Business Fundamentals Module 1

1. Business FundamentalsModule 1 Evolution of Business, Globalization, Ethics/CSR, and Entrepreneurship

3. The Name Game • Name Game for Thursday - Your assignment is to position your name (first, last, both, nickname—whatever) in our mind in such a way that we remember it by the end of class tomorrow (and if you’re really good—the rest of the summer!).  You will have 60 seconds to accomplish your goal.  You do not need to turn in anything written, but you do need to use some sort of prop that has meaning for you and will help us remember you.  Remember, there are 35 (or so) other students competing for space in our minds, so be creative. 

4. How to Read the WSJ • First Section (Section A) • Front Page • First two columns • Bottom center story • Opinion pages • Marketplace (Section B) • Page 2 index • Last page is usually Sports • The Count • Money & Investing (section C) • Section D • Monday is usually a special section devoted to one topic • Tuesday is Health and Fitness • Wednesday is Home and Digital • Thursday is Style and Travel • Friday is the Arena section, looking at Arts and Leisure • There is also a Mansion section on Fridays • On Saturdays there is a Weekend version of the Journal

5. Important Reminder

6. Today’s Dynamic Business Environment

7. The EVOLUTION of BUSINESS LG8 • Agriculture Era • Manufacturing Era • Service Era • Information-Based Era

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.

9. The MANUFACTURING ERA LG8 • Industrialization in the 19th and 20th centuries, moved jobs from farms to factories. • As technology improved productivity, fewer workers were needed in factories.

10. The SERVICE ERA LG8 • Services make up more 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 than goods-producing industries.

11. The INFORMATION TECHNOLOGY ERA • Information technology has affected all sectors of the economy: • Agricultural • Industrial • Service • QVC, Fact Sheet

12. Demographics • Population shifts are creating opportunities for some and limiting others. (e.g., aging population) • Diversity has grown from just recruiting minority and female workers. • What is the value of diversity? Look at your team composition! • Growth of single-parent households have encouraged businesses to implement programs such as family leave and flextime.

13. Globalization • Growth of global competition • Increase of free trade among nations • More efficient distribution systems and communication advances. • China’s GDP passes Japan, Latest ranking • Sustainability • Many companies are shifting their practices to save energy and produce products that cause less harm to the environment. This process is called greening. 6. Thomas Friedman video – outstanding! 7. “The Economics of a $6.75 Shirt” 8. We’re Number 1(1)!, Newsweek story

14. GDP: BRIC Countries vs. US (2008)TIMSCIVETS

16. Importing and Exporting • Importing -- Buying products from another country. • The value in importing, WSJ, 05/20/2014 • Exporting -- Selling products to another country. • The U.S. is the largest importing and the third (barely) largest exporting nation in the world. • What two countries do you think are the biggest exporters? • Exports • Imports

17. Comparative and Absolute Advantage • Comparative Advantage -- A country should sell the products it produces most efficiently and buy from other countries the products it cannot produce as efficiently. • Absolute Advantage -- A country has a monopoly on producing a specific product or is able to produce it more efficiently than all other countries. • “To produce the wine in Portugal, might require only the labour of 80 men for one year, and to produce the cloth in the same country, might require the labour of 90 men for the same time. It would therefore be advantageous for her to export wine in exchange for cloth. This exchange might even take place, notwithstanding that the commodity imported by Portugal could be produced there with less labour than in England. Though she could make the cloth with the labour of 90 men, she would import it from a country where it required the labour of 100 men to produce it, because it would be advantageous to her rather to employ her capital in the production of wine, for which she would obtain more cloth from England, than she could produce by diverting a portion of her capital from the cultivation of vines to the manufacture of cloth.” Ricardo, 1821 • Suppose that in a particular city the best lawyer happens also to be the best secretary, that is he would be the most productive lawyer and he would also be the best secretary in town. However, if this lawyer focused on the task of being a lawyer and, instead of pursuing both occupations at once, employed a secretary, both the output of the lawyer and the secretary would increase, as it is more difficult to be a lawyer than a secretary.

18. Outsourcing • Outsourcing -- Purchasing goods and services from sources outside a firm rather than providing them within the company. • U.S. firms have outsourced payroll functions, accounting, and manufacturing for years. • With the growth of global markets, companies have been shifting to offshore outsourcing – outsourcing with other countries.

