Taking Risks and Making Profits within the Dynamic

Business Environment

Chapter 01

McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

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.

LEARNING GOALSChapter One

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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.

LEARNING GOALSChapter One

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• 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.

GOODS and SERVICESEntrepreneurship and Wealth Building

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Entrepreneurship and Wealth Building

• 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.

BUSINESS and ENTREPRENEURSHIPLG1

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Entrepreneurship and Wealth Building

BUSINESS and ENTREPRENEURSHIPLG1

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Success

Passion for Business

Product/Customer Focused

Execution Intelligence

Tenacity despite Failure

Revenues, Profits and Losses

• Revenue -- The total amount of money a business takes in during a given period by selling goods and services.

• Profit -- The amount of money a business earns above and beyond what it spends for salaries and other expenses.

• Loss -- Occurs when a business’s expenses are more than its revenues.

REVENUE, PROFIT AND LOSSLG1

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Matching Risk with Profit

• Risk -- The chance an entrepreneur takes of losing time and money on a business that may not prove profitable.

• Not all businesses make the same amount of profit.

• Businesses take risks, but with great risks could come great profit.

RISKLG1

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Businesses Add to the Standard of Living and Quality of Life

Taxes are used to provide:•Hospitals•Schools•Libraries•Playgrounds•Roads•Fire Protection•Police Protection•Environmental Programs•Support for People in Need

HOW is TAX MONEY USED?LG1

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Businesses Add to the Standard of Living and Quality of Life

• Standard of Living -- The amount of goods and services people can buy with the money they have.

• The 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.

STANDARD of LIVINGLG1

Photo courtesy of Walmart Stores

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• 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.

QUALITY of LIFELG1

Businesses Add to the Standard of Living and Quality of Life

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Responding to the Various Business Stakeholders

• Stakeholders -- All the people who stand to gain or lose by the policies and activities of a business and whose concerns the businesses need to address.

• Who are Stakeholders?- Customers- Employees- Stockholders- Suppliers- Dealers

- Community Members- Media- Elected Officials- Bankers- Environmentalists

STAKEHOLDERSLG1

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Responding to the Various Business Stakeholders

• 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.

OUTSOURCING and INSOURCINGLG1

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Using Business Principles in Nonprofit Organizations

• Nonprofit Organization -- An organization whose goals do not include making a personal profit for its owners or organizers.

NONPROFIT ORGANIZATIONSLG1

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Using Business Principles in Nonprofit Organizations

United Way

Salvation Army

American Red Cross

American Heart Association

American Cancer Society

WELL-KNOWN NONPROFITSin the UNITED STATESLG1

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Entrepreneurship Versus Working for Others

The UPS

The freedom to succeed

Make your own decisions

High possibility of wealth

Hire your own staff

The DOWNS

The freedom to fail

No paid vacations

No health insurance

No daycare

THE UPS and DOWNS of ENTREPRENEURSHIPLG2

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Opportunities for Entrepreneurs

• 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.

WHO TAKES the ENTREPRENEURIAL CHALLENGE?

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The Importance of Entrepreneurs to the Creation of Wealth

1. Land: Natural Resources used to make homes, cars and other products

2. Labor: People vs. Technology

3. Capital: Machinery used for manufacturing

4. Entrepreneurship: Willingness to take risk and start a business

5. Knowledge: Information Technology and Intellectual Capital (Property)

Entrepreneurs use what they’ve learned to grow their businesses and increase wealth.

FIVE FACTORS of PRODUCTIONLG2

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The Business Environment WHAT is the

BUSINESS ENVIRONMENT?LG3

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The Economic and Legal Environment

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.

GOVERNMENT’S ROLE in BUSINESSLG3

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Least Corrupt

1.Denmark2.New Zealand3.Singapore4.Finland5.Sweden

Most Corrupt

1.Somalia2.Myanmar3.Afghanistan4.Iraq5.Uzbekistan

Source: Transparency International, June 2011.

CORRUPTION WORLDWIDELG3

The Economic and Legal Environment

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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?

ETHICS BEGINS with YOU(Making Ethical Decisions)

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How Technology Benefits Workers and You

• 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).

