INTRODUCTION

Foundations in Business

A SIMPLER TIME…..

Meet Bob

Bob goes fishing every morning

Work: He creates something of value for his family through fish. (He catches them and he owns them)

Benefit: He and his family eat fish and live.

Costs: - They are sick of fish. - The fish stink after a day or two.

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 /

hourNow: 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

MOVING AT BREAKNECK SPEED

1965 1985 1995 2007

1.General Motors2.Exxon Mobil3.Ford Motor4.General Electric5.Mobil6.Chrysler7.US Steel8.Texaco9.IBM10.Gulf Oil

1.Exxon Mobil2.General Motors3.Mobil4.Ford Motor5.Texaco6.IBM7.DuPont8.AT&T9.General Electric10.Amoco

1.General Motors2.Ford Motor3.Exxon Mobile4.Wal-Mart5.AT&T6.General Electric7.IBM8.Mobil9.Sears Roebuck10.Altria Group

1.Wal-Mart2.Exxon Mobil3.General Motors4.Chevron5.ConocoPhillips6.General Electric7.Ford Motor 8.Citigroup9.Bank of America10.AIG

In the last decade: The players have changed What consumers want has changed How we buy has changed

Source:http://money.cnn.com

BUSINESS BASICS

A business is any activity that provides goods and services in an effort to earn profit.

Non-profit organizations

focus on causes not profit

BUSINESS BASICS

Profit is the financial reward that comes from starting and running a business.

the money that a business earns in sales (or revenue), minus expenses

NONPROFIT PARTNERSHIPS

Many nonprofits work with businesses to improve the quality of life in society.

Companies support their missions and improve

society.

The Business of Doing Good

ENTREPRENEURIAL SPIRIT

CREATIVITY MATTERS

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

INVENTIONS WITH IMPACT

Source: Encyclopedia Britannica

Laptop

Viagra

Camcorder

Cat Litter

Bikinis

Muzak

Disposable Diapers

Kool-Aid Astroturf

THE EVOLUTION OF BUSINESS

Industrial Revolution

1700-mid 1800s

Entrepreneurship Era

Mid 1800s

Production Era

Early 1900s

Marketing Era

1950s

Relationship Era

Mass Production

Factories

Work Specialization

Efficiency

Industrial Titans

Wealth Creation

Increase in Living Standard

Manipulation/Competition

Exploitation

Assembly Line

Refining Production

Productivity Gains

Decrease Costs

Hard Sell

No Customer Focus

Consumer Power

Growth in Consumerism

Product Differentiation

Customer Focus

Long-term Relationships

Satisfied Customers

Use of Technology

FACTORS OF PRODUCTION

Businesses rely on some combination of these factors

Entrepreneurship is a key factor Most growing

economies support and promote entrepreneurship

Natural Resources

Human Resources

Capital

Entrepreneurship

THE ELEMENTS OF THE BUSINESS ENVIRONMENT

DYNAMIC, CONSTANT AND ENGAGING, CHANGE

Companies must respond quickly and creatively New Products Integrating Technology Creating Technologies New Businesses Innovative Processes New Target Markets…..

““

When the change on the

outside exceeds the

change on the inside, the end

is near.”

- Jack Welch

ECONOMIC ENVIRONMENT

Government takes an active role to support businesses Low Federal Tax Structure

Small Business Administration

Federal Trade Commission

Legislation & Enforceable Contracts

Economic VulnerabilitiesCEO/Worker Pay Gap

Consumer DebtFederal Debt

Free Enterprise and Fair Competition Flourish in the United States

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 PRINCLIPLES

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.

COMPETITION IS CHANGING

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.

AND CHANGES……

Teens today are much less

likely than their parents to

categorize people by race,

religion, and sexual

orientation. They’re more

likely to notice similarities

and differences in core

values.Source: Diversity in Word and Deed: Most Teens Claim Multicultural Friends, press release from Teenage Research Unlimited, November 10, 2004, TRU Website, http://www.teenresearch.com/PRview.cfm?edit_id=278.

SOCIAL ENVIRONMENT

• Diversity

• Aging Population

• Rising Worker Expectations

• Ethics & Social Responsibility

GENERATION C

Creating Content Customizing Products

Websites Blogs Photos Ringtones Music Movies

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

TECHNOLOGICAL ENVIRONMENT

More than 724,000 Americans report that

eBay is their primary or secondary source of

income,And an additional 1.5

million people say that they supplement their incomes by selling on

eBay.

Source: US Postal Service News Release, July 21, 2005. http://www.usps.com/communications/news/press/2005/pr05_062.pdf.

GLOBAL ENVIRONMENT

Terrorism is more of a threat today

Job Migration

China and India’s economies are

growingTechnology

Free Trade

Blurred lines between countries/world

Technology is linking customers/suppliers

worldwide

GLOBAL ENVIRONMENT

According to investment bank CLSA, China

manufactures 80% of the world’s clocks and watches, 50% of its cameras, 30% of its microwave ovens, a

quarter of its washing machines, and a fifth of its

refrigerators.

COOLEST BRANDS

Nike 30.8%

Sony 15.9%

Adidas 15.1%

BMW 10.1%

Microsoft 9.0%

Coca-Cola 8.9%

IBM 8.2%

According to Chinese college students

BUSINESS AND YOUMAKING IT PERSONAL

What are your passions?

What are business careers that encompass your

passions?

FOUNDATION SIMULATION

$40 Million electronic sensor $40 Million electronic sensor manufacturer.manufacturer.

Market dominated by handful of Market dominated by handful of firms.firms.

No outside competitors or No outside competitors or substitutes.substitutes.

Benign environment.Benign environment.

FUNCTIONAL AREAS

R&D

Marketing

Production

Finance

WHO ARE MY CUSTOMERS?

Segmenting markets: target markets What are the market segments in

Foundation? Low tech segment High tech segment

In terms of units sold, what is the largest market segment in Foundation?

How fast is demand growing?

TWO MARKET SEGMENTS

Large

Small

Slow Fast

Size

Performance

Low Tech

High Tech

PRODUCT WHAT DO THEY WANT?

Product is a bundle of physical, service, and symbolic attributes designed to satisfy customer wants

Electronic sensors characteristics- Size- Performance (processing speed)- Reliability (MTBF)- Age: how recently has it been updated

SEGMENT CRITERIA RANKING

High TechLow Tech

1. Price

2. Age

3. Reliability

4. Positioning

1. Positioning

2. Age

3. Price

4. Reliability

Different customers value different product characteristics

FOUNDATION HOMEWORK

1. Register at www.capsim.com Section 010 - F20047 Section 020 - F20050-000 Section 050 - F20048 Section 060 - F20049

2. TeamsCompleted by September 12th

• We need 9 volunteers to Create a Company today• Everyone else can Join a Company (3 members per team)

• When teams are finalized Sept. 12, changes can be made