Chapter 1

Brief Chapter Outline

I.WHAT IS A BUSINESS?
A. BASIC CONCEPTS:
1. A BUSINESS is any activity that seeks profit by providing goods and services to
others.
2. PROFIT is the amount a business earns
above and beyond what it spends.
3. Businesses also provide people with the
opportunity to become wealthy.
B. BUSINESSES CAN PROVIDE WEALTH AND
A HIGH QUALITY OF LIFE FOR ALMOST
EVERYONE.
1. ENTREPRENEURS are people who
organize, operate, and assume the risk
of starting a business.
2. Businesses are a part of an economic
system that helps to create a higher
standard of living and quality of life for
everyone.
3. The STANDARD OF LIVING of a country
refers to the amount of goods and
services people can buy with the money
they have.
4. The QUALITY OF LIFE of a country refers
to the general well-being of a society.

C. NONPROFIT ORGANIZATIONS USE

BUSINESS PRINCIPLES.
1. Nonprofit organizations such as
government agencies, public schools,
charities, and social causes help make a
country more responsive to all the
needs of citizens.
2. A NONPROFIT ORGANIZATION is an
organization whose goals dont include
making a profit for its owners.
3. You need the SAME SKILLS to work in
nonprofit organizations that you need in
business, including information
management, leadership, marketing,
financial management.
4. Businesses, nonprofit organizations, and
volunteer groups often strive to
accomplish the same objectives.

II.ENTREPRENEURSHIP VERSUS
WORKING FOR OTHERS.
A. There are TWO WAYS TO SUCCEED IN
BUSINESS:
1. One way is to rise up through the ranks of
a large company.
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2. The more risky path is to start your own

business.

B. OPPORTUNITIES FOR ENTREPRENEURS.

1. Millions of people have taken the
entrepreneurial risk and succeeded.
2. Entrepreneurs have come from all over the
world to prosper in America.
a. The number of Hispanic-owned businesses in the United States grew by
76% in the 1990s.
b. Increases have also been made by
Asians, Pacific Islanders, American
Indians, and Alaskan Natives.
3. The number of women business owners
has also dramatically increased.
C. MATCHING RISK WITH PROFIT.
1. Not all businesses make a profit; profit is
revenue minus expenses.
2. REVENUE is the money a business earns
by selling goods and services.
3. A LOSS occurs when a businesss costs
and expenses are more than its
revenue, the money a business earns by
selling its products.
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4. RISK is the chance you take of losing time

and money on a business that may not
prove profitable.

5. Rewards and risk are related.

a. Those companies that take the most risk
may make the most profit.
b. As a potential business owner, you
should do research to find the right
balance between risk and profit.
D. THE FACTORS THAT ARE NEEDED TO
CREATE WEALTH.
1. THE FACTORS OF PRODUCTION the
resources businesses use to create
wealth.
a. LAND (and other natural resources)
b. LABOR (workers)
c. CAPITAL (e.g., money, machines, tools,
and buildings)
d. ENTREPRENEURSHIP.
e. KNOWLEDGE.
2. Some experts believe that the most
important factor of production is
KNOWLEDGE.

3. What makes rich countries rich is a

combination of entrepreneurship and
the effective use of knowledge.
4. Entrepreneurship also helps make some
states and cities rich while others
remain relatively poor.

III.THE BUSINESS ENVIRONMENT.

A. The FIVE ENVIRONMENTAL FACTORS
that are key to business growth and job
creation are:
1. Economic environment, including taxes and
regulation.
2. Technological environment.
3. Competitive environment.
4. Social environment.
5. Global business environment.
B. Business prospers in a healthy environment.

IV.THE ECONOMIC ENVIRONMENT.

