Business Fundamentals
Module 1
Evolution of Business, Globalization,
Ethics/CSR, and Entrepreneurship
The Name Game
• Name Game for Thursday - Your assignment is to
position your name (first, last, both, nickname—
whatever) in our mind in such a way that we
remember it by the end of class tomorrow (and if
you’re really good—the rest of the
summer!). You will have 60 seconds to
accomplish your goal. You do not need to turn in
anything written, but you do need to use some
sort of prop that has meaning for you and will
help us remember you. Remember, there are 35
(or so) other students competing for space in our
minds, so be creative.
How to Read the WSJ
• First Section (Section A)
– Front Page
• First two columns
• Bottom center story
– Opinion pages
• Marketplace (Section B)
– Page 2 index
– Last page is usually Sports
• The Count
• Money & Investing (section C)
• Section D
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Monday is usually a special section devoted to one topic
Tuesday is Health and Fitness
Wednesday is Home and Digital
Thursday is Style and Travel
Friday is the Arena section, looking at Arts and Leisure
There is also a Mansion section on Fridays
• On Saturdays there is a Weekend version of the Journal
Important Reminder
Today’s Dynamic Business Environment
The EVOLUTION of BUSINESS
LG8
Agriculture Era
Manufacturing Era
Service Era
Information-Based Era
The AGRICULTURAL ERA
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In the 1800s, the
agricultural industry led
economic development.
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Technology, like the
harvester and cotton gin,
changed the farming
industry making it more
efficient.
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This led to fewer farmers
with larger farms.
The MANUFACTURING ERA
LG8
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Industrialization in the 19th and 20th centuries,
moved jobs from farms to factories.
As technology improved productivity, fewer
workers were needed in factories.
The SERVICE ERA
LG8
• Services make up more 70% of the U.S. economy.
• Since the mid-1980s, the service industry
generated almost all the increases in employment.
• More high-paying jobs in service than goodsproducing industries.
The INFORMATION
TECHNOLOGY ERA
•
Information technology has affected all sectors
of the economy:
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Agricultural
Industrial
Service
QVC, Fact Sheet
Demographics
• Population shifts are creating opportunities for some
and limiting others. (e.g., aging population)
• Diversity has grown from just recruiting minority and
female workers.
• What is the value of diversity? Look at your team composition!
• Growth of single-parent households have encouraged
businesses to implement programs such as family
leave and flextime.
Globalization
1. Growth of global competition
2. Increase of free trade among nations
3. More efficient distribution systems and
communication advances.
4. China’s GDP passes Japan, Latest ranking
5. Sustainability
–
Many companies are shifting their practices to save energy and
produce products that cause less harm to the environment. This
process is called greening.
6. Thomas Friedman video – outstanding!
7. “The Economics of a $6.75 Shirt”
8. We’re Number 1(1)!, Newsweek story
GDP: BRIC Countries vs. US (2008)
TIMS CIVETS
Importing and Exporting
• Importing -- Buying products from another country.
– The value in importing, WSJ, 05/20/2014
• Exporting -- Selling products to another country.
• The U.S. is the largest importing and the third
(barely) largest exporting nation in the world.
• What two countries do you think are the biggest
exporters?
– Exports
– Imports
Comparative and Absolute Advantage
•
Comparative Advantage -- A country should sell the products it produces most efficiently
and buy from other countries the products it cannot produce as efficiently.
•
Absolute Advantage -- A country has a monopoly on producing a specific product or is
able to produce it more efficiently than all other countries.
•
“To produce the wine in Portugal, might require only the labour of 80 men for one year, and to
produce the cloth in the same country, might require the labour of 90 men for the same time. It
would therefore be advantageous for her to export wine in exchange for cloth. This exchange
might even take place, notwithstanding that the commodity imported by Portugal could be
produced there with less labour than in England. Though she could make the cloth with the labour
of 90 men, she would import it from a country where it required the labour of 100 men to produce
it, because it would be advantageous to her rather to employ her capital in the production of wine,
for which she would obtain more cloth from England, than she could produce by diverting a
portion of her capital from the cultivation of vines to the manufacture of cloth.” Ricardo, 1821
•
Suppose that in a particular city the best lawyer happens also to be the best secretary, that is he
would be the most productive lawyer and he would also be the best secretary in town. However, if
this lawyer focused on the task of being a lawyer and, instead of pursuing both occupations at
once, employed a secretary, both the output of the lawyer and the secretary would increase, as it
is more difficult to be a lawyer than a secretary.
Outsourcing
• Outsourcing -- Purchasing goods and services from
sources outside a firm rather than providing them
within the company.
• U.S. firms have outsourced payroll functions,
accounting, and manufacturing for years.
• With the growth of global markets, companies have
been shifting to offshore outsourcing – outsourcing
with other countries.
