UNIT 1 CHARACTERISTICS of BUSINESS and ETHICAL ISSUES Did you know. . . ? 29. 6 million companies in 2008— 99. 9% small businesses 2010 – latest report indicates there are 24. 6 M small businesses in the United States. 2012 – latest reports indicate there are 27 million small businesses in the United States with fewer than 500 employees Only 3 – 5% of small business owners make over $250, 000 per year (2012) 1
DEFINITION OF BUSINESS The operation of an organization that satisfies human needs and wants by providing goods and services for the purpose of making a profit. YOUR JOB: Look up each word underlined and in red above and write down definition. Provide additional information, if asked. • “organization” • “needs” and “wants. ” Define and give example. • “goods” and “services” Define and give example. • “tangible” and “intangible” Define and give example. (not in definition, but relates to goods & services) • “profit” CIRCLE THE CORRECT ANSWER 1. Goods and services that are necessary for living such as food, clothing, shelter are NEEDS WANTS ADVERTISING 2. Goods and services that are not necessary for living such as games, entertainment are NEEDS WANTS ADVERTISING 3. Many times people think they need things that they in fact want due to the power of SCARCITY ADVERTISING DISTRIBUTION 4. A time when there are not enough goods and services to meet people's needs is SCARCITY ADVERTISING DISTRIBUTION 5. This is an important part of economics that ensure people's needs and wants are met. SCARCITY ADVERTISING DISTRIBUTION 2
Understanding PROFIT, there a few terms you need to know: “Earned income” (aka sales revenue) Income earned from sale of product. “Cost” (aka cost of goods sold) Amount paid for product “Gross Profit” Sales dollars left after paying for the cost of goods sold and before expenses taken out. “Expenses” Costs related directly to the product (wages, labor, utilities, rent, insurance, etc. ) “Net Profit” Gross profit minus expenses (costs incurred by a business) ----You try doing the math ----We will go over this together You're selling t-shirts for your company product. You purchase 100 t-shirts @ $5. 00 per t-shirt from Hoover Design. You sell your t-shirts at $8. 00 per t-shirt. You incurred expenses: $12. 00 in advertising; and $30 in salaries to workers. • • • How much do you owe Hoover Design? (Cost of goods sold) (formula: # of t-shirts ordered x COST per t-shirt) How much revenue was earned from sale of your t-shirts? (formula: # of t-shirts ordered x selling price per t-shirt) What is your gross profit? (formula: Revenue-cost of goods sold) What are your total expenses? (formula: add expenses together) Have you made a net profit or a net loss? How much? (formula: gross profit – expenses) If expenses greater than gross 3 profit—net loss; if expenses less than gross profit – net profit.
BUSINESSES ARE EITHER INDUSTRIAL OR COMMERCIAL ENTERPRISES: 1. Industrial Business -- produce goods used by other businesses or organizations to make things; do not sell directly to consumers. Ex: Company that mines iron ore to make steel; power plants; factories, etc. 2. Commercial Business – sell directly to consumers. Ex: retailers, banks, restaurants, hospitals, etc. Did you know. . . ? King Camp Gillette’s father was a part-time patent agent and inventor. Seventeen-year-old Gillette became a traveling salesman and, following in his father’s inventive footsteps, tried to improve the products he sold. While shaving one morning on the road, he had a brainstorm – to develop a razor that had a safe, inexpensive and disposable blade. His 1904 patent of the double-edged “safety razor” blade changed the history of shaving Original billboard featuring safety razors 1904) 4
FYI: 1905 Gillette ad 5
Three Major Activities of a Business NO. 1 ACTIVITY - PRODUCTION defined as making a product or providing a service MANUFACTURING firms MAKE products a) Manufacturing Firms --- prominence in U. S. in 1900’s. -- uses tools to make a product, -- no direct contact with consumer -- ex: machinists, craftsman work, electronics, engineering jobs, etc. SERVICE firms PROVIDE services b) Service Firms – -- gained prominence in U. S. 1980’s -- provide a service using specialized assistance through use of skilled workers -- health care, restaurants, educators hairstylists, banking, etc. 6
