Business - An Introduction

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McGraw-Hill/IrwinUnderstanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

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Objectives of BusinessObjectives of Business

SurvivalSurvival

GrowthGrowth SocialSocialResponsibilityResponsibilityProfitProfit




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Basic ConceptsBasic Concepts

1.1. AA BUSINESS BUSINESS is any activity that seeks to provideis any activity that seeks to providegoods and services to others while operating at agoods and services to others while operating at aprofit.profit.

2.2. PROFIT PROFIT is the amount a business earns above andis the amount a business earns above and

beyond what it spends for salaries and other beyond what it spends for salaries and other expenses.expenses.

3. An3. An ENTREPRENEUR ENTREPRENEUR is a person who risks time andis a person who risks time andmoney to start and manage a business.money to start and manage a business.

Note: Businesses provide people with theNote: Businesses provide people with theopportunity to become wealthy. In addition,opportunity to become wealthy. In addition,businesses provide necessities such as food,businesses provide necessities such as food,housing, and medical care.housing, and medical care.




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Matching Risk w/Profit

Matching Risk w/Profit

1.1. Profit is revenue minus expenses:Profit is revenue minus expenses:

$100k rev minus $70k exp is $30 profit$100k rev minus $70k exp is $30 profit

( ( PROFIT PROFIT is the amount a business earns above and beyondis the amount a business earns above and beyond

what it spends for salaries and other expenses.what it spends for salaries and other expenses.))

2.2. REVENUE REVENUE is the total amount of money ais the total amount of money a

business takes in during a given period bybusiness takes in during a given period byselling goods and services.selling goods and services.




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Matching Risk w/ProfitMatching Risk w/Profit3.3. AA LOSS LOSS occurs when a business¶s expenses areoccurs when a business¶s expenses are

more than its revenues.more than its revenues.4.4. Approximately 80,000 businesses in the U.S. failApproximately 80,000 businesses in the U.S. fail

each year, although this number may beeach year, although this number may beoverstated.overstated.

5.5. RISK RISK is the chance an entrepreneur takes of losingis the chance an entrepreneur takes of losingtime and money on a business that may not provetime and money on a business that may not proveprofitable.profitable.

6.6. REWARDS AND RISK ARE RELATED.REWARDS AND RISK ARE RELATED.a.a. The more risks you take, the higher the rewardsThe more risks you take, the higher the rewards

may be.may be.b.b. As a potential business owner, you should doAs a potential business owner, you should doresearch to find the right balance between riskresearch to find the right balance between riskand profit. Risk is usually that associated withand profit. Risk is usually that associated withbankruptcy, etc.bankruptcy, etc.




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Businesses add to the standardBusinesses add to the standard

of living and quality of lifeof living and quality of life1.1.EntrepreneursEntrepreneurs PROVIDEPROVIDE

EMPLOYMENTEMPLOYMENT for other people.for other people.

2.2.They alsoThey also PAY TAXESPAY TAXES that are usedthat are usedfor schools, hospitals, and other for schools, hospitals, and other facilities.facilities.

3.3.Businesses are a part of an economicBusinesses are a part of an economicsystem that helps tosystem that helps to CREATE ACREATE AHIGHER STANDARD OF LIVING andHIGHER STANDARD OF LIVING andquality of lifequality of life for everyone.for everyone.




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The termThe term STANDARD OF LIVING STANDARD OF LIVING refers torefers tothe amount of goods and services peoplethe amount of goods and services people

can buy with the money they have.can buy with the money they have.

QUALITY OF LIFE QUALITY OF LIFE refers to the general wellrefers to the general well--being of a society in terms of politicalbeing of a society in terms of political

freedom, a clean natural environment,freedom, a clean natural environment,education, health care, free time, andeducation, health care, free time, andeverything else that leads to satisfactioneverything else that leads to satisfactionand joy.and joy.

Businesses add to the standard of Businesses add to the standard of

living and quality of lifeliving and quality of life




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Business StakeholdersBusiness Stakeholders1.1. STAKEHO LDERS STAKEHO LDERS are all the people who stand toare all the people who stand togain or lose by the policies and activities of again or lose by the policies and activities of a

business.business.2.2. Stakeholders include customers, employees,Stakeholders include customers, employees,

stockholders, suppliers, bankers, and people in thestockholders, suppliers, bankers, and people in thelocal community, environmentalists, and electedlocal community, environmentalists, and electedleaders.leaders.

3.3. The challenge for companies in the 21st century willThe challenge for companies in the 21st century willbe tobe to BALANCE, as much as possible, THE NEEDSBALANCE, as much as possible, THE NEEDSOF ALL STAKEHOLDERS.OF ALL STAKEHOLDERS.

4.4. Pleasing all shareholders is not easy and requiresPleasing all shareholders is not easy and requires

balancing many factors.balancing many factors.5.5. While providing what customers need, businessesWhile providing what customers need, businesses

must try to CAUSE MINIMAL DAMAGE TO THEmust try to CAUSE MINIMAL DAMAGE TO THENATURAL ENVIRONMENT.NATURAL ENVIRONMENT.




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Nonprofit OrganizationNonprofit Organization

Question: What is a notQuestion: What is a not--for for--profit?profit?Answer:Answer: AA NONPROFIT ORGANIZATION NONPROFIT ORGANIZATION is an organization whoseis an organization whose

goals do not include making a personal profit for its ownersgoals do not include making a personal profit for its ownersor organizers.or organizers.

Nonprofit organizations such as government agencies, publicNonprofit organizations such as government agencies, publicschools, charities, and social causes make a major schools, charities, and social causes make a major contribution to the welfare of society.contribution to the welfare of society.

