Business 2
Terms
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- Business
- Any organization that strives for profits by providing goods and services that meet customer needs.
- Successful business
- Any business that excels over a long period of time.
- Vision
- A broad statement of what a business would like to achieve.
- Mission
- A statement that spells out why a business exists and what the business will do.
- The Path toward a Successful Business
-
Vision and Mission
Indicators of business success
Assessing the environment and its impact
Providing excellence in product/service
Evaluating results and making changes
--> back to Indicators - Indicators of Success
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Achieving financial performance
Meeting customer needs
Building quality products and services
Encouraging innovation and creativity
Gaining employee commitment - revenue
- The amount customers pay for the goods and services they purchase.
- expenses
- the money a business must pay out to make its products and provide its services
- profit
- the amount of money left over after the business records all its revenues and subtracts all its expenses
- productivity
- the ratio of goods and services provided to resources used
- customer sensitivity
- the awareness of customer desires and needs
- customer serviced
- the actions a business takes to meet customer needs and preferences
- creativity
- new and different patterns of thinking and behaving
- innovation
- new approaches and options that are the result of creative activities
- quality management
- a company's unique approach to ensuring quality
- continous improvement
- the efforts byy a business to provide steadily higher quality throughout all phases of its operation
- learning organizations
- organizations that adapt to change and search creatively for new and better ways to operate and meet the needs of their employees and customers
- empowerment
- the process of giving more decision-making authority and responsibility to workers throughout the organization
- environment of business
- those factors or influences that affect the business but over which the firm has little control
- Assessing the Environment and its Impacts
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diversity trends and issues
economic forces
financial markets and processes
global influences
legal and regulatory forces - Providing Excellence in Products and Services
-
thinking strategically
acquiring and using resources
-providing value through quality products and services
-enhancing value through communicatin with customers
-integrating activities and encouraging commitment
-using technology in a competitive environment - franchise
- a business that grants the exclusive right to another individual or business to use its name and sell its products or services
- The Three Primary Business Sectors
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Manufacturing
Distribution
Service - industry sectors
- major groupings of industries with similar characteristics
- manufacturing sector
- the broad group of companies and industries that produce tangible objects
- manufacturing firms
- companies that convert raw materials or componenets into products that may be sold to consumers or to other businesses
- distribution sector
- the wholesale and retail firms that move products from the manufacturer to the ultimate customers or users
- service sector
- the broad group of companies that provide some sort of service to customers
- original equipment manufacturer (OEM)
- a company that makes components for another product
- capital goods
- the machinery and equipment used in the production process
- capital intensive
- relying heavily on equipment and machinery to produce products
- vertical integration
- the degree to which a firm operates in more than one level of the overall production chain
- outsourcing
- acquiring components or services from outside the firm rather than providing them using company resources
- strategic alliances
- long-term agreements between firms to work together for the benefit of both
- the three destinations of manufactured goods
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1. individual consumers
2. components
3. capital goods - characteristics of manufacturing firms
-
capital intensive
vertical integration
outsourcing
strategic alliances - exclusive distribution
- the distribution of a product to only a single outlet in a market area
- selective distribution
- the distribution of a product to a limited number of dealers or stores
- intensive distribution
- the distribution of a product to every possible venue
- wholesalers
- businesses that serve as intermediaries between manufacturers and retailers
- manufacturer's representative
- a company or person that sells products to wholesalers or retailers on commission
- retailers
- stores that sell directly to consumers
- category killers
- large chain stores that specialize in a narrow line of products
- contract carriers
- trucking companies that specialize in carrying a particular kind of good for a few customers
- common carriers
- trucking companies that transport a wide variety of products for many clients
- labor intensive
- relying heavily on people as the key to supplying products and services
- industry concentration
- the number of firms in an industry and their relative size; often calculated by the C-4 ratio (the percentage of total industry sales by the top four firms).
- board of directors
- the individuals elected by the stockholders to oversee the management of the firm
- inside directors
- directors who are also company employees
- outside directors
- directors who are not company employees
- top management
- the officers of a business who make major decisions for the company and are responsible for the company's performance
- chief operating officer
- the individual responsible for a company's internal day-to-day operations
- chief executive officer
- the individual responsible for the long-range, strategic direction of the company
- chief financial officer
- the individual responsible for the overall financial health and strategy of a company
- chief information officer
- the individual in charge of policy relating to the gathering, use, and storage of company information
- vice president
- a top manager who is responsible for a specific area of the company
- middle managers
- managers below vice presidents down to just above first-line supervisors; they are responsible for translating broad policies into doable tasks
- professional staff
- employees who make decisions within their area of specialty that assist others in doing their jobs
- first-line supervisors
- the lowest level of management; they are directly responsible for overseeing the work of employees who produce products or provide services.