Three Major Activities of a Business continued NO. 2 ACTIVITY - MARKETING defined as putting the right product in the right place, at the right time, at the right price. also known as the 4 P’s of Marketing or Marketing Mix 4 P’S OF MARKETING 1. Product -- Right product to satisfy needs of target customer. Is there a demand for your product? 2. Price -- Right product offered at right price. 3. Place -- Right product at right price available at right place to be bought by customers. ex: air conditioners when it’s 100 degrees. 4. Promotion -- Informing potential customers (target customer) of the availability of the product, its price, and its place. Marketing Mix These four elements adjusted until the right combination is found that serves the needs of the product's customers, while generating optimum income. 7
Three Major Activities of a Business continued NO. 3 ACTIVITY- FINANCE money matters related to running a business FINANCE relates to questions such as these: What is profit? revenue – costs What is cash flow? From where a company receives its cash, and how it spends it What is owner’s equity? Increases when the net income of the company increases; decreases if the net income decreases (company has a loss) 8
Two things necessary to compete: “Being effective is about accomplishing your purpose with intended results, while being efficient is about accomplishing purpose with least waste of time, resources, and effort. ” TWO SAMPLES TO HELP YOU UNDERSTAND THE DIFFERENCE: NO. 1: A surgeon is very skilled, perhaps the best in the country. The impending job is to operate on the patient's left knee. However, the surgeon doesn't perform all the steps of the process leading up to the surgery. Someone else marks the right knee for surgery. The surgeon was skilled and he was fast and he was efficient BUT he performed the surgery on the wrong knee. He was NOT effective because he operated on the wrong knee. NO. 2: Think of a company that was successful making buggy whips as automobiles became the mode of transportation. Assume that the processes used to make buggy whips were perfect. The relationships of internal and external suppliers and customers were perfect. The suppliers and customers teamed together to make perfect buggy whips. The buggy whips were delivered on or ahead of schedule at the lowest possible cost. This company was very efficient BUT the company was doing the wrong things efficiently. The company and its strategists were not very effective. If effective, they would have anticipated the impact automobiles and gotten into a different market. BOTTOM LINE: YOU MUST BE EFFICIENT AND EFFECTIVE TO BE SUCCESSFUL IN BUSINESS. 9
You know that you can you be effective and not efficient. You can be efficient and not effective. YOUR TURN SELECT THE BEST ANSWER BELOW WE WILL GO OVER THIS TOGETHER REMEMBER: “Being effective is about accomplishing your purpose with intended results, while being efficient is about accomplishing purpose with least waste of time, resources, and effort. ” Two guys, Mark and John, are trying to change a flat tire on their cars (each one has his own car). 1) Mark starts by taking out the jack and placing it under the car. He doesn’t know where to position it, so he goes by trial and error and wastes a lot of time doing it. After 20 minutes he finally manages to fix it, so he proceeds to lift the car and change the tire. WAS MARK 1) EFFICIENT, NOT EFFECTIVE; 2) EFFECTIVE, NOT EFFICIENT, OR 3)EFFECTIVE AND EFFICIENT? 2) John starts by grabbing a towel and cleaning the tire. He wants to make thing shiny before he changes it. He is very good and fast at cleaning every little detail of the tire. WAS JOHN: 1) EFFICIENT, NOT EFFECTIVE; 2) EFFECTIVE, NOT EFFICIENT, OR 3)EFFECTIVE AND EFFICIENT? 3) Now if we had Peter, a third person, who could change the flat tire using the right steps and doing it quickly. WAS PETER: 1) EFFICIENT, NOT EFFECTIVE; 2) EFFECTIVE, NOT 10 EFFICIENT, OR 3) EFFECTIVE AND EFFICIENT?
