BUSN11 [11 ed.] 1305497325, 9781305497320

Citation preview

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MARCE KELLY Santa Monica College

CHUCK WILLIAMS Butler University

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CENGAGE Australia • Brazil• Mexi co• Si ngapore• United Kingdom• United States

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Copyright 2019 Cengage Learning. AU Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02·200.202 Copyriglll 2019Ccni;igt lnrnulg. AO Ri.$h1~ Rcstn'Cd. May noc be cqiitd, icunntd. or wplkMtd. in 11b)lc (It in p;an.. Oi.e IIO d enmnk rip, M'.llfllt 1hitd pll1)' «wucm may be suppcsia:d from the t.Boot -.ifot t0upi:r(i), &lilOIU.l R"\iew.• lwi dttmcd th11111ny :raapptt:c,;ed comcm O,lC',I nm mmcrially a««1 die U'ltml lcll'flin&u pcricllC'C'. Ccngll!" lnmillg lnl:f'YCS lh: ris:h1io R'm!Wt addill(lllul ronai:M • •Y Ii.me if ~ -1rig.las rec1ric1ions roquitt it.

~-'#(ENGAGE

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BUSN11

© 2019, 2018 Cengage Learning. Inc.

Maree Kelly and Chuck Willi ams Unl ess otherwise noted, all content is © (engage Senior Vice President, Higher Ed Product, Content, and Market Development: Erin Joyner

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Copyright 2019 Cengage Learning. AU Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02·200.202 Copyriglll 2019Ccni;igt lnrnulg. AO Ri.$h1~ Rcstn'Cd. May noc be cqiitd, icunntd. or wplkMtd. in 11b)lc (It in p;an.. Oi.e IIO denmnk rip, M'.llfllt 1hitd pll1)' «wucm may be suppcsia:d from the t.Boot -.ifot t0upi:r(i), &lilOIU.l R"\iew.• lwi dttmcd th11111ny :raapptt:c,;ed comcm O,lC',I nm mmcrially a««11hC! U'IC!ml IC!ll'flin& upc,ricllC'C'. Ccngll!" lnmillg lnl:f'YC!S lh: ris:h1 io ll'lfKWt addill(lllul ronai:M • •Y Ii.mt if ~ -1rig.las rec1ric1ions roquitt it.

KELLY /WILLIA MS

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BRIEF CONTENTS

PART 1 THE BUSINESS ENVIRONMENT 1 Business Now: Change Is the Only Constant 2 2 Economics: The Framework for Business 18 3 The World Marketplace: Business without Borders 38 4 Business Ethics and Social Responsibility: Doing Well by Doing Good 58 5 Business Communication: Creating and Delivering Messages that Matter 76

PART 2 CREATING A BUSINESS 6 Business Formation: Choosing the Form That Fits 92 7 Small Business and Entrepreneurship: Economic Rocket Fuel 112

PART 3 FINANCING A BUSINESS 8 Accounting: Decision Making by the Numbers 128 9 Finance: Acquiring and Using Funds to Maximize Value 148 10 Financial Markets: Allocating Financial Resources 170

PART 4 MA RKETING A BUSINESS 11 Marketing: Building Profitable Customer Connections 190 12 Product and Promotion: Creating and Communicating Value 208 13 Distribution and Pricing: Right Product, Right Person, Right Place, Right Price 236

PART 5 MANAG ING A BUS INESS 14 Management, Motivation, and Leadership: Bringing Business to Life 252 15 Human Resource Management: Building a Top-Quality Workforce 270 16 Managing Information and Technology: Finding New Ways to Learn and Link 286 17 Operations Management: Putting It All Together 306

Personal Finance Appendix 328 Endnotes 341 Glossary 362 Index 379 Tear-out cards ~ Online Appendices g ~ Appendix 1 : Labor Unions and Collective Bargaining ~ Appendix 2: Business Law

Brief Contents Copyright 2019 Cengage Learning. AU Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02·200.202 Copyriglll 2019Ccni;igt lnrnulg. AO Ri.$h1~ Rcstn'Cd. May noc be cqiitd, icunntd. or wplkMtd. in 11b)lc (It in p;an.. Oi.e IIO d enmnk rip , M'.llfllt 1hitd pll1)' «wucm may be suppcsia:d from the t.Boot -.ifot t0upi:r(i), &lilOIU.l R"\iew.• lwi dttmcd th11111ny :raapptt:c,;ed comcm O,lC',I nm mmcrially a««1 die U'ltml lcll'flin&upcricllC'C'. Ccngll!" lnmillg lnl:f'YCS lh: ris:h1io R'm!Wt addill(lllul ronai:M • •Y Ii.me if ~ -1rig.las rec1ric1ions roquitt it.