Ethics
• Ethics -- The standards of moral
behavior; behaviors that are accepted by
society as right versus wrong.
STAKEHOLDERS
• Stakeholders -- All the people who stand to gain
or lose by the policies and activities of a business
and whose concerns the businesses need to
address.
• Who are Stakeholders?
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Customers
Employees
Stockholders
Suppliers
Dealers
Community Members
- Media
- Elected Officials
- Environmentalists
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Ethical Failures in Business
• Enron: One executive is serving a 24 year sentence for
accounting fraud while another was released in October 2011.
• Arthur Andersen: Convicted of tampering with witnesses, the
company was dissolved and about 28,000 people lost their
jobs.
• Tyco International: Two executives stole $600 million from
the company and are scheduled to be released from prison in
2030.
• Adelphia Communication: Two executives were convicted of
conspiracy, bank and securities fraud and given sentences of
15 and 20 years.
• WorldCom: Former CEO was convicted of fraud, conspiracy
and false filings and sentenced to 25 years.
Ethics Starts at the Top
• Trust between workers and managers must be
based on fairness, honesty, openness, and moral
integrity.
• Leadership can help instill corporate values in
employees.
Factors Influencing Managerial Ethics
Individual
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Values
Work Background
Family Status
Personality
Organizational
• Top Level
Management
Philosophy
• Firm’s Reward
System
• Job Dimensions
Environmental
• Competition
• Economic
Conditions
• Social/Cultural
Institutions
Corporate Ethics Codes
• An increasing number of companies have adopted written codes of
ethics.
• Apple Conduct Policy, Google Code of Conduct
• Liberty Interactive Code of Business Conduct and Ethics
Corporate Social Responsibility
• Corporate Social Responsibility (CSR) -- The concern
businesses have for the welfare of society.
• CSR is based on a commitment to integrity, fairness,
and respect.
• CSR proponents argue that businesses owe their
existence to the societies they serve and cannot exist
in societies that fail.
• QVC CSR
Corporate Responsibility and Policy
• Corporate Responsibility -- Includes
everything from hiring minority workers to
making safe products, minimizing
pollution, using energy wisely, and
providing a safe work environment.
• Corporate Policy -- The position a firm
takes on social and political issues.
Conscious Capitalism
• Conscious Capitalism builds on
the foundations of Capitalism voluntary exchange,
entrepreneurship, competition,
freedom to trade and the rule of
law. These are essential to a
healthy functioning economy, as
are other elements of Conscious
Capitalism including trust,
compassion, collaboration and
value creation.
Bill Gates on Creative Capitalism
• Creative Capitalism
– Capitalism has improved the lives of billions of
people
– creative capitalism: an attempt to stretch the
reach of market forces so that more companies
can benefit from doing work that makes more
people better off.
– We need new ways to bring far more people into
the system — capitalism — that has done so
much good in the world.
The Case Against CSR
• “But social welfare isn't the driving force behind these
trends. Healthier foods and more fuel-efficient vehicles
didn't become so common until they became profitable
for their makers. Energy conservation didn't become so
important to many companies until energy became more
costly. These companies are benefiting society while
acting in their own interests; social activists urging them
to change their ways had little impact. It is the relentless
maximization of profits, not a commitment to social
responsibility, that has proved to be a boon to the public
in these cases.” from the WSJ
• Friedman – “The Social Responsibility of Business is to
Increase its Profits.”
– Debate at reason.com
Corporate Philanthropy and
Social Initiatives
• Corporate Philanthropy -- Includes
charitable donations. Is this stealing from
the investors?
• Corporate Social Initiatives -- Includes
enhanced forms of corporate philanthropy.
Charitable Giving as % of GDP
Society and the Environment
• The green movement emerged as concern
about global warming increased.
• Many companies are trying to minimize
their carbon footprints – the amount of
carbon released during an item’s
production, distribution, consumption and
disposal.
Responsibility and the
Environment
• Environmental efforts may increase costs but
can offer good opportunities.
• The emerging renewable-energy and energyefficiency industries account for 8.5 million
U.S. jobs.
• By 2030, as many as 40 million “Green” jobs
will be created.
• Happy Planet Index
Social Auditing
Social Audit -- A systematic evaluation of an
organization’s progress toward implementing
socially responsible and responsive programs.
– Example of a CSR Report: Starbucks
You and the Environment
• It’s not necessary to radically change your lifestyle to
make an ecological difference. Here are a few ways to
you can make small changes to help.
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Become a vegan
Buy a reusable grocery bag
Buy energy efficient light bulbs
Recycle more
Drive fewer miles or ride your bike
Use less water
Run less electrical equipment
Buy local produce
Buy a hybrid car
Ethics and You
• Plagiarizing from Internet materials is the most
common form of cheating in schools today.
• Studies found a strong relationship between
academic dishonesty and dishonesty at work.
