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Chapter 1 Characteristics of Business
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Chapter 1
©2008 Thomson/South-Western
Characteristics of Business
Lesson 1.1 The Nature of Business
Goals
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Explain the nature of business activities.
Describe the general types of businesses.
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Characteristics of Business
Business and Profit
Business — an organization that produces or
distributes a good or service for profit
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Profit — difference between earned income and
costs
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Characteristics of Business
THE NATURE OF BUSINESS
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Three Business activities
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Production- making a product or providing a
service
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Manufacturing Firm- create products that customers
purchase to satisfy needs
Service Firm- use skills of employees to offer activities
and assistance to customer needs
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Ex. Doctor’s Offices, Airlines, Restaurants
Service Society
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Characteristics of Business
THE NATURE OF BUSINESS
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Marketing- activities between business and
customers involved in buying and selling goods
and services
Finance- deals with all of the money matters
involved in running a business
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Characteristics of Business
Types of Businesses
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Types of businesses
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Industrial businesses- produce goods used by
other businesses or organizations to make things.
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Examples of Industrial Businesses:
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Companies that mine coal or ore
– Companies that build buildings and bridges
– Farmers/Agricultural Producers
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Chapter 1
Characteristics of Business
Types of Businesses
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Commercial businesses- engaged in marketing,
finance, and in providing services as their primary
activities.
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Service businesses-type of commercial business that
uses mostly labor to offer mostly intangible products to
satisfy consumer needs. Ex. Lawn Mowing Business
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Characteristics of Business
Types of Businesses
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Industry- refers to all businesses within a
category doing similar works
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Types of Industries
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Publishing
Automotive
Government
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Characteristics of Business
QUESTIONS
1.
2.
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What is the difference between
manufacturing firm and a service firm?
List an example of an industrial business, a
commercial business, and a service
business.
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Characteristics of Business
Lesson 1.2
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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Chapter 1
Characteristics of Business
Changes Affecting Businesses
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Innovation-something entirely new.
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Affects the kinds of products and services offered
for sale by other businesses.
Affects business operations
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Types of Innovations
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Clothing
– Technology
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Chapter 1
Characteristics of Business
Changes Affecting Businesses
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Impact of global competition
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Global Competition-the ability of business from
one country to compete with similar businesses in
other countries
One of the biggest challenges facing American
businesses
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Characteristics of Business
Changes Affecting Businesses
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Focusing on the right things
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Achieving effectiveness — making the right
decisions about products or services to offer and
the best ways to produce and deliver them
Achieving efficiency — producing products and
services quickly, at low cost, without wasting time
and materials
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Characteristics of Business
Achieving Effectiveness
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Knowing what customers want
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Customers choose between domestic (products
made in the US) and foreign goods (products
made in other countries).
Businesses focus on gathering customer
information to make sure their needs are satisfied
Major focus- QUALITY
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Total Quality Management (TQM)- commitment to
excellence that is accomplished by teamwork and
continual improvement of work procedures and
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products.
Characteristics of Business
EFFICIENCY
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Measured by output- the quantity produced
within a given time.
Productivity- refers to producing the largest
quantity in the least amount of time by using
efficient methods and modern equipment.
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More productive when they are well equipped,
well trained, and well managed.
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Characteristics of Business
EFFICIENCY
Efficiency is achieved in three ways:
 Specialization of effort
 Better technology and innovation
 Reorganization of work activities
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Chapter 1
Characteristics of Business
EFFICIENCY
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Specialization
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Mass Production
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When workers become experts at their assigned
tasks.
Improves quality and increases amount produced
Produce large quantities of identical goods
Combines the use of technology, specialized
equipment, and an assembly line.
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Characteristics of Business
EFFICIENCY
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Technology and Innovation
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Technology includes equipment, manufacturing
processes, and materials used
Better quality goods and services are built at a
faster pace and lower cost
Stay ahead of competitors
Businesses spend billions of dollars annually on
inventing, buying, and using new technology
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Characteristics of Business
EFFICIENCY
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Reorganization of Work
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With slow growth businesses will downsize
(reducing the amount and variety of goods and services
produced and the number of employees needed to produce
them)
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Employees are the most important resource
resulting in EMPOWERMENT (letting workers
participate in in determining how to perform their work tasks
and offer ideas on how to improve the work process.)
