This chapter introduces key concepts in business including defining business, the private enterprise system, factors of production, and profits. It discusses the changing nature of business over seven eras of history. Current trends are outlined such as the aging workforce, increasing diversity, and changing job roles. Qualities of successful managers are identified as well as what makes companies admired.
Contemporary Business
The Changing Face of Business
Chapter 1
Learning objectives for chapter 1 include:
Define business
Identify and describe the factors of production
Describe the private enterprise system
Identify the seven eras in business history
Explain current workforce trends in business
Identify the skills and attributes needed for today’s manager
Outline the characteristics that make a company admired
CLASS ACTIVITY: Before you begin the lecture, it may be interesting to have each student (anonymously) write down what comes to mind when they hear the word “business.”
Read (and discuss) aloud in class.
LECTURE ENHANCER: What skills and attributes does Sundar Pichai, CEO of Google, possess?
Some businesses produce tangible goods like , while others provide services such as tax preparation or haircuts.
Businesses are large enterprises like Exxon Mobil or The Coca-Cola Company.
They can also be the small dry cleaners in your neighborhood -- and they must know what customers want.
Profits are the central focus of business -- because without profits, a company could not survive.
LECTURE ENHANCER: Since business provides the bulk of employment opportunities, discuss some of the most common employment opportunities available to new graduates today (they include: healthcare, social services, and business sectors).
CLASS ACTIVITY: What is the impact of technology on a citizen’s standard of living?
Businesspeople take risks, and profits serve as incentives and rewards for those willing to take such risks.
Even if not all business people are driven by profits, many still have an incentive to create a better world by creating specific products and services.
The technical or accounting definition of profits is the difference between revenues or sales and the expenses incurred to generate such revenues.
LECTURE ENHANCER: With today’s pervasive media reports on young twenty-something instant billionaires, it’s hard to ignore the attention being paid to the combining forces of business and technology.
CLASS ACTIVITY: Are all businesspeople driven by profits? Provide examples of those in the for-profit arena who may not be entirely driven by profits. Beyond profits, what is their responsibility?
A business survives through the exchange between a buyer and a seller.
Not-for-profit organizations are a substantial part of the U.S. economy.
Organizations like Indiana University’s athletic department, the U.S. Postal Service, and the American Heart Association are not-for-profit organizations.
These are businesslike establishments that have a primary objective geared toward a cause rather than returning profits to their owners.
See if students are familiar with some of the nonprofits on the list below:
National Public Radio, Human Rights Campaign, Charity: Water, Kiva, Susan G. Komen, Sierra Club, Save the Children, Oxfam, Green Peace, American Heart Association, and even Ted Talks.
LECTURE ENHANCER: Name examples of private-sector and public-sector not-for-profit organizations. Does your teaching institution fall into one of these categories?
LECTURE ENHANCER: What possible risks do not-for-profits face if they choose to sell merchandise or to share advertising with a business in order to raise funds?
CLASS ACTIVITY: Explain three objectives of a not-for-profit organization.
The American Society for the Prevention of Cruelty to Animals (ASPCA) was the first humane society in North America.
It is a nonprofit national animal welfare organization with the belief that animals are entitled to kind and respectful treatment at the hands of humans and must be protected under the law.
CLASS ACTIVITY: Which students prefer to work for a not-for-profit? Which prefer a for profit? What are the reasons for each?
Economic systems require certain basic inputs: Land, Labor, Capital, and Entrepreneurship.
Land, used in the production of a good, includes all production inputs or natural resources that are useful in their natural states such as oil, gas, minerals, and timber.
Labor represents another critical input in every economic system. Labor includes anyone who works, from the chief executive officer (CEO) of a huge corporation to a self-employed
writer or editor. This category encompasses both the physical labor and the intellectual inputs contributed by workers.
Capital, another key resource, includes technology, tools, information, and physical facilities. Technology is a broad term that refers to such machinery and equipment as computers
and soft ware, telecommunications, and inventions designed to improve production. Information, frequently improved by technological innovations, is another critical factor
because both managers and operating employees require accurate, timely information for effective performance of their assigned tasks.
Entrepreneurship is the willingness to take risks to create and operate a business. An entrepreneur is someone with an idea who sees a potentially profitable opportunity and then
devises a plan to achieve success in the marketplace.