Achieving Effectiveness 1. Achieving effectiveness requires common sense and skill 2. It requires TQM – Total Quality Management— commitment to excellence accomplished by teamwork, innovation, and continual quality improvement THREE PRESTIGIOUS AWARDS FOR QUALITY IMPROVEMENT: a) Malcolm Baldrige National Quality Award U. S. only b) Deming Award Japan only Dr. W. Edward Deming C) ISO – Industrial Organization for Standardization (1987)— network of national standards institutes from 140 countries working in partnership Quality rated International MUST BE RENEWED award YEARLY EVERYONE IS 100% RESPONSIBLE FOR THE FINISHED PRODUCT 11
HOW CAN A COMPANY BECOME EFFICIENT? INCREASE EFFICIENCY BY a) Specialization b) Technology and Innovation c) Reorganization can be accomplished by: 1)Downsizing—cut back goods and services provided--shrinking firm size/number of employees. (aka: job cuts/ layoffs) 2)Empowerment—letting workers decide how to perform their work tasks and offer ideas on how to improve work processes. (IBM, GE, General Motors, Honeywell) 12
TWO MEASURES OF A NATION’S WEALTH The first is: Gross Domestic Product--GDP Total market value of all final goods produced and services provided in a country in one year. 2013 -15, 557. 8 (January 2013) 2012 - $15, 467. 8 billion 2011 -15, 006. 4 BI (1 st qtr. ) 2010 -14. 639. 6 B (2 nd qtr. ) 2009 -14. 075 BI (1 ST qtr. ) 2008 -14. 33 T 2007 -13. 22 T 2006 -13. 2 T 2005 -12. 36 T 2004 -11 T 2003 -9 T TAKE A LOOK AT THIS? Und U. S. NATIONAL DEBT CLOCK Underground Economy Income that escapes being recorded in the GDP & is estimated in trillions of dollars IS THE GDP AND GNP THE SAME THING? U. S. Gross Domestic Product, or GDP, is the amount of goods and services, measured at market prices, produced within the country during a particular time period (usually a year). 1991 Economic Report to the President used GDP rather than GNP and it continues today. Gross National Product, or GNP, is the amount of goods and services produced by residents of a country, regardless of where that production takes place. Ex: German-owned car factory operating in the US, the profits from the factory would be counted as part of German GNP rather than US GNP 13
The second measure of a nation’s wealth: Individual Well Being Financial condition of individuals INDIVIDUAL WELL BEING ANSWERS QUESTIONS SUCH AS: HOW ARE YOU DOING? DO YOU HAVE A NEW JOB, HIGHER INCOME? DID YOU TAKE A VACATION THIS YEAR? DID YOU BUY A NEW HOME? DO YOU HAVE MORE MONEY TO SPEND? Let’s look at current unemployment in the U. S. and then answer the following questions: Current Unemployment Rates for States Historical Highs/Lows 1. What is Ohio’s 2013 rate of unemployment? 2. What state has the highest unemployment rate? 3. What state has the lowest unemployment rate? LOOK UP THE NATIONAL UNEMPLOYMENT RATE FOR THE U. S. 2013 Employment, Hours, and Earnings from the Current Employment Statistics survey (National) Home Page 14
Entrepreneur One who starts, manages, and owns a business. Simply put: one who says “WHAT IF? ” SUCCESS DEPENDS ON TWO THINGS: BEING EFFECTIVE & BEING EFFICIENT WHO IS THIS ENTREPRENEUR? Get in, get it done right, and get out, ” ______ once said. Indeed, this has been his motto from his earliest days assisting his father’s real estate business to his multimillion dollar deals in the high stakes world of Manhattan real estate. He has earned a reputation as a ruthless, cunning and suave businessman who can spot a business opportunity a mile away. He has turned the deal-making process into an art form and he has demonstrated that he can come back swinging after even the hardest of challenges to wind up again on top. Estimated to be worth over $2 billion, ____ has secured his name as one. DONALD greatest entrepreneurs of of the TRUMP 15 the 20 th century.
