©2013 Cengage Learning. All Rights Reserved. Business Management, 13e Characteristics of Business...

©2013 Cengage Learning. All Rights Reserved.

Business Management, 13e

Characteristics of Business6.1 The Nature of Business6.2 Changes Affecting Business6.3 The Contributions of Business

CHAPTER

6



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6.1 The Nature of Business

GOALS● Explain the nature of business activities.● Describe the general types of businesses.



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Management of Business Activities

● Business – an organization that produces or distributes a good or service for profit● Profit is the difference between earned income and costs

● Production – involves making a product or providing a service● Manufacturing firms create products that customers

purchase to satisfy needs● Service firms use the skills of employees to offer activities

and assistance to satisfy customer needs● Service firms exceed the number of manufacturing firms



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● Marketing – activities between business and customers involved in buying and selling goods and services

● Finance – all the money involved in running a business



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● Supply and Demand● Supply - the number of similar products that will

be offered for sale at a particular time & at a particular price

● Demand - the number of similar products that will be bought at a given time at a given price



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Types of Businesses

● Goods-producing businesses – produce goods used by other businesses, organizations, or consumers● Companies that mine coal & extract oil from the

earth provide resources that are used by other companies & consumers



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Types of Businesses

● Service businesses – type of business that use mostly labor to satisfy customers● Examples include firms engaged in marketing (wholesale

and retailers), in finance (banks & investment companies), and in providing services (medical offices, fitness centers, & hotels)

● Industry – businesses in a category doing similar work● Examples: automotive, school, health, government,

movie/film




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Expected Employment in Major Industries by 2018



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6.2 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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Innovation’s Impact on Management

● Innovation - something entirely new● Effects of innovation is the kind of products &

services offered for sale by other businesses



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Impact of Global Competition on Business Management

● Global competition - the ability of businesses from one country to compete with similar businesses in other countries



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Focusing Management on the Right Things

● Effectiveness – making the right decisions about what products or services to offer customers and the best way to produce & deliver them

● Efficiency – producing products & services quickly, at low cost, without wasting time & materials



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● Achieving effectiveness● Knowing what customers want● Domestic goods – products made by firms in the

United States● Foreign goods – products made by firms in other

countries● Total quality management (TQM) – a commitment

to excellence accomplished by teamwork & improvement of work procedures



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● Achieving efficiency● 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



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● Achieving efficiency● Specialization

● When workers specialize, they become experts at their assigned tasks, this improves efficiency

● Technology and innovation● With new discoveries and inventions, better-quality

goods & services are built at a faster pace & lower cost



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● Achieving efficiency● Reorganization of work

● Challenging way to increase efficiency ● Empowerment – letting workers participate in

determining how to perform their work tasks & offer ideas on how to improve the work process

● Firms find the the quality of work often improves● Re-engineering – redesign the work flow throughout

the organization



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6.3 The Contributions of Business

GOALS● 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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Business Growth and Prosperity

● Gross domestic product (GDP) – the total market value of all goods and services produced in a year● GDP is the chief measure of a nation’s economic

wealth● Compared year to year and also with GDP of other

countries● In 2010, GDP in US reached $14.7 trillion, China is close

to America in terms of GDP



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● Underground economy – income that escapes being recorded in the GDP

● Working full or part-time for cash ● Size concerns government due to its illegal nature

& activities are not taxed



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● Individual well-being is the second measure of nation’s wealth● US Department of Commerce gathers information

that reveals the financial well-being of US citizens● 66% families live in homes they own● 80% of adults carry cell-phones in the US and families

are giving to children under the age of 10● Human Development Index (HDI) measures life

expectancy, education, and gross national product● In 2010, US ranks 4th after Norway, Australia, & New Zealand



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● Even though America is doing well economic and social problems exist● Job shortages, layoffs, lack of skills causes income

to drop● Low income causes it difficult to buy homes, send

children to college, save for retirement● Over 14% of American families had income below the

poverty level of $22,000 for a family of four



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Business Ownership

● Entrepreneur – someone who starts, manages, & owns a business

● Popularity of small business● Almost anyone who wishes to do so may start a

business● Small business describes companies that are

operated by one or a few individuals● In the US about half of all employed people work for

small businesses



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Business Ownership

● Growth of franchise business● Franchise – a legal agreement in which and

individual or small group of investors purchases the rights 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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Business Ownership

● Growth of franchise business● In a franchise agreement, the franchisee pays an

initial fee—often $100,000 or more—to the franchisor & a percentage –usually 3 to 8 % of sales



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Business Ownership● Growth of franchise business

● In return, the franchisee gets assistance in selecting a location for the store or building, operating procedures & policies, & exclusive rights to sell the franchised product or service

● Services are valuable to inexperienced business owners● 5-10% of franchised business fail, the failure rate is far

lower than the failure rate of nonfranchised new businesses



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Business Ownership

● Risks of ownership● Success depends on managerial effectiveness● Risk is the possibility of failure● The Service Core of Retired Executives (SCORE)

reports up to 70% of new firms with employees survive at least two years, & half survive for five years



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Business Ownership

● Obligations of ownership● Responsible to the entire community● Economic and social responsibility

● Customers, employees, investors, competitors and the public

©2013 Cengage Learning. All Rights Reserved. Business Management, 13e Characteristics of Business...

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