2. Developing a Business Mindset
Chapter 1

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Learning Objectives
Explain the concept of adding value in a business and identify the major types of businesses
List three steps you can take to help make the leap from a consumer to a business professional
Discuss the five major environments in which every business operates
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4. Learning Objectives (cont.)
Explain the purpose of the six major functional areas in a business enterprise
Summarize seven of the most important business professions
Identify seven components of professionalism
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5. Understanding What Businesses Do
Any profit-seeking organization that provides goods and services designed to satisfy the customers’ needs
A business is any profit-seeking organization that provides goods and services designed to satisfy the customers’ needs.
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6. Adding Value: the Business of Business
Revenue
Money that a company brings in through the sale of goods and services
Business model
A concise description of how a business intends to generate revenue
Each company in the value chain makes certain choices about what it will do to generate revenue, money the company brings in through the sale of goods and services. The result of these decisions is a company’s business model, a clearly stated outline of how the business intends to generate revenue.
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7. Adding Value: the Business of Business (cont.)
Profit
Money left over after all the costs involved in doing business have been deducted from the revenue
Generating revenue isn’t enough; the business model must also indicate how the company is going to realize profit, the amount of money left over after expenses—all the costs involved in conducting the business—have been deducted from the revenue.
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8. Competing to Attract and Satisfy Customers
Competitive advantage
Some aspect of a product or company that makes it more appealing to its target customers. Determine what resources your business has that outshines others competitors in the business.
One of the beauties of a free-market economy is that companies usually have a lot of flexibility in deciding which customers they want to focus on and how they want to compete.
Each company seeks a competitive advantage that makes its products more appealing to its chosen customers. Consumers benefit from better products and more choices, and companies get to focus on what they do best.
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9. Identifying Major Types of Businesses
Not-for-profit organizations
Organizations that provide goods and services without having a profit motive, these are also called nonprofit organizations
The driving forces behind most businesses are the prospects of earning profit and building assets. Assets can be defined as anything owned by the company that can be of meaningful value, from patents and brand names to real estate and company stock. In contrast, not-for-profit organizations (also known as nonprofit organizations) such as museums, most universities, and charities do not have a profit motive. However, they must operate efficiently and effectively to achieve their goals, and successful nonprofits apply many of the business-management principles you’ll learn in this course.
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10. Identifying Major Types of Businesses (cont.)
Goods-producing businesses
Companies that create value by making “things,” most of which are tangible
Service businesses
Companies that create value by performing activities that deliver some benefit to customers
Goods-producing businesses create value by making “things,” from Pop-Tarts to school furniture to spacecraft. Most goods are tangible, meaning they have a physical presence; other goods, such as software, music downloads, and similar digital products, are intangible.
Service businesses create value by performing activities that deliver some benefit to the customer, such as finance, insurance, transportation, construction, utilities, wholesale and retail trade, banking, entertainment, health care, maintenance and repair, and information. Twitter, Jiffy Lube, HBO, and Verizon Wireless are examples of service businesses. Many companies are both goods producing and service businesses.
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Risk and Reward
Exhibit 1.2
The relationship between risk and reward is fundamental to every modern economy. A company needs to see some promise of reward before it will decide to accept the risks involved in creating and selling products. However, to ensure responsible behavior, these risks need to stay attached to those decisions, meaning if a decision turns out to be bad, that company would suffer the consequences.
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Risk and Reward (cont.)
Exhibit 1.2
If the risk gets disconnected from the decision—meaning someone else will suffer if the decision turns out bad—a situation known as moral hazard is created. A significant recent example of this problem involved home-mortgage companies lending money to homeowners, who were practically guaranteed to default on their loans but then selling those loans as investments and thereby transferring the risk of nonpayment to someone else.
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13. Seeing Business from the Inside Out
Business mindset
A view of business that considers the many decisions that must be made and the many problems that must be overcome before companies can deliver the products that satisfy customer needs
As you progress through this course, you’ll start to develop a business mindset as you gain an appreciation for the many decisions that must be made and the many challenges that must be overcome before companies can deliver products that satisfy customer needs (see Exhibit 1.3).