SMALL BUSINESS Any business that is operated by one or up to 500 employees. a) 98% of all businesses in US (approx. 3. 8 M) are classified “small”. (Mom and Pop Operations) b) revenue generated accounts for half of GDP. c) half of all small businesses close within first five years. d) mostly retail/service businesses e) earn many less than $200, 000 in yearly revenues f) over half the total number of workers in this country are employed by businesses with fewer than 500 employees. Did you know, “the Donald” was bankrupt? Today, the Trump brand has come to symbolize all that is lavish and extravagant. From his marble-lined hotels to his billion-dollar golf courses, little about Donald Trump would suggest bankruptcy. However, in his early years, Donald Trump was no different from every other entrepreneur who struggles to grow their business. In fact, he came so close to the brink of http: //www. americanprogress. org/ issues/2011/10/small_business. ht bankruptcy on more than one occasion that his ml success today is all the more remarkable. 16 Donald Trump: CNBC The Billionaire Inside - You. Tube
Growth of Small Business Most large businesses began as small businesses. a) Tandy - 1919 as leather supply store (acquired Radio. Shack 1963; 2000 took Radio. Shack name, 2009 – shortened name to “The Shack” b) Starbucks - began in 1971 when three academics— English teacher Jerry Baldwin, history teacher Zev Siegel, and writer Gordon Bowker—opened a store called Starbucks Coffee, Tea, and Spice in the touristy Pikes Place Market in Seattle. Each invested $1, 350 and borrowed another $5, 000. Chose the name Starbucks in honor of Starbuck, the coffee-loving first mate in Herman Melville's Moby Dick. c) Papa Johns - In 1984, "Papa" John Schnatter (22) knocked out a broom closet located in the back of his father's tavern (Mick's Lounge), sold his prized 1972 Z 28 Camaro, purchased $1, 600 worth of used restaurant equipment, and began selling his pizzas to the tavern's customers. Papa John Telling the Papa John's Story - You. Tube 17
Do you know who Bette Nesmith Graham is? She dropped out of high school and worked as a secretary. As a single mother she worked at the Texas Bank & Trust in Dallas. The advent of electric typewriters raised problems for Graham: She discovered that errors made using the new typewriter ribbons could not be erased. An amateur artist, she invented a white liquid that could be painted over the typewritten error. Initially she named her invention "mistake out. " She made the liquid in her kitchen and rounded up her son and his friends to bottle the liquid in her garage. Orders for the product--renamed "Liquid Paper"--poured in. Liquid Paper soon became a standard product in all offices. In 1979, Graham sold Liquid Paper to the Gillette Company for 47 million dollars plus royalties for every bottle sold till 2000. Graham died in 1980. FYI: Her son, Mike Nesmith, was the drummer for the Monkey’s singing group—way back in the 60’s. 18
Growth of Franchise Business Franchise — legal agreement between a company and distributor to sell a product or service under special conditions Franchisor parent corporation Franchisee your business 19
Franchisee pays initial fee to franchisor 3 - 9% Franchisee gets help in store site selection, guidance, training, advice KEY TO FRANCHISE: Exclusive right to sell franchisor's product under their name. High success rate—only 5 -10% fail WHY DO YOU THINK THE SUCCESS RATE FOR A FRANCHISE IS SO MUCH HIGHER THAN THAT OF A SMALL BUSINESS? Subway royalties and fees are based on gross sales MINUS sales tax a) royalty fee is 8% to company b) 4. 5% advertising fee Fred De. Luca, 59 1. 5 B fortune 20
Disadvantages of Franchise Ownership: 1) Costly to implement. 2) Ongoing royalties cut into profits. 3) Franchisors require franchisees to follow their operations manual to a tee to ensure consistency limiting franchisee creativity. 4) Franchisees must be very good at following directions in order to maintain the image and level of service already established. Advantages of Franchise Ownership: 1) Higher likelihood of success. 2) Products, services, and business operations already established & proven business formula. 3) ONLY 5 -10% OF FRANCHISES FAIL 4) Bankers likely to loan money as successful franchise chains lower risk of repayment default. 5) Image and brand awareness recognized. Consumers comfortable purchasing items familiar with and working with companies they know/trust. 6) Franchise companies provide extensive training and support to franchisees to help them succeed. 7 ) Products and services advertised at local/ national level by the main franchise companies. 21
