introduction foundations in business. a simpler time….. meet bob
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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
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
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
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.
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
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.
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?
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)
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