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