Introduction

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 SPEED1965 1985 1995 2008

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. Chevron4. General Electric5. Bank of America6. ConocoPhillips7. AT&T8. Ford Motor9. JP Morgan Chase10.Hewlett-Packard

Source:http://money.cnn.com

IBM

Gross Income

Profit People

1954 $ 570M $ 59M 50,225

1964 $ 3.23B $ 431M 149,834

1974 $12.67B $1.83B 292,350

1984 $45.93B $5.48B 394,930

1994 $64.05B $3.02B 219,839

2004 $96.50B $8.40B 329,009

2008 $110.95B $12.33B 398,455

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 revenue), minus expenses.

Non-profit organizations

focus on causes not profit

ENTREPRENEURIAL SPIRIT – Richest Americans

Rank NameNet Worth

($bil) Age Source1 William Gates III 57.0 52 Microsoft

2 Warren Buffett 50.0 78 Berkshire Hathaway

3 Lawrence Ellison 27.0 64 Oracle

4 Jim Walton 23.4 60 Wal-Mart

5 S Robson Walton 23.3 64 Wal-Mart

6 Alice Walton 23.2 59 Wal-Mart

6 Christy Walton & family

23.2 53 Wal-Mart inheritance

8 Michael Bloomberg 20.0 66 Bloomberg

9 Charles Koch 19.0 72 Manufacturing, energy

9 David Koch 19.0 68 Manufacturing, energy

11 Michael Dell 17.3 43 Dell

12 Paul Allen 16.0 55 Microsoft, investments

13 Sergey Brin 15.9 35 Google

14 Larry Page 15.8 35 Google

15 Sheldon Adelson 15.0 75 Casinos, hotels

Source: The Forbes 400 09/17/08

People who risk their time, money, and other resources to start and manage a business are entrepreneurs.

ENTREPRENEURIAL SPIRIT (2009)

Name Net Worth Source of Wealth

Bill Gates $40 Billion Microsoft

Warren Buffett $37 Billion Berkshire Hathaway

Carlos Slim Helu*

$35 Billion Telecommunications

Larry Ellison $22.5 Billion Oracle

Ingvar Kamprad*

$22 Billion Ikea

Karl Albrecht* $21.5 Billion Aldi Grocery Stores

Mukesh Ambani*

$19.5 Billion Petrochemicals

Lakshmi Mittal* $19.3 Billion Steel

Theo Albrecht* $18.8 Billion Aldi, Trader Joe’s

Amancio Ortega*

$18.3 Billion Retail (apparel)

* New to the list in 2009

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

Long-term Relationships

Satisfied Customers

Use of Technology

Consumer Power

Growth in Consumerism

Product Differentiation

Customer Focus

Assembly Line

Refining Production

Productivity Gains

Decrease Costs

Hard Sell

No Customer Focus

Industrial Titans

Wealth Creation

Increase in Living Standard

Manipulation/Competition

Exploitation

Mass Production

Factories

Work Specialization

Efficiency

Industrial Revolution

1700-mid 1800s

Entrepreneurship Era

Mid 1800s

Production Era

Early 1900s

Marketing Era

1950s

Relationship Era

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

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

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 ValueCompetitive 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.

COMPETITION IS CHANGING

Most Valuable Brands

Coca Cola

IBM

Microsoft

GE

Nokia

Toyota

Intel

McDonald’s

Disney

Google

Biggest Gainers

Google +43%

Apple +24%

Amazon +19%

Zara +15%

Nintendo

+13%

Global Brand Champions:

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 County2000-2040

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

2000 2005 2010 2015 2020 2025 2030 2035 2040

Total WhiteBlackHispanicOther

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

Terrorism is more of a threat today

China and India’s economies are

growing

Job Migration

GLOBAL ENVIRONMENT

Technology

Free Trade

Blurred lines between countries/world

Technology is linking customers/suppliers

worldwide

Assessment & Analysis

FOUNDATION SIMULATION

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.

Applications

FUNCTIONAL AREAS

R&D

Marketing

Production

Finance

HR

TQM

FOUNDATION HOMEWORK

1. Register at www.capsim.com

2. Registration number is inside the Student Guide

3. Teams will be completed by September 7th

• 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 8th , Company Name changes can be made