Download chapter 6 - Management

Business Management, 13e
CHAPTER
6
Characteristics of
Business
6.1 The Nature of Business
6.2 Changes Affecting Business
6.3 The Contributions of Business
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6.1 The Nature of Business
GOALS
● Explain the nature of business activities.
● Describe the general types of businesses.
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Management of Business Activities
● Business – an organization that produces or
distributes a good or service for profit
● Profit is the difference between earned income and costs
● Production – involves making a product or
providing a service
● Manufacturing firms create products that customers
purchase to satisfy needs
● Service firms use the skills of employees to offer activities
and assistance to satisfy customer needs
● Service firms exceed the number of manufacturing firms
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Management of Business Activities
● Marketing – activities between business and
customers involved in buying and selling
goods and services
● Finance – all the money involved in running a
business
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Management of Business Activities
● Supply and Demand
● Supply - the number of similar products that will
be offered for sale at a particular time & at a
particular price
● Demand - the number of similar products that will
be bought at a given time at a given price
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Types of Businesses
● Goods-producing businesses – produce goods
used by other businesses, organizations, or
consumers
● Companies that mine coal & extract oil from the
earth provide resources that are used by other
companies & consumers
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Types of Businesses
● Service businesses – type of business that use
mostly labor to satisfy customers
● Examples include firms engaged in marketing (wholesale
and retailers), in finance (banks & investment companies),
and in providing services (medical offices, fitness centers,
& hotels)
● Industry – businesses in a category doing
similar work
● Examples: automotive, school, health, government,
movie/film
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Expected Employment in Major
Industries by 2018
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6.2 Changes Affecting Business
GOALS
● Describe how innovations affect businesses.
● Identify the impact global competition has
had on U.S. businesses.
● Discuss ways in which businesses can improve
their business practices.
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Innovation’s Impact on Management
● Innovation - something entirely new
● Effects of innovation is the kind of products &
services offered for sale by other businesses
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Impact of Global Competition on
Business Management
● Global competition - the ability of businesses
from one country to compete with similar
businesses in other countries
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Focusing Management on the Right
Things
● Effectiveness – making the right decisions
about what products or services to offer
customers and the best way to produce &
deliver them
● Efficiency – producing products & services
quickly, at low cost, without wasting time &
materials
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Focusing Management on the Right
Things
● Achieving effectiveness
● Knowing what customers want
● Domestic goods – products made by firms in the
United States
● Foreign goods – products made by firms in other
countries
● Total quality management (TQM) – a commitment
to excellence accomplished by teamwork &
improvement of work procedures
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Focusing Management on the Right
Things
● Achieving efficiency
● Output – the quantity produced within a given
time
● Productivity – producing the largest quantity in
the least amount of time by using efficient
methods and modern equipment
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Focusing Management on the Right
Things
● Achieving efficiency
● Specialization
● When workers specialize, they become experts at their
assigned tasks, this improves efficiency
● Technology and innovation
● With new discoveries and inventions, better-quality
goods & services are built at a faster pace & lower cost
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Focusing Management on the Right
Things
● Achieving efficiency
● Reorganization of work
● Challenging way to increase efficiency
● Empowerment – letting workers participate in
determining how to perform their work tasks & offer
ideas on how to improve the work process
● Firms find the the quality of work often improves
● Re-engineering – redesign the work flow throughout
the organization
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6.3 The Contributions of Business
GOALS
● Identify two ways a nation measures its
economic growth and prosperity.
● Describe the benefits of business ownership
to the nation and individuals.
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Business Growth and Prosperity
● Gross domestic product (GDP) – the total
market value of all goods and services
produced in a year
● GDP is the chief measure of a nation’s economic
wealth
● Compared year to year and also with GDP of other
countries
● In 2010, GDP in US reached $14.7 trillion, China is close
to America in terms of GDP
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Business Growth and Prosperity
● Underground economy – income that escapes
being recorded in the GDP
● Working full or part-time for cash
● Size concerns government due to its illegal nature
& activities are not taxed
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Business Growth and Prosperity
● Individual well-being is the second measure of
nation’s wealth
● US Department of Commerce gathers information
that reveals the financial well-being of US citizens
● 66% families live in homes they own
● 80% of adults carry cell-phones in the US and families
are giving to children under the age of 10
● Human Development Index (HDI) measures life
expectancy, education, and gross national product
● In 2010, US ranks 4th after Norway, Australia, & New Zealand
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Business Growth and Prosperity
● Even though America is doing well economic
and social problems exist
● Job shortages, layoffs, lack of skills causes income
to drop
● Low income causes it difficult to buy homes, send
children to college, save for retirement
● Over 14% of American families had income below the
poverty level of $22,000 for a family of four
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Business Ownership
● Entrepreneur – someone who starts,
manages, & owns a business
● Popularity of small business
● Almost anyone who wishes to do so may start a
business
● Small business describes companies that are
operated by one or a few individuals
● In the US about half of all employed people work for
small businesses
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Business Ownership
● Growth of franchise business
● Franchise – a legal agreement in which and
individual or small group of investors purchases
the rights to sell a company’s product or service
under the company’s name and trademark
● Franchisor – the parent company of a franchise
agreement that provides the product or service
● Franchisee – the distributor of a franchised
product or service
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Business Ownership
● Growth of franchise business
● In a franchise agreement, the franchisee pays an
initial fee—often $100,000 or more—to the
franchisor & a percentage –usually 3 to 8 % of
sales
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Business Ownership
● Growth of franchise business
● In return, the franchisee gets assistance in
selecting a location for the store or building,
operating procedures & policies, & exclusive rights
to sell the franchised product or service
● Services are valuable to inexperienced business owners
● 5-10% of franchised business fail, the failure rate is far
lower than the failure rate of nonfranchised new
businesses
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Business Ownership
● Risks of ownership
● Success depends on managerial effectiveness
● Risk is the possibility of failure
● The Service Core of Retired Executives (SCORE)
reports up to 70% of new firms with employees
survive at least two years, & half survive for five
years
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Business Ownership
● Obligations of ownership
● Responsible to the entire community
● Economic and social responsibility
● Customers, employees, investors, competitors and the
public
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