RU 33:011:100 Mittra: Introduction to Business - Exam 1

Business

All profit-seeking activities that provide goods and services.

Profit

Rewards earned by business people. This is not limited to only money.

Non-profit organization

Exists in both private and public sectors. Has a goal beyond making money -- often times to help society. Often exempt from taxes.

4 factors of production

land, labor, capital, entrepreneurship

Land

4 factors of production.

All inputs and natural resources used in production, such as raw materials

Labor

4 factors of production.

The workers used in production, including both physical and mental workers

Capital

4 factors of production.

Technology, tools, and facilities used to produce the good/service.

Entrepreneurship

4 factors of production.

The willingness to take risks and operate a business. They find a need in the market and make a business to fill that need.

Competitive differentiation

Companies produce different variations of similar products to differentiate themselves from the competition.

Basic rights in capitalism

- Private ownership of property,

- Right to profits (businesses get to keep their profits),

- Freedom of choice ( buyers can buy what they want),

- Fair competition

Entrepreneur

Individual who takes a risk to earn a profit.

Seven eras in the history of business

Colonial period, the industrial revolution, the age of industrial entrepreneurs, production era, marketing era, relationship era, and social era.

Colonial Period

- Small towns served as a marketplace for trade

- Located in rural areas, so crops heavily influenced the economy

- Colonists depended on England to survive

The Industrial Revolution

- Introduction of the factory system

- Machinery

- Specialization in labor

Age of Industrial Entrepreneurs

- Around the gilded age

- Entrepreneurship increases in the U.S.

- Emergence of large business magnates (J.P. Morgan for banking, Vanderbilt for railroads, and Carnegie for steel)

- Raised standard of living

Production Era

- 1920s

- Focus on optimizing production

- "Good products will sell themselves"

- Utilized transaction management

Marketing Era

- After WWII

- Focus on advertising

- Differentiating from competitors through branding

Relationship Era

- 21st century

- Focus on nurturing customer loyalty

Transaction Management

Producing and promoting products in hopes that enough consumers will purchase it and make a profit.

Social Era

- Around 2010 (Rise of social media)

- Businesses now have a social media presence

- Businesses try to connect with customers on an even more personal level

- Customers now demand more transparency from businesses

- Companies have formed strategic alliances with one another

Outsourcing

Hiring third-party companies to perform work normally done inside of the company by its own employees

Offshoring

Relocating parts of a company (manufacturing, accounting, etc) to lower-cost locations overseas.

Nearshoring

Relocating parts of a company closer to the company's home base to keep jobs in the U.S. and to protect their intellectual property.

Business trends

- Technology

- Aging population and shrinking of the labor pool

- Increasingly diverse workforce

- Outsourcing

- Expectations of flexibility and mobility from new generations

- Innovation through collaboration (Crowdsourcing)

Crowdsourcing

Using the collective talent of a number of people to get work done. This is typically done over the internet.

Manager must have

- Vision

- Critical thinking

- Creativity

Vision

Ability to see the marketplace's needs and what a company must do to satisfy them

Critical thinking

Ability to analyze information to identify problems, opportunities, or solutions

Involve determining authenticity, accuracy, and value of data.

Creativity

Ability to create new solutions to problems

Business ethics

Code of conduct and morals involved in decision making in a company

Social responsibility

Management philosophy that promotes the well-being of the general public. This is normally done by an established company who wants to give back to the community.

Business's relationship to the economy

If business grows, then the economy follows.

Sarbanes Oxley Act of 2002

- Legislation designed to punish corporate and accounting fraud and corruption.

- Forces companies to create anonymous channels for reporting fraud.

- Protects workers and whistleblowers.

Ways for businesses to manage ethics

- Engaging in corporate philanthropy

- Anticipating and managing risks

- Identify opportunities to create value by doing the right thing

Stages of moral development

Preconventional, conventional, postconventional

Preconventional stage of moral development

Individual is only driven by self-interest and acts out of fear of punishment or in hope for a reward.

Conventional stage of moral development

Individual acknowledges their duty to their group. Acts out of the desire to belong to the group.

Postconventional stage of moral development

Individual follows personal principals. Acts out of a moral standard they've set for themselves that considers personal, group, and social responsabilities.

Conflict of interest for employees

Situations where employees must choose between corporate welfare and personal gain.

Whistleblowing

- Employees reporting illegal, unethical, or immoral behavior of their organization to the media, the government, or other authorities.

- Retaliation against whistleblowers is illegal

Integrity

- Adhering to deeply felt ethical principles.

- Includes doing what you say you will do and accepting mistakes.

Levels of development of corporate ethical culture (Bottom to top)

1. Ethical awareness

2. Ethical education

3. Ethical action

4. Ethical leadership

Ethical awareness

- Employees must be aware of possible ethical issues that may arise in their work.

- Awareness is usually achieved by creating a code of conduct.

Code of conduct

A formal statement that defines how an organization expects its employees to resolve ethical issues.

Ethical education

Companies must provide tools, such as training, for employees to resolve ethical issues — a code of conduct alone may not be enough.

Ethical action

Employees should follow through on their decision to resolve an ethical issue

Ethical leadership

- Business leaders must also demonstrate ethics, which should trickle down to employees.

- Expectations of stakeholders often put pressure on businesses to act ethically.

Tone at the top

Leaders who act ethically will encourage employees to also follow suit.

Triple bottom line

Relates to social responsibility.

Using the 3 Ps to assess a business's performance:

- People

- Planet

- Profits

Socioeconomic model

Attitude that businesses owe their existence to improving society.

Economic model

Attitude that businesses are solely responsible for maximizing profits and appeasing shareholders. Society will benefit when businesses produce marketable products that appease the needs of society.

