Foundations in Business INTRODUCTION A SIMPLER TIME….. Meet Bob Bob goes fishing every morning Work: He creates something of value for his family through fish. (He has created wealth for his family) Benefit: He and his family eat fish and live. Costs: - They are sick of fish. - The fish stink after a day or two. (benefit vs. cost) Too many fish…... Bob’s wife and children become cranky. Risa is a corn grower - she has too much corn and wants some fish. Transaction: An exchange fish for corn both Risa and Bob are better off (profit). Bob keeps fishing... Bob wants a fishing pole made by George. George doesn’t want fish - he wants corn. Risa still has fish and doesn’t want more she wants cookies. Fred has cookies and he wants fish: Fish – cookies – corn – pole Value - function of scarcity and need Evil Ralph - The net fisher Ralph loves to fish and he’s good at it. His net catches 10 times more fish in less time. Bob curses the new technology. (technological innovation) Ralph gives everyone 2 times the number of fish Bob does. (What happens to value of Bob’s fish?) Bob decides to get up earlier and fish with three poles. (process innovation) An earlier start & 3 poles ... Bob doubles his catch Before: 10 fish in 5 hours = 2 fish / hour Now: 20 fish in 5 hours = 4 fish / hour (Increased productivity) Evil Ralph the net fisher 100 fish in 4 hours = 25 fish / hour Bob can’t compete – Bob has to respond … but how? What should Bob do? Bob could kill Ralph, but that would be really wrong. Bob could cut Ralph’s nets, but that would also be unfair. But -- while Bob is thinking He carves a bird for his wife. Birds…. Risa wants Bob to do something about the stinking fish. Risa sees Bob’s bird carving and wants to trade. Her friends see Risa’s bird and they want to trade also. Stop fishing - start birds Competition - invisible hand of the market Efficient allocation of resources An inefficient fisher becomes an efficient bird carver Community more products (2x as many fish) new products (additional wealth) Business and Creating Wealth In a private enterprise system: Individuals (acting in their own self-interest) will compete to participate in transactions in a market. The terms of the transaction (price and quantity) will be determined by the supply of and demand for that good or service. This system will produce an efficient allocation of resources (greater productivity), the lowest price, and pressure for innovation (technological and procedural). Creating Wealth-transactions Exchanges occur only when you are made better off (wealth) Competition to be a part of exchanges results in: Pressure for lower prices Pressure for newer / better products Pressure for more efficient ways to do things To manage the economic part of your life... You have to understand : - How the system works (basic principles) - The current complexity To be an informed as: - An owner - An employee - A consumer - A citizen CHAPTER 1: BUSINESS NOW Change is the Only Constant Trends in a Twitter-Ready Format • The median household income in the U.S. is roughly $50,000. • The top 40% of Americans earn 75% of the money. • Four in ten kids are born to single moms. • • • By 2010, birthrates had dropped to an all-time record low. Sixty percent of Americans now live in the South and West Regions. Twenty-six percent of men make six or more cell phone calls a day. 15 Source: Twitter-Ready Consumer Trends you need to know by Matt Carmichael, AdvertisingAge magazine, October 20, 2010, accessed January 13, 2010 MOVING AT BREAKNECK SPEED 1965 1.General Motors 2.Exxon Mobil 3.Ford Motor 4.General Electric 5.Mobil 6.Chrysler 7.US Steel 8.Texaco 9.IBM 10.Gulf Oil 1985 1.Exxon Mobil 2.General Motors 3.Mobil 4.Ford Motor 5.Texaco 6.IBM 7.DuPont 8.AT&T 9.General Electric 10.Amoco 1995 1.General Motors 2.Ford Motor 3.Exxon 4.Wal-Mart 5.AT&T 6.General Electric 7.IBM 8.Mobil 9.Sears Roebuck 10.Altria Group 2012 1.Wal-Mart 2.Exxon Mobil 3.Chevron 4.ConocoPhillips 5.General Motors 6.General Electric 7.Berkshire Hathaway 8.Fannie Mae 9.Ford 10.Apple The players have changed What consumers want has changed How we buy has changed We’ve experienced a recession Source:http://money.cnn.com BUSINESS BASICS A business is any activity that provides goods and services in an effort to earn profit. Profit is the financial reward that comes from starting and running a business… the money that a business earns in sales (or Non-profit revenue), minus expenses. organizations focus on causes not profit © The Studio Dog/Photodisc/Getty Images The Business of Doing Good Many nonprofits work with businesses to improve the quality of life in society. • Business-like establishments whose primary goal is not profits. • Employ 1 out of 10 workers. • Contribute to the economy • Work with businesses to improve quality of life 19 Entrepreneurial Spirit 20 ENTREPRENEURIAL SPIRIT (2012) Name Net Worth Source of Wealth Carlos Slim Helu $69 Billion Telecommunications Bill Gates $61 Billion Microsoft Warren Buffett $44 Billion Berkshire Hathaway Bernard Arnault* $41 Billion LVMH (hotels) Amancio Ortega $37.5 Billion Retail (apparel) Larry Ellison $36 Billion Oracle Eike Batista* $30 Billion Mining, oil Stefan Persson* $26 Billion H&M (retail