Business Administration

Unit 1

Business and Its Environment

Chapter 1 – Characteristics of Business

Controversial IssueIn order to protect U.S. businesses from foreign competitors, should the federal government provide financial aid that would enable troubled businesses to survive?

Own you own– 3-5 reasons for yes– 3-5 reasons for no

Book – Read Page 3 – Income vs. Outgo: A Delicate Balance

Business/Profit

Business– Organization that produces or distributes a

good or service for profit

Profit– Difference between earned income and costs

3 Activities

Every business engages in 3 activities:– Production– Marketing– Finance

Production

Making a product– Manufacturing firms produce goods

• U.S. Steel / Johnson & Johnson

Providing a service– Assistance to satisfy specialized needs through

skilled workers• Doctor / Accountant / Taxi Driver

Service firms far outnumber mfg. firms

Marketing

How goods/services are exchanged between producer & consumer– Advertising– Transportation

Finance

All money matters related to running a business– Money for Big Mac– Accounting records

Supply / Demand

Supply– # of similar products offered for sale at

particular time for particular price

Demand– # of similar products bought at given time at

given price

? ? ? ? ? ? ? ?

Manufacturing or Service?

1. Watch repair shop

2. Jewelry made by group of Native Americans

3. Someone who mows lawns

4. Shop making minute timers

2 Types of Businesses

Industrial

Commercial

Industrial

Produce goods used by other businesses to make things– Mine ore for metal– Construct buildings for businesses– Chemical company

Third world nations have few mfg. firms – generally poor

Commercial

Marketing– Wholesalers & Retailers

Finance– Banks & Investment Companies

Services– Intangible – labor intensive

• Mowing lawns, accountants, plane ride

Industry

Refers to all businesses within a category– Publishing Industry

• Produce & sell books• Magazines• Newspapers• Printed documents prepared by authors

Global Competition

Ability to compete with businesses in other countries– Other countries have industrialized– Americans purchasing foreign goods

• Efficient, greater variety, lower prices– American businesses had to change

Global competition is the force behind major decisions of large companies today

Effectiveness

Decisions about products/services to offer, produce & deliver– What customers want

Domestic good– Made in U.S.

Foreign good– Made in another country

TQM

Total Quality Management–Commitment to excellence–Teamwork & continual improvement–Training from experts–Customers get well-made products–Learned lessons on quality from

Japanese

Efficiency

Producing goods/services quickly @ low cost while maintaining quality– Output

• Quantity produced within given time

– Productivity• Producing largest quantity in least time

using efficient methods & modern equipment

Malcolm Baldridge

National quality award– Managed by federal government– Hundreds apply for this award

• Winners have an upturn in demand for products

– Deming Award• Japanese award, named for an American

? ? ? ? ? ? ?

Fastest student to finish exam, but receives lowest grade:

1. Effective & efficient

2. Effective but inefficient

3. Ineffective but efficient

4. Ineffective & inefficient

3 Ways To Efficiency

Specialization of effort

Better technology & innovation

Reorganization

Specialization

Specialize in an area–Expert in assigned tasks

Mass Production–Up-to-date equip. & assembly lines

• Computers & Robots–Large quantities of identical goods–Costs decrease to consumers

Technology & Innovation

Technology includes– Equipment, manufacturing processes &

materials• Better quality goods/services• Built faster at lower cost• Materials that weigh less & last longer

– Kevlar

– Technology = staying ahead of competitors

Technology & Innovation

Innovation–Development of new ideas, products

& processes–Transform creativity into

• High-quality products/services• Cost-saving benefits

Reorganization

Late 70’s to early 90’s–Companies had slow growth–Competition from other nations

Downsize–Cutting back goods/services &

employees–Needed better way to compete

Reorganization

Empowerment– Workers decide how to perform their jobs,

ideas on improving processes– Drastically changed role of workers

• Past – narrow tasks, little decision making• Improved quality of work & efficiency• Fewer managers due to skilled workers

Reorganization

Re-engineering– Assembly lines

• Steps eliminated, abbreviated, or given to employees

– Customer complaints decreased– Well-trained workers– Most major firms adopted these practices

Text Book

Read page 12 – Business Innovation

GDP

Gross Domestic Product– Total market value of all goods/services

produced in a country in a year– 1st measure of economic wealth

• Compare year-year & to other countries

– Purchased $ amount reported to gvt.• $8.8 trillion in recent years

GDP

Underground Economy– Income that escapes being recorded

in GDP–Transactions not recorded or illegal

• Lawn mower, babysitter, drug dealer

–Not reported: 5% (brisk economy) to 20% (lagging economy)

Fact

Joint agreements between domestic & foreign firms– Ford & Mazda make parts/cars for other

Difficult to classify a product domestic– Honda Civic made in U.S., parts made in

Japan & Canada

Entrepreneurship

Entrepreneur– Person who starts, manages & owns a

business– Few gvt. Controls prevent starting a

business– New businesses may have:

• Physical facility (store), individual working in home office, internet business

Small Business

Business operated by one or a few– Few employees

• Gas station, bakery, restaurant– Computers – easy to work from home

• Consultants – e-mail• Craftspeople – sell on internet

– Many earn less than $250,000 in yearly revenue

Franchise Business

Legal agreement where distributor buys rights to sell franchising company’s product/service under company’s name & trademark– McDonald’s, Pizza Hut, Sir Speedy

Franchisor – parent companyFranchisee – distributor of franchised product/service

Franchise Business

Franchise agreement usually includes initial fee to franchisor and % of weekly sales (3-8%)

Franchisee gets in return–Help selecting location, exclusive

rights to sell in specific geographic area, training & advice

Franchise Business

5-10% fail – far less than non-franchised businessesCheck-out franchisorEmployee over 8 million peopleAccount for ½ retail store salesApproximately 12% of all businesses are franchises

In-Class Work

On the internet, look up a franchise business you might be interested in buyingDetermine costs and location availabilityPrint out a copyShare with class

Risks of Ownership

Managerial effectiveness– Earn adequate income– Pay all expenses & earn a profit

Entrepreneur assumes risk of success or failure– Risk

• Competition, changes in price & style, economic conditions

Risks of Ownership

Businesses fail for many reasons–1 out or 4-5 fail within 3 years–½ close within 6-7 years

• Some voluntarily close–Sell to another

–Economic & financial factors cause failure

Controversial Issue

Because the failure rate among new businesses is high, should potential entrepreneurs be required to pass a test on how to run a businesses?

On your own…– 3-5 reasons for yes– 3-5 reasons for no

Intrapreneurship

Employee given funds & freedom to create a special unit/department in company to develop new product/process/service–Main company finances venture

• Intrapreneurs have freedom to run “business” with little or no interference

Intrapreneurship

Employees benefit– Don’t risk salary or savings– Innovative abilities & skills are

encouraged

Employers benefit– Keep creative employees, could be

competition otherwise– New, better products introduced

Fact

3M encourages employees to experiment–Post-It notes were invented due to

this company policy

ESOP

Employee Stock Ownership Plan–Employees directly own the company

by buying shares in it–Companies obtain funds

• Employees highly motivated

–ESOP’s show increased productivity

Group Work

Text Book–Page 26-28 – Solve Business Problems

• 3-4 students in a group• Case 1-1 – 5 questions• Case 1-2 – 4 questions• Check if done• Review in class

Individual Work

Work Book–Page 1 & 2 – Study Guide

• Turn in for grade

–Pages 4-5-6-7 – Problems• Check if done• Review in class

End of Chapter 1