*

Chapter One
*
Taking Risks
and Making
Profits within
the Dynamic
Business
Environment

Introduction
Business world can be seen as a
complex system
Involves transforming resources into
products and services
Must meet the needs of people in
exchange for profit

Why Study Business?

It provides employment for most of
the people.
It provides the majority of products
needed to survive and enjoy life.
It will help prepare you for your
future career.
It will help you become a better
informed consumer and member of
society.

What Is Business?
Activity seeking profit
Provides goods/services
Satisfy standard of living- quality
of life [..Higher in USA, Germany & Japan]
Nonprofit organizations
Business: Any activity that seeks to provide goods and
services to others while operating at a profit.
My View: Business is an economic unit that does socially
desirable activities to attain specific objectives (profit,
social welfare).

I
O
N

The Evolution of
U.S. Business

LG8

o
f
B
U
S
I
N
The Early
E
Economy
S

The
Industrial
Revolution

The
Manufacturing and
Marketing
Economies

The Service
&
Internetbased
Economy

1-5

Evolution of Business in
BD
Agricultural/Manufacturing
Service Industries
Future???

REVENUE, PROFIT AND LOSS

Revenue -- The total amount

*Revenues,

Profits
and Losses
LG1

of money a business takes in

during a given period by selling
goods and services.

Profit -- The amount of money

a business earns above and
beyond what it spends for
salaries and other expenses.

Loss -- Occurs when a

business expenses are more

than its revenues.
1-7

Objectives of Business
Survival

Growth

Profit

Social
Responsibility

The role of business in

society
The description of a business emphasises four different
elements:
o
o
o
o

Business
Business
Business
Business

involves
involves
involves
involves

human activities
production
exchange
profit

Business world under pressure to reconsider role in the

following:
o
o
o
o
o

Social responsibility
Affirmative action and equity
Business ethics
Consumerism
Environmental damage

Needs and need satisfaction

The multiplicity of human needs
o

Humans have a wide range of unlimited

physical and psychological needs to satisfy
Range from the most basic need for food to the
need for self esteem
Society has limited resources to satisfy needs:

Natural resources
Human resources
Capital
Entrepreneurship

The cycle of need-satisfaction

A Business and Its Stakeholders

Entrepreneurship vs. Employment

Opportunities For

Entrepreneurs
Matching Risk With Profit
Revenue - Expense =
Profit(Loss)
Risk

Factors of Production

Land

Entrepreneurship

Labor

Capital

Knowledge

FIVE FACTORS of PRODUCTION

The Importance
of Entrepreneurs
to the Creation of
Wealth

LG2

1. Land (Natural resources): Russian example

2. Labor: Used to produce goods/services but replacing by

technology- Mexico Example

3. Capital (Machine, tools& buildings etc.)

4. Entrepreneurship (Art/willingness of taking of risk)
5. Knowledge (Inventions and innovations)

Entrepreneurs use what theyve learned to grow their

businesses and increase wealth.

Some countries rich due to good combination

entrepreneurship and effective use of knowledge
1-15

The 21st Century Workforce: Labor

Contract Workers; 15%

Permanent Employees; 35%
Contingent Workers; 25%
Outsourced Suppliers; 25%

Source: Workforce Magazine, Jan. 1998

Business
TODAYS DYNAMIC BUSINESS ENVIRONMENTThe
Environment

Government Affects Business By

Being:

A Customer
An Overseer and
Regulator
A Tax Collector

*
GOVERNMENTS ROLE in BUSINESS

A government can promote business by

The Economic
and Legal
Environment

LG3

1.Minimizing spending and keeping taxes and

regulations to a minimum.
2.Allowing private ownership of businesses.
3.Minimizing interference with the free exchange of
goods and services.
4.Passing laws that enable businesspeople to write
enforceable contracts.
5.Establishing a currency thats tradable in world
markets.
6.Minimizing corruption.
1-19

Environments of
Business
Economic
Technological
Social
Competitive
Global

Economic Environment
$ Freedom of ownership

(In Cuba, Mexico

and China: majority of ownership remains with
Govt.)

$ Contract laws (Freedom of making contract)

$ Elimination of corruption (In BD, a new
firm needs to give bribe at different levels for starting a
business)

$ Tradable currency

(If Chinese Yuan is not

traded with $)

$ Minimum taxes & regulation

(Higher
the taxes & regulation, lower will be the growth of business)

Technological
Environment
Internet (Use of Teleconferencing)
E-commerce
(B2B and B2C)

Role of Intermediaries ?
(Amazon.com/ eBay/ Google/IBM)

Responsiveness to Customer
Information Management
Use of Bar Codes-info to database
Leads to Identity theft also

A firms chair lives in New York, its business in London, its CEO in Frankfruit and other key
managers in a business tour to Asia. How would make a quick decision involving everyone?

BENEFITS of TECHNOLOGY

How Technology
Benefits Workers
and You

LG4

Technology -- Everything from phones to copiers

and the various software programs (Like PDF Converter)

that make businesses more effective, efficient and
productive.
Ex: iPod, iPhone, BlackBerry & PDA
Spread of Social Networks-MySpace, Facebook, Skype
(For Example: Barack Obama-27 million friends)

Effectiveness -- Producing the desired result.

Efficiency -- Producing goods and services using
the least amount of resources.

Productivity -- The amount of output you generate given the

amount of input (example: hours you work).

1-23

Competitive Environment
In todays globe, the goal for
many firms is zero defects!
Customer Service:
Customer is King!
Customer Demands
Good quality at lower price

Speed:

Customer-driven rather than

management-driven

Community/Stakeholder Needs
Natural/Ecological Concern

Traditional Vs. Modern Business

Traditional Business
1.
2.
3.
4.
5.
6.

Modern Business
1. Delighting Customers
Customer
2. Customer & stakeholder
satisfaction
Orientation
Customer
3. Profit & Social
Orientation
Orientation
Profit Orientation
4. Proactive Ethics
Reactive Ethics
5. Quality & service
Orientation
Product Orientation
6. Customer Focus
Managerial focus

Social Environment
Diversity/Multicultural:

Seniors, disabled,
introverts, extroverts, married, single, and the devout

Aging/Graying of America:
Medicine, nursing homes, assisted-living, adult day
care, elderly recreation, home health care etc.

Two Income Families

Single Parent Families:
(Working full-time & raising a family)-Family leave
or Flextime or attending office at 12:00AM or
leaving at 4:00PM

POPULATION CHANGES
Population shifts are creating
opportunities for some and
limiting others.

The Social
Environment
and Managing
Diversity

LG6

Diversity has grown from just

recruiting minority and female
workers.
Growth of single-parent
households have encouraged
businesses to implement
programs such as family leave
and flextime.
1-27

Global Environment

Quality
Productivity
Changes

Dealing With A Multicultural Workforce

Show Respect for Culture/Value of

Others
Avoid Stereotyping
Include All Workers into the major
workforce
Be Empathetic But Be Yourself
Avoid Imposing Your
Culture/Values on Others

IMPORTANT CHANGES to the

GLOBAL ENVIRONMENT

*The Global

Environment
LG7

1. Growth of global competition

China & India-major/toughest

competitor of USA
Lenovo- a Chinese firm bought
IBMs PC Unit

2. Increase of free trade among

nations-SAAFTA, NAAFTA, EU.
3. More efficient distribution
systems and communication
advances.
1-30

INCREASING COSTS of the

GLOBAL ENVIRONMENT

*The Global

Environment
LG7

Wars, like those in Iraq and

Afghanistan, cost billions of
dollars.
Tax money is diverted.
Cost of security goes up.
Cost of insurance goes up

1-31