America’s Most Admired Companies
• And the winners are…
Important Reminder
ENTREPRENEURSHIP
• Accepting the risk of starting and running a business.
Why Take the Risk?
• Opportunity
• Profit
• Independence
• Challenge
Entrepreneurship Videos
• A Classic (IMO)
• Think Different
• Gary Vaynerchuk video (first 6:30)
The UPS and DOWNS of Entrepreneurship
•
The UPS
– The freedom to succeed.
– Make your own decisions.
– High possibility of wealth.
– Hire your own staff.
•
The DOWNS
– The freedom to fail.
– No paid vacations
– No health insurance.
– No daycare
• 10 Reasons You Should Never Get a Job
What Does It Take to be an
Entrepreneur?
• Self-directed
• Self-nurturing
• Action-oriented
• Highly energetic
• Tolerant of uncertainty
• TED video
New York Times Article
•
a thin line separates the temperament of a promising entrepreneur from a person who
could use, as they say in psychiatry, a little help.
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He works from 8 a.m. until 10 p.m., seven days a week; he can work 96 hours in a row;
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The attributes that make great entrepreneurs, the experts say, are common in certain
manias, though in milder forms and harnessed in ways that are hugely productive.
Instead of recklessness, the entrepreneur loves risk. Instead of delusions, the
entrepreneur imagines a product that sounds so compelling that it inspires people to
bet their careers, or a lot of money, on something that doesn’t exist and may never sell.
•
Humanity and interpersonal skills are always helpful for recruiting talent and raising
money
•
“I’m addicted to the act of winning, the process. When you are in the act of winning,
everything is great. Once you’ve won, that’s boring. It’s cool, it’s better than having
lost, but it’s boring.”
SOCIAL ENTREPRENEURSHIP:
RESPONSIBLE and PROFITABLE
• Social entrepreneurship is the work of a social entrepreneur.
A social entrepreneur is someone who recognizes a social
problem and uses entrepreneurial principles to organize,
create, and manage a venture to make social change (a social
venture). Whereas a business entrepreneur typically
measures performance in profit and return, a social
entrepreneur focuses on creating social capital. Thus, the
main aim of social entrepreneurship is to further social and
environmental goals. However, whilst social entrepreneurs are
most commonly associated with the voluntary and not-forprofit sectors , this need not necessarily be incompatible with
making a profit.
• Tom’s Shoes
SOURCES of CAPITAL
• Personal savings
• Relatives
• Former employers
• Banks & finance companies
• Government agencies
• Angel investors and Venture capitalists -- Angels typically
invest their own funds, unlike venture capitalists who manage the
pooled money of others in a professionally-managed fund.
• Kickstarter
• Lending Club
ENTREPRENEURIAL TEAMS
• Entrepreneurial team -- A group of experienced
people from different areas of business who join to
form a managerial team with the skills to develop,
make and market a new product.
• An entrepreneurial team (Steve Jobs, Steve
Wozniak, and Mike Markkula) was key to
Apple’s success. Video 1 (:22-1:34), Video 2,
Video 3
THEY DID WHAT?
Famous Business Failures
• Tommy Hilfiger – First store went bankrupt
• Milton Hershey – First confectionary failed
• H.J. Heinz – Company went bankrupt six years after
start
• Walt Disney – First film company went bankrupt
• Henry Ford – First two car companies failed
• L.L. Bean – Almost went bankrupt in first year
Source: World Features Syndicate, 2009.
Outsourcing Your Small Business
• Using the Internet to find affordable labor around the
world.
• Elance provides small businesses with a hub to find
low-cost contractors. (browse categories, online
marketers)
• Get Friday (click on Services tab)
• Outsourcing Your Life – Tim Ferriss, author of The 4Hour Workweek, The 4-Hour Body, and The 4-Hour
Chef; Elance video, “Ted” video; New York Times
article
Online Businesses
• Web-based businesses have more unique products than most brick
and mortar stores.
• Online sales reached $165.9 billion in 2007, 8% of all retail sales.
• Example: MeganElizabeth, YouTube channel
• Affiliate Marketing -- An Internet-based marketing strategy in which
a business rewards individuals or other businesses for each visitor
or customer the affiliate sends to its website.
• Turbulence Training, Raw Vegan, VitaMix
Business Plans
•
Business Plan -- A detailed written statement that describes the nature
of the business, the target market, the advantages the business will
have over competition, and the resources and owners qualifications.
• A business plan forces potential owners to be specific about what
they will offer.
• A business plan is mandatory for talking with bankers or
investors.
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A good executive summary catches interest and tempts potential
investors to read on.
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Getting the plan into the right hands is almost as important as getting
the right information in it.
Business Plan Pro
There are many sources of help for starting your own business…
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Sources for Help
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SBA
SCORE
Incubators
Other entrepreneurs
Closing Thought for Today
• Creativity and Schools
– TED Video