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Chapter 1

Business

an organization that produces or distributes a good or service for profit

Profit

the difference between earned income and costs

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Every business does these 3 activities

Manufacturing firms produce goods

Production
make a product or provide a service

Examples: Best Buy, Abercrombie Examples: Tutor, Painter

Marketing
how goods/services are exchanged

Service firms provide a skill or need

Finance
deal w/ all money matters

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Types of businesses

Industrial businesses
produce goods for other companies to use to make

products

Ability of organizations who make money to compete with other organizations who make money world-wide

Making cloth so Abercrombie can make shirts

Commercial businesses
furnish services

Changing nature of business

Constantly changing (dynamic) Innovations affect what a business does and how it does it.
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Focusing on the right things

Effectiveness
making the right decisions What products, what services, how to produce, how to deliver

Focus on customers needs Excellent customer service High-quality goods or services

Domestic goods
products made by firms in U.S.

Efficiency
producing needed goods/items or services quickly and

Foreign goods
made by firms in other countries

at low cost

Good managers focus on both

Personal items survey Total quality management (TQM)commitment to excellence through teamwork and continual improvement
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Efficiency is measured by output

Specialization

Quantity produced within a given time

becoming experts producing faster and often at lower cost Innovation

development of new ideas, products, and processes

Productivity

Technology and innovation

largest quantity in the least amount of time Employees are most productive when well equipped, well trained, and well managed up-to-date equipment and assembly line methods Large quantities of identical goods
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Mass production

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Reorganization
Downsize cutting back on goods/services provided and # of employees

Business A

100 workers who make 10 items each day No defects 110 workers who make 11 items each day 2 defective items per worker

Empowering workers
Let workers decide how to perform their tasks and

Business B

offer ideas of improvement

Redesigning work and work flow

Which business has the better productivity rate?

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Business A 100 workers x 10 items each = 1000 items No defects to subtract Business B 110 workers x 11 items each = 1210 items Subtract 2 defects per worker (220 items) 1210 items 220 defects = 990 items Business A is more productive at 1000 items to ten workers versus Business B at 990 items to 11 workers

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Two ways a nation measures economic wealth and benefits to its citizens

Gross Domestic Product (GDP)

total market value of all goods and services produced

Two ways a nation measures economic wealth and benefits to its citizens The $$$ total of products and services purchased reported to govt. Compared year to year

in a country in a year

Individual Well-Being
Level of living

Provide a measure of economic success Underground economy income that is not recorded in GDP Student who mows lawns, illegal drug sales Approx 5% in a brisk (good/growing) economy Approx 20% in a lagging economy

$14.29 Trillion (purchasing power)** #2 in world behind European Union**

**cia.gov
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GDP is nice but doesnt tell us about the worth of individuals % of citizens who own

Homes, luxury items

Investments Travel

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Percentage of U.S. Households Owning Selected Items

Business growth due to

Strong desire to own a business Ease with which a business can be started someone who starts, manages, and owns a business

Entrepreneur

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Small business

any business that is operated by one or a few individuals

For example: restaurants, gift shops, gas stations,

Many large business begin small Because of products/services and management they are able to grow

bakeries

Some entrepreneurs are displaced (laid off) workers of a downsizing company Operate from home due to Internet

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Franchise

legal agreement in which a distributor buys the right to sell the franchising companys product or service under name and trademark parent company distributor

Franchisor

Franchise We want to start a Starbucks. We go to Starbucks and ask to do what they do and use their name and items

Essentially copy a Starbucks and run it ourselves

Franchisee

If they say yes, our agreement with Papa Starbucks is called a Franchise

Franchisee pays a fee to be able to use the name and ideas

We are the franchisee Papa Starbucks is the franchisor I dont believe Starbucks allows people to franchise
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Sidebar

3% to 8% of weekly sales
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Risk

Responsibility to the community

the possibility of failure

Competition from businesses, changes in prices, changes in style, new products, economic conditions If the risks are high, the risk of failure is high

Customers, employees, suppliers, competitors When a business fails, it is an economic loss for the community
Probably owes money and cannot pay

Responsibility of the community

Realization of prices affected by expenses and operation Trained personnel

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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 allows employees to directly own the company they work for by buying shares

Be well-informed about the production, marketing, and financial activities of a business Understand all phases or business operations Be a competent employee

Employee Stock Ownership Plan (ESOP)

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