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Exhibit 1.3
The Business Mindset
Your experiences as a consumer have taught you a great deal about business already. Now the challenge is to turn those experiences around and view the world from a manager’s perspective. Examples of how a business professional approaches some of the questions you’ve asked as a consumer are illustrated in Exhibit 1.3.
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The Business Mindset (cont.)
Exhibit 1.3
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Positive and Negative Effects of Business
Exhibit 1.4
The relationship between business and society is complex and far reaching. Individuals, communities, and entire nations benefit in multiple ways from the efforts of businesses, but even responsibly managed companies can at times have negative impacts on society in return.
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17. Recognizing the Multiple Environments of Business
Social environment
Trends and forces in society at large
Stakeholders
Internal and external groups affected by a company’s decisions and activities
Every business operates within the broad social environment, the trends and forces in society at large. For instance, all companies are affected by population trends that change the composition of consumer markets and the workforce.
Various segments of society also have expectations about the appropriate relationship of business and society. The responsibility of a company to its stakeholders—all those groups affected by its activities, from employees to local communities to advocacy groups— is a subject of ongoing controversy.
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18. Recognizing the Multiple Environments of Business (cont.)
Technological environment
Forces resulting from the practical application of science to innovations, products, and processes
Disruptive technologies
Those that fundamentally change the nature of an industry
Can be powerful enough to create or destroy entire companies.
The technological environment stems from the practical application of science to innovations, products, and processes. Technological changes have the potential to change every facet of business, from altering internal processes to creating or destroying market opportunities.
Disruptive technologies, those that fundamentally change the nature of an industry, can be powerful enough to create or destroy entire companies. For example, the fact that music can even be recorded and played back in a different time and place is a profound advance made possible by technology. In the 130 years or so that recorded music has been around, it has been available on numerous technological platforms, from wax cylinders and wire recorders to vinyl discs, a variety of tape formats, compact discs, and finally digital formats such as MP3. The addition of each new technology has created opportunities for some businesses and destroyed opportunities for others.
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19. Recognizing the Multiple Environments of Business (cont.)
Economic environment
The conditions and forces that affect the cost and availability of goods, services, and labor and thereby shape the behavior of buyers and sellers
Legal and regulatory environment
Laws and regulations at local, state, national, and even international levels
Directly or indirectly, virtually every decision a company makes is influenced by the economic environment, the conditions and forces that (1) affect the cost and availability of goods, services, and labor and (2) thereby shape the behavior of buyers and sellers.
Every business is affected by the legal and regulatory environment, the sum of laws and regulations at local, state, national, and even international levels. Some businesses, such as electricity and other basic utilities, are heavily regulated, even to the point of government agencies determining how much such companies can charge for their services. The degree to which various industries should be regulated remains a point of contention, year in and year out..
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20. Recognizing the Multiple Environments of Business (cont.)
Market environment
A company’s target customers, the buying influences that shape the behavior of those customers, and competitors that market similar products to those customers
Within the various other environments just discussed, every company operates within a specific market environment composed of three important groups: (1) its target customers, (2) the buying influences that shape the behavior of those customers, and (3) competitors— other companies that market similar products to those customers. The nature and behavior of these groups and their effect on business strategy vary widely from industry to industry.
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21. Identifying the Major Functional Areas in a Business Enterprise
Research and development (R&D)
Functional area responsible for conceiving and designing new products
Information technology (IT)
Systems that promote communication and information usage through the company or that allow companies to offer new services to their customers
Products are conceived and designed through research and development (R&D), sometimes known as product design or engineering. Of course, not all companies have an R&D function; many companies simply resell products that other firms make. However, for companies that do develop products, R&D is essential for survival because it provides the ideas and designs that allow these firms to meet customer needs in competitive markets.
Companies can also engage in process R&D to design new and better ways to run their operations. Much of this effort goes into information technology (IT) systems that promote communication and information usage through the company or allow companies to offer new services to their customers.
