART ON E Setting the Stage: The Business of Business CHECKPOINT LEARNING OBJECTIVE 5: Summarize seven of the most important business professions. SUMMARY: (1) Operations managers oversee all the people and processes involved in creating the goods and services that a company sells. (2) HR specialists and managers plan and direct HR activities such as recruiting, training and development, compensation and benefits, employee and labor relations, and health and safety. (3) IT managers oversee the design, implementation, and maintenance of systems that help deliver the right information at the right time to the right people in the organization. (4) Marketing specialists perform one or more tasks involved in identifying and under- standing market opportunities and shaping the product, pricing, and promotional strategies needed to pursue those opportunities. (5) Sales professionals build relation- ships with customers and help them make purchase decisions. (6) Accountants collect, analyze, and report on financial matters; they also perform audits to verify financial reports or find ways to lower costs. (7) Financial managers plan for the company’s financial needs, invest funds, and raise capital. CRITICAL THINKING: (1) Why are communication skills essential in all seven of the functional areas discussed in this section? (2) Why would financial managers be in a good position to rise up the company ladder? IT’S YOUR BUSINESS: (1) Which of these seven general career areas appeals to you the most? Why? (2) If you eventually plan to start your own company but want to gain experience working in a corporation first, which of these career paths would you choose? Why? KEY TERM TO KNOW: operations management, information technology (IT) 6 LEARNING OBJECTIVE Achieving Professionalism Identify six components of As you map out your career, think about what kind of businessperson you want to be. Will professionalism. you be someone who just puts in the hours and collects a paycheck? Or will you be someone who performs on a higher plane, someone who wants to make a meaningful contribution professionalism and be viewed as a true professional? Professionalism is the quality of performing at a high The quality of performing at a level and conducting oneself with purpose and pride. True professionals exhibit six distinct high level and conducting oneself traits: striving to excel, being dependable and accountable, being a team player, demonstrating with purpose and pride. a sense of etiquette, communicating effectively, and making ethical decisions (see Exhibit 1.7). STRIVING TO EXCEL Pros are good at what they do, and they never stop improving. No matter what your job might be at any given time—even if it is far from where you aspire to be—strive to per- form at the highest possible level. Not only do you have an ethical obligation to give your employer and your customers your best effort, but excelling at each level in your career is the best way to keep climbing upward to new positions of responsibility. Plus, being good at what you do delivers a sense of satisfaction that is hard to beat. In many jobs and in many industries, performing at a high level requires a commitment to continuous learning and improvement. The nature of the work often changes as markets and technologies evolve, and expectations of quality tend to increase over time as well. View this constant change as a positive thing, as a way to avoid stagnation and boredom. BEING DEPENDABLE AND ACCOUNTABLE Develop a reputation as somebody people can count on. This means meeting your com- mitments, including staying on schedule and staying within budgets. These are skills that take some time to develop as you gain experience with the amount of time and money  C H AP T ER 1 Developing a Business Mindset 67 EXHIBIT 1.7 Elements of Professionalism To develop a reputation as a true professional, develop these six attributes—and keep improving as you progress through your career. Be dependable Be the best Pros keep their promises, meet their commitments, Pros strive to excel, and excelling at learn from their mistakes, every level is how you bulid a and take responsibility great career. for their errors. Be ethical Responsible pros work to avoid ethical lapses Be a and weigh their options carefully when facing team player ethical dilemmas. Pros know how to contribute to a larger cause and make others around them better. Be clear Communication is the Be respectful single most important Good business etiquette is a sign business skill you can of respect for those around you; develop. respecting others is not only good―it’s good for your career. required to accomplish various tasks and projects. With experience, you’ll learn to be cau- tious with your commitments. You don’t want to be known as someone who overpromises and underdelivers. Being accountable also means owning up to your mistakes and learning from failure so that you can continue to improve. Pros don’t make excuses or blame others. When they make mistakes—and everybody does—they face the situation head on, make amends, and move forward. BEING A TEAM PLAYER Professionals understand that they are contributors to a larger cause, that it’s not all about them. Just as in athletics and other team efforts, being a team player in business is something of a balancing act. On the one hand, you need to pay enough attention to your own efforts and skills to make sure you’re pulling your own weight. On the other hand, you need to pay attention to the overall team effort to make sure the team succeeds. Remember that if the team fails, you fail, too. Great team players know how to make those around them more effective, whether it’s lending a hand during crunch time, sharing resources, removing obstacles, making intro- ductions, or offering expertise. In fact, the ability to help others improve their performance is one of the key attributes executives look for when they want to promote people into management. Being a team player also means showing loyalty to your organization and protecting your employer’s reputation—one of the most important assets any company has. Pros don’t  68 PART ON E Setting the Stage: The Business of Business trash their employers in front of customers or on social media. When they see a problem, they solve it; they don’t share it. DEMONSTRATING ETIQUETTE etiquette A vital element of professionalism is etiquette, the expected norms of behavior in any The expected norms of behavior particular situation. The way you conduct yourself, interact with others, and handle in any particular situation. conflict can have a profound influence on your company’s success and on your career. When executives hire and promote you, they expect your behavior to promote internal harmony and protect the company’s reputation. The more you understand such expec- tations, the better chance you have of avoiding career-damaging mistakes. Moreover, etiquette is an important way to show respect for others and contribute to a smooth- running workplace. Researchers cite the fast pace of change, overwhelming workloads, and the depersonal- izing effects of digital communication as key reasons for rude behavior in the workplace. Unfortunately, surveys indicate that incidences of workplace rudeness have been increas- ing in recent years, and many workers and managers are unaware of how their unwelcome behavior affects others.11 Poor etiquette is a serious business issue, as a toxic workplace can lower productivity, damage important working relationships, and even endanger people’s long-term health.12 Everyone is responsible for maintaining workplace civility, but manag- ers have a particular responsibility to make good hiring decisions and set positive examples through their own behavior. Long lists of etiquette “rules” can be overwhelming, and you’ll never be able to memo- rize all of them. Fortunately, you can count on three principles to get you through any situation: respect, courtesy, and common sense. Moreover, following these principles will encourage forgiveness if you do happen to make a mistake. As you prepare to encounter a new situation, whether it’s engaging with senior executives for the first time or traveling to another country on business, take some time to learn the expectations of the other people involved. Don’t be afraid to ask questions, either. People will respect your concern and curiosity. You will gradually accumulate considerable knowledge, which will help you feel comfortable and be effective in a wide range of business situations. COMMUNICATING EFFECTIVELY If you’re looking for a surefire way to stand out from your com- petition and establish yourself as a competent professional, improving your communication skills may be the most impor- tant step you can take. Follow these guidelines to improve your effectiveness as a communicator: wavebreakmedia/Shutterstock