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

Calculate Profit

Subtract expenses from the retail income

Business Activity

All businesses engage in at least three major activities.

ProductionMarketingFinance

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 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 mowingBankingDentistAirlines

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 efficientB. effective but inefficientC. ineffective by efficientD. 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 needsThey 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