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Chapter 1 Characteristics of Business
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Lesson 1.1 The Nature of Business
Objectives
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Explain the nature of business activities.
Define in your own words the term ‘profit.’
Describe the general types of businesses.
1. Goals of Most businesses
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Business – An organization that produces or
distributes a good or service for profit
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Profit – the difference between earned income (ie:
sales) and costs (ie: expenses)
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Non-Profit – A company where profits are not the
main motivator of the business
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The goal of MOST companies
The goal is Impact – Community service / volunteer
work
2. THE NATURE OF BUSINESS
ACTIVITIES
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Centers around THREE Main Business activities
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Production – making a product OR providing a service
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Marketing – activities between business and customers
involved in buying and selling goods and services
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Examples
Finance – Deals with all of the money matters involved in
running a business
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Manufacturing companies – create products that customers
use
Service companies – use the skills of employees to offer
activities and assistance to customers
Which do you think we have more of?!?
Examples
3. Basics of Supply and Demand
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Supply – the number of similar products that
will be offered for sale at a particular time
and at a particular price
Demand – the number of similar products
that will be bought at a given time at a given
price
Scenarios
Checkpoint!
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What is the difference between a
manufacturing firm and a service firm?
Name the 3 major business activities every
company engages in.
4. Types of Businesses
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Two main TYPES of businesses
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Industrial – produce goods used by other businesses or
organizations to make things
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Commercial – engaged in the three main types of business
activities
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Service, retail, wholesale
Industry – term used to refer to all businesses within
a category doing similar work
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Manufacturing, Construction, Agricultural
Examples
Checkpoint!
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Complete Assessment 1.1 on page 6
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Explain the three main types of business
activities.
Define in your own words the term ‘profit.’
Describe the general types of businesses.
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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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5. Changes Affecting Businesses
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Innovation – developing something NEW
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Affects the KINDS of products / services offered
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Affects business operations
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Examples – cell phones
Examples – computers
6. Impact of Global Competition on
Business
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For years, the US led the way in producing
new goods and services
In the past 50 years, other countries have
become industrialized and now compete with
cheaper products
Global Competition – the ability of
businesses from one country to compete with
similar businesses in other countries
Checkpoint!
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Identify two major types of changes that
present challenges to business.
Who are global competitors with the US?
What products are they producing to
compete with the US?
7. Focusing on the Right Things
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Effectiveness – making the right decisions
about what products or services to offer
customers and the best ways to produce and
deliver them
Efficiency – producing products and services
quickly, at a low cost, without wasting time
and materials
8. Achieving Effectiveness
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KNOW what your customers want
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Businesses spend MILLIONS of dollars analyzing
buying patterns and customer satisfaction
Domestic goods – products made by US
firms
Foreign goods – products made by firms in
other countries
TRIVIA!
 Name
the company that is
responsible for the largest oil
spill in US history.
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Think about it…
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Customers want QUALITY
How does this apply to the automotive
industry?
How does this apply to electronics?
TQM emerged – Total Quality Management –
a commitment to excellence by continual
improvement
9. Achieving Efficiency
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Measured by 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
Three main methods
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Specialization of Effort
Better technology and innovation
Reorganization of work activities
10. Specialization
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When workers specialize, they become
expert at their assigned tasks
Can include the use of an assembly line
What specialization do you think occurs
within a large automobile repair shop?
What specializations are you aware of in the
medical field?
11. Technology and Innovation
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Includes equipment, manufacturing
processes, and materials from which
products are made
Allows for items to be made faster and
usually cheaper
12. Reorganization of Work
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Downsizing – Reducing the amount and
variety of goods and services produced and
the number of employees needed to produce
them
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Laying off workers
Dropping unprofitable products
Increasing the use of technology
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Empowerment – letting workers participate
in determining how to perform their work
tasks and offer ideas on how to improve the
work process
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Work quality and efficiency improves
Can cut down on middle management
Re-engineering – redesigning the work flow
throughout an organization
Trivia!
 How
old was Bill Gates when he
founded Microsoft?
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Checkpoint!
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Why must companies be concerned about both effectiveness
and efficiency?
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.
Complete Assessment 1.2 on page 12
Focus on Dell – page 13, 1-3
Innovation Timeline – Create a Timeline with your favorite
invention from each decade, beginning with 1930
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Give the product, inventor, and specific year invented
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.
13. The Contributions of Business
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We measure business growth and prosperity
in two ways:
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Gross domestic product (GDP) — total market
value of all goods and services produced in a
country in a year
Individual well-being — home ownership,
consumer products, self-improvement, savings
14. GDP
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Types of transactions that are not reported
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*All referred to as the underground
economy
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Working ‘under the table’
Illegal activities (selling drugs)
A teen hired to babysit or cut grass for a neighbor
5% of the GDP in a strong economy
20% of the GDP in a slow economy
Trivia!
 Which
3 countries in the world
have the highest GDP?
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COUNTRIES WITH LARGEST GDPs
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GDP in trillions
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6
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U
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EU
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15. Individual Well-Being
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% of families that own their home
% of people who own flat-screen TVs,
washer / dryer, refrigerator, cell phones, etc.
Investments in self-improvement: education,
exercise and fitness
Checkpoint!
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What does gross domestic product
measure?
16. The Contributions of Business
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Business ownership – few government
controls, so many new businesses
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Popularity of small businesses
Growth of franchise businesses
Risks of ownership
Obligations of ownership
Intrapreneurship
Studying business principles and management
17. Franchises
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A 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
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Examples
Franchisor – the parent company
Franchisee – the distributor of a franchised
product
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How does it work?
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Franchisee pays an initial fee (usually $100,000)
plus a % of sales (usually 3-8%) to the franchisor
Franchisor gives special training and advice on
location selection and operations
Significantly smaller failure rate!
Examples
Trivia!
 What
is the fastest growing
franchise, as of April 2009?
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18. Risks of Ownership
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Risk – the possibility of failure
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Competition from other businesses
Changes in prices
Changes in style
Competition from new products
Economic conditions
Quick Stats…
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1 in 4 businesses fails within the first 2 years
Half fail within 6 to 7 years
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Who assumes the risks of a business?!?
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19. Obligations of Ownership
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To customers
To employees
To management
To competitors
To investors
To the public
20. Intrapreneurship
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
What are the advantages of this compared to
entrepreneurship?
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To Do…
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1.3 Assessment on page 21
Case 1-1 on page 25