Contemporary Business

18th Edition
Louis E. Boone; David L. Kurtz; Susan Berston

Chapter 1

The Changing Face of Business

Learning Objectives
1. Define business.
2. Identify and describe the factors of production.
3. Describe the private enterprise system.
4. Identify the seven eras in the history of business.
5. Explain current workforce trends in business.
6. Identify the skills and attributes needed for today’s
manager.
7. Outline the characteristics that make a company
admired.

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What is Business?
• A broad, all-inclusive term applied to various
enterprises.
• All profit-seeking activities and enterprises.
• Provider of goods and services necessary to an
economic system.
• Drives the economic pulse of a nation
• Provides the means through which a citizens’ standard
of living improves.
• An exchange between a buyer and a seller.

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What is Business?
• Business: all profit-seeking activities and enterprises
that provide goods and services necessary to an
economic system.
 Some businesses produce tangible goods, while others provide services
such as tax preparation or haircuts. Businesses are large enterprises like
Exxon Mobil or The Coca-Cola Company. They can also be the small
dry cleaners in your neighborhood -- and they must know what
customers want. Profits are the central focus of business -- because
without profits, a company could not survive.

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What are Profits?
• Profits represent rewards earned by business people:
• who take the risks involved in blending people,
technology, and information.
• to create and market want-satisfying goods and services.
• Accountants think of profits as the difference between a
firm’s revenues and the expenses it incurs in generating
those revenues.
• Profits serve as incentives to start and expand
companies.

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What are Profits?
• A business, such as this
cell phone store,
survives through the
exchange between a
buyer and a seller.

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Not-for-Profit Organizations
• Businesslike establishments with objectives other than
returning profits to their owners.
• Public service goals are placed above profits.
• Operate in both the public and private sector.
• Public: government agencies, political parties, and labor
unions.
• Private: museums, libraries, trade associations, and
religious organizations.
• The concepts (and challenges) of for-profit firms also
apply to not-for-profits.
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Not-for-Profit Organizations
• The A S P C A,
headquartered in New
York City, was the first
human society in North
America and 150 years
later it is one of the
largest privately funded
501 (c) (3) not-for-profit
corporations in the world.

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Factors of Production
An economic system requires certain inputs used in the production
of goods and services to make a profit. Economists use the term
factors of production to refer to the four basic inputs:
• Land is used in the production of a good, includes all production
inputs or natural resources such as oil, gas, minerals, and timber.
• Labor is the physical labor and intellectual inputs contributed by
workers.
• Capital includes technology tools (computer and software),
information, and physical facilities.
• Entrepreneurship is the willingness to take risks to create and
operate a business.

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Factors of Production and Their Factor
Payments
Table 1.1 Factors of Production and Their
Factor Payments

Factor of production Corresponding Factor payment

Land Rent
Labor Wages
Capital Interest
Entrepreneurship profit

Table 1.1 Factors of Production and Corresponding Payment Factor

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The Private Enterprise System
• The private enterprise system is an economic
system that rewards firms for their ability to identify
and serve the needs and demands of customers.
• Capitalism is another name for the private enterprise
system.
• Adam Smith is the father of capitalism, who believed
in the “invisible hand” to regulate competition
• To compete, each firm must provide a competitive
differentiation to set itself apart.

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The Private Enterprise System
• Competition a natural force that guides free market
capitalism.

• Competitive differentiation unique combination of

organizational abilities, products, and approaches that
sets a company apart from competitors in the minds of
customers.

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Basic Rights in the Private Enterprise System
• Private Property –own, use, buy, sell and bequeath
most forms of property, including land, buildings,
machinery, and equipment.
• Right to profits after taxes, earned through business
activities.
• Competition – allows for the public to set rules for
competitive activity.
• Freedom of Choice – citizens choose their own
employment, purchases, and investments.

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Basic Rights in the Private Enterprise System

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The Entrepreneurship Alternative (1 of 5)
• The entrepreneurial spirit fuels growth in the U.S.
economy.
• The entrepreneurial spirit is the source of new jobs
• Entrepreneur person who seeks a profitable
opportunity and takes the necessary risks to set up and
operate a business.
• The willingness of individuals to start new ventures
drives economic growth and keeps pressure on existing
companies to satisfy customers.