A. People are willing to take the risk of starting
businesses if they feel that the risk isnt too
great.
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B. GOVERNMENTS CAN LESSEN THE RISK of

starting a businesses thereby increasing
entrepreneurship and wealth by:
1. ALLOWING PRIVATE OWNERSHIP OF
BUSINESS.
2. PASSING LAWS THAT ENABLE BUSINESSPEOPLE TO WRITE CONTRACTS
THAT ARE ENFORCEABLE IN COURT.
3. ESTABLISH A TRADABLE CURRENCY.
4. ELIMINATE CORRUPTION IN BUSINESS
AND GOVERNMENT.

V.THE TECHNOLOGICAL
ENVIRONMENT.
A. The Internet is a major force in business
today.
B. HOW THE INTERNET IS CHANGING
EVERYTHING.
1. More than just a massive network of
computers, the Internet has created a
revolution in communication through:
a. A POWERFUL COMMUNICATION
MEDIUM.
b. INSTANT ACCESS.
c. BUSINESSES WITHOUT BORDERS.
C. THE E-COMMERCE EXPLOSION.
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1. E-COMMERCE is the buying and selling of

products and services by businesses
and consumers over the Internet.
Attractive factors include:
a. Lower transaction costs.
b. Larger purchases per transaction.
c. Integration of business processes.
d. Flexibility.
e. Larger catalogs.
f. Improved customer interactions.
2. BUSINESS-TO-CONSUMER (B2C) ECOMMERCE continues to grow, but
profits are problematic.
3. BRICK-AND-MORTAR BUSINESSES
(TRADITIONAL STORES) are growing
by expanding on to the Internet.
4. B2B (BUSINESS-TO-BUSINESS) ECOMMERCE is five times as big as B2C
e-commerce.
D. HOW E-COMMERCE IS CHANGING THE
ROLES OF INTERMEDIARIES.
1. INTERMEDIARIES are companies that
help move goods and services between
producers and consumers.
2. Many companies now selling directly to
consumers through the Internet,
eliminating many intermediaries.
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VI.THE COMPETITIVE ENVIRONMENT.

A. Making quality products is not enough to
stay competitive in world markets. Now
you have to offer QUALITY PRODUCTS
and OUTSTANDING SERVICE at
competitive prices.

B. COMPETING BY PLEASING THE CUSTOMER.

1. Business is becoming CUSTOMERDRIVENthis means that customers
wants and needs come first.
2. Successful companies must listen to customers to determine their wants and
needs and then adjust their products,
policies, and practices to meet these
demands.
C. COMPETING WITH SPEED.
1. The companies that provide speedy service
are those that are winning.
2. To businesses TIME IS MONEY, and businesses expect fast service.
3. To keep up, business people need
continuing education on the latest
concepts and tools.
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D. COMPETING BY MEETING COMMUNITY

NEEDS.
1. STAKEHOLDERS are all the people who
are affected by the policies and
activities of an organization.
2. Stakeholders include customers,
employees, stockholders, suppliers,
environmentalists, and elected officials.
3. The challenge for companies in the 21st
century will be to ensure that all
stakeholders needs are considered and
satisfied.
E. COMPETING BY RESTRUCTURING AND
MEETING THE NEEDS OF EMPLOYEES.
1. To meet the needs of customers, firms
must EMPOWER their front-line
workers, giving them more freedom to
respond quickly to customer requests.
2. In many companies this has meant EMPOWERING employees and using
CROSS-FUNCTIONAL,
SELF-MANAGED TEAMS. (Discussions
of these concepts are woven throughout
the entire text.)
3. Empowerment has resulted in the
elimination of managers as lower-level
workers learn to work in self-managed
teams.
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4. Empowered employees may demand increased compensation, even partial

ownership of the firm.
F. COMPETING BY CONCERN FOR THE
NATURAL ENVIRONMENT.
1. Managers must be careful that they cause
minimal damage to the natural
environment.
2. Environmental issues include the potential
benefits and hazards of nuclear power,
recycling, management of forests,
ethical treatment of animals, and
protection of the air we breathe and the
water we drink.
3. Environmentalism must be a major focus of
everyone, and is becoming increasingly
so.