111

CONTENTS Letter t o Students

3The World Marketplace:

ix

Business without Borders 38

Part 1 THE BUSINESS ENVIRONMENT

3-1 An Unprecedented Opport unity

38

3-2 Key Reasons for Internat ional Trade 3-3 Global Trade: Taking Measure

42

43

3-4 Seizing t he Opport unity: Strategies for Reaching Global Markets 44 3-5 Barriers to Internat ional Trade

47

3-6 Free Trade: The Movement Gains Moment um

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51

4 Business Ethics and Social Responsibility: Doing Well by Doing Good 58

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4-1 Ethics and Social Responsibility: A Close Relat ionship 58 4-2 Business Ethics: Not an Oxymoron

1Business Now: Change

4-3 Ethics: Multiple Touch points

1-1 Business Now: Moving at Breakneck Speed

2

1-2 The History of Business: Putt ing It All in Context

4-5 Ethics and Social Responsibility in t he Global Arena: A House of Mirrors? 71

6

4-6 Monitoring Ethics and Social Responsibility: Who Is Minding t he Store? 73

1-3 Nonprofit s and t he Economy: The Business of Doing Good 7 1-4 Factors of Production: The Basic Building Blocks 1-5 The Business Environment: The Context for Success

7 8

5-1 Excellent Commu nication Skills: Your Invisible Advantage 76

for Business 18

5-2 Nonverbal Commu nication: Beyond the Words

18

2-4 Planned Economies: Socialism and Communism

30

31

2-6 Evaluating Economic Performance: What's Working? IV

80

5-4 Pick the Right Words: IsThat Car Pre-Loved or Just Plain Used?! 80

26

2-5 Mixed Economies: The Story of t he Future

78

5-3 Choose the Right Channel: A Rich Array of Options

2-2 Managing the Economy Through Fiscal and Monetary Policy 21 2-3 Capitalism: The Free Market System

5Business Communication: Creating and Delivering Messages that Matter 76

16

2Economics: The Framework 2-1 Economics: Navigating a Crisis

61

4-4 Defining Social Responsibility: Making t he World a Better Place 64

Is the Only Constant 2

1-6 Business and You: Making It Personal

60

33

5-5 Write High-Impact Messages: Breaking t hrough t he Clutter 84 5-6 Create and Deliver Successful Verbal Presentations: Hook 'Em and Reel 'Em In! 87

Contents Copyright 2019 Cengage Learning. AU Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02·200.202 Copyriglll 2019Ccni;igt lnrnulg. AO Ri.$h1~ Rcstn'Cd. May noc be cqiitd, icunntd. or wplkMtd. in 11b)lc (It in p;an.. Oi.e IIO denmnk rip , M'.llfllt 1hitd pll1)' «wucm may be suppcsia:d from the t.Boot -.ifot t0upi:r(i), &lilOIU.l R"\iew.• lwi dttmcd th11111ny :raapptt:c,;ed comcm O,lC',I nm mmcrially a««1 die U'ltml lcll'flin&upcricllC'C'. Ccngll!" lnmillg lnl:f'YCS lh: ris:h1io R'm!Wt addill(lllul ronai:M • •Y Ii.me if ~ -1rig.las rec1ric1ions roquitt it.

Part 3 FINANCING A BUSINESS

Part 2 CREATING A BUSINESS

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6 Business Formation: Choosing

8Accounting: Decision Making

6-1 Business Ownership Options: The Big Four

8-1 Accounting: Who Needs It-and Who Does It?

the Form That Fits 92

92

by the Numbers 128

6-2 Advant ages and Disadvantages of Sole Proprietorships 95

8-2 Financial Accounting: Intended for Those on t he Outside Looking In 130

6-3 Part nerships: Two Heads (and Bankrolls) Can Be Better ThanOne 96

8-3 Financial Statements: Read All About Us

6-4 Corporations: The Advantages and Disadvantages of Being an Artificial Person 98 6-5 The Li mited Liability Company: The New Kid on the Block 104 6-6 Franchising: Proven Methods for a Price

132

8-4 Interpret ing Financial Statements: Digging Beneat h t he Surface 138 8-5 Budgeting: Planning for Accountability

141

8-6 Inside Intelligence: The Role of Managerial Accounting 143

106

9 Finance: Acquiring and Using

7 Small Business and

Entrepreneurship: Economic Rocket Fuel 112

7-1 Launching a New Venture: What's in It for Me? 7-2 The Entrepreneur: A Distinctive Profile

128

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Funds to Maximize Value 148

9-1 What Mot ivates Financial Decisions?

148

9-2 Identifying Financial Needs: Evaluation and Planning 151 9-3 Finding Funds: What Are the Options?

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7-3 Finding t he Money: Funding Options for Small Businesses 117

9-4 Leverage and Capital Structure: How Much Debt Is Too Much Debt? 159

7-4 Opportunities and Threats for Small Business: A TwoSided Coin 119

9-5 Acquiring and Managing Current Assets

7-5 Launch Options: Reviewing the Pros and Cons

9-6 Capital Budgeting: In It for the Long Haul

163 165

121

7-6 Small Business and the Economy: An Outsized Impact 124

Contents Copyright 2019 Cengage Learning. AU Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02·200.202 Copyriglll 2019Ccni;igt lnrnulg. AO Ri.$h1~ Rcstn'Cd. May noc be cqiitd, icunntd. or wplkMtd. in 11b)lc (It in p;an.. Oi.e IIO denmnk rip , M'.llfllt 1hitd pll1)' «wucm may be suppcsia:d from the t.Boot -.ifot t0upi:r(i), &lilOIU.l R"\iew.• lwi dttmcd th11111ny :raapptt:c,;ed comcm O,lC',I nm mmcrially a««1 die U'ltml lcll'flin&upcricllC'C'. Ccngll!" lnmillg lnl:f'YCS lh: ris:h1io R'm!Wt addill(lllul ronai:M • •Y Ii.me if ~ -1rig.las rec1ric1ions roquitt it.

V