1. Chapter 5

2. 1. Business in the U.S. Economy 2. Forms of Business Ownership 3. Organizational Structure for Businesses EQ: What are the major forms of business ownership and their roles in the U.S. economy?

3.  New career prospects in the dot-com world  Decline of jobs in manufacturing/agriculture  Average age of U.S. worker = 50+ (until baby boomers begin to retire this decade)  Increase in Asian, Hispanic, and African- American employment growth rates  Increase in women working outside the home (47% of U.S. jobs are held by women) 5-1: Business in the U.S. Economy

4.  Economic stress led to downsizing  Businesses streamlined production and implemented cost-cutting procedures  Employees required to take on new tasks and work extra hours  Wage rates decreased  Increased use of contingent workers:  One who has no contract for long-term employment 5-1: Business in the U.S. Economy

5. Size of Businesses  19.5 million (79%) businesses have no other employees than the owner  4.5 million (18%) have less than 20 employees  3% employ over 20 people Roles of Business  Provide employment for millions of people  Wages are used to purchase goods/services  Pay taxes that provide citizen services  Most important: make and distribute goods/services 5-1: Business in the U.S. Economy

6. Impact on a Community  Pays wages to workers  Buys goods/services from local businesses  Cause need for more employees: leads to more housing, cars, food, entertainment  Pay taxes to community  Thriving economy Business Activities  Businesses may be large or small, simple or complex  May operate in one community or around the world  All types of businesses perform 6 basic activities 5-1: Business in the U.S. Economy

7. 1. Generate Ideas  Business begins with a new idea  Must continue to improve and develop to remain competitive  Use research and development departments 2. Raise Capital  Need financial resources to operate Buy buildings and equipment, hire and train workers, complete business operations  Capital comes from owners and loans (financial institutions and investors) 5-1: Business in the U.S. Economy

8. 3. Employ and Train Personnel  Need human resources  Have procedures for recruiting, hiring, and training employees 4. Buy Goods and Services  Use many purchases for their own operations  Other purchases are resold Retailers buy an assortment of products to sell to customers  Purchase services from other companies Ex. Advertising, legal, accounting, maintenance 5-1: Business in the U.S. Economy

9. 5. Market Goods and Services  Activities directed at providing goods/services wanted by a business’s customers  Must satisfy customers who usually can choose from competitors offering similar products 6. Maintain Business Records  Used to track performance and make decisions  Customers need information about orders and payments  Made easy with new technology 5-1: Business in the U.S. Economy

10.  Producers  Create products/services used by individuals and other businesses  Responsible for using resources to make something that is needed by others  Extractor: takes resources from nature for direct consumption or for use in developing other products (ex. pump oil, mine coal, cut timber)  Farmer: cultivate land and use other natural resources to grow crops and raise livestock for consumption  Manufacturer: gets supplies from other producers and converts them into products 5-1: Business in the U.S. Economy

11.  Intermediaries  Businesses involved in selling the goods and services of producers to consumers and other businesses  Retailers and wholesalers  May focus on an activity that assists in distributing and selling the products Transportation companies Advertising agencies Storage centers Sales offices Data processing centers 5-1: Business in the U.S. Economy

12.  Service Businesses  Carries out activities that are consumed by its customers  Does not offer a product for sale  Ex. dentists, lawyers, mechanics, hair stylists  Service businesses are the fastest growing part of the economy (more than 60% of employment) 5-1: Business in the U.S. Economy

13. 1. Proprietorship  A business owned and run by just one person Advantages  Easiest form of business to start and end  Sole control over business decisions  Owner receives all profits  Provides tax advantages Disadvantages  Owner responsible for all debts, may loose everything (unlimited liability)  You have to pay for everything or find loans  May lack all business skills needed 5-2: Forms of Business Ownership

14. 2. Partnership  A business owned and controlled by two or more people who have entered into an agreement  Partnership agreement: a written agreement among all owners (details rules and contributions for each partner) Advantages  Somewhat easy to start  Easier to obtain capital (get more money)  Partners can bring different skills Disadvantages  Must share all profits  Unlimited legal and financial liability with partners (one bad decision effects everyone equally) 5-2: Forms of Business Ownership

15. 3. Corporation  A separate legal entity formed by documents filed with a state; owned by one or more shareholders and managed by a board of directors  Articles of incorporation: a written legal document that defines ownership and operating procedures and conditions of the business Advantages  Limited liability: responsible only for investment  Investors can receive profits without having to take part in day-to-day operations  Business can easily be expanded and ownership can change with sale of stock Disadvantages  Decision-making is shared among many  Difficult to start  Closely regulated by government  Must pay corporate taxes on profits earned 5-2: Forms of Business Ownership

16.  Joint venture: unique business organized by two or more other businesses to operate for a limited time and for a specific project  Ex. Sony-Ericcson: Japanese electronics company with Swedish telecommunications company to make mobile phones  Nonprofit corporation: a group of people who join to do some activity for the public (free from corporate income taxes)  Ex. American Red Cross, Meals on Wheels  Cooperative: owned by members, serves their needs, and is managed in their interest (can purchase goods/services cheaper as a group than individually)  Ex. Ocean Spray – cranberry growers  Franchise: written contract granting permission to operate a business to sell products and services in a set way  Ex. Taco Bell, Blockbuster 5-2: Forms of Business Ownership

17.  Setting Direction  Mission statement: a short, specific written statement of the reason a business exists and what it wants to achieve Ex. Starbucks: “Establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles while we grow.” Their guiding principles to measure progress:  Work environmentsatisfied customers  Diversityclean environment  High standardprofits 5-3: Organizational Structure

18.  Setting Direction  Goal: a precise statement of results the business expects to achieve Used to define what needs to be accomplished and to determine if the business is successful  Policies: guidelines used in making consistent decisions  Procedures: descriptions of the way work is to be done  provide guidance and direction for employees 5-3: Organizational Structure

19.  Responsibility, Authority, & Accountability  Responsibility: the obligation to complete specific work  Authority: the right to make decisions about how responsibilities should be accomplished  Accountability: taking responsibility for the results achieved  Unity of Command  There is a clear reporting relationship for all staff of a business (who is the leader and where to go for help)  Span of Control  the number of employees who are assigned to a particular work task and manager Workers need a balance of supervision and freedom to do their work 5-3: Organizational Structure

20.  Organization chart: a diagram that shows the structure of the organization, classifications of work and jobs, and the relationship among those classifications Functional Organization:  work is arranged within the main business functions such as production, operations, marketing, and human resources  All those with jobs related to one of the functions work together and report to managers who are responsible for that function President VP of Finance VP of Operations VP of Marketing Matrix Organizational:  work is structured around specific projects, products, or customer groups  People with varied backgrounds are assigned together 5-3: Organizational Structure