- nonmanagerial employees
- employees in a business who are actually involved in producing or selling products and providing services
- self-directed work team
- a group of employees who supervise their own work and are given broad discretion over the direction of their work
- cross-functional team
- a group of employees who are selected from various areas of the business and brought together to make collective decisions
- chain of command
- the line of authority in a business that determines the movement of official commands down through the hierarchy
- Types of decisions
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1. Strategic decisions
2. Operational decisions
3. Problem-solving decisions - strategic decisions
- decisions that have a major impact on the general direction of the firm
- operational decisions
- decisions that affect the day-to-day actions of the business
- problem-solving decisions
- decision making aimed at correcting an adverse situation that has developed
- Basic Decision-Making Model
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1. Define the decision issue.
2. Gather and analyze information about the issue and the people involved.
3. Develop alternative solutions or strategies.
4. Evaluate and select the best alternative.
5. Implement the solution.
6. Evaluate the results. - creative decision-making
- the process of developing new or different ways to solve problems or capture opportunities
- Creative-Decision Making Model
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1. Preparation Stage
2. Incubation Stage
3. Illumination (insight) stage
4. Verification stage - Crisis Decision Making
- decision making that requires a bold response to a unique, unexpected, and potentially devastating situation
- stakeholder
- a person or group that has some claim on or expectation of how a business should operate
- primary stakeholders
-
those stakeholders whom a business affects and interacts with most directly.
-owners
-customers
-employees (and their union, if the firm is unionized) - secondary stakeholdes
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those stakeholders whom a business affects in an indirect or limited way
-business partners
-suppliers
-former employees
-the community
-unions
-environment
-the industry in which the firm operates
-other businesses
-government
-special interest groups
-the media
-society - business (integrated definition)
- an organization that strives for profits for its owners while meeting the needs of its customers an employees and balancing the impacts of its actions on other stakeholders
- value-price relationship
- a relationship in which customers get the best possible value from the products they purchase, given the price they pay
- union
- formally recognized organizations that represent a company's or industry's workers
- environmentalism
- efforts and actions to protect the natural environment
- business ethics
- the search for and commitment to meet appropriate standards of moral conduct in business situations
- moral dilemma
- a conflict of interests involving ethical choices
- private morality
- personal moral standards
- utilitarianism
- greatest good for the greatest number
- theory of rights
- an approach to decision-making that assumes there are certain individual rights that must always be protected
- theory of justice
- an approach to decision-making that assumes decisions should be guided by equity, fairness, and impartiality
- core values
- the specific beliefs that a business makes part of its operating philosophy
- codes of conduct
- the formal written statements specifying the kinds of things a business believes should be done and those that should be avoided
- business culture
- a set of unwritten values and beliefs about what is proper, right, and appropriate in a business
- macroeconomics
- the study of the entire economy of a nation
- gross domestic product
-
the market value of all final goods and services produced in a country in a given year.