The Occupational Outlook Handbook website contains information on the training and education needed, earnings, expected job prospects, what workers do on the job, and working conditions.
LECTURE ENHANCER: Name one factor of production and its method of payment. Think of a business in which this factor plays a major part.
CLASS ACTIVITY: On the board (or online), create the following four headings: Land, Labor, Capital, and Entrepreneurship.
Categorize each of the following according to a factor of production:
A truck
A professor
A truck, a professor, Jay Z, coffee, ATM machine, Reed Hastings, crude oil, computer programmer, cotton, someone who develops an app to monitor blood sugar levels for diabetics, mineral deposits, robotics for car manufacturing, an inventory control system.
Table 1.1 identifies each of these inputs and the type of payment or income received by companies and individuals who supply the factor of production.
An economy is dependent on the production of goods and services, which require factors of production.
Factor payments are frequently categorized according to the services of the productive resource being rewarded:
Rent is paid for the services provided by the land or other immovable assets
Wages are paid for services of labor
Interest payment for the productive services of capital, which is typically purchased with borrowed funds
Profit is the factor payment returned to the entrepreneur
CLASS ACTIVITY: Which payments have students received and realized?
Businesses operate within the context of a larger economic system which, for better or worse, dictates how goods and services are produced, distributed and consumed.
The economic system in the United States is called capitalism – one which promotes and rewards businesses (and their founders) to identify needs of customers through innovative products and services.
Adam Smith first described capitalism in his famous book, Wealth of Nations, and coined the phrase “Invisible Hand.”
Smith thought that competition among companies would lead to consumers’ receiving the best possible products and process because less efficient producers would
be driven from the marketplace. The private enterprise system minimizes government interference in economic activity. Firms are rewarded for their ability to compete and meet consumer needs.
Competition regulates economic life and is a key premise of capitalism in the US. To compete, each firm must find a competitive differentiation – the unique combination of organizational abilities, products, and approaches.
LECTURE ENHANCER: How does the Coca-Cola Company differentiate itself from PepsiCo?
How do German carmakers, BMW and Mercedes-Benz, differentiate themselves from one another?
CLASS ACTIVITY: If there are international students in your class, discuss the concept of competition, and the ways, if any, the economic system of their country of origin rewards firms.
In the United States, a capitalist economy, organizations are rewarded within a private enterprise system, for their ability to compete and meet consumer needs.
There are four basic rights in the private enterprise system, which include: right to property, profits, competition, and freedom of choice.
LECTURE ENHANCER:
Greece, a country which has suffered an economic crisis of historic proportions, does not have a land registry. The impact: no foreign investment, no private assets, no property tax collection, and no incentive to work towards owning land in the form of a home. Property ownership in third world countries is still nonexistent.
LECTURE ENHANCER: Ask students to imagine (and discuss) what it might be like, upon graduation, to be limited with employment choices.
LECTURE ENHANCER: Is private land ownership the only way to eradicate poverty?
CLASS ACTIVITY: For each of the four basic rights in the private enterprise system, have students provide examples of how it benefits a business and its owner(s).
The media is full of news of entrepreneurs, technology, and innovation. The topic of entrepreneurship is very popular among today’s college students.
Many of them will start their own business ventures, and some may even have their own businesses now.
Colleges and universities have expanded learning opportunities, courses, and programs to accommodate the growing interest among young people.
The willingness of individuals to start new ventures drives economic growth and keeps pressure on existing companies to continue to satisfy customers.
The spirit of entrepreneurship is beginning to be recognized within all firms.
LECTURE ENHANCER: Why are smaller companies more likely to innovate and find creative solutions than their larger counterparts? Discuss the ways smaller organizations are attempting to be more innovative.
CLASS ACTIVITY: Ask how many class members (or their family members) hope to, or have plans to start a small business. Discuss the various ideas of the current or future entrepreneurial pursuit.
Table 1.2 lists some of the well-known startups that had their humble beginnings in a college dorm room.
Today, the venture capital fund DormRoomFund.com provides funding for student entrepreneurs and is run by college students. Entrepreneurs and business startups are discussed in detail in Chapter 6.
Table 1.2 lists some of the well-known startups that had their humble beginnings in a college dorm room.
