*

*
*
**
Managing Within *

CHAPTER
The Dynamic
Business
Environment:
Taking Risks and 1
Making Profits

* *
1-1
1-1
*
* Business & Entrepreneurship
*
• Business
• Profit
• Entrepreneur
• Match Risk With Profit
– Revenue
– Loss
• Standard of Living/Quality of
Life
• Stakeholders
• Nonprofit Organizations

1-2
*
* Objectives of Business
*

Survival

Profit Social
Growth Responsibility

1-3
*
* FIVE FACTORS of PRODUCTION
*

• Entrepreneurs use what they’ve learned to grow

their businesses and increase wealth.

1-4
*
*
*
Business Environment

1-5
* WHAT is the
* BUSINESS ENVIRONMENT?
*

1-6
*
* Economic &
* Legal Environment
$ Minimum taxes and regulations
$ Freedom of ownership
$ Contract laws
$ Tradable currency
$ Elimination/minimization of
corruption
1-7
*
* Corrupt Countries
*
Least Corrupt Most Corrupt
1. Iceland 1. Bangladesh
2. Finland 2. Chad
3. New Zealand 3. Haiti

Source: Transparency International, 2005; www.transparency.org

1-8
*
* Technological Environment
*

• Productivity

• E-Commerce

• Responsiveness
to Customer

1-9
*
* Identity Theft
*
• Total number of identity theft victims
in 2005 – 255,565
• Top four ways how victims information
was misused:
1. Credit card fraud
2. Phone/utilities fraud
3. Bank fraud
4. Employment-related fraud
Source: Identity Theft: Victim Complaint Data, 2005, Federal Trade Commission; www.consumer.gov/idtheft
1-10
*
* ID Theft—Protective Steps
*
• “Focus on the cheap and easy way to
keep an eye on your accounts”
– Free Credit Reports
– Guard Your Number
– Shred
– Bug Congress
• To pass ultimate protection: A credit freeze
anytime you want one.
Source: Money, August 2005

1-11
*
* Competitive Environment
*

• Customer Expectations

• Restructure/Empower

1-12
*
* Consumer Trends
*
• U.S. Bottled Water Sales in Past 15 Years
Increased more than four-fold to $9.8
Billion

• From October 2004 to September 2005,

top bottle water flavors were:
Blend, Lemon, Lime, and Apple
Source: Business & Economic Review, Jan.-Mar. 2002; Beverage Marketing Corporation, bottledwater.org, 2004 stats;
Productscan Online; datamonitor.com, November 9, 2005

1-13
*
*
*
Social Environment
• Diversity/Multicultural
• Aging/Graying of America
• Two-Income Families
• Single-Parent Families

1-14
*
* U.S. Household Size
*

5
4.5
4
3.5
3
Number of
2.5
Persons
2
1.5
1
0.5
0
1900 1940 1980 2000 2004

Source: U.S. Census Bureau

1-15
*
* Buying Power of
* Diverse Groups
• Women $3,700 Billion
• African Americans 761 Billion
• Hispanic Americans 686 Billion
• Gay Men & Lesbians 610 Billion
• Asian Americans 397 Billion
• Native Americans 51 Billion

Sources: National Organization on Disability Employability; U.S. Pan Asian American Chamber of Commerce; DiversityInc.com; U.S. Census Bureau; The Augusta Chronicle,
October 22, 2005; Selig Center for Economic Growth, 2005.

1-16
*
* 21st Century
* Diversity Issues
• Race • Age
• Gender • Language
• Ethnicity • Religion
• Disability • Sexual
Source: U.S. Equal Employment Opportunity Commission

1-17
*
* Immigration
*
• In 2005, roughly 35 million immigrants lived
in the U.S. as compared to less than 25
million 10 years ago.

• According to a November 2005 poll, 60

percent of Americans favor a barrier built
along the US-Mexico Border.

