Business Principles and Management Chapter 1 Characteristics of Business

Business and its Environment Over 22 million businesses currently exist in the United States. What impact does business have on you, your family and friends? Business is producing or distributing a product or service for profit. Profit is the difference between earned income and costs.

Profit XYZ Electronics brought in $60,000 in retail sales last month. They had the following bills to pay Rent $1500 Utilities $850 Payroll $15,000 Advertising $200 Supplies $200 Inventory $4000

Subtract expenses from the retail income Calculate Profit Subtract expenses from the retail income

Business Activity All businesses engage in at least three major activities. Production Marketing Finance

Production Making the product or providing the service. Manufacturing firms (make product) Blue jeans Bicycle Cars Service Firms (provide assistance to satisfy needs through skilled workers) Travel agent Doctor Taxi driver

Your Turn List 3 manufacturing firms in your area. List 3 service firms in your area. Today the number of services firms exceeds the number of manufacturing firms. It is safe to say we live in a service society.

Marketing How goods and services are exchanged between producer and consumer. How does the consumer know about the products?

Finance Deals with money matters of running the business. Think back to profit.

Types of Businesses Industrial Business Commercial Business Produces goods used by other businesses to make things. Wheels for bikes Seat belts for cars Making of metal products for printers, bikes, cars… Commercial Business More engaged in marketing, finance and furnishing services to consumers.

Services Intangible products that use mostly labor to satisfy consumer needs. Lawn mowing Banking Dentist Airlines

Customers Regardless of the type of business, customers are needed to keep the business going. All businesses have customers or they would have no reason to exist. Even the government has customers. Citizens pay taxes to buy government services such as education, roads and armies.

Changing Nature of Business The business world is always changing. Businesses must react quickly to these changes. What are some changes that have helped businesses succeed. Innovations affect the kinds of products and services offered for sale. clothing made from natural fibers vs. synthetic fibers Innovations also affect business operations. Computers used for key business functions

Your Turn List 15 major items that were not available 25 years ago.

Effective vs. Efficient Both have an affect on business success. Effectives Making the right decisions about what products or services to offer consumers How to produce and deliver the products and services Efficiency Producing needed goods or services quickly and at a low cost. Important to remember to produce quality at low pricing

Your Turn If you are the fastest to finish a test, but received the lowest grade, would you be: A. effective and efficient B. effective but inefficient C. ineffective by efficient D. Ineffective and inefficient

Reading and Reflection Turn to page 12 Read the passage about Dell Computers Answers questions 1-3

Domestic vs Global Business Domestic Business When products or services are sold for profit within one country, Global Business When products or services are imported and exported among countries. Import – buys from another country Export – sells to another country

Competing in a competitive market At one time, we bought what was availabe – there were few choices (brand, color, style, options) Now the choices for most goods is wide open. Domestic and foreign firms have provided us with these choices. Domestic goods – made by firms in the United States Foreign goods – made by firms in other countries

Meeting the consumers needs Customers want products that best meet their needs They want high-quality products Examples: Japanese car makers. Foreign producers captured the market because they could provide consumers with reliable, affordable and attractive cars.

All About Quality Americans learned a few lessons from the foreign auto industry. They learned importance of quality. Total Quality Management (TQM) Commitment to excellence that is accomplished through teamwork and continued improvement.

Your Turn Explain how Total Quality Management goes hand-in-hand with being an effective and efficient company.

Achieving Efficiency Measured by output – the quantity produced within a given day. Frito Lay bags 4000 bags of chips in an hour. Productivity – producing the largest quantity in the least amount of time by using efficient methods and modern equipment. Workers are more productive when the have the right equipment and have been well-trained. Manufacturing firms

Efficiency Achieved Three Ways Specialization of effort Workers become specialized in the skills for work performed When workers specialize, they become expert in assigned tasks. Better technology and innovation Better-quality good services are built at a faster pace and often at a lower cost. Improved materials last longer, worker faster Innovation refers to the development of new ideas, products and processes. Reorganizations Most difficult

Mass Production Using up-to-date equipment and assembly line methods to produce large quantities of identical goods. Cost of goods manufactured decreases because it is possible to produce more items in less time. Computer and robots help increase production with fewer workers.

Reorganization When growth or production slows down, companies have to reorganize and evaluate what they are doing. From 1970-90 there was slow growth due partly to competition from industrialized nations. Downsize, cutting back workers and goods produced by laying off workers dropping unprofitable products or selling them to other firms Increasing technology Companies cut costs Still better ways to compete with foreign firms existed.

Empowerment Letting workers decide how to perform their work tasks and offer ideas on how to improve the work process. Empowerment dramatically changed the role of the worker. Firms become more productive. Most valuable change that improved how businesses operate.

Measuring Economic Wealth Gross Domestic Product Total market value of all goods and services produced in a country in a year. Whenever products or services are purchased, the total dollar amount is reported to the federal government. Underground Economy Transactions not reported

GDP Includes three major categories of expenditures: What consumers spend for food, clothing and housing. What businesses spend for buildings, equipment and supplies. What government agencies spend to pay employees and to buy supplies.

GDP While GDP measures the countries economic growth, it tells us very little about the economic worth of individuals. Productivity – number of items produced per worker Improvements in capital resources, worker training and management techniques have resulted in more output by workers. More productivity = great GDP

Individual Well Being What does the average American family own? With increased income, an average family improves it level of living. Over 65 percent of all families live in home they own. 35 percent of household owned computer in 1998 99 percent owned color televisions in 1998 Level of education You earn more money as you obtain more education. $16,000--$25,000--$35,000