1. CHARACTERISTICS OF BUSINESS
Chapter 1
10/6/2000
CHARACTERISTICS OF BUSINESS 1
Explain the general types and changing nature of businesses.
Describe how global competition has affected the way American businesses operate.
Show how businesses have grown and improved the economic well-being of people.
Discuss the role and nature of entrepreneurship and the opportunities, problems, and obligations of small businesses.
Summarize the value of plans that allow employees to function like entrepreneurs inside businesses.
Explain the importance of studying business principles and management.

2. NATURE OF BUSINESS Business Profit Income – Costs = Profit
Chapter 1
10/6/2000
NATURE OF BUSINESS
Business
An organization that produces or distributes a good or service for profit
Profit
The difference between earned income and costs
Income – Costs = Profit

3. NATURE OF BUSINESS 3 Business Activities Production Marketing Finance
Chapter 1
10/6/2000
NATURE OF BUSINESS
3 Business Activities
Production
Making a product or providing a service
Manufacturing – produce good
Service Firms – provide assistance to satisfy specialized needs
Marketing
Deals with how goods or services are exchanged between producers and consumers
Finance
Deals with all the money matters related to running a business

4. NATURE OF BUSINESS Supply Demand
Chapter 1
10/6/2000
NATURE OF BUSINESS
Supply
The number of similar products that will be offered for sale at a particular time and at a particular price
Demand
The number of similar products that will be bought at a given time at a given price

5. Supply vs. Demand Supply Demand Price will decrease Demand Supply
Chapter 1
10/6/2000
Supply vs. Demand
Supply Demand
Price will decrease
Demand Supply
Price will increase

6. Types of Businesses 2 major types of businesses Industrial businesses
Chapter 1
10/6/2000
Types of Businesses
2 major types of businesses
Industrial businesses
Produce goods used by other businesses or organizations to make things
Highly Industrial – US, Japan, Germany
Third World Nation – Usually poor and few manufacturing firms (Peru, Chile, Nigeria, Pakistan)
Commercial businesses
Engage in marketing (wholesalers and retailers), in finance (banks and investment companies), and in services (medical offices or motels)

7. Types of Businesses Services Industry What Industry?
Chapter 1
10/6/2000
Types of Businesses
Services
Intangible products that use mostly labor to satisfy consumer needs (mowing the lawn)
Industry
Refers to all businesses within a category
What Industry?
Produces and sells books, magazines, newspapers, and other printed documents?
Publishing Industry
Produces services such as fire and police protection
Government (include all services provided by local, state, and federal governments)
Provides sporting events, live theater, movies, night clubs, concerts, and casinos
Entertainment Industry

8. Service or Manufacturing?
Chapter 1
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Service or Manufacturing?
A watch repair shop
Service
Jewelry made by a group of Native Americans
Manufacturing
Someone who mows lawns, shovels snow, and removes fallen trees
A shop that makes minute timers

9. Changing Nature of Business
Chapter 1
10/6/2000
Changing Nature of Business
Businesses are constantly changing
Must be able to react quickly to change
Innovations affect the kinds of products and services offered for sale
Clothes (natural vs. synthetic fibers)
Innovations also affect business operations
Computers
Internet Sales

10. IMPACT OF GLOBAL COMPETITION ON BUSINESS
Chapter 1
10/6/2000
IMPACT OF GLOBAL COMPETITION ON BUSINESS
Focusing on the right things
Achieving effectiveness
Achieving efficiency
Specialization
Technology and innovation
Reorganization

11. IMPACT OF GLOBAL COMPETITION ON BUSINESS
Chapter 1
10/6/2000
IMPACT OF GLOBAL COMPETITION ON BUSINESS
Americans have led the way
Consumers purchased new products that were invented in the US
Workers from other countries came by the thousands to find jobs
Over the last 30 years, other countries have become more industrialized
Americans now purchase foreign products
Excellent products in greater varieties at lower prices
Global Competition
The ability of profit-making organizations to compete with businesses in other countries

12. Focusing on the right things
Chapter 1
10/6/2000
Focusing on the right things
Effectiveness
Making the right decisions about what products or services to offer customers and how to produce and deliver them
Efficiency
Producing needed goods or services quickly and at low cost
Goal = provide products at the lowest cost will maintaining quality
Good managers focus on BOTH

13. Effectiveness – Doing the right things
Efficiency – Doing the right things well

14. Achieving Effectiveness
Chapter 1
10/6/2000
Achieving Effectiveness
Focus attention on customers’ needs
Choices have increased because of competition among domestic and foreign firms
Domestic Firm
Products made by firms in the US
Foreign Firm
Products made by firms in other countries
Provide excellent customer service
Companies spend millions of dollars researching customers’ preferences
Keeping customers satisfied after the sale = customer loyalty

15. Achieving Effectiveness
Chapter 1
10/6/2000
Achieving Effectiveness
Offer high-quality goods and services
New designs, different shapes and colors, readable instructions, and simplicity of products
Americans learned quality lessons from the Japanese (cars)
Total Quality Management (TQM)
Commitment to excellence that is accomplished by teamwork and continual improvement
Receive a great deal of training from experts
Result = well-made products

16. Chapter 1
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Achieving Efficiency
Must produce the products efficiently (measured by output)
Output
The quantity produces within a given time
Productivity
Refers to producing the largest quantity in the least amount of time by using efficient methods and modern equipment

17. PRODUCTIVITY PER WORKER (page 9)
Chapter 1
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PRODUCTIVITY PER WORKER (page 9)