Consumption + Investment + Government Spending + Net Exports - economic growth
- an increase in total spending in the economy
- per capita economic growth
- the difference in GDP per person from one year to the next
- inflation
- a general increase in prices or an increase in the prices of most goods and services
- pure competition
- a market situation in which many firms sell nearly identical products and no one firm can raise its price without losing most of its customers
- monopolistic competition
- a market situation in which there are many firms but each has a slightly different product
- oligopoly
- a market situation in which a few firms, with or without differentiated products, dominate the market
- monopoly
- a market situation in which only one firm sells a product or service
- globalization
- a way of thinking in which a business regards its operations all over the world as part of one integrated business system
- global strategy
- a strategy in which a business sells a uniform product or service throughout the world
- multidomestic strategy
- a strategy in which a business modifies its products and services to customers in other countries
- Why Globalization is Important
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the rise of foreign competition
the need to control costs
opportunities for market growth - balance of payments
- a record of the inflows of money into a country and the outflows of money from that country
- balance of trade
- the difference between the value of a country's imports and its exports of goods and services
- free trade area
- a geographic area where free trade is permitted among the member countries but imports from nonmember countries are limited
- cultural relativism
- the belief that what is right or wrong depends on where you are
- universalism
- the belief that there are commonly shared beliefs throughout the world
- dumping
- selling imports at prices that are below the cost of production and distribution
- multinational firms
- businesses that have major production and sales operations in more than one country
- international partnerships
- arrangements between two or more businesses from different countries that enable those companies to do business more successfully
- copyright
- the exclusive right to the use of intellectual property such as books, photographs, music, or cartoons
- trademark
- the exclusive legal right to the use of a name, symbol, or design
- patent
- a government-protected legal monopoly on a product or product design
- antitrust laws
- laws that prohibit companies from unfairly restricting competition
- price-fixing
- a situation in which rival firms agree to charge the same price for their competing products
- industrywide regulation
- a situation in which a local, state, or federal government controls the entry of firms into an industry, the prices they charge, the way they operate, or even their exit from the industry
- collective bargaining
- the process through which company and union representatives work together to negotiate a labor agreement
- tort
- a behavior, either intentional or negligent, that harms another person
- social overhead capital
- the purchase of goods and services by government to increase the productive capacity of business
- business focus
- the general direction in which top managers plain to take a business
- business profile
- an assessment of a firm's strengths and weaknesses
- SWOT analysis
- an assessment of a firm's key strengths and weaknesses compared with the opportunities and threats it faces
- core competence
- an activity or set of activities that a business performs very well or a quality it possesses in abundance
- distinctive competence
- a skill, activity, or capacity that a business is uniquely good at doing in comparison to rival firms
- competitive advantage
- an area of competence that consumers value and the business is capable of exploiting
- sustainable competitive advantage
- the most important one; a unique, long-term area of competence that competitors cannot duplicate easily, and the company is capable of exploiting
- competitive strategy
- the specific approach a business chooses to pursue for addressing its competitive environment
- 3 Business Strategies
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low-cost leadership
differentiation
focus - low-cost leadership
- a competitive strategy that entails finding ways to reduce the cost of providing a product or service and pass the savings on to customers
- differentiation strategy
- a competitive strategy that is built on providing a product or service that has some unique feature
- focus strategy
- a competitive strategy that is built on positioning a business to serve the needs of some unique or distinct customer segment that is not being fully served by the competition
- economies of scale
- reductions in a firm's average cost of production that are achieved by increasing the overall volume of production
- experience curve
- a concept whereby costs are lowered as a result of a firm's increasing efficiency through experience in making the product; also called the learning curuve
- Other General Strategic Considerations
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Diversification
Acquisition
Cooperative Strategies - diversification
- a strategy that entails branching out into an additional area (or areas) of business
- acquisition
- when one company buys another
- cooperative strategies
- situations in which two or more businesses decide to work together for their mutual benefit
- export management firm
- a firm located in the US tht sells products abroad for another business
- licensing
- an arrangement in which a business allows its products to be produced and distributed in other countries by a foreign company
- foreign sales office
- a special operation in a foreign country that sells and services products that were made domestically
- wholly owned subsidiary
- a business that is owned as part of a larger business; may be a foreign subsidiary of a domestic firm
- strategic planning
- a systematic way of analyzing and responding to a competitive environment
- synergy
- the combined action of two resources so that their total effect is greater than the sum of the effects taken independently
- opportunity cost
- best forgone alternative
- Four types of Resources:
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Human Resources
Physical
Financial
Information Technology - downsizing
- firing a lot of people
- human resources outsourcing
- contracting with temporary help agencies or with consulting firms to provide the people a firm needs
- physical resources
- (1) fixed assets such as land, buildings, and equipment (2) raw materials that will be used in creating the firm's products, and (3) general supplies used in the operation of the business
- make-or-buy decision
- the choice of whether to manufacture a product in-house or buy it from a supplier
- product outsourcing
- purchasing a product or component of a product from another company
- cash flow
- the movement of cash into, through, and out of a firm
- cash inflow
- the movement of cash into the business from owners, lenders, or customers
- equity financing
- the money invested in a business by the owners
- debt financing
- the money a company borrows from outsiders, such as individuals, banks, or other lending institutions, or raises by selling bonds
- cash outflow
- the movement of cash out of the business for any reason
- strategic information
- any information about a firm's competitors, customers, and markets that affects its ability to compete
- operational information
- any information relating to the internal workings of the company that helps it run more efficiently
- just-in-time (JIT)
- An integrated set of activities designed to achieve high-volume production using minimal inventories of raw materials, work in process, and finished goods