Today, the venture capital fund DormRoomFund.com provides funding for student entrepreneurs and is run by college students. Entrepreneurs and business startups are discussed in detail in Chapter 6.
Table 1.2 lists some of the well-known startups that had their humble beginnings in a college dorm room.
Today, the venture capital fund DormRoomFund.com provides funding for student entrepreneurs and is run by college students. Entrepreneurs and business startups are discussed in detail in Chapter 6.
In more than 500 years, the U.S. business history has gone through seven distinct time periods: the colonial period, the Industrial Revolution, the age of industrial entrepreneurs, the production era, the marketing era, the relationship era, and the social era. All of these periods are unique because they have influenced U.S business practices in various ways.
Seven Eras in the History of Business include:
In the Colonial period, businesses were small and rural, emphasizing agricultural production.
The Industrial Revolution brought factories and mass production to business. The age of industrial entrepreneurs built on
the Industrial Revolution through an expansion in the number and size of companies.
Examples include: Eli Whitney (cotton gin), Robert McCormick (wheat harvesting reaper), and Cornelius Vanderbilt (railroads)
The production era focused on the growth of factory operations through assembly lines and other efficient internal processes.
During and following the Great Depression, businesses concentrated on finding markets for their products through advertising
and selling, giving rise to the marketing era.
In the relationship era, businesspeople focused on developing and sustaining long-term relationships with customers and other businesses.
In the social era, businesses use technology and relationship management to connect and communicate with consumers and promote innovation.
The next slide, Figure 1.2 shows the eras by characteristic and time period
LECTURE ENHANCER: Compare the options available to buyers of a Ford automobile today compared to during the production era.
LECTURE ENHANCER: Give three examples of different brands of athletic shoes. How does each brand differentiate itself within the market?
CLASS ACTIVITY: Ask students to provide examples of individuals who currently earn their income through making crafts or handmade items.
CLASS ACTIVITY: Lead a discussion to identify the oldest companies in the local area or state whose operations continue today.
CLASS ACTIVITY: Inquire students about how many “frequent buyer” or loyalty cards they happen to have in their wallet.
CLASS ACTIVITY: Have students discuss the various social media tools used, and the benefits of each.
Partnerships and strategic alliances allow organizations to take advantage of opportunities, achieved through combined forces to create a competitive advantage.
Businesses are also finding that they must form partnerships with other organizations to take full advantage of available opportunities. One form of partnership
between organizations is a strategic alliance, a partnership formed to create a competitive advantage for the businesses involved.
LECTURE ENHANCER: Companies create strategic alliances to share risk, costs, and knowledge. They also do so to create growth opportunities, to get to market quicker, to access markets, and to pool expertise and knowledge.
CLASS ACTIVITY: Using the example of the strategic alliance between Barnes and Noble and Starbucks, Hewlett Packard and Disney, and Apple Pay and Mastercard, have students come up with a list of other strategic alliances.
CLASS ACTIVITY: Have students come up with a list of the some of the disadvantages of strategic alliances, which may include: creating a competitor, sharing intellectual property and resources, the potential of unequal effort and uneven distribution of profits.
Incorporating issues near and dear to customers is a way to build deeper and long lasting relationships.
Customers are taking notice of firms creating environmentally friendly products and implementing environmentally friendly production processes. It is an integral way of doing business today.
In an effort to save money, companies are also looking at ways to be more environmentally friendly. Because energy continues to be a significant cost for most firms, and because carbon-based fuels such as coal are responsible for most of the additional carbon dioxide in the atmosphere.
LECTURE ENHANCER: “Green Washing” is when a company or organization spends more time and advertising dollars with claims of being “green” than actually implementing business practices that minimize environmental impact.
CLASS ACTIVITY: List as many environmentally friendly products and services used by students. Are they priced more or less than their less environmentally friendly product counterparts?
A skilled and knowledgeable workforce is an essential resource for keeping pace with the accelerating rate of change in today’s business world.
Employers need reliable workers who are dedicated to developing strong ties with customers and partners.
To compete in global markets, businesses must be aware of the ongoing transition to a knowledge economy, which involves increased reliance on employees’
intellectual capabilities over physical inputs or natural resources.
