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
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