Chapter 01 Taking Risks and Making Profits in Business PDF

Chapter 01 Taking Risks and Making Profits within the Dynamic Business Environment McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter One LEARNING...

Chapter 01 Taking Risks and Making Profits within the Dynamic Business Environment McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter One LEARNING GOALS 1. Describe the relationship between profit and risk, and show how businesses and nonprofits can raise the standard of living for all. 2. Compare and contrast being an entrepreneur and working for others. 3. Analyze the effects of the economic environment and taxes on businesses. 4. Describe the effects of technology on businesses. 1-2 Chapter One LEARNING GOALS 5. Demonstrate how businesses can meet and beat competition. 6. Analyze the social changes affecting businesses. 7. Identify what businesses must do to meet global challenges, including war and terrorism. 8. Review how past trends are being repeated in the present and what those trends mean for tomorrow’s college graduates. 1-3 Entrepreneurship and Wealth Building GOODS and SERVICES LG1 Goods -- Tangible products such as computers, food, clothing, cars and appliances. Services -- Intangible products (that can’t be held in your hand) like education, healthcare, insurance, recreation and travel. Successfully filling a market need means you could make money for yourself and provide jobs for others. 1-4 Entrepreneurship and Wealth Building BUSINESS and LG1 ENTREPRENEURSHIP Business -- Any activity that seeks to provide goods and services to others while operating at a profit. Entrepreneur -- A person who risks time and money to start and manage a business. Success in business is often based on the strategy of finding a need and filling it. 1-5 Revenues, Profits and Losses REVENUE, PROFIT AND LOSS LG1 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 -- Occurs when a business’s expenses are more than its revenues. 1-6 Matching Risk with Profit RISK LG1 Risk -- The chance an entrepreneur takes of losing time and money on a business that may not prove profitable. Not all businesses make the same amount of profit. Businesses take risks, but with great risks could come great profit. 1-7 Businesses Add to the Standard of Living and Quality of Life HOW is TAX MONEY USED? LG1 Taxes are used to provide: Hospitals Schools Libraries Playgrounds Roads Fire Protection Police Protection Environmental Programs Support for People in Need 1-8 Businesses Add to the Standard of Living and Quality of Life STANDARD of LIVING LG1 Standard of Living -- The amount of goods and services people can buy with the money they have. The U.S. 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. Photo courtesy of Walmart Stores 1-9 Businesses Add to the Standard of Living and Quality of Life QUALITY of LIFE LG1 Quality of Life -- The general well-being of a society in terms of its political freedom, natural environment, education, healthcare, safety, amount of leisure and rewards that add to personal satisfaction. 1-10 Responding to the Various Business Stakeholders STAKEHOLDERS LG1 Stakeholders -- All the people who stand to gain or lose by the policies and activities of a business and whose concerns the businesses need to address. Who are Stakeholders? - Customers - Community Members - Employees - Media - Stockholders - Elected Officials - Suppliers - Bankers - Dealers - Environmentalists 1-11 Responding to the Various Business Stakeholders OUTSOURCING LG1 and INSOURCING Outsourcing -- Contracting with other companies (often in other countries) to do some of the firm’s functions, like production or accounting. Insourcing -- Foreign companies opening offices and factories in the United States. 1-12 Using Business Principles in Nonprofit Organizations NONPROFIT ORGANIZATIONS LG1 Nonprofit Organization -- An organization whose goals do not include making a personal profit for its owners or organizers. 1-13 Using Business Principles in Nonprofit WELL-KNOWN NONPROFITS Organizations LG1 in the UNITED STATES United Way American Heart Association Salvation Army American Cancer Society American Red Cross 1-14 Using Business Principles in Nonprofit KEEPING STRONG EMPLOYEES Organizations LG1 at NONPROFITS 1. Set ambitious, but realistic goals. 2. Allow all employees to work with the groups they are serving. 3. Give employees a break. Nonprofit work is draining. Source: Fast Company, March 2010. 1-15 Progress Assessment PROGRESS ASSESSMENT What’s the difference between revenue and profit? What’s the difference between standard of living and quality of life? What’s risk? How is it related to profit? What do the terms stakeholders, outsourcing and insourcing mean? 1-16 Entrepreneurship Versus Working for Others THE UPS and DOWNS LG2 of ENTREPRENEURSHIP The UPS The DOWNS The freedom to succeed. The freedom to fail. Make your own decisions. No paid vacations. High possibility of wealth. No health insurance. Hire your own staff. No daycare. 1-17 Opportunities for Entrepreneurs WHO TAKES the LG2 ENTREPRENEURIAL CHALLENGE? Millions of people have started businesses and succeeded. The number of Hispanic- owned businesses in the U.S. has grown dramatically. Women now own one-third of all businesses. 1-18  NETWORKING of MINORITY BUSINESSES (Spotlight on Small Business) Carol’s Daughter, a company that creates and sells hair care and beauty products, was started by Lisa Price. Price experimented with fragrances in her Brooklyn kitchen. Through networking, Price found investors like Will Smith and Jay-Z. 1-19 The Importance of Entrepreneurs to the Creation of Wealth FIVE FACTORS of PRODUCTION LG2 1. Land 2. Labor 3. Capital 4. Entrepreneurship 5. Knowledge Entrepreneurs use what they’ve learned to grow their businesses and increase wealth. 