Risks of Ownership to any business owner: a) b) c) d) e) f) g) Competition from other businesses Price increases Style changes Competition from new products Changes in economic conditions (recession) Unsatisfactory profits Loss of business through unforeseen events (flood, fire, etc) Obligations of Ownership: 1. 2. 3. 4. 5. 6. To customers To workers To management To competitors To investors To public TO TREAT PEOPLE FAIRLY, HONESTLY, AND ETHICALLY 22
INTRAPRENEURSHIP A. Intrapreneur—entrepreneurship within a company. --employee who is given funds and freedom to create a department within a company to develop a new product, process or service. --employee risks neither salary nor savings --company benefits by keeping creative employees --consumers benefits from new and better products introduced at a quickened pace. 1. 3 M 2. Macintosh 3. Intel DID YOU KNOW. . . ? In the early 1970 s, Art Fry was in search of a bookmark for his church hymnal that would neither fall out nor damage the hymnal. Fry noticed that a colleague at 3 M, Doctor Spencer Silver, had developed an adhesive in 1968 that was strong enough to stick to surfaces, but left no residue after removal and could be repositioned. Arthur Fry took some of Spencer Silver's adhesive and applied it along the edge of a piece of paper. His church hymnal problem was solved! Arthur Fry soon realized that his "bookmark" had other potential functions when he used it to leave a note on a work file, and co-workers kept dropping by, seeking "bookmarks" for their offices. This "bookmark" was a new way to communicate and to organize. 3 M Corporation crafted the name Post It Note for Arthur Fry's new bookmarks and began production in the late 70 s for commercial use. 23
B. ESOP – Employee Stock Ownership Plan -- Employees buy shares in company --15 million American workers own stock in companies. --United Airlines, Proctor & Gamble, Avis. --ESOP's have shown to increase productivity --ownership motivates employees to make their company a success. CLICK ON THE LINK BELOW: READ THE ARTICLE AND RESPOND TO THE QUESTIONS BELOW: Grocer gives employees grocery stores 1) Why did Joe Leuken decide to transfer ownership of his three stores to his 400 employees? 2) In what form will ownership transfer to his employees? 3) How will the amount of ownership of the stores be determined for the employees? 24
ETHICAL? A computer input error led to long lines at Valero gas station in Wilmington when motorists were tipped off that premium gas was being dispensed at $1. 10 a gallon. Owner Kenny Nguyen said the station lost about $21, 000. (2011) 25
ETHICS Ethics involves learning what is right or wrong, and then doing the right thing ? ethics story? ? – You. Tube BUT "the right thing" is not nearly as straightforward as conveyed in a great deal of business ethics literature. Most ethical dilemmas in the workplace are not simply a matter of "Should Bob steal from Jack? " or "Should Jack lie to his boss? " Business Ethics —it's coming to know what it right or wrong in the workplace and doing what's right -- this is in regard to effects of products/services and in relationships with stakeholders. Ethical Behavior — respecting basic moral principles like: honesty, fairness, equality, respecting the dignity, diversity and rights of other people and sticking to these principles. Code of Ethics — formal, published collection of values and rules that are used to guide the behavior of an organization toward its various stakeholders. A credo (credo - a set of fundamental beliefs or a guiding principle. ” For a company, a credo is like a mission statement. ) generally describes the highest values to which the company aspires to operate. It contains the `thou shalts. ' A code of ethics specifies the ethical rules of operation. It's the `thou shalt nots. " 76% of corporations surveyed had codes of ethics. 26
DO YOU CONSIDER YOURSELF AN ETHICAL PERSON? Do you cheat on tests and term papers, give your homework to a friend, etc. ? Is this practice ethical because it is generally accepted among students Why is it accepted? Is it right or wrong for an employee to occasionally steal office supplies from an employer? LET’S TAKE THE ETHICS GUY’S QUIZ: ? How Ethical Are You? Take The Ethics Guy's Quiz on CNN? ? – You. Tube FIVE BASIC PRINCIPLES OF BUSINESS ETHICS: 1. DO NO HARM 2. MAKE THINGS BETTER 3. RESPECT OTHERS 4. BE FAIR 5. BE COMPASSIONATE 27