Social audits

Formal procedures that identify and evaluate all company activities related to social issues, such as conservation, employment practices, and philanthropy.

Business responsibilities to the general public

- Public health issues

- Protecting the environment

- Developing the quality of the workforce

- Engaging in corporate philantrophy

Recycling

Reprocessing of used material for reuse

Green marketing

Marketing strategy that promotes the use of environmentally friendly products and production processes. Green marketing is regulated by the FTC.

Biodegradable

Breaks down and return to nature in a short period of time

Compostable

Green marketing term.

Breaks down and becomes a part of usable compost in a safe and timely manner

Recyclable

Green marketing term.

Be entirely reusable as new materials in the manufacturing of a new product

Refillable

Green marketing term.

Be included in a system for the collection and return of the package for a refill.

Ozone safe/friendly

Green marketing term.

Must not contain any ozone-depleting ingredients.

Corporate philanthropy

Businesses supporting the communities that they earn profits from.

Cause-related marketing

Marketing that seeks to increase profits and benefit society.

Ex. Sponsoring the Olympics and promoting the company's sponsorship

Business responsibilities to customers

- (Safety) Right to be safe

- (Knowledge) Right to be informed

- (Voice) Right to be heard

- (Choice) Right to choose

Business responsibilities to employees

- Workplace safety

- Quality of life

- Providing equal opportunity

- Eliminating sexual harassment and sexism

Greenwashing

Giving a false impression of being sustainable

ESG

Environmental, social, and governance.

Management philosophy of considering the impact of a business on the environment, it's relationship with other businesses, and what rights it gives to shareholders.

Responsibilities to investors and the financial community

- Businesses are responsible for behaving ethically and legally for their investors

- The Securities and Exchange Commission (SEC) investigates suspicions of unethical or illegal behavior of publicly traded companies

Microeconomics

The study of small economic units, such as individual consumers, families, or businesses.

Supply

Willingness and ability for sellers to provide a certain product.

Demand

Willingness and ability for buyers to purchase a certain product.

Economics

The study of choices that people and governments make in allocating scarce resources.

Demand curve

A graph indicating the amount of goods/services buyers are willing to purchase at different price levels.

As price rises, demand decreases.

Price changes move along the demand curve.

Overall changes to the demand of a product will shift the demand curve.

Shifters of Demand

(TRIBE)

- Tastes of the consumers

- Related goods

- Complementary goods (Buying ketchup and french fries)

- Substitute goods (Buying Pepsi instead of Coke)

- Income

- Buyers (number of) in the market

- Expectations about the future

Supply curve

A graph indicating the amount of goods/services sellers are willing to provide at different price levels.

As price rises, supply increases.

Price changes move along the supply curve.

Overall changes to the supply of a product will shift the supply curve.

Shifts of Supply

(TIERS)

- Technologies

- Inputs (Price of the 4 factors of production)

--- Land

--- Labor

--- Capital

--- Entrepreneurship

- Expectations of suppliers

- Regulation from the government

--- Taxes

--- Subsidies

- Suppliers (number of) in the market

Equilibrium price

The prevailing price at which you can purchase a product.

The equilibrium price is located on the equilibrium point, which is where the supply and demand curves intersect.

Law of supply and demand

The price of a product will always go towards the equilibrium point. Disequilibrium results in a surplus or a shortage.

Surplus

Quantity supplied > quantity demanded

Shortage

Quantity supplied < quantity demanded

Private enterprise system

- For-profit system where property is owned by private individuals. Also known as capitalism.

- Hands-off approach to the economy

- Let buyers and sellers decide the optimal price

Macroeconomics

The study of a nation's overall economic issues, including output, unemployment, and inflation. Also studies how the economies of different nations interact with one another.

Types of competition

Pure competition, monopolistic competition, oligopoly, pure monopoly, regulated monopoly

Pure competition

- Many sellers

- Low barrier to entry

- Has no control over the pricing of a product

- Similar products

Monopolistic competition

- Few to many sellers

- Medium barrier to entry

- Has some control over the pricing of a product

- Different products

Oligopoly

- Few sellers

- High barrier to entry

- Has some control over the pricing of a product

- Different or similar products

Pure Monopoly

- One main seller and no competition

- High barrier to entry

- Have control of the pricing of a product

- Often illegal

Regulated monopoly

- One main seller and no compeitition

- High barrier to entry

- Pricing is controlled by the regulators (i.e. the government or some other organization)

- Often created because the high barrier to entry makes it unprofitable for private companies.

Planned economy

Government controls how resources and profits are allocated in order to achieve government goals.

Two types exist:

- Socialism

- Communism

Socialism

- Government ownership of major industries (Communications, health, etc.)

- Private ownership still exists in small industries like retail

Communism

- No private ownership of property

- Strong central government distributes money and sets prices

Mixed market economies

Economic system that draws from both planned a private enterprise systems to different degrees.

Privatization

Conversion of government-owned companies into privately-owned companies, which help reduce costs to the government.

Business cycle

The economy goes through cycles of expansion and contraction.

Recession

Cyclical economic contraction

Depression

Prolonged recession

Productivity

Relationship between the number of units produced and the amount of input required to produce them.

Productivity = Output / Input

Gross domestic product (GDP)

Sum of all goods and services produced within a nation's borders.

Often times GDP per-capita is used, meaning it's the total output of a country divided by the number of citizens in that country.

Inflation

Economic situation caused by excessive consumer demand and increases in the costs of inputs.

Inflation devalues money, as you can buy less with the same amount of money as you had before.

Core inflation rate

Inflation rate of an economy after food and energy prices are removed (because these two industries are often too volatile and whose prices fluctuate frequently).

Used as an accurate measurement of inflation.

Hyperinflation

An extreme form of inflation characterized by soaring prices