Business in A Changing World: Mcgraw-Hill/Irwin

Business in a
Changing World
McGraw-Hill/Irwin Copyright © 2009 by the McGraw-Hill Companies, Inc. All rights reserved.
The Nature of Business
What is a business?
Individuals or organizations trying to
earn a profit by providing products that
satisfy people's needs.
1-2
The Nature of Business
What is a product?
A good or service with tangible and
intangible characteristics that provide
satisfaction and benefits
1-3
Products
Tangible Goods & Services
Tangible Goods Services

Automobile Dry cleaning
Computer Photo processing
Loaf of bread Checkup at doctor’s
Television Movie star performance
1-4
The Primary Goal of Business
Earn a Profit
The difference between what it costs
to make and sell a product and what a
customer pays for it.
1-5
Non-Profit Organizations
Not all organizations are businesses.
Nonprofit organizations provide goods

and services but do not have the
fundamental purpose of earning
profits.
1-6
Maintaining Profitability
Management skills
•Planning
•Organizing
•Leading
•Controlling
Marketing Expertise
•Products
•Price
•Promotion
•Distribution
1-7
Stakeholders
“ …all the different people or groups

of people who are affected by the
“
policies, decisions, and activities
made by an organization.
Stakeholders
Customers, employees, investors, government regulators,
community and society. Those that have a stake in the success
and outcomes of a business are considered stakeholders.
1-9
The Business Environment
Comprised of following Components:
• Remote environment
• Industry environment
• Operating environment
Business Environment
Remote Environment
• Economic Factors
• Social Factors
• Political Factors
• Technological Factors
• Ecological Factors
Economic Factors
1. Prime interest rates
2. Inflation rates
3. Trends in the growth of the
gross national product
4. Unemployment rates
5. Globalization of the
economy
6. Outsourcing
Social Factors
Present in environment:
– Beliefs & Values
– Attitudes & Opinions
– Lifestyles
Developed from:
– Cultural conditioning
– Ecological conditioning
– Demographic makeup
– Religion
– Education
– Ethnic conditioning.
Political Factors
Political constraints on firms:
• Fair-trade Decisions
• Antitrust Laws
• Tax Programs
• Minimum Wage Legislation
• Pollution and Pricing Policies
Technological Factors
• Technological forecasting helps protect and

improve the profitability of firms in growing
industries.
• It alerts strategic managers to impending
challenges and promising opportunities.
Ecological Factors
• Ecology refers to the relationships among
human beings and other living things and the
air, soil, and water that supports them.
• Threats to our life-supporting ecology caused
principally by human activities in an industrial
society are commonly referred to as pollution
• Environmental legislation
• Eco-efficiency
Global Environment
• Monitoring the global environment involves
assessing each non-domestic market on the same
factors that are used in a domestic assessment.
• Economic, political, legal, and social factors are
used to assess global environments.
• One complication to this process is that the
interplay among international markets must be
considered.
Industry Environment
• Harvard professor Michael E. Porter

propelled the concept of industry
environment into the foreground of
strategic thought and business planning.
• The cornerstone of Porter’s work first
appeared in the Harvard Business Review, in
which he explains the five forces that shape
competition in an industry.
Forces Driving Industry Competition
Threat of Entry
• Economies of Scale
• Product Differentiation
• Capital Requirements
• Access to Distribution
Channels
• Government Policy
Powerful Suppliers
A supplier group is powerful if:
• It is dominated by a few companies and is more
concentrated than the industry it sells to
• Its product is unique or at least differentiated, or if
it has built-up switching costs
• It is not obliged to contend with other products for
sale to the industry
• It poses a credible threat of integrating forward
into the industry’s business
• The industry is not an important customer of the
supplier group
Powerful Buyers
A buyer group is powerful if:
• It is concentrated or purchases in large volumes
• The products it purchases from the industry are
standard
• The products it purchases from the industry form a
component of its product and represent a significant
fraction of its cost
• The industry’s product is unimportant to the quality of
the buyers’ products or services
• The buyers pose a credible threat of integrating
backward
Substitute Products
• Substitute products that deserve the most
attention strategically are those that are
– subject to trends improving their price-
performance trade-off with the industry’s
product or
– produced by industries earning high profits
Intense rivalry
• Competitors are numerous or are roughly equal
• Industry growth is slow, precipitating fights for
market share that involve expansion
• The product or service lacks differentiation or
switching costs
• Fixed costs are high or the product is perishable,
creating strong temptation to cut prices
• Exit barriers are high
• Rivals are diverse in strategy, origin, and personality
Nature of Competition
Rivalry among businesses for consumers’

dollars.
Pure competition – many small businesses in

same product market
Monopolistic competition – small number of
businesses little difference in products
Oligopoly– very few businesses selling a product
1-26
Operating Environment
• Also called competitive or task environment
• Includes competitor positions and customer
profiling based on the following factors:
– Geographic
– Demographic
– Psychographic
– Buyer Behavior
• Also includes suppliers & creditors
The People & Activities of Business
Management – Focus on employees

•Coordinating employee’s actions
•Organizing people for efficiency
•Motivating employees toward business goals
.
1-28
Management – Production and Manufacturing

•Plan activities
•Organize staff
•Control tasks
.
1-29
Marketing – Focus on satisfying customers

• Determine what products customers want
• Plan and develop products
• Determine distribution
• Determine place
• Determine promotion
1-30
Marketing & Promotion

•Advertising
•Personal selling
•Sales promotion
•Publicity
1-31
Finance – Primary responsibility of owners

•Obtaining money
•Using money effectively
•Accountants, stockbrokers, bankers
1-32
Why Study Business
• Develop Skills for career success

• Understand business activities
• Importance of profitability
• Individual businesses
• Local and regional economic impact
• Global economic impact
1-33
Why Study Business
Business impact
•Purchase raw materials
•Hire employees
•Attract capital
•Create products
•Contribute to society
1-34
Yearly Income
Who Makes the Most Money?

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Business in a

Tangible Goods Services

Nonprofit organizations provide goods

“ …all the different people or groups

• Technological forecasting helps protect and

• Harvard professor Michael E. Porter

Rivalry among businesses for consumers’

Pure competition – many small businesses in

Management – Focus on employees

Management – Production and Manufacturing

Marketing – Focus on satisfying customers

Marketing & Promotion

Finance – Primary responsibility of owners

• Develop Skills for career success

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