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Identifying the Major Functional Areas in a Business Enterprise (cont.)
Marketing
charged with identifying opportunities in the marketplace
working with R&D to develop the products to address those opportunities
creating branding and advertising strategies to communicate with potential customers, and setting prices
Your experience as a consumer probably gives you more insight into marketing, sales, distribution, and customer support than any other functional area in business. Although the lines separating these three activities are often blurry, generally speaking, marketing is charged with identifying opportunities in the marketplace, working with R&D to develop the products to address those opportunities, creating branding and advertising strategies to communicate with potential customers, and setting prices.
The sales function develops relationships with potential customers and persuades customers, transaction by transaction, to buy the company’s goods and services. Depending on the type of product, a distribution function can be involved both before the sale (helping to promote products to retailers, for example) and after the sale (to physically deliver products). After products are in buyers’ hands, customer support goes to work, making sure customers have the support and information they need.
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Identifying the Major Functional Areas in a Business Enterprise (cont.)
Finance and accounting
responsible for virtually every aspect of a firm’s finances
ensuring that the company has the funds it needs to operate
monitoring and controlling how those funds are spent
drafting reports for company management and outside audiences such as investors and government regulators
The finance and accounting functions ensure that the company has the funds it needs to operate, monitor, and control how those funds are spent and draft reports for company management and outside audiences such as investors and government regulators. Roughly speaking, financial managers are responsible for planning, while accounting managers are responsible for monitoring and reporting.
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Identifying the Major Functional Areas in a Business Enterprise (cont.)
Human resources (HR)
responsible for recruiting, hiring, developing, and supporting employees
The human resources (HR) function is responsible for recruiting, hiring, developing, and supporting employees. Like finance and accounting, HR supports all the other functional areas in the enterprise. Although managers in other functional areas are usually closely involved with hiring and training the employees in their respective departments, HR usually oversees these processes and supports the other departments as needed. The HR department is also charged with making sure the company is in compliance with the many laws concerning employee rights and workplace safety.
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Identifying the Major Functional Areas in a Business Enterprise (cont.)
Business Services
exist to help companies with specific needs in law, banking, real estate, and other areas
A wide variety of business services exist to help companies with specific needs in law, banking, real estate, and other areas. These services can be
performed by in-house staff, external firms, or a combination of the two.
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26. Exploring Careers in Business
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27. Achieving Professionalism
The quality of performing at a high level and conducting oneself with purpose and pride
Make a mindset decision that you are a “Professional” in your field and display it with confidence.
Professionalism is the quality of performing at a high level and conducting oneself with purpose and pride. True professionals exhibit seven distinct traits: striving to excel, being dependable and accountable, being a team player, communicating effectively, demonstrating a sense of etiquette, making ethical decisions, and maintaining a positive outlook (see Exhibit 1.7).
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Exhibit 1.7
*STUDY – The 7 Elements of Professionalism
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Being a Team Player
Professionals know that they are contributors to a larger cause
Great team players know how to make those around them more effective
Being a team player also means showing loyalty to your organization and protecting your employer’s reputation
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30. Communicating Effectively
Listen actively
Provide practical information
Give facts rather than vague impressions
Don’t present opinions as facts
Present information in a concise and efficient manner
Clarify expectations and responsibilities
Offer compelling, persuasive arguments, and recommendations
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31. Demonstrating Etiquette
The expected norms of behavior in any particular situation. Respecting the employees with whom you are working with.
A vital element of professionalism is etiquette, the expected norms of behavior in any particular situation. The way you conduct yourself, interact with others, and handle conflict can have a profound influence on your company’s success and on your career. Etiquette blunders can have serious financial costs through lower productivity and lost business opportunities.
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32. Maintaining a Confident, Positive Outlook
Successful people are optimistic
Successful people buckle-down and get the job done despite obstacles
Energy, either positive or negative, is contagious
One negative personality can make an office miserable
THE END
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