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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 ©2013 Cengage Learning. All Rights Reserved. Business Management, 13e 2 6.1 The Nature of Business GOALS ● Explain the nature of business activities. ● Describe the general types of businesses. CHAPTER 6 ©2013 Cengage Learning. All Rights Reserved. Business Management, 13e 3 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 CHAPTER 6 ©2013 Cengage Learning. All Rights Reserved. Business Management, 13e 4 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 CHAPTER 6 ©2013 Cengage Learning. All Rights Reserved. Business Management, 13e 5 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 CHAPTER 6 ©2013 Cengage Learning. All Rights Reserved. Business Management, 13e 6 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 CHAPTER 6 ©2013 Cengage Learning. All Rights Reserved. Business Management, 13e 7 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 CHAPTER 6 ©2013 Cengage Learning. All Rights Reserved. Business Management, 13e 8 Expected Employment in Major Industries by 2018 CHAPTER 6 ©2013 Cengage Learning. All Rights Reserved. Business Management, 13e 9 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. CHAPTER 6 ©2013 Cengage Learning. All Rights Reserved. Business Management, 13e 10 Innovation’s Impact on Management ● Innovation - something entirely new ● Effects of innovation is the kind of products & services offered for sale by other businesses CHAPTER 6 ©2013 Cengage Learning. All Rights Reserved. Business Management, 13e 11 Impact of Global Competition on Business Management ● Global competition - the ability of businesses from one country to compete with similar businesses in other countries CHAPTER 6 ©2013 Cengage Learning. All Rights Reserved. Business Management, 13e 12 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 CHAPTER 6 ©2013 Cengage Learning. All Rights Reserved. Business Management, 13e 13 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 CHAPTER 6 ©2013 Cengage Learning. All Rights Reserved. Business Management, 13e 14 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 CHAPTER 6 ©2013 Cengage Learning. All Rights Reserved. Business Management, 13e 15 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 CHAPTER 6 ©2013 Cengage Learning. All Rights Reserved. Business Management, 13e 16 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 CHAPTER 6 ©2013 Cengage Learning. All Rights Reserved. Business Management, 13e 17 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. CHAPTER 6 ©2013 Cengage Learning. All Rights Reserved. Business Management, 13e 18 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 CHAPTER 6 ©2013 Cengage Learning. All Rights Reserved. Business Management, 13e 19 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 CHAPTER 6 ©2013 Cengage Learning. All Rights Reserved. Business Management, 13e 20 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 CHAPTER 6 ©2013 Cengage Learning. All Rights Reserved. Business Management, 13e 21 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 CHAPTER 6 ©2013 Cengage Learning. All Rights Reserved. Business Management, 13e 22 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 CHAPTER 6 ©2013 Cengage Learning. All Rights Reserved. Business Management, 13e 23 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 CHAPTER 6 ©2013 Cengage Learning. All Rights Reserved. Business Management, 13e 24 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 CHAPTER 6 ©2013 Cengage Learning. All Rights Reserved. Business Management, 13e 25 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 CHAPTER 6 ©2013 Cengage Learning. All Rights Reserved. Business Management, 13e 26 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 CHAPTER 6 ©2013 Cengage Learning. All Rights Reserved. Business Management, 13e 27 Business Ownership ● Obligations of ownership ● Responsible to the entire community ● Economic and social responsibility ● Customers, employees, investors, competitors and the public CHAPTER 6 ©2013 Cengage Learning. All Rights Reserved.