• About 49 percent believe that a child born to

an illegal alien in the U.S. should be granted
a US citizenship

Source: Center for Immigration Studies; RasmussenReports.com

1-18
*
* Older Americans Working
*
80%
70%
60%
50%
40% Female
30% Male
20%
10%
0%
55-59
60-64
Source: USA Today
65+
*
* Americans Living Longer
*
• U.S. life expectancy rises to a record
high 77.9 years 2500000

• The number of deaths dropped by2000000

50,000 in 2004 from 2003, the 1500000
steepest decline since 1938 U.S.
1000000 Deaths

• By 2005, about one in eight 500000

Americans will be 65 or older. By
2025, it will be nearly one in five. 0
1900s 2004

Source: Investor’s Business Daily, December 8, 2003; Cumberland Times-News, April 20, 2006; U.S. Centers for Disease
Control and Prevention; U.S. Census

1-20
*
* Exurbs:
* Growth of Outer Suburbs
• Northeasterners are moving south and west,
and west coast residents are moving inland.
• The states that gained the most residents:
Florida, Arizona, Nevada
• The states that lost the most residents: New
York, California, Illinois

Source: Cumberland Times-News, April 21, 2006; U.S. Census Bureau

1-21
*
* Global Environment
*
• International Competition and Free Trade

• Improvements in Transportation and

Communication

• War & Terrorism

• Global Changes

1-22
*
* The Economic
* Cost of Disaster
Disaster Costs
Hurricane Katrina – 2005 (estimate)$ 200 B

Kobe, Japan Earthquake -- 1995 100 B

September 11, 2001 Attacks 70 B

Northridge, CA Earthquake – 1994 44 B

Hurricane Andrew – 1992 35 B

Source: Business 2.0 , November 2002; MSNBC.com, September 10, 2005.

1-23
*
* Does Global Experience
* Help Your Career?
No Response
5%

19%
Unnecessary 56%

Very
Somewhat Helpful
20%

Source: USA Today

1-24
*
* Evolution of
* American Business
• Agricultural/Manufacturing

• Service Industries

• Future???

1-25
*
* Trends in Business
*
• Rise of Information & • Self-Directed,
Communication Empowered
Technology Employees
• Globalization
• Communication Skills
• Doing Business 24/7
• Decision-Making Skills
• Educated Consumers
• Aging Workforce • Teamwork
• Increasing Diversity • Leadership
• Pyramid vs. Web • Continual Learning
Source: Keying In- Newsletter of the National Business Education Association, March 2003

1-26
*
* Leveraging
* Diverse Workforce
• According to the Society for Human Resources’ survey,
about 70 percent of the respondents actively leverage
workforce diversity through:
– Ensuring leadership development programs reach all
employees (40%)
– Meeting the needs of diverse customers (39%)
– Integrating diversity into the organization’s business strategy
(35%)
– Increasing innovation by tapping employees of all
backgrounds (34%)

Source: SHRM Weekly Survey, August 3, 2004

1-27
*
*
*
Skill Level Required
58%
Average Skill
Level: 3.6 40%

2%

Level 1 Level 2 Level 3 Level 4 Level 5 Level 6

Source: Hudson Institute as reported in Arnold Packer, “Retooling the American Worker,” Washington Post

1-28
*
* Current Skill Level
*

70.5%
Average Skill
Level: 2.6

16.1%

6.8% 6.6%

Level 1 Level 2 Level 3 Level 4 Level 5 Level 6

1-29
*
*
*

1-30
*
*
*

1-31
*
*CHAPTER 1
*

Taking Risks and

Making Profits
within the
Dynamic Business
Environment

McGraw-Hill/Irwin Copyright © 2015 by the McGraw-Hill Companies, Inc. All rights reserved.
*
*
* • What is the difference between revenue and
profit?

• What is the difference between standard of living

and quality of life?

• What is risk? How is it related to profit?

• What do the terms stakeholders, outsourcing and

insourcing mean?

1-33
*
* LEARNING OBJECTIVES
*
1. Describe the relationship between profit and
risk, and show how businesses and nonprofits
can raise the standard of living for all.

2. Compare and contrast being an entrepreneur

and working for others.

3. Analyze the effects of the economic

environment and taxes on businesses.

4. Describe the effects of technology on

businesses.
1-34
*
* LEARNING OBJECTIVES
*
5. Demonstrate how businesses can meet and
beat competition.
6. Analyze the social changes affecting
businesses.
7. Identify what businesses must do to meet global
challenges, including war and terrorism.
8. Review how past trends are being repeated in
the present and what those trends mean for
tomorrow’s college graduates.