You need the SAME SKILLS to work in nonprofit You need the SAME SKILLS to work in nonprofitorganizations that you need in business, includingorganizations that you need in business, includinginformation management, leadership, marketing, and financialinformation management, leadership, marketing, and financialmanagement.management.

Businesses, nonprofit organizations, and volunteer groupsBusinesses, nonprofit organizations, and volunteer groupsoften strive to ACCOMPLISH THE SAME OBJECTIVES.often strive to ACCOMPLISH THE SAME OBJECTIVES.

To accomplish these objectives, business must REMAINTo accomplish these objectives, business must REMAINCOMPETITIVE with the best businesses in the rest of theCOMPETITIVE with the best businesses in the rest of theworld.world.




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Creating Wealth:Creating Wealth:

Factors of ProductionFactors of Production

LandLand

Labor Labor

CapitalCapital

EntrepreneurshipEntrepreneurship

KnowledgeKnowledge




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Factors of ProductionFactors of ProductionExplain the importance of entrepreneurship to the wealth of anExplain the importance of entrepreneurship to the wealth of aneconomy.economy.

1.1. TheThe FACTORS OF PRODUCTION FACTORS OF PRODUCTION are the resources used toare the resources used tocreate wealth:create wealth:a.a. LANDLAND (or ³natural resources´.)(or ³natural resources´.)b.b. LABORLABOR (workers.)(workers.)c.c. CAPITALCAPITAL (e.g., machines, tools,(e.g., machines, tools,

and buildings; but not moneyand buildings; but not money²²money is used to buy factors of production.)money is used to buy factors of production.)

d.d. ENTREPRENEURSHIPENTREPRENEURSHIP..e.e. KNOWLEDGEKNOWLEDGE..

2.2. Some experts believe that the most important factor of Some experts believe that the most important factor of production is KNOWLEDGE.production is KNOWLEDGE.

3.3. What makes rich countries rich is not land, labor, or capital; it isWhat makes rich countries rich is not land, labor, or capital; it isa combination of entrepreneurship and the effective use of a combination of entrepreneurship and the effective use of knowledge.knowledge.

5.5. Entrepreneurship also helps make some states and cities richEntrepreneurship also helps make some states and cities richwhile others remain relatively poor.while others remain relatively poor.




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Business EnvironmentBusiness EnvironmentMeans the surrounding factors that either help of hinder theMeans the surrounding factors that either help of hinder thedevelopment of business; they are«..development of business; they are«..

o

Business

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om etitive

e no o

E onomi &

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Economic Legal EnvironmentEconomic Legal Environment

$$ Freedom of ownershipFreedom of ownership ± ±

People are willing to take the risk of starting aPeople are willing to take the risk of starting a

new business; Governments actively promotenew business; Governments actively promoteentrepreneurship; etc.entrepreneurship; etc.

$$ Tradable currencyTradable currency-- Gov¶tsGov¶ts

establish tradable currency, such the euro, etc.establish tradable currency, such the euro, etc.

$$Elimination of corruptionElimination of corruption ± ±

Gov¶t eliminate corruption within ranks, as wellGov¶t eliminate corruption within ranks, as well

as within companies (Enron, Wordcom, Tyco)as within companies (Enron, Wordcom, Tyco)




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�� ProductivityProductivity ± ±

Amount of output givenAmount of output given

your input per employee,your input per employee,etc.etc.

�� EE--CommerceCommerce ± ±

B2B B2C, taxes, etc.B2B B2C, taxes, etc.

�� ResponsivenessResponsivenessto Customer to Customer

Technological EnvironmentTechnological Environment




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Competitive EnvironmentCompetitive Environment

�� Customer Customer ExpectationsExpectations

�� SpeedSpeed

�� Restructure/Empower Restructure/Empower

�� Concern for NaturalConcern for NaturalEnvironmentEnvironment




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Question: What is Demography?Question: What is Demography?

Answer: the statistical study of theAnswer: the statistical study of thehuman population with regard to itshuman population with regard to itssize, density, and other characteristicssize, density, and other characteristics

such as age, race, gender, andsuch as age, race, gender, andincome. In short, the study of people¶sincome. In short, the study of people¶svital statistics.vital statistics.

Social EnvironmentSocial Environment




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Social EnvironmentSocial Environment

�� Diversity/MulticulturalDiversity/Multicultural

�� Aging/Graying of Aging/Graying of

AmericaAmerica

�� TwoTwo--Income FamiliesIncome Families

�� TelecommutingTelecommuting

�� SingleSingle--Parent FamiliesParent Families




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2121stst Century Diversity IssuesCentury Diversity Issues

RaceRace

Gender Gender

EthnicityEthnicity

DisabilityDisability

AgeAge

LanguageLanguage

ReligionReligion

SexualSexualOrientationOrientation

Source: U.S. Equal Employment Opportunity Commission




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Global EnvironmentGlobal Environment

�� QualityQuality

�� ProductivityProductivity

�� War TerrorismWar Terrorism

�� Global ChangesGlobal Changes




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Rise of InformationRise of Information

CommunicationCommunication

TechnologyTechnology

GlobalizationGlobalization

Doing Business 24/7Doing Business 24/7

Educated ConsumersEducated Consumers

Aging WorkforceAging WorkforceIncreasing DiversityIncreasing Diversity

Pyramid vs. WebPyramid vs. Web

Trends in BusinessTrends in Business

Source: Keying In- Newsletter of the National Business Education Association, March 2003

Self Self--Directed,Directed,

EmpoweredEmpowered

EmployeesEmployeesCommunication SkillsCommunication Skills

DecisionDecision--Making SkillsMaking Skills

TeamworkTeamwork

LeadershipLeadership

Continual LearningContinual Learning

Documents

Business - An Introduction