Business Characteristics

What is a Business?

Organization that produces or distributes a good or service for profit

Profit – difference between a business’ revenue (income) and expenses (costs)

Business Activities

Each business participates in at least three major activities

1. Production – making a product or producing a service Manufacturing firms – produce goods (ex.

Ford Motor Company) Service firms – provide assistance to

accomplish specialized needs (ex. doctor, real estate agent)

Business Activities (cont’d)

2. Marketing – how goods and services are exchanged between producers and consumers

3. Finance – money matters involved in running a business

Types of Businesses

1. Industrial – produce goods used by other businesses or organizations to make things (ex. company that produces medical products that are used by hospitals)

Industrialized nations (ex. U.S., Japan, Germany) produce thousands of products compared to the number of products produced by third world nations

Third world nations – few manufacturing firms and relatively poor

Types of Businesses (cont’d)

2. Commercial – engaged in one of the following activities

Marketing (ex. wholesalers and retailers) Finance (ex. banks and investment

companies) Services (ex. doctors, fitness facilities,

and lawn care) – intangible products that use primarily labor to satisfy consumer needs

Industry Refers to all businesses within a category The Occupational Outlook Handbook breaks

down industries by occupations Ex. Business and Financial Operations

Occupations Click on this link to see the number of people

employed in certain occupational categories and the individual occupations under each category

As Business Changes Constantly changing Businesses have advanced in many ways

Ex. computers, used for many key business functions

Countries have become more industrialized Ex. U.S now purchases many goods from other

countries Growth in certain industries

Ex. Services and retail trade has grown, while wholesale trade and manufacturing has remained unchanged

Effectiveness and Efficiency

Effectiveness – making the right decisions about what products or services to offer customers and how to produce and deliver them

Efficiency – producing needed goods and services quickly and at low cost

Good managers focus on both

Achieving Effectiveness Knowing what your customers want Choice has increased over the years

Domestic goods – products made by firms in the U.S.

Foreign goods – products make by firms in other countries

Information is gathered about customers to determine what they like – market research

Also want high quality products Total quality management (TQM) – commitment

to excellence that is accomplished by teamwork and continual improvement

Achieving Efficiency Measure by output –

quantity produced within a given time

Productivity – producing the largest quantity in the least amount of time by using efficient methods and modern equipment

Achieving Efficiency (cont’d)

Three ways Specialization of effort – workers learn a

specific skill/task (Ex. Dell Computers – putting the hard drive into the computer) Mass production – effectiveness can also be

improved this way; using up-to-date equipment and assembly line methods to produce large quantities of identical goods

Better technology and innovation Reorganization of the company

Gross Domestic Product Often referred to as the GDP First measure of a nation’s economic

wealth Total market value of all goods and

services produced in a country in a year

Click this link to see a ranking of the GDP for the U.S. and other countries around the world

Individual Well-Being Second measure of a nation’s wealth GDP helps in judging the overall growth of

an economy; tells little about the economic worth of individuals

Increase income improves the level of living of an average family Ex. number of families living in home they own,

number of adults receiving education after high school

Entrepreneurship

Entrepreneur – starts, manages, and owns a business

Growth of business within the U.S. resulted from Individuals wanting to own their own

businesses Easy to start a business

Small Business Any business that is operated by one

or a few individuals Few small businesses produce goods

since it is costly Many are one-person or family

operations Examples – restaurants, gas stations,

consultants working from home with the use of a computer

Franchise Business Franchise – legal agreement in which a distributor

buys the right to sell the franchising company’s product or service under the company’s name and trademark

Examples – Subway, Bruster’s Franchisor – parent company of a franchise

agreement that provides the product or service Franchisee – distributor of a franchised product or

service 5 to 10 percent of franchised businesses fail; much

lower than non-franchised businesses

Risks of Business Ownership Success depends on managerial

effectiveness Risk is the possibility of failure

Competition from other businesses Changes in prices Changes in style Competition from new products Changes that arise from economic

conditions

Causes of Business Failures Almost two-thirds of businesses fail from

economic causes Industry weakness, low profits, and low sales

Other causes of business failure include Finance causes (ex. expenses/debts) Disaster and fraud (ex. hurricanes/theft) Neglect causes (ex. poor work habits) Strategy causes (ex. overexpansion) Experience causes (ex. inadequate planning)

Intrapreneurship Intrapreneur – employee who is given funds

and freedom to create a special unit or department within a company in order to develop a new product, process, or service

Largest corporations provide these types of opportunities; valuable employees provide the company with innovative products and services

Example of Company – 3M that makes Post-It Notes

Reference

Evarard, Kenneth E., Burrow, James L. (2001). Business Principles and Management. Mason, OH: South-Western.