VII. THE SOCIAL ENVIRONMENT.

A. DEMOGRAPHY is the statistical study of the
human population to learn its size, density,
and characteristics.
B. DIVERSITY AND ITS ADVANTAGES FOR
BUSINESS.
1. The U.S. of the future will be very different
from what it is today.

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a. Our population will increase by

approximately 50% in the next 50
years.
b. As the population grows, there will be a
greater need for goods and services,
creating more jobs.
c. The Hispanic and Asian populations will
increase.
2. DIVERSITY is the process of optimizing the
contributions of people from different
cultures.
3. As American workers learn to work with
people of all nations, they gain an
ADVANTAGE WHEN IT COMES TO
NEGOTIATING AND WORKING WITH
PEOPLE IN GLOBAL MARKETS.
4. A diverse population is a strong population
there is strength in different views and
perspectives.
C. THE INCREASE IN THE NUMBER OF OLDER
AMERICANS.
1. By 2030, the 76 million baby boomers will
be senior citizens.
2. Think of the career opportunities of
providing goods and services for older
adults.
3. What opportunities does a wealthy,
older market offer retailers, recreation
specialist, etc.?
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D. TWO-INCOME FAMILIES
1. The high costs of housing have made it
difficult for many households to live on
just one income.
2. Many companies are implementing programs to assist two-income families.
a. Many employers provide child care
benefits of some type, some through
cafeteria benefits packages.
b. Other companies provide parental
leave, flexible work schedules, and
elder care programs.
3. Some companies are increasing the
number of part-time workers by allowing
workers to stay home and send in their
work by telecommunications, a practice
known as TELECOMMUTING.
E. SINGLE PARENTS have encouraged
businesses to implement family-friendly
programs such as FAMILY LEAVE and
FLEXTIME.

VIII. THE GLOBAL ENVIRONMENT.

A. The global environment of business affects all
other environmental influences.
1. The number one global environmental
change today is the growth of
international competition and the
increase in free trade among nations.
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2. U.S. manufacturers have implemented the

most advanced quality methods, after
analyzing the best practices throughout
the world.
3. U.S. workers in many industries are more
productive than workers in Japan and
other countries.
4. PRODUCTIVITY is the total output of
goods and services in a given period of
time divided by work hours.
5. Businesses have gone beyond simply
COMPETING with organizations in other
countries to learning to COOPERATE
with international firms.

IX.THE EVOLUTION OF BUSINESS.

A. Businesses in the U.S. have become so
productive that fewer workers are needed
in the industrial sector to produce GOODS,
or tangible products.
B. PROGRESS IN THE AGRICULTURAL AND
MANUFACTURING INDUSTRIES.
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1. The use of TECHNOLOGY allowed the

agricultural industry to become so
PRODUCTIVE that the number of
farmers dropped for about a third of the
population to less than 2%.
2. AGRICULTURE is still a major industry in
the U.S., but MILLIONS OF SMALL
FARMS HAVE BEEN REPLACED BY
FEWER AND LARGER FARMS.
3. Many farmers lost their jobs and went to
work in factories.
4. TECHNOLOGY made manufacturing more
productive and workers lost their jobs.
5. However, the unemployment rate is now at
its lowest point in 30 years.

C. PROGRESS IN SERVICE INDUSTRIES

1. Many workers who lost their manufacturing
jobs found jobs in service industries.
2. SERVICES are intangible products.
3. Since the mid-1980s, the SERVICE
SECTOR HAS GENERATED ALMOST
ALL OF OUR ECONOMYS INCREASES
IN EMPLOYMENT.
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4. Service-sector growth has slowed, but is

still the largest area of growth.
5. The service era is quickly losing out to a
new GLOBAL INFORMATION
REVOLUTION that is breaking down
barriers between nations.

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