18. Achieving Efficiency 3 ways Efficiency can be achieved
Chapter 1
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Achieving Efficiency
3 ways Efficiency can be achieved
Specialization of effort
Better technology and innovation
Reorganization

19. Chapter 1
10/6/2000
1. Specialization
Workers become an expert at their assigned task (car mechanics)
Improves quality while increasing the amount produced
Mass production
The use of up-to-date equipment and assembly line methods to produce large quantities of identical goods
The cost decreases

20. 2. Technology & Innovation
Chapter 1
10/6/2000
2. Technology & Innovation
Advances in technology
Businesses spend billions of dollars annually on inventing, buying, and using new technology
Innovation
Refers to the development of new ideas, products, and processes that contribute to satisfying customers

21. 3. Reorganization (most difficult)
Chapter 1
10/6/2000
3. Reorganization (most difficult)
Downsize
Cutting back on the goods and services provided and the number of employees needed to produce them
Employees are the most important resource
Empowerment
Letting workers decide how to perform their work tasks and offer ideas on how to improve the work process
Quality of work improved
Fewer managers needed

22. If a student was fastest to finish an exam but received the lowest grade, would you say the student was
Effective and efficient
Effective but inefficient
Ineffective but efficient
Ineffective and inefficient
Answer 3

23. BUSINESS GROWTH AND PROSPERITY
Chapter 1
10/6/2000
BUSINESS GROWTH AND PROSPERITY
Gross domestic product (GDP)
Underground economy
Individual well-being

24. GDP GDP (Gross Domestic Product) Measures a nation’s economic wealth
Chapter 1
10/6/2000
GDP
GDP (Gross Domestic Product)
The total market value of all goods and services produced in a country in a year
Measures a nation’s economic wealth
Underground Economy
Income that is not recorded in the GDP
Illegal activities – drugs
A student babysitting
Government concerned with underground economy
Underground economy has increased in recent years
Between 5-20% is not reported in the GDP
GDP indicates the economic strength of a country

25. UNITED STATES GROSS DOMESTIC PRODUCT
Chapter 1
10/6/2000
UNITED STATES GROSS DOMESTIC PRODUCT
US GDP $8.8 trillion
US GDP exceeded the total GDP of 4 major countries combined (Japan, Germany, England, and Mexico)
Did the GDP decrease during any time block? (no)
Between which two time periods did the GDP appear to grow most in dollars? ( )

26. Individual Well-Being
Chapter 1
10/6/2000
Individual Well-Being
Another measure of the nation’s wealth
Economic wealth of individuals
Average yearly family income
More than $42,000
Male with no high school diploma
$16,000
Male with a high school diploma
$25,000
College graduate
More than $39,000
Over 65% of all families live in homes they own
American saved nearly $227 billion in a recent year

27. INDIVIDUAL WELL-BEING
Chapter 1
10/6/2000
INDIVIDUAL WELL-BEING
Percentage of U.S. Households
Owning Selected Items

28. ENTREPRENEURSHIP Popularity of small business Growth of small business
Chapter 1
10/6/2000
ENTREPRENEURSHIP
Popularity of small business
Growth of small business
Growth of franchise business
Risks of ownership
Obligations of ownership
Do not need to write this down

29. Entrepreneur Someone who starts, manages, and owns a business
2 reasons for business growth
Individuals want to own their own business
The ease in which a business can be started

30. Popularity of Small Business
Chapter 1
10/6/2000
Popularity of Small Business
Small Business
A business that is operated by one or a few individuals
Just about anyone can start a business
--Most small businesses are commonly found in service/retail and hire fewer than 100 people.
--98% of all businesses in the country are classified as small
--Revenue generated from all small businesses account for about half of the GDP
Manufacturing businesses are hard to start because of the cost
According to the US Dept of Commerce, many businesses earn less than $250,000 in yearly revenue, with many of the very small shops earning far less
-Subway began as a small business and now has over 13,ooo locations (McDonalds, Holiday Inn)

31. Growth of Franchise Business
Legal agreement in which a distributor buys the right to sell the franchising company’s product or service under the company’s name and trademark
2 parties:
Franchisor – the parent company of a franchise agreement that provides the product or service
Franchisee – the distributor of a franchised product or service

32. Franchise (cont) Franchisee pays initial fee Pays 3-8% of weekly sales
Get exclusive rights to sell the franchised product/service
Get special training and advice
Failure rate = 5-10% (much lower than non-franchised businesses)
12% of all businesses are franchises
Greatest # of franchises are in auto/truck dealerships and gasoline stations

33. Risk of Ownership Success – depends on managerial effectiveness
Risk – the possibility of failure
Competition from businesses
Changes in prices
Changes in style
Competition from new products
Changes in economic conditions
1 out of every 4 to 5 fail within 3 years
About half cease in 6-7 years
This includes businesses that voluntarily go out of business, sell the business, or add new owners
Failure Category = 18%

35. Obligations of Ownership
To Customers
To Workers
To Management
To Competitors
To Investors
To the Public
Page 21

36. INTRAPRENEURSHIP Intrapreneur Employee Stock Ownership Plan (ESOP)
Chapter 1
10/6/2000
INTRAPRENEURSHIP
Intrapreneur
An employee who is given funds and freedom to create a special unit or department within a company in order to develop a new product, process, or service
Employee Stock Ownership Plan (ESOP)
Permits employees to directly own the company in which they work by allowing them to buy shared in it
Highly motivated to make their company profitable
--This helps to keep creative employees who may quit to start their own business and eventually become a competitior
--Employees benefit because they risk neither their salaries not their savings to launch a new business