1-20 FIVE FACTORS of PRODUCTION Progress Assessment PROGRESS ASSESSMENT What are some of the advantages of working for others? What benefits do you lose as an entrepreneur, and what do you gain? What are the five factors of production? Which ones seem to be the most important for creating wealth? 1-22 The Business Environment WHAT is the LG3 BUSINESS ENVIRONMENT? 1-23 The Economic and Legal Environment GOVERNMENT’S ROLE LG3 in BUSINESS Government can promote business by… 1.Minimizing spending and keeping taxes and regulations to a minimum. 2.Allowing private ownership of businesses. 3.Minimizing interference with the free exchange of goods and services. 4.Passing laws that enable businesspeople to write enforceable contracts. 5.Establishing a currency that’s tradable in world markets. 6.Minimizing corruption. 1-24 The Economic and Legal Environment CORRUPTION WORLDWIDE LG3 Least Corrupt Most Corrupt 1.Denmark 1.Somalia 2.New Zealand 2.Myanmar 3.Singapore 3.Afghanistan 4.Finland 4.Iraq 5.Sweden 5.Uzbekistan Source: Transparency International, June 2011. 1-25  ETHICS BEGINS with YOU (Making Ethical Decisions) The number of employees calling in sick has reached a five-year high. 3/5 of all callers were not even sick. Others conduct personal business at work, play video games and check their Facebook pages while at work. What is the problem with this situation? What are the alternatives? What are the consequences of each alternative? What path would you choose? Is it ethical? 1-26 How Technology Benefits Workers and You BENEFITS of TECHNOLOGY LG4 Technology -- Everything from phones to copiers and the various software programs that make businesses more effective, efficient and productive. 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 (example: hours you work). 1-27  JCPENNEY KEEPS in TOUCH (Social Media in Business) To reach the 18-35 year old demographic, J.C. Penney incorporated Twitter and Facebook into their Spring ad campaign. Company’s Facebook page included a “Shop Like a Celebrity” sweepstakes. Company’s Twitter feed contained fashion trivia. 1-28 The Growth of E-Commerce E-COMMERCE LG4 E-Commerce -- The buying and selling of goods on the Internet. - B2C: Business to Consumer - B2B: Business to Business 1-29 Using Technology to Be Responsive DATABASES LG4 and IDENTITY THEFT 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. Photo courtesy of Jack Spade 1-30 The Competitive Environment USING EMPOWERMENT LG5 to COMPETE in TODAY’S MARKET Customers want quality products at a good price with excellent customer service. Because business is more customer-driven, some managers give frontline employees more decision-making power. Empowerment -- Giving frontline workers the responsibility, authority, and freedom to respond quickly to customer requests. 1-31 The Social Environment DEMOGRAPHY LG6 Demography -- The statistical study of the population in terms of size, density and characteristics like, age, race, gender and income. 1-32 The Global Environment IMPORTANT CHANGES to the LG7 GLOBAL ENVIRONMENT 1. Growth of global competition. 2. Increase of free trade among nations. 3. Development of efficient distribution systems. 4. Advances in communication systems. 1-33 The Global Environment WORLD’S LARGEST CITIES LG7 BACK in the DAY and TODAY 1950 2010 City Population City Population New 12.34 million Tokyo 36.67 million York/Newark Tokyo 11.27 million New Delhi 22.16 million London 8.36 million São Paulo 20.26 million Paris 6.52 million Mumbai 20.04 million Moscow 5.36 million Mexico City 19.46 million Source: The Economist, February 19, 2011. 1-34 The Ecological Environment GLOBAL GREENING LG7 Climate Change -- Movement of the temperature of the planet up or down over time. Greening -- Trend toward saving energy and producing products that cause less harm to the environment. Many companies like GE, Coca-Cola, British Airways and Shell are adopting green practices. 1-35  GETTING INVOLVED PERSONALLY (Thinking Green) It’s not necessary to radically change your lifestyle to make an ecological difference. Here are a few ways you can make small changes to help. Buy a reusable grocery bag. Buy energy efficient light bulbs. Recycle more. Drive fewer miles or ride your bike. Use less water. Run less electrical equipment. Buy local produce. Buy a hybrid car. 1-36 Progress Assessment PROGRESS ASSESSMENT What are four ways the government can foster entrepreneurship? What’s the difference between effectiveness, efficiency and productivity? What’s empowerment? What are some of the major issues affecting the economy today? 1-37 The Evolution of U.S. Business The EVOLUTION of BUSINESS LG8 Agriculture Era Manufacturing Era Service Era Information-Based Era 1-38 Progress in the Agricultural Industry The AGRICULTURAL ERA LG8 In the 1800s, the agricultural industry led economic development. Technology, like the harvester and cotton gin, changed the farming industry making it more efficient. This led to fewer farmers with larger farms. 1-39 Progress in the Manufacturing Industry The MANUFACTURING ERA LG8 Industrialization in the 19th and 20th centuries moved jobs from farms to factories. As technology improved productivity, fewer workers were needed in factories. 1-40 Progress in the Service Industry The SERVICE ERA LG8 Make up about 70% of the U.S. economy. Since the mid-1980s, the service industry generated almost all the increases in employment. More high-paying jobs in service industries. 1-41 Your Future in Business The INFORMATION LG8 TECHNOLOGY ERA IT affects: - Agriculture - Industry - Service 1-42 Progress Assessment PROGRESS ASSESSMENT What major factor caused people to move from farming to manufacturing and from manufacturing to the service sector? What does the future look like for tomorrow’s college graduates? 1-43