clothing) Li Ka-shing* $25.5 Billion Diverified Karl Albrecht $25.4 Billion Aldi Grocery Stores * New to the list in 2012 CREATIVITY MATTERS Entrepreneurs create wealth for themselves ripple effect enriches everyone around them Creativity is important to the economy with global competition, the stakes are high Many of the latest inventions have come from companies this trend is likely build momentum as global competition intensifies THE EVOLUTION OF BUSINESS Mass Production Factories Work Specialization Efficiency Industrial Revolution 1700-mid 1800s Industrial Titans Wealth Creation Increase in Living Standard Assembly Line Refining Production Productivity Gains Decrease Costs Manipulation/ Competition Hard Sell Exploitation No Customer Focus Entrepreneurship Era Mid 1800s Production Era Early 1900s Consumer Power Long-term Relationships Growth in Consumerism Satisfied Customers Product Differentiation Use of Technology Customer Focus Marketing Era 1950s Relationship Era FACTORS OF PRODUCTION Natural Resources (land, fresh water, wind, minerals, etc.) Entrepreneurship (Risk takers, opportunists) Capital (machines, tools, buildings, information, technology) Human Resources (physical & mental) Businesses rely on some combination of these factors Entrepreneurship is a key factor Most growing economies support and promote entrepreneurship DYNAMIC, CONSTANT AND ENGAGING, CHANGE Companies must respond quickly and creatively New Products Integrating Technology Creating Technologies New Businesses Innovative Processes New Target Markets….. Economic Environment Social Environment Competitive Environment Global Environment Business Technological Environment 2008 Economic Crisis • The stock market tumbled and millions lost their jobs • Housing prices plummeted and foreclosures reached record levels • Economic turmoil in the U.S. spread around the world • The economy begun to recover in 2009 although unemployment remains high • The Federal Reserve took steps to encourage a turnaround • President Barack Obama spearheaded economic stimulus to create jobs, build infrastructure and stabilize the economy • The stimulus also added to the debt 26 ECONOMIC ENVIRONMENT Free Enterprise and Fair Competition Flourish in the United States Government takes an active role to support businesses Low Federal Tax Structure Small Business Administration Federal Trade Commission Legislation & Enforceable Contracts Economic Vulnerabilities CEO/Worker Pay Gap Consumer Debt Federal Debt COMPETITIVE ENVIRONMENT Today’s competition is intense Companies must focus on customer satisfaction Build Long-Term Relationships Provide Value Customer Satisfaction = Profitability Cheap Doesn’t Equal Value Competitive Principals 1. Avoid your competitors’ strengths and exploit their weaknesses. Don’t try and beat them at their game. 2. Always be a little paranoid. Never underestimate your competition. 3. Competitors will usually get better when pushed. 4. Competitors are sometimes irrational when pushed. Apple Google Microsoft IBM Walmart Samsung GE Coca-Cola Vodafone AT&T * Brandirectory 2012 29 SOCIETY CHANGES What are our changing values and beliefs? How does the integration of other cultures change/add to values and beliefs? What demographic influences are changing the environment globally? Companies must respond to these changes in the products they sell and how they sell them. SOCIAL ENVIRONMENT • Diversity • Aging Population • Rising Worker Expectations • Ethics & Social Responsibility Population Projections for Tarrant County 2000-2040 4,000,000 3,500,000 3,000,000 Total White Black Hispanic Other 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0 2000 2005 2010 2015 2020 2025 2030 2035 2040 TECHNOLOGICAL ENVIRONMENT Technology has transformed businesses and consumers How Companies Do Business Telecommunications Robotics Flexible Manufacturing Alternative Selling/eCommerce How Consumers Shop Online Information/Content Alternative Buying/eCommerce The World Wide Web has Transformed Business • e-Commerce growth has slowed since the recession 20%+ growth in the past 5 years Companies Online connect with suppliers and distributors experiences can be customized © iStockphoto.com/hohos Within five years, there will probably be more mobile Web users than desktop users. Source: http://www.businessweek.com/smallbiz/content/nov2010/sb20101112_047190.htm, accessed, January 17, 2011 34 GLOBAL ENVIRONMENT Technology is linking customers/suppliers worldwide China and India’s economies are growing Technology Free Trade Job Migration Terrorism is more of a threat today Blurred lines between countries/world Leadership at The Office Video Here 36 FOUNDATION SIMULATION Assessment & Analysis FOUNDATION SIMULATION $40 Million electronic sensor manufacturer. Market dominated by handful of firms. No outside competitors or substitutes. Benign environment. Applications FUNCTIONAL AREAS Production R&D HR TQM Marketing Finance FOUNDATION HOMEWORK 1. Register online at www.capsim.com 2. Teams will be completed by January 31st. • We need six (6) team leaders to Create a Company in the next week • Everyone else will later Join a Company • After teams are final September 6th , Company Name changes can be made