Chapter 1

business enterprises, not-for-profit organizations, factors of production;

competition, entrepreneurship and private enterprise;

the contemporary relationships era;

technology in business operations and competition;

quality, customer satisfaction and value creation;

productivity and competitiveness in the global markets;

trends that challenge managerial effectiveness;

skills that managers need to lead businesses today;

ethics, social responsibility and business decision making.

Learn here about …Learn here about …

Business enterprises, not-Business enterprises, not-for-profit organizations, for-profit organizations, factors of productionfactors of productionBy By businessbusiness we imply all the we imply all the

profit-seeking activities and profit-seeking activities and enterprises that provide the enterprises that provide the goods and services required goods and services required to run an economic system.to run an economic system.Here, “profit” is the reward or return Here, “profit” is the reward or return that a business enterprise receives as that a business enterprise receives as compensation for the risks undertaken in providing compensation for the risks undertaken in providing the goods and/or services to customers.the goods and/or services to customers.

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The The “not-for-profit” organizations“not-for-profit” organizations are all are all those businesslike establishments those businesslike establishments whose primary objective is to whose primary objective is to provide service to their consumers provide service to their consumers and excludes returning profits to and excludes returning profits to the owners.the owners.

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These organizations usually serve social, These organizations usually serve social, political, governmental, educational or the like political, governmental, educational or the like functions. functions.

We can also classify We can also classify different businesses as …different businesses as …

Business

Consumer

Bu

sin

es

sC

on

sum

er

Business-to-Business (B2B)

Business-to-Consumer (B2C)

Consumer-to-Consumer (C2C)

Consumer-to-Business (C2B)

are the materials and inputs needed for are the materials and inputs needed for successful operation of the business; andsuccessful operation of the business; and

comprise …comprise …

Factors of productionFactors of production ……

Natural resources(basic materials like agricultural land, forests, minerals, building sites and facilities etc.)

Factor Factor PaymentsPayments

Rent

Capital(money, technology, tools, information, physical facilities)

Interest

Human resources(workers’ physical labor as also talents and/or intellectual inputs)

Wages

Entrepreneurship(willingness to take the needed risks to create and operate business)

Profits

The Private Enterprise The Private Enterprise SystemSystemBusinesses in the U.S., and now increasingly worldwide,

function within the private enterprise system — the economic system that rewards enterprises for their ability to perceive and serve the needs and demands of the consumers. This is also called capitalism or, more specifically, consumer capitalism.

Philosophical basis of capitalism was laid out by the British philosopher and economist Adam Smith (1723-1790) who first argued, in his celebrated treatise An Inquiry into the Nature and Causes of the Wealth of Nations (1776) that, in exercising the right to pursue his (or her) own good, the individual is led by an in-visible hand, to achieve the best good for all. Any Macro-econo

mics 08:26 From: Soraal

governmental interference with free com-petition will most certainly be injurious, he therefore argued.

entrepreneurial, big-firm (corporate), state-directed, and Oligarchic.

Click image, above, to go to the Council on Foreign Relations site

to see Carl Schramm and Robert Litan discuss their book Good Capitalism, Bad

Capitalism and the Economics of Growth and Prosperity.

Capitalism comes in many shades, however. For instance, in the book “Good Capitalism, Bad Capitalism” (by William Baumol, Robert Litan and Carl Schramn: Yale University Press, 2007), the authors discuss four forms of capitalism:

You can access this book at the class website of at the following URL: http://www.yalepresswiki.org/gcbc/GCBC_Entire.pdf

Private Property

Right to private property: Every participant has the right to own, use, buy, sell, and/or bequeath most forms of property.

Com-petition

Right to compete: Every parti-cipant has the right to compete freely and fairly in the marketplace.

Profits

Right to profit: Every firm/business has the right to all profits, after taxes, it earns through its operations/activities.

Freedom of Choice

Right of free choice: Every participant in thesystem has the freedom ofchoice (with regard to jobs,purchases, and investments)

A private enterprise system rewards the firm/business for its ability to identify and serve the needs and demands of its customers, and therefore operates in the framework of four basic rights:

Rights

Judging from the American Judging from the American experience, Entrepreneurial Capitalism experience, Entrepreneurial Capitalism ……promotes continued economic growth, e.g.,promotes continued economic growth, e.g.,

one in seven current organizations began operating within the current year;one in seven current organizations began operating within the current year;more than one in every five new jobs has been created by new small businesses;more than one in every five new jobs has been created by new small businesses;nearly 12 million U.S. employees currently work for businesses with fewer than nearly 12 million U.S. employees currently work for businesses with fewer than ten employees;ten employees;

encourages finding novel means to use natural encourages finding novel means to use natural resources, technology, and the other factors of resources, technology, and the other factors of production;production;

helps existing large companies by enhanced helps existing large companies by enhanced flexibility, improved innovation and new market flexibility, improved innovation and new market opportunities;opportunities;

enhances efficiency and competitiveness by enhances efficiency and competitiveness by creating new industries, developing successful creating new industries, developing successful business methods and improved U.S. standing in business methods and improved U.S. standing in the global market.the global market.