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The Entrepreneurship Alternative (2 of 5)
Table 1.2 Dorm Room Entrepreneurs
Company Founders Idea Website
Dropbox Arash Ferdowski and Frustrated by the inability to receive and http://www.dropbox.com
Drew Houston send large files over e-mail, Ferdowski and
Houston created an online file storage
solution, now the leader in file sharing with
millions of users worldwide.
Facebook Mark Zuckerberg, Facebook was created by a group of http://www.facebook.com
Dustin Moscovitz, Harvard students in search of a way to
Eduardo Saverin, interact with other students. Zuckerberg
Andrew McCollum, dropped out of school and continues to run
and Chris Hughes the company today.
Google Sergey Brin and Larry Brin and Page began brainstorming while http://www.google.com
Page in school about Creating the world’s largest
search engine. They suspended their phD
studies, and both run Alphabet today (see
the chapter opening story).

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The Entrepreneurship Alternative (3 of 5)
Company Founders Idea Website
Insomnia Seth Berkowitz Insomnia Cookies, now in 70 locations, http://
Cookies specializes in feeding the insatiable hunger www.insomniacookies.com
of college students, companies, and
anyoneelse with warm, delicious cookies
delivered right to your door.
ModCloth Susan Gregg Modcloth offers styles from hundreds of http://www.modcloth.com
koger and Eric independent designers in a full range of
koger sizes. They also design and see an exclusive
line of their own apparel
Snapchat Evan Spiegel and Approached by a friend who wasn’t sure http://www.snapchat.com
Robert Murphy about whether to send a certain photo,
Spiegel and Murphy figured out a way to
magically send pictures that soon disappear
after being viewed by the recipient.
Inogen Alison perry While in college, Bauerlin Founded Inogen, http://www.inogen.com
Bauerlin a lightweight and travel-approved portable
oxygen device designed to free patients in
need of oxygen from heavy tanks.

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The Entrepreneurship Alternative (4 of 5)
Sources: Rachel Knuttel, “The 12 Coolest Dorm Room Startups,” thelala.com, accessed
February 10, 2018; Ken Yeung, “Mark Zuckerberg on the Real Beginnings of Facebook,”
The Next Web, thenextweb.com, accessed February 10, 2018; company website, “About
Us,” insomniacookies.com, accessed February 10, 2018; company website, “About Us,”
modcloth.com, accessed February 10, 2018; company website, www.snapshat.com,
accessed February 10, 2018; company website, “Create Your Website for Free,”
wordpress.com, accessed February 10, 2018; Company website, “About Us,” accessed
February 10, 2018, inogen.com.

Table 1.2 Dorm Room Entrepreneurs

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The Entrepreneurship Alternative (5 of 5)
Era Main Characteristics Time Period
Colonial Primarily Agricultural Prior to 1776
Industrial Revolution Mass production by semiskilled workers, aided by 1760 to 1850
machines, The age of industrial entrepreneurs built
on the Industrial Revolution through an expansion in
the number and size of companies.

Production Emphasis on producing more goods faster, leading to Through the 1920s
production innovations such as assembly lines.
Marketing Consumer orientation, seeking to understand and Since 1950s
satisfy needs and preferences of customer groups.
Relationship Benefits derived from deep, ongoing links with Began in 1990s
individual customers, employees, suppliers, and other
businesses.
Social New ways to businesses and consumers to Since 2000s
communicate and share information through the
internet and social media.

Figure 1.2 Seven Eras in Business History

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Strategic Alliances
• To take full advantage of available opportunities,
businesses form partnerships with other organizations
• One form of partnership is called a strategic alliance
• A strategic alliance creates a competitive advantage for
the businesses involved.
• The voice of Amazon’s voice-enabled personal
assistant, Alexa, will be heard in Ford, Toyota,
Hyundai, and Volkswagen automobiles.

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The Green Advantage
• A way to build relationships is to incorporate issues of
value into your business that are of concern to your
customers.
• Companies can create environmentally friendly
products and processes.
• Companies are well aware of saving energy, cutting
emissions, reducing pollution and waste.

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Current Business Workforce Trends
• Keeping pace with accelerated change in today’s business
world is crucial.
• To keep pace with change, a skilled and knowledgeable
workforce is an essential resource.
• High-quality production workforces are needed to compete
in global markets.
• Knowledge is needed to stay on top of new technologies,
advances, and innovation.
• Integration of machines and artificial intelligence (AI)
continues to expand.
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Changes in the Workforce
• Aging of the Population and Shrinking Labor Pool.
• Increasingly Diverse Workforce.
• Changing Nature of Work.
• The need for flexibility and mobility.
• Innovation through collaboration.
• Artificial intelligence to innovate and become more
efficient.