Knowledge-based activities within an organization help accelerate the pace of technical and scientific advances.
More recently, the integration of machines and artificial intelligence in the workplace continues to grow as a number of companies in the healthcare and financial
sectors have successfully substituted employees with artificial intelligence technologies.
CLASS ACTIVITY: List ways companies stay on top of new technologies and innovation. List the skills that each generation brings to the workplace.
There are a number of trends faced by today’s companies which have to do with workforce changes. They are:
Aging of the population and a shrinking labor pool
Increasingly diverse workforce
Outsourcing and the changing nature of work
The need for flexibility and mobility
The use of collaboration and new models of work such as crowdsourcing
Artificial intelligence (intelligence by machines) to innovate and become more efficient.
The next four slides cover each topic:
LECTURE ENHANCER: Create a list of some of the companies where employees most want to work. Are there specific industries which dominate the list?
The workforce consists of an increasing widening age range of employees – also known as a multi-generational workplace.
This broad age diversity brings management challenges with it, such as accommodating a variety of work-life styles, changing expectations of work, and varying levels of technological expertise. Use the census.gov website to review the population information (age, education, income, etc.) for some zip codes in your geographic area.
Baby Boomers (born between 1946-1964) are still hitting the peaks of their careers
Generation X (born from 1965-1981) and Generation Y or Millennials (born from 1982 – 2005) are building their careers.
Other generations include the Silent Generation – workers born before 1946.
LECTURE ENHANCER: What unique skills might each generation bring to the workplace?
LECTURE ENHANCER: What impact does the doubling of college educated employees have on workplace hiring and required skills?
CLASS ACTIVITY: Ask students about the types of businesses that might benefit from the aging “baby boomer" population.
CLASS ACTIVITY: Ask students about the types of businesses that might benefit from hiring employees from Generations X and Y.
The U.S. population is becoming increasingly diverse, and not only in age. To gain access to educational and work opportunities, workers in developing regions have moved to more prosperous countries like the United States.
To develop and retain an effective workforce, managers need the sensitivity and skills to understand diverse ethnic groups, including their cultures, and lifestyles -- and how varied perspectives and experience can enhance an organization.
Diverse employee teams and workforces tend to perform tasks more effectively and develop better solutions to business problems because of their varied perspectives and experiences.
LECTURE ENHANCER: Discuss why diverse workforces oftentimes provide more innovative solutions to business problems and issues than their homogeneous counterparts.
CLASS ACTIVITY: Have students provide a list of examples of the benefits of their experiences working with people of different races, genders, and backgrounds.
CLASS ACTIVITY: Discuss the impact of homogeneity on group behavior.
CLASS ACTIVITY: Provide examples of companies employing diversity initiatives with business goals and objectives that include mentoring and career development opportunities designed to increase diversity in higher-level positions within the organization.
The nature of work is changing. The shift is away from manufacturing (remember agriculture?), and toward the service industry.
The changing nature of work includes companies using outside vendors in other countries, known as outsourcing. These vendors are used to produce goods (apparel), and to provide services (call centers).
Some companies like Apple, are considering the impact of outsourcing, and choosing instead to bring production back to the United States.
See website: www.reshorenow.com, whose mission is to bring good, well-paying jobs back to the United States by assisting companies to more accurately assess their total cost of offshoring.
Technical skills, creativity, critical thinking and knowledge are becoming increasingly important in today’s service economy. The ability for employees within an organization to communicate with a diverse customer base is crucial.
LECTURE ENHANCER: There is a recent movement of companies (like Apple computer, for example), reconsidering production and manufacturing closer to home.
LECTURE ENHANCER: Ask students about a recent experience with technical support over the phone. Were they able to determine anything about the company’s approach to outsourcing and its use of call centers?
CLASS ACTIVITY: Have students list specific services within the following industries: hospitality, entertainment, financial services, law, travel, and tourism.
CLASS ACTIVITY: Have students list the benefit of goods, products and services which are still produced in the U.S.A.