19. Ethics • Ethics -- The standards of moral behavior; behaviors that are accepted by society as right versus wrong.

20. STAKEHOLDERS • 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 • Employees • Stockholders • Suppliers • Dealers • Community Members • Media • Elected Officials • Environmentalists

21. Ethical Failures in Business • Enron: One executive is serving a 24 year sentence for accounting fraud while another was released in October 2011. • Arthur Andersen:Convicted of tampering with witnesses, the company was dissolved and about 28,000 people lost their jobs. • Tyco International: Two executives stole $600 million from the company and are scheduled to be released from prison in 2030. • Adelphia Communication:Two executives were convicted of conspiracy, bank and securities fraud and given sentences of 15 and 20 years. • WorldCom: Former CEO was convicted of fraud, conspiracy and false filings and sentenced to 25 years.

22. Ethics Starts at the Top • Trust between workers and managers must be based on fairness, honesty, openness, and moral integrity. • Leadership can help instill corporate values in employees.

23. Factors Influencing Managerial Ethics

24. Corporate Ethics Codes • An increasing number of companies have adopted written codes of ethics. • Apple Conduct Policy, Google Code of Conduct • Liberty Interactive Code of Business Conduct and Ethics

25. Corporate Social Responsibility • Corporate Social Responsibility (CSR) -- The concern businesses have for the welfare of society. • CSR is based on a commitment to integrity, fairness, and respect. • CSR proponents argue that businesses owe their existence to the societies they serve and cannot exist in societies that fail. • QVC CSR

26. Corporate Responsibility and Policy • Corporate Responsibility -- Includes everything from hiring minority workers to making safe products, minimizing pollution, using energy wisely, and providing a safe work environment. • Corporate Policy -- The position a firm takes on social and political issues.

27. Conscious Capitalism • Conscious Capitalism builds on the foundations of Capitalism - voluntary exchange, entrepreneurship, competition, freedom to trade and the rule of law. These are essential to a healthy functioning economy, as are other elements of Conscious Capitalism including trust, compassion, collaboration and value creation.

28. Bill Gates on Creative Capitalism • Creative Capitalism • Capitalism has improved the lives of billions of people • creative capitalism: an attempt to stretch the reach of market forces so that more companies can benefit from doing work that makes more people better off. • We need new ways to bring far more people into the system — capitalism — that has done so much good in the world.

29. The Case Against CSR • “But social welfare isn't the driving force behind these trends. Healthier foods and more fuel-efficient vehicles didn't become so common until they became profitable for their makers. Energy conservation didn't become so important to many companies until energy became more costly. These companies are benefiting society while acting in their own interests; social activists urging them to change their ways had little impact. It is the relentless maximization of profits, not a commitment to social responsibility, that has proved to be a boon to the public in these cases.”from the WSJ • Friedman – “The Social Responsibility of Business is to Increase its Profits.” • Debate at reason.com

30. Corporate Philanthropy and Social Initiatives • Corporate Philanthropy -- Includes charitable donations. Is this stealing from the investors? • Corporate Social Initiatives -- Includes enhanced forms of corporate philanthropy.

31. Charitable Giving as % of GDP

32. Society and the Environment • The green movement emerged as concern about global warming increased. • Many companies are trying to minimize their carbon footprints – the amount of carbon released during an item’s production, distribution, consumption and disposal.

33. Responsibility and the Environment • Environmental efforts may increase costs but can offer good opportunities. • The emerging renewable-energy and energy-efficiency industries account for 8.5 million U.S. jobs. • By 2030, as many as 40 million “Green” jobs will be created. • Happy Planet Index

34. Social Auditing Social Audit -- A systematic evaluation of an organization’s progress toward implementing socially responsible and responsive programs. • Example of a CSR Report: Starbucks

35. You and the Environment • It’s not necessary to radically change your lifestyle to make an ecological difference. Here are a few ways to you can make small changes to help. • Become a vegan • Buy a reusable grocery bag • Buy energy efficient light bulbs • Recycle more • Drive fewer miles or ride your bike • Use less water • Run less electrical equipment • Buy local produce • Buy a hybrid car

36. Ethics and You • Plagiarizing from Internet materials is the most common form of cheating in schools today. • Studies found a strong relationship between academic dishonesty and dishonesty at work.