2

1970Total Employed: 71 million

Goods producingService

Providing

14

5

6

87 c

b

3 2

a

Goods Produ-cing Jobs

a. Natural Resources and Mining

b. Constructionc. Manufacturing

1. Trade, Transpor-tation and Utilities

2. Information3. Financial Activities4. Professional and

Business Services

5. Education and Health Services

6. Leisure and Hospitality

7. Other Services8. Government

Service Providing Jobs

Service Providing

Goods

producing

cb

a

2

1

34

5

6

7

8

2007Total Employed:

137.6 million

All additional All additional jobs in the jobs in the U.S. U.S. since 1970 since 1970 have been have been created in the created in the economy’s economy’s service service providing providing segment.segment.

Data source: Bureau of Labor Statisticsftp://ftp.bls.gov/pub/suppl/empsit.ceseeb1.txt

50%

55%

60%

65%

70%

1940 1960 1980 2000

6%

8%

10%

12%

14%16-64 years(left scale)

65-plus years(right scale)

The aging of the U.S.

population.

Data source:2008 Economic Report of the President

http://www.gpoaccess.gov/eop/2008/B34.xls

0

50

100

150

200

250

300

1940 1960 1980 2000

>65 years

45-64 years

16-44 years

<15 years

Pop

ula

tion,

in m

illio

ns

24% High School or

less

28% Some College

24%Bachelor’s Degree

19% Graduate School

4% Not reported

Small Business owners are not an uneducated lot!!!

Source: U.S. Census Bureau “Survey of Small Business Owners (SBO): Owner’s Education Levels at Start-Up, Purchase, or Acquisition of the Business” (http://www.census.gov/csd/sbo/edu.html)

History of American Business — Six Eras

Colonial (before 1776): Local economy depended on farm and plantation outputs, and on England for the manufactured items and finances.

1800

1900

2000

Industrial entrepreneurs (late 1800s) created countless commercially useful products, so advancing the U.S. business system that raised the overall standard of living by creating the demand for more goods, e.g., Cornelius Vanderbilt (railroads), J.P. Morgan (banking), Andrew Carnegie (steel).

Industrial revolution (1760-1850) began in England and France but peaked in the U.S. It shifted the focus on individual craftsmanship to mass-production, so bringing in the economies of scale. This was a period of rapid growth and urbanization: agriculture became mechanized, factories sprang up in the cities, a new railroad system increased the pace of industry.

The production era (through the 1920s) met the growing demand for manufactured goods with an increase in huge labor-intensive assembly-line factories, specialization of labor, and the rise of the manager, to focus on producing more goods at a faster pace. Marketing was minimal.

The marketing era (since 1950s) began with the Great Depression, when excess production and poor demand shifted the focus from mere production and distribution to marketing, selling and advertising. It accelerated in the post-WW II boom, though. Increased competition made branding important.

The relationship era (since 1990s) seeks long-term consumer and worker-loyalty.

David Silverman "Advice for Starting a Business“. "What is the number one piece of advice for anyone starting their own business?" Interview with David Silverman.

6 The Relationship Era (began in 6 The Relationship Era (began in 1990s)1990s)

Businesses take a long-term approach to Businesses take a long-term approach to interactions with customers to build loyalty and interactions with customers to build loyalty and improve customer retention.improve customer retention.

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Managing Relationships through Managing Relationships through TechnologyTechnology

Relationship ManagementRelationship Management Collection of Collection of activities that build and maintain ongoing, activities that build and maintain ongoing, mutually beneficial ties with customers and mutually beneficial ties with customers and other parties.other parties.

Involves gathering knowledge of customer Involves gathering knowledge of customer needs and preferences and applying this needs and preferences and applying this understanding.understanding.

Many of these activities are based on Many of these activities are based on technologytechnology, the business application of , the business application of knowledge based on scientific discoveries, knowledge based on scientific discoveries, inventions, and innovations.inventions, and innovations.

Communication with customers often aided by Communication with customers often aided by technology, particularly the Internet, technology, particularly the Internet, e.g., Stonyfield Farm’s e.g., Stonyfield Farm’s use of blogs to reinforce customer use of blogs to reinforce customer relationships.relationships.

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