BENEFITS of TECHNOLOGYLG4

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The Growth of E-Commerce

• E-Commerce – The buying and selling of goods on the Internet.

- B2C: Business to Consumer- B2B: Business to Business

E-COMMERCELG4

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Using Technology to Be Responsive

• 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.

DATABASES and IDENTITY THEFTLG4

Photo courtesy of Jack Spade

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Using Technology to Be Responsive to Customers

Follow these steps to help protect yourself:

• Protect your Social Security Number.• Shred financial documents and items with

personal information.• Don’t give out personal information unless you

know whom you are dealing with.• Use strong passwords.• Never click links in suspicious emails.• Monitor your credit report.

Source: Federal Trade Commission, www.ftc.gov June 2011.

PROTECT YOURSELF from IDENTITY THEFT

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The Competitive Environment

• 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.

USING EMPOWERMENT to COMPETE in TODAY’S MARKETLG5

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• Demography -- The statistical study of the population in terms of size, density and characteristics like, age, race, gender and income.

DEMOGRAPHYThe Social Environment

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Source: U.S. Census Bureau, www.census.gov, accessed June 2011.

DEMOGRAPHY of the U.S. byAGE

The Social Environment

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PROJECTED DEMOGRAPHY of the U.S. by RACE in 2050

The Social Environment

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Source: U.S. Census Bureau, www.census.gov, accessed June 2011.

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Source: AARP Bulletin, June 2011.

The RISE of the U.S. HISPANIC POPULATION

The Social Environment

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LARGEST Hispanic Populations

1) New Mexico - 46.3%

2) California - 37.6%

2) Texas - 37.6%

4) Arizona - 29.6%

5) Nevada - 26.5%

SMALLEST Hispanic Populations

50) West Virginia - 1.2%

49) Maine - 1.3%

48) Vermont - 1.5%

47) North Dakota - 2.0%

46) Mississippi - 2.7%

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• Diversity has grown from just recruiting minority and female workers.

• Population shifts are creating opportunities for some and limiting others.

• Growth of single-parent households have encouraged businesses to implement programs such as family leave and flextime.

U.S. POPULATION CHANGES LG6

The Social Environment

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Source: U.S. Census Bureau, www.census.gov, accessed June 2011.

WHO WILL SUPPORT SOCIAL SECURITY?

Number of Workers per Retiree

The Social Environment

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Source: AXA Equitable Retirement Scope, accessed June 2011.

WORRIED ABOUTSOCIAL SECURITY?

The Social Environment

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The Global Environment

1. Growth of global competition.

2. Increase of free trade among nations.

IMPORTANT CHANGES to the GLOBAL ENVIRONMENTLG7

3. Development of efficient distribution systems.

4. Advances in communication systems.

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Source: The Economist, February 19, 2011.

WORLD’S LARGEST CITIES BACK in the DAY and TODAY

The Global Environment

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1950 2010City Population City Population

New York/Newark

12.34 million Tokyo 36.67 million

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

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The Global Environment

• Wars, like those in Iraq and Afghanistan, cost billions of dollars.

• Tax money is diverted.

• Cost of security goes up.

• Cost of insurance goes up.

INCREASING COSTS of the GLOBAL ENVIRONMENTLG7

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The Ecological Environment

• 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.

GLOBAL GREENINGLG7

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The Evolution of U.S. Business

Agriculture Era

Manufacturing Era

Service Era

Information-Based Era

The EVOLUTION of BUSINESSLG8

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Progress in the Agricultural Industry

• 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.

The AGRICULTURAL ERALG8

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Progress in the Manufacturing Industry

• Industrialization in the 19th and 20th centuries moved jobs from farms to factories.

The MANUFACTURING ERA

• As technology improved productivity, fewer workers were needed in factories.

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Progress in the Service Industry

• Services 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.

The SERVICE ERALG8

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Your Future in Business

• IT affects:

- Agriculture- Industry - Service

The INFORMATION TECHNOLOGY ERALG8

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*

*Your Future in Business

• What company do you want to work for?

• Would you prefer to be an entrepreneur?

• Think about the affects of globalization on the future of business!

IN CONCLUSIONLG8

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