1-35
*
SAMMY HAGAR
* Entrepreneur
*
• Has juggled a long music
career with lucrative
businesses.
• Started investing while in his
first band.
• Opened the Cabo Wabo
Cantina in 1990 and has since
increased the brand.
• Donates large amounts to help
feed the hungry.

1-36
*
* NAME that COMPANY
*

Just before Christmas 2013, hackers stole more

than 110 million credit card numbers from this
retailer’s computer system requiring all customers to
monitor activity on these accounts and or get new
credit cards. The company’s profits fell nearly 50%
for the quarter.

Name that company!

1-37
*
* GOODS and SERVICES LO 1-1

• Goods -- Tangible products such as computers, food,

clothing, cars and appliances.

• Services -- Intangible products (that can’t be held in your

hand) like education, healthcare, insurance, recreation
and travel.

• Successfully filling a market need means you could

make money for yourself and provide jobs for others.

1-38
*
BUSINESS and LO 1-1
*
ENTREPRENEURSHIP
*

• Business -- Any activity that seeks to provide

goods and services to others while operating at a
profit.

• Entrepreneur -- A person who risks time and

money to start and manage a business.

• Success in business is often based on the

strategy of finding a need and filling it.

1-39
*
LO 1-1
* REVENUE, PROFIT AND LOSS
*
• Revenue -- The total amount of
money a business takes in during
a given period by selling goods
and services.
• Profit -- The amount of money a
business earns above and
beyond what it spends for salaries
and other expenses.
• Loss -- Occurs when a
business’s expenses are more
than its revenues. 1-40
*
* RISK LO 1-1

*
• Risk -- The chance an
entrepreneur takes of losing
time and money on a
business that may not prove
profitable.

• Not all businesses make

the same amount of profit.

• Businesses take risks, but

with great risks could
come great profit.
1-41
*
* HOW is TAX MONEY USED? LO 1-1

*
Taxes are used to provide:
•Hospitals
•Schools
•Libraries
•Playgrounds
•Roads
•Fire Protection
•Police Protection
•Environmental Programs
•Support for People in Need
1-42
*
* STANDARD of LIVING LO 1-1

• Standard of Living -- The

amount of goods and services
people can buy with the money
they have.

• The U.S. has one of the highest

standards of living in the world.

• Workers in other countries may

make more money, but prices for
products are higher. Photo Credit: Walmart Stores

1-43
*
LO 1-1
* QUALITY of LIFE
*

• Quality of Life -- The general well-being of a society

in terms of its political freedom, natural environment,
education, healthcare, safety, amount of leisure and
rewards that add to personal satisfaction.

1-44
*
* STAKEHOLDERS LO 1-1

• Stakeholders -- All the people who stand to gain or

lose by the policies and activities of a business and
whose concerns the businesses need to address.

• Who are Stakeholders?

- Customers - Community Members
- Employees - Media
- Stockholders - Elected Officials
- Suppliers - Bankers
- Dealers - Environmentalists

1-45
*
* STAKEHOLDERS LO 1-1

1-46
*
OUTSOURCING LO 1-1
*
and INSOURCING
*

• Outsourcing -- Contracting with other companies

(often in other countries) to do some of the firm’s
functions, like production or accounting.

• Insourcing -- Foreign companies opening offices

and factories in the United States.

1-47
*
* NONPROFIT ORGANIZATIONS LO 1-1

*
• Nonprofit Organization -- An organization whose
goals do not include making a personal profit for its
owners or organizers.

1-48
*
WELL-KNOWN NONPROFITS LO 1-1
*
in the UNITED STATES
*
United Way American Heart Association

Salvation Army American Cancer Society

American Red Cross

1-49
*
KEEPING STRONG EMPLOYEES LO 1-1
*
at NONPROFITS
*

1. Set ambitious, but realistic

goals.

2. Allow all employees to

work with the groups they
are serving.

3. Give employees a break.

Nonprofit work is draining.

Source: Fast Company, accessed October 2014. 1-50

*
* TEST PREP
*

• What is the difference between revenue and

profit?

• What is the difference between standard of living

and quality of life?

• What is risk? How is it related to profit?

• What do the terms stakeholders, outsourcing and

insourcing mean?
1-51
*
THE UPS and DOWNS LO 1-2
*
of ENTREPRENEURSHIP
*

The UPS The DOWNS

The freedom to succeed. The freedom to fail.
Make your own decisions. No paid vacations.
High possibility of wealth. No health insurance.
Hire your own staff. No daycare.