Table 1.3 (next slide) shows employment by major service industry sectors
Table 1.3 shows employment by major service industry sectors, including:
Utilities
Wholesale trade
Retail trade
Transportation and warehousing
Information
Financial activities
Professional and Business services
Educational services
Health care and social assistance
Leisure and hospitality
Table 1.3 shows employment by major service industry sectors, including:
Utilities
Wholesale trade
Retail trade
Transportation and warehousing
Information
Financial activities
Professional and Business services
Educational services
Health care and social assistance
Leisure and hospitality
Managers of nontraditional and workforces dispersed worldwide need to build and earn trust.
In the absence of a previously “conventional” work environment where employees come to work from 9 to 5 and conduct meetings face-to-face, managers need to be flexible and responsive to changing ways of work.
In order to retain valued employees and to ensure that all members are acting ethically and contributing their share without the day-to-day supervision of a more conventional work environment. It is common for a manager to live in a different physical location than those he/she oversees.
The relationship between work, location, productivity, supervision, leadership, collaboration, and communication continues to evolve and change as a result of technology.
LECTURE ENHANCER: Ask students how they feel about a traditional 9 to 5 workday with their direct manager on site.
CLASS ACTIVITY: Have students come up with and discuss the type of work environment and schedule which best suits them.
CLASS ACTIVITY: Have students come up with the pros and cons of telecommuting and virtual teams to traditional on-site teams with managers in-place.
Is face-to-face collaboration better? Are there particular industries in which face-to-face collaboration makes more sense?
The relationship between employees and workers needs to be a valuable partnership that drives innovation through collaboration.
Gone are the days of working alone. As technology becomes more pervasive in all aspects of work and life, collaboration is a result.
Businesses use teams to build a collaborative environment consisting of ideas and sharing of ideas (crowdsourcing of ideas).
LECTURE ENHANCER: Discuss how crowdsourcing has changed the face of business by creating a more collaborative work environment.
CLASS ACTIVITY: Survey the class to see if how many students work on a flexible or part- time basis.
LECTURE ENHANCER: Most of the companies on the Best Companies to Work For list, are known for being “learning organizations” – those providing ongoing training and employee development. Naturally, it is companies like these that hire the brightest and the best.
Ongoing change is causing a radical transformation in today’s business environment—where new industries, business models, and technologies are continually developing.
Different from the past, the use of data, networks, and artificial intelligence for decision making and communication will impact the way today’s managers lead in an environment of hyper-change.
In order to succeed in a hyper-competitive, quickly changing business environment, vision is of utmost importance.
Today’s manager needs foresight, critical thinking skills, creativity, and the ability to lead change.
Having the ability and skill set to find solutions to tough problems and issues is crucial. Also important is the ability to evaluate the increasingly pervasive mounds of information to determine critical issues.
LECTURE ENHANCER: Netflix and Amazon are two companies able to perceive marketplace needs and satisfy customers.
CLASS ACTIVITY: Have students come up ways which enhance their creative thinking.
LECTURE ENHANCER: Have students discuss Uber and Lyft, two ridesharing companies who use technology to respond to change.
Marc Benioff, CEO of Salesforce.com, and a pioneer of cloud computing, is a visionary leader who perceived marketplace needs.
He founded Salesforce.com to replace traditional enterprise software – computer programs with business applications – with an on-demand information management service.
Benioff was quoted as saying, “Salesforce.com needs to be for enterprise customers what Steve Jobs has always been to me – to be visionary and paint the future as much as possible.”
The ten most admired companies for the recent year represent a variety of industries. As you learn more about business, you can include those factors that you believe are important for a company to be admired.
LECTURE ENHANCER: What other criteria would you include on the list?
CLASS ACTIVITY: If this list were to be produced for smaller companies, would the same factors be considered?
CLASS ACTIVITY: Is there a trend in the types of industries represented in the World’s Most Admired Companies?
The most recent list of the World’s Most Admired Companies include:
Apple Inc (NYSE: AAPL ) –
Amazon.com, Inc. (NASDAQ: AMZN
Alphabet Inc (NASDAQ: GOOG , GOOGL )
Berkshire Hathaway Inc. (NYSE: BRK.A , BRK.B )
Starbucks Corporation (NASDAQ: SBUX )
Walt Disney Co (NYSE: DIS )
Microsoft Corporation (NASDAQ: MSFT )
Southwest Airlines Co (NYSE: LUV )
FedEx Corporation (NYSE: FDX
JPMorgan Chase & Co. (NYSE: JPM )