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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 / hour Now: 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 Stakeholders
Chapter 1: BUSINESS NOW Change is the Only Constant
MOVING AT BREAKNECK SPEED In the last decade: Source:http://money.cnn.com
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 People who risk their time, money, and other resources to start and manage a business are entrepreneurs. Source: The Forbes 400 2012
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 • 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 • 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…..
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 Principals • Avoid your competitors’ strengths and exploit their weaknesses. • Don’t try and beat them at their game. • Always be a little paranoid. Never underestimate your competition. • Competitors will usually get better when pushed. • Competitors are sometimes irrational when pushed.
COMPETITION IS CHANGING: Global Brand Champions Source: Best Global Brands 2012
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
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
GLOBAL ENVIRONMENT Technology Free Trade Technology is linking customers/suppliers worldwide China and India’s economies are growing Terrorism is more of a threat today Job Migration Blurred lines between countries/world
FOUNDATION SIMULATION Assessment & Analysis
Foundation Simulation • $40 Million electronic sensor manufacturer. • Market dominated by handful of firms. • No outside competitors or substitutes. • Benign environment.
Production R&D Marketing Finance Functional Areas
Foundation Homework • Register at www.capsim.com • Team Member Guide PDF available online after registration • Teams will be completed by February 10th
We need eight team leaders to Create a Company in the next week • Everyone else will later Join a Company