1-52
*HOW a FOOD TRUCK HELPED REBUILD
* a STORM-STRUCK COMMUNITY
*
• After witnessing the destruction left behind after
Hurricane Sandy, Mike Diamond started
Rockaway Plate to serve free lunches.

• Now the truck is a profitable business that helps

local teens gain work experience.

1-53
*
WHO TAKES the LO 1-2
* ENTREPRENEURIAL CHALLENGE?
*
• Millions of people have
started businesses and
succeeded.

• The number of Hispanic-

owned businesses in the
U.S. has grown
dramatically.

• Women now own over

one-third of all businesses.
1-54
*
* WOMEN in the WORKFORCE LO 1-2

Source: Bloomberg Businessweek, accessed October 2014. 1-55

*
LO 1-2
* FIVE FACTORS of PRODUCTION
*

• Entrepreneurs use what they’ve learned to grow

their businesses and increase wealth.

1-56
*
* TEST PREP
*

• What are some of the advantages of working for

others?

• What benefits do you lose as an entrepreneur,

and what do you gain?

• What are the five factors of production? Which

ones seem to be the most important for creating
wealth?

1-57
* WHAT is the LO 1-3
* BUSINESS ENVIRONMENT?
*

1-58
*
GOVERNMENT’S ROLE LO 1-3
*
in BUSINESS
*
Government can promote business by…
1.Minimizing spending and keeping taxes and
regulations to a minimum.
2.Allowing private ownership of businesses.
3.Minimizing interference with the free exchange of
goods and services.
4.Passing laws that enable businesspeople to write
enforceable contracts.
5.Establishing a currency that’s tradable in world
markets.
6.Minimizing corruption. 1-59
*
* CORRUPTION WORLDWIDE LO 1-3

Source: Transparency International, October 2014.

1-60
*
* ETHICS BEGINS with YOU
*
The number of employees calling in sick has
reached a five-year high. 3/5 of all callers were not
even sick. Others conduct personal business at
work, play video games and check their Facebook
pages while at work.

What is the problem with this situation?

What are the alternatives?
What are the consequences of each alternative?
What path would you choose?
Is it ethical?
1-61
*
LO 1-4
* BENEFITS of TECHNOLOGY
*

• Technology -- Everything from phones to copiers

and the various software programs that make
businesses more effective, efficient and productive.

• Effectiveness -- Producing the desired result.

• Efficiency -- Producing goods and services using the

least amount of resources.

• Productivity -- The amount of output you generate

given the amount of input (example: hours you work).
1-62
*
CONNECTING COMPANIES with
*
GLOBAL FREELANCERS
*

• Since the Great Recession, freelancers are more

important than ever before.

• Freelance employees don’t even have to live in

the same country as their employers.

• Elance is taking advantage of this development

with its over 8 million registrants.

1-63
*
* E-COMMERCE LO 1-4

• E-Commerce -- The buying

and selling of goods online.
- B2C: Business to Consumer
- B2B: Business to Business

1-64
*
LO 1-4
* CYBER ATTACKS on BUSINESSES
*
• 80% of cyber attacks involve weak passwords.

• Since 2012, there has been an 8% increase in

malware attacks with an average loss of $92,000!

• Since 2012, there has been a 125% increase in

social media phishing attacks, stealing over $1 billion
from businesses.

• 29% of security breaches are hackers pretending to

be you and resetting your passwords.

Source: Inc., January 2014. 1-65

* DATABASES LO 1-4
* and IDENTITY THEFT
*

• Database -- An electronic
storage file for information.

• Identity Theft -- The obtaining

of individuals’ personal
information, such as Social
Security and credit card
numbers, for illegal purposes.

Photo Credit: Jack Spade

1-66
* PROTECT YOURSELF LO 1-4
* from IDENTITY THEFT
*
Follow these steps to help protect yourself:

• Protect your Social Security Number.

• Shred financial documents and items with personal
information.
• Don’t give out personal information unless you know
whom you are dealing with.
• Use strong passwords.
• Never click links in suspicious emails.
• Monitor your credit report.
Source: Federal Trade Commission, www.ftc.gov accessed October 2014. 1-67
* USING EMPOWERMENT LO 1-5
* to COMPETE in TODAY’S MARKET
*

• Customers want quality products at a good price

with excellent customer service.