EQUAL EMPLOYMENT TITLE VII OF THE CIVIL RIGHTS ACT OF 1964 outlaws discrimination based of sex, race, color, national origin or religion. GLASS CEILING invisible barrier to job advancement. 1963—FIRST WOMAN TO GO INTO SPACE – Valentina Tereshkova, a Soviet Cosmonaut. 1983 - Astronaut Sally Ride, a physicist and the first American woman to travel into outer space. STICKY FLOOR SYNDROME being trapped in entry-level jobs-low-paying employment, usually minimum-wage type jobs with little or no chance of advancement. COMPARABLE WORTH Paying workers equally for jobs with similar but not identical job requirements. 28
CURRENT TRENDS IN BUSINESS EMPLOYERS, IN EFFORT TO PRODUCE MORE AND KEEP COSTS DOWN, HAVE INCREASED DEMANDS ON WORKERS: 1. LONGER HOURS TO MEET JOB REQUIREMENTS 2. INCREASE IN JOB RESPONSIBILITIES 3. INCREASE IN JOB PACE WORKERS HAVE LESS TIME AT HOME INCREASING STRESS FEWER EMPLOYEES TAKING VACATION TIME DUE TO JOB INSECURITY WORKPLACE ROMANCES ON RISE SEXUAL HARASSMENT ON RISE INCREASE IN USE OF DRUGS/ VIOLENCE/LAWSUITS 29
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Employer Practices 1. Redesigning Jobs 2. Improving Health and Safety 3. Adapting to Workers Needs 4. Family and Medical Leave Act – up to 12 weeks 5. Child Care 6. Wellness and Fitness Programs 7. No Smoking 8. Quality of Work Life (QWL)— organized efforts to improve jobs by involving workers in decision making (empowerment) 9. Workers uniform protection 10. Work from home 31
NATURAL RESOURCE ISSUE water minerals coal What are our “seven” natural oil gas living things resources: itself and the land 1. Need to do a better job managing the environment. 2. Must come up with alternatives due to shortage of natural resources. 3. Need to address issue that many businesses rely on resources that cannot be replaced (ex: oil, natural gas, coal). 4. Need to develop ways to conserve natural resources. 5. Need to use less of our natural resources. 6. Need to develop and use renewable energy resources such as water, wind power to produce electricity. 7. Need mandatory recycling – the reuse of products. 8. What do we do about pollution and the affects on the land we use, the water we drink, and the air we breathe. 32
How Business Responds to Social Problems Social Responsibility —accepting the duty to contribute to the well being of its stakeholders FRONTLINE/World Ghana: Digital Dumping Ground | PBS STAKEHOLDERS – any individual/group affected by a firm’s actions STAKEHOLDERS EXPECT BUSINESSES TO BE RESPONSIVE: ex: donating $$ to flood victims, scholarships, community clean-up, community involvement (little league teams), charity contributions 33
GENERATIONAL CONFLICTS: LOST GENERATION (1883 -1900) came to age following WWI - viewed, as a result of their war experiences and the social upheaval of the time, as cynical, disillusioned, and without cultural or emotional stability. GREATEST GENERATION (1901 -1924) young adults during WWII era. “Great" as a result of the strife and turmoil they endured prevailing against great war machine, and suffering through the Great Depression. SILENT GENERATION (1925 -1945) children during Great Depression – impacted by depression—least understood generation. BABY BOOM GENERATION (1946 -1964) the baby boomers represent the largest generational birth cohort in U. S. history–nearly 76. 5 million in total (10, 000 per day will retire for next 19 years beginning 2011) POST-BABY BOOMERS – GENERATION X (1965 - 1980) regarded as disillusioned, cynical, or apathetic - tend to change jobs oft en NET GENERATION - Internet generation(1977 -1997) job hoppers WOMEN STOPPED BY GLASS CEILING—QUIT, START OWN BUSINESS MILLENNIALS (Y-GENERATION (80’s) - Communicate by Social networking, computer skilled; Motivated, creative, quick-thinkers, strong-willed, passionate. GENERATION Z (90’s) internet generation, “digital natives” – those who grow up immersed in digital technologies, for whom a life fully integrated with digital devices is the norm GENERATION AO (Always-On Generation) (2000’s – 2020) influenced since their early childhood by connectivity afforded by easy access to people and the world’s knowledge through the Internet. Nimble, quick-acting multitaskers who count on Internet as their external brain; predictions Gen AO will exhibit instant gratification and quick fixes; a loss of patience, and a lack of deep-thinking ability. 34
GREED — America’s Worst Enemy 1. Good when it produces the enterprise and drive that energizes capitalism. 2. Bad when it leads to violation of fair business practices and harms the interests of millions of investors and workers, morally or economically 35
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