Motives and Function of a Business, Business Ethics and Social Responsibility

(Chapter 1 & 2)
Semester Gasal 2010/2011

Learning Objectives
The goal of a business The resources a business uses to produce products/services The key stakeholders involve in a business The business environment The responsibilities of firms to their customers, employees, stockholders, creditors, environment and their communities

Business Examples

Many mores

Your Business Choice

Main Job Sampingan

Goals of a Business

Consumer

Owner

Needs

Profit

Opportunity

Lower Price

Where Profits Come From

A business receives revenue when it sells its products or services It incurs expenses from paying its employees and when it purchases machinery or facilities The difference between revenue and expenses is the profits (or earnings)
Profits go to the owners of the business, thus there is an incentive and reward for success Profits are dependent upon 3 conditions:
(1) Demand: there needs to be demand for your product or service (2) Attract: you must attract customers (better/lower quality of service) (3) Expenses: keep expenses low, thus reward will be higher profits

Where Profits Come From [2]

Revenue - (Expense) Profits

Expense Demand Attract

Government & Nonprofits

Free-Market economies: people are free to start a business and profit from it
Business provide employment, which provides money for employees and profits for businesses

In socialist countries, businesses were owned by governments and had no profit incentive Nonprofit businesses serve specific causes and are not intended to make profits
Examples: Churches, schools, hospitals

Types of Businesses
Local business
A company is local if there is only one outlet that serves a limited surrounding area Have a small number of employees and are associated with the town or city in which they are located Example: Bakmi Margonda Depok, etc

Challenge:
managing money unfavorable economic conditions undercapitalization

Regional business
Serve a wide area although they dont serve a national or international market Example: JOGER, DAGADU, etc

Types of Businesses [2]

National business
Has several outlets through-out the country but it doesnt serve an international market Challenge: state law, tax rate, complex supply chain Example: Sinar Mas

Multinational (International) Business

Have expanded to provide goods or services to international consumers or serve only one country, but have suppliers or production facilities in other countries Have all been adapted to fit the culture of the country in which they are located Challenge: every country has different corporate laws, business practices, law of the countries (export, import, safety regulations, quality control, copy rights, patent right), etc Example: McDonald

Factors of Production
Natural Resources any resources that can be used in its natural form example: land Human Resources the people who are able to perform the work Capital machinery, equipment, tools and physical facilities used by a business Entrepreneurship creation of business ideas and willingness to accept risk

Technology
Technology is an enabler it enables firms to use their capital more effectively Information Technology (IT) using information to produce products and services more efficiently E-business or E-commerce when firms use electronic communications to sell products or services includes business transactions between a company and its customers, as well as suppliers
Information Technology Electronic Business

Entrepreneurship Creates Accepts

IDEAS

RISK

Stakeholders
Stakeholders: people who have an interest in a business
Owners: the entrepreneurs or owners of the business Creditors: financial institutions or persons who provide loans Employees: people hired to conduct business operations Suppliers: companies where the business can obtain materials required for the business Customers: company cannot survive without customers

Owners
The entrepreneur
the founder of the business and is usually the sole owner(s) when the business initially starts operations. If a business has more than one owner then the investment, risk and profit are shared

Stockholder
investors who purchase stock (a certificate representing ownership in a firm)

Entrepreneur

Stockholder

Owner Profiles

Creditors Creditors provide loans to a company to help with its inception and growth Creditors can be financial institutions (commercial banks) or individuals (investors) who provide loans

People in Business

Employees
Suppliers Customers

People in Business [2]

Business Environment
Social Environment
social tendencies to which a business is exposed demographics are the characteristics of the population, which change over time

Industry Environment
conditions within the industry within which a firm operates will also change over time, according to demand and competition

Economic Environment
economic conditions will strongly impact the firms performance

Global Environment
global conditions may directly or indirectly effect businesses

Business Decisions
Management how will the company use employees and other human resources? Marketing how are products and services developed, priced, distributed and promoted? Finance how will the company obtain and use funds for operations? Decisions are commonly based on data which come from accounting system (analysis of financial conditions) and Information System (provides appropriate information to those who need to make a decision)

Business Decisions [2]

Decisions and Performance

Customers Social Responsibility

Companies have a social responsibility when producing and selling products All production should be completed with customer safety in mind Example: warning labels on prescription drugs should be used to prevent accidents that could result from misuse Responsibility extends into the sales process as well Example: a common problem is that product may be overpriced because the salesperson is more interested in making a higher commission (rather than saving the customer money)

Ensuring Responsibility

1 - Code of Responsibilities 2 - Monitor Complaints 3 - Customer Feedback

Government Regulations
Safety

Advertising
Competition

Responsibility to Employees
Employee Safety Safety in the workplace must be ensured by the company Example: safety glasses, steel-toed shoes, and back harnesses are required to worn for certain types of work

Safety

Workplace

Responsibility to Employees [2]

Proper Treatment by other employees
The workplace must allow for employees to be treated fairly The two main issues are: Diversity sensitivity to various types of workers to avoid conflicts or discrimination Example: It is wrong for a company to hire a male, over an equally qualified female, for a position that has traditionally been male dominated Sexual Harassment prevention of unwelcome comments or actions of a sexual nature Example: emails or jokes told in the workplace that relate to sexual situations

Types of Diversity
Religion

Gender

Age

Beliefs

Race

Ensuring Responsibility
Code of Responsibility This code was previously mentioned under responsibilities toward customers The code should be used for guidance (as it will not attempt to spell out recommended behaviors for every situation) Grievance Policy Gives employees a chance to communicate if they feel that they have not been given equal opportunity Job Satisfaction

Responsibility to Stockholders
Employee Compensation many companies tie employee compensation to the firms performance this solves some issues, but creates others

Stockholder Actions Shareholder activism

the active efforts of shareholders to influence the management of a firm

Institutional Investors
financial institutions that purchase large amounts of stocks these types of investors have been the most active example: insurance companies invest large portions of their premiums in stocks

Responsibility to Creditors

Accurate Information
Payment

Pollution

Air

Land

Responsibility Conflicts

Environment

Profitability

Responsibility to Community
Contributions companies often make contributions by sponsoring local events example: many businesses prominently display plaques of appreciation from the local school or sports team that they recently sponsored Foundations firms will often create foundations through which charitable contributions are made

Conflict Among Responsibilities

Customers
Communities Employees

Environment Creditors

Stockholders

Conflict Among Responsibilities [2]

Summary
Business use factors of production such as natural resources, human resources, capital and entrepreneurship The key of stakeholders in business are owners, creditors, employees, suppliers and customers Business are exposed to the social, industry, economic and global environments The key types of business decisions are management, marketing and finance decisions Firms have a responsibility to provide safe working conditions, proper treatment and equal opportunity for employees Firms also have a responsibility to the owners/stakeholders, creditors, environment and local communities

References

Madura, Jeff. Introduction To Business. 2007, Thomas South-Western. ISBN 0324-40711-4