• Because business is more customer-driven, some

managers give frontline employees more decision-
making power.

• Empowerment -- Giving frontline workers the

responsibility, authority, and freedom to respond
quickly to customer requests.
1-68
*
LO 1-6
* DEMOGRAPHY
*

• Demography -- The
statistical study of the
population in terms of
size, density and
characteristics like,
age, race, gender and
income.

1-69
*
DEMOGRAPHY of the U.S. by LO 1-6
*
AGE
*

Source: U.S. Census Bureau, www.census.gov, accessed October 2014. 1-70

* CURRENT DEMOGRAPHY LO 1-6
* of the U.S. by RACE
*

Source: U.S. Census Bureau, www.census.gov, accessed October 2014. 1-71

* PROJECTED DEMOGRAPHY LO 1-6
* of the U.S. by RACE in 2050
*

Source: U.S. Census Bureau, www.census.gov, accessed October 2014. 1-72

*
LO 1-6
* U.S. POPULATION CHANGES
*
• Diversity has grown from just
recruiting minority and female
workers.

• Population shifts are creating

opportunities for some and
limiting others.

• Growth of single-parent
households have encouraged
businesses to implement
programs such as family leave
and flextime. 1-73
* WHO WILL SUPPORT LO 1-6
* SOCIAL SECURITY?
* Number of Workers per Retiree

Source: U.S. Census Bureau, www.census.gov, accessed October 2014.

1-74
*
LO 1-6
* WHAT is DIVERSITY?
*
• The U.S. Equal Employment Opportunity Commission
prohibits laws discriminating against:
- Age
- Disability
- Genetic information
- National origin
- Pregnancy
- Race
- Religion
- Sex
1-75
*
IMPORTANT CHANGES to the LO 1-7
*
GLOBAL ENVIRONMENT
*
1. Growth of global
competition.

2. Increase of free trade

among nations.

3. Development of
efficient distribution
systems.

4. Advances in
communication
systems. 1-76
*
INCREASING COSTS of the LO 1-7
*
GLOBAL ENVIRONMENT
*

• Wars cost billions of dollars.

• Tax money is diverted.

• Cost of security goes up.

• Cost of insurance goes up.

1-77
*
GOURMET AIRPORT EATERIES
*
TAKE FLIGHT
*
• Airport restaurants have
more regulations than
traditional spots.

• People are likely to spend

more when travelling.

• This has led to more

gourmet restaurants
popping up in airports.
1-78
*
* GLOBAL GREENING LO 1-7

*
• Climate Change -- Movement of the temperature of
the planet up or down over time.

• Greening -- Trend toward saving energy and

producing products that cause less harm to the
environment.
• Many companies like GE, Coca-Cola, British
Airways and Shell are adopting green practices.

1-79
*
* TEST PREP
*

• What are four ways the government can foster

entrepreneurship?

• What is the difference between effectiveness,

efficiency and productivity?

• What is empowerment?

• What are some of the major issues affecting the

economy today?
1-80
*
* The EVOLUTION of BUSINESS LO 1-8

Agriculture Era

Manufacturing Era

Service Era

Information-Based Era

1-81
*
LO 1-8
* The AGRICULTURAL ERA
*
• In the 1800s, the agricultural
industry led economic
development.

• Technology, like the

harvester and cotton gin,
changed the farming
industry making it more
efficient.

• This led to fewer farmers

with larger farms.
1-82
*
* The MANUFACTURING ERA LO 1-8

• Industrialization in the 19th and 20th

centuries moved jobs from farms to
factories.
• As technology
improved
productivity, fewer
workers were
needed in factories.

1-83
*
LO 1-8
* The SERVICE ERA
*

• Make up over 70% of the

U.S. economy.

• Since the mid-1980s, the

service industry generated
almost all the increases in
employment.

• More high-paying jobs in

service industries.

1-84
*
The INFORMATION LO 1-8
*
TECHNOLOGY ERA
*

• IT affects:
- Agriculture
- Industry
- Service

1-85
*
* TEST PREP
*

• What major factor caused people to move from

farming to manufacturing and from
manufacturing to the service sector?

• What does the future look like for tomorrow’s

college graduates?

1-86