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Aging of the Population and Shrinking Labor Pool

• There are more than 8.5 million U.S. workers 65 or

older in today’s workforce, a 60% increase compared to
a decade ago.
• The labor pool could fall short as some Baby Boomers
retire.
• Management challenges with a multi-generational
workforce with up to five different generations.
• Work-life styles, work expectations, and disparate
levels of technological expertise.
• Advanced technological skills will be required.

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Increasingly Diverse Workforce
• Workers in developing regions have moved to more prosperous
countries like the United States to gain access to opportunities.
• Diversity and inclusion must be included in workplace policies
to retain employees.
• Workplace success is enhanced through different genders,
ethnic backgrounds, cultures, religions, ages, and physical and
mental abilities.
• Rapid technological change has intensified the hiring challenge
by requiring workers with technical skills and advanced
degrees.

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Outsourcing and the Changing Nature of Work

• A shift away from manufacturing, and more to services

• Service workers require knowledge, technical, and
communication skills
• Outsourcing involves the use of outside vendors—contracting
work out to another party—for the production of goods or
fulfillment of services and functions previously performed in
house.
• Offshoring – relocating business processes, both production
(manufacturing) and services (accounting) to lower cost
locations overseas.
• Nearshoring – outsourcing production or services near a
company’s headquarters.
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Employment by Major Service Industry Sector (1 of 2)

Table 1.3 Employment by Major Service Industry Sector, 2006, 2016, and Projected
2026
Industry Sector Thousand of jobs Thousand of jobs Thousand of Change in Change in
(000’s) in 2006 (000’s) in 2016 jobs (000’s) in 2006-16 2016-26
2026
Services-providing 114,724.2 125,294.1 135,820.6 10,569.9 10,526.5
excluding special
Industries
Utilities 548.5 556.2 559.6 7.7 3.4
Wholesale trade 5,904.6 5,867.0 6,012.8 −37.6 145.8
Retail trade 15,353.2 15,820.4 16,232.7 467.2 412.3
Transportation and 4,469.6 4,989.1 5,353.4 519.5 364.3
warehousing
Information 3,037.9 2,772.3 2,824.8 −265.6 52.5
Financial activities 8,366.6 8,284.8 8,764.6 −81.8 479
Professional and 17,566.2 20,135.6 22,295.3 2,569.4
business services

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Employment by Major Service Industry Sector (2 of 2)

Industry Sector Thousand of Thousand of Thousand of Change Change

jobs (000’s) in jobs (000’s) in jobs (000’s) in in 2006- in 2016-
2006 2016 2026 16 26
Educational services 2,909.9 3,559.7 4,066.2 658.8 506.5
Health care and social 15,253.3 19,056.3 23,054.6 3,803.3 3,998.3
assistance

Leisure and hospitality 13,109.7 15,620.4 16,939.4 2,510.7 1,319.0

Other services 6,240.5 6,409.4 6,761.4 168.9 352.0
Federal government 2,732.0 2,795.0 2,739.2 63.0 −55.8
State and Local government 19,241.2 19,427.9 20,216.6 186.7 788.7

Source: Government website,” Employment by Major Industry Sector,”

www.bls.gov, accessed February 8, 2018.

Table 1.3 Employment by Major Service Industry Sector

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Flexibility and Mobility
• Exploration and implementation of various work
arrangements.
• Millennials are more open to freelancing or working on
contract over traditional full-time employment.
• Millennials care less about money and the work-comes-
first lifestyle, and more about training, flexibility,
diversity and inclusion, and getting along with co-
workers.
• Millennials prefer to use technology to collaborate
online and share knowledge with a sense of mission.
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Innovation through Collaboration
• Businesses use teamwork in a creative environment
where members solve problems or seize
opportunities.
• Crowdsourcing: enlisting the collective talent of a
number of people to get work done.
• allows companies to find workers for a specific
task or project in a more efficient and cost-effective
way—using online marketplaces to hire global
talent beyond their own workforce.

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Today’s Manager
• Importance of Vision
• Perceiving marketing place needs.
• What an organization must do to satisfy needs.

• Importance of Critical Thinking

• Analyze and assess information, knowledge, and arguments for
problem solving Importance of Creativity.
• Developing novel solutions to problems – or better way to do business.
• Ability to Lead Change
• Changes resulting from technology, marketplace demands and global
competition.

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Importance of Vision

Marc Benioff , C E O of
Salesforce.com, is
considered a visionary
leader because of his
approach to technology
and cloud computing.

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What Makes a Company Admired?
• FORTUNE ® publishes a list of the World’s Most
Admired Companies based upon the following criteria:
• Innovation
• People management
• Use of corporate assets
• Social Responsibility
• Quality of management
• Quality of products and services

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Copyright
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