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Characteristics of Business
EFFICIENCY
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Reorganization of Work (cont’d)
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Results of Empowerment:
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improved quality of work
increase in production
Reduced number of levels of management (day-to-day
decisions went to workers)
Workers were taught to use computers, work in teams,
and be responsible for quality
Re-engineering-redesigning the work flow throughout
their organization
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Characteristics of Business
QUESTIONS
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What are two ways that innovations affect
businesses?
Identify two major types of changes that
present challenges to business.
Why must companies be concerned about
both effectiveness and efficiency?
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Characteristics of Business
Lesson 1.3
The Contributions of Business
Goals
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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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Characteristics of Business
The Contributions of Business
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Business growth and prosperity
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Gross domestic product (GDP) — total market
value of all goods and services produced in a
country in a year
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Compared year to year and with other countries
The comparisons provide an ongoing measure of
economic success
Underground economy- income that escapes
being recorded in the GDP
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Characteristics of Business
COUNTRIES WITH LARGEST GDPs
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GDP in trillions
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U
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EU
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U
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Fr
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Characteristics of Business
Business Ownership
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Business growth and prosperity
Individual well-being — home ownership,
consumer products, self-improvement, savings
– Economic and Social Problems still exist
-Health and well-being of both a country’s
businesses and its citizens are important to its longterm success.
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Chapter 1
Characteristics of Business
Business Ownership
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Two reasons for business growth
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2.
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Individuals strong desire to start their own
business
Ease of starting a business
Entrepreneur- someone who starts,
manages, and owns a business
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Characteristics of Business
The Contributions of Business
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Business ownership
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Popularity of small businesses
Growth of franchise businesses
Risks of ownership
Obligations of ownership
Intrapreneurship
Studying business principles and management
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Characteristics of Business
Business Ownership
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Popularity of small businesses
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Businesses operated by one or a few individuals
Extremely IMPORTANT part of our economy
Examples:
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Restaurants
– Gift shops
– Gas stations
– Bakeries
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Chapter 1
Characteristics of Business
Business Ownership
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Growth of franchise businesses
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Franchise- legal agreement in which an individual or
small group of investors purchases the right 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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Characteristics of Business
Business Ownership
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Growth of franchise businesses
Franchisee pays an initial fee ($100,000 or more &
percent of sales)
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Franchisee receives assistance in selecting location
3.
Franchisor will also provide tested policies,
procedures, training and advice
 5 to 10 percent of franchises fail, however, it is lower
than trying to start a nonfranchised business
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Chapter 1
Characteristics of Business
Business Ownership
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Risks of ownership
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Risk involves new business competition, changes
in prices, changes in style, new product
competition, changes that arise from economic
conditions
When risks are high, risk of business failure is
also high
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Characteristics of Business
Business Ownership
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Risks of Ownership
Reasons for Failures
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Percent of
Failures
Economic Causes
64.1
Finance Causes
23.9
Disaster and Fraud
6.7
Neglect Causes
3.7
Strategy Causes
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Experience Causes
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Business Ownership
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Obligations of ownership
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To Customers: that they may have the best at the
lowest cost, consistent with fairness to all those
engaged in production and distribution
To Employees: that their welfare will not be sacrificed
for the benefit of others, and in their employment
relations, their rights will be respected
To Management: that is may be recognized in
proportion to its demonstrated ability, considering
always the interest of others
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Characteristics of Business
Business Ownership
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Obligations of ownership
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To Competitors: that there will be avoidance of every
form of unfair competition
To Investors: that their rights will be safeguarded and
they will be kept so informed that they can exercise their
own judgment respecting their interests
To the Public: that the business will strive in all its
operations and relations to promote the general welfare
and observe faithfully the laws of the land
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Characteristics of Business
Business Ownership
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
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Chapter 1
Characteristics of Business
Business Ownership
Intrapreneur Benefits:
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Employees: there is ZERO risk to their salary or
savings
Employers: keeping creative employees who
might have started successful competing
businesses
Employers & Consumers: new and better
products, processes, and services are introduced
at a quicker pace
Chapter 1
Characteristics of Business
Business Ownership
Intrapreneur
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In a global economy, to increase employee
productivity and commitment businesses used two
methods:
1. Sharing Profits with employees
2. Offering employees the opportunity to become
owners of the company through the purchase of
stock
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Characteristics of Business
QUESTIONS
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What does GDP measure?
What is the main difference between an
entrepreneur and an intrapreneur?
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Characteristics of Business
Assignment
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Pg. 6 #1-4
Pg. 12 #1-4
Pg. 21 #1-4
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Once completed turn your work into the box.
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Chapter 1
Characteristics of Business