37. America’s Most Admired Companies • And the winners are…

38. Important Reminder

39. ENTREPRENEURSHIP • Accepting the risk of starting and running a business.

40. Why Take the Risk? • Opportunity • Profit • Independence • Challenge

41. Entrepreneurship Videos • A Classic (IMO) • Think Different • Gary Vaynerchuk video (first 6:30)

42. The UPS and DOWNS of Entrepreneurship • The UPS • The freedom to succeed. • Make your own decisions. • High possibility of wealth. • Hire your own staff. • The DOWNS • The freedom to fail. • No paid vacations • No health insurance. • No daycare • 10 Reasons You Should Never Get a Job

43. What Does It Take to be an Entrepreneur? • Self-directed • Self-nurturing • Action-oriented • Highly energetic • Tolerant of uncertainty • TED video

44. New York Times Article • a thin line separates the temperament of a promising entrepreneur from a person who could use, as they say in psychiatry, a little help. • He works from 8 a.m. until 10 p.m., seven days a week; he can work 96 hours in a row; • The attributes that make great entrepreneurs, the experts say, are common in certain manias, though in milder forms and harnessed in ways that are hugely productive. Instead of recklessness, the entrepreneur loves risk. Instead of delusions, the entrepreneur imagines a product that sounds so compelling that it inspires people to bet their careers, or a lot of money, on something that doesn’t exist and may never sell. • Humanity and interpersonal skills are always helpful for recruiting talent and raising money • “I’m addicted to the act of winning, the process. When you are in the act of winning, everything is great. Once you’ve won, that’s boring. It’s cool, it’s better than having lost, but it’s boring.”

45. SOCIAL ENTREPRENEURSHIP:RESPONSIBLE and PROFITABLE • Social entrepreneurship is the work of a social entrepreneur. A social entrepreneur is someone who recognizes a social problem and uses entrepreneurial principles to organize, create, and manage a venture to make social change (a social venture). Whereas a business entrepreneur typically measures performance in profit and return, a social entrepreneur focuses on creating social capital. Thus, the main aim of social entrepreneurship is to further social and environmental goals. However, whilst social entrepreneurs are most commonly associated with the voluntary and not-for-profit sectors , this need not necessarily be incompatible with making a profit. • Tom’s Shoes

46. SOURCES of CAPITAL • Personal savings • Relatives • Former employers • Banks & finance companies • Government agencies • Angel investors and Venture capitalists -- Angels typically invest their own funds, unlike venture capitalists who manage the pooled money of others in a professionally-managed fund. • Kickstarter • Lending Club

47. ENTREPRENEURIAL TEAMS • Entrepreneurial team -- A group of experienced people from different areas of business who join to form a managerial team with the skills to develop, make and market a new product. • An entrepreneurial team (Steve Jobs, Steve Wozniak, and Mike Markkula) was key to Apple’s success. Video 1 (:22-1:34), Video 2, Video 3

48. THEY DID WHAT?Famous Business Failures • Tommy Hilfiger – First store went bankrupt • Milton Hershey – First confectionary failed • H.J. Heinz – Company went bankrupt six years after start • Walt Disney – First film company went bankrupt • Henry Ford – First two car companies failed • L.L. Bean – Almost went bankrupt in first year Source: World Features Syndicate, 2009.

49. Outsourcing Your Small Business • Using the Internet to find affordable labor around the world. • Elance provides small businesses with a hub to find low-cost contractors. (browse categories, online marketers) • Get Friday (click on Services tab) • Outsourcing Your Life – Tim Ferriss, author of The 4-Hour Workweek, The 4-Hour Body, and The 4-Hour Chef; Elance video, “Ted” video; New York Times article

50. Online Businesses • Web-based businesses have more unique products than most brick and mortar stores. • Online sales reached $165.9 billion in 2007, 8% of all retail sales. • Example: MeganElizabeth, YouTube channel • Affiliate Marketing -- An Internet-based marketing strategy in which a business rewards individuals or other businesses for each visitor or customer the affiliate sends to its website. • Turbulence Training, Raw Vegan, VitaMix