Unit 1 Forms of Ownership

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Unit 1 Forms of Ownership

  1. 1. Business Characteristics
  2. 2. 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)
  3. 3. 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)
  4. 4. 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
  5. 5. 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
  6. 6. 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
  7. 7. 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
  8. 8. 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
  9. 9. 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
  10. 10. 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
  11. 11. 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
  12. 12. 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
  13. 13. 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
  14. 14. 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
  15. 15. 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
  16. 16. 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
  17. 17. 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
  18. 18. 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
  19. 19. 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)
  20. 20. 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
  21. 21. Reference Evarard, Kenneth E., Burrow, James L. (2001). Business Principles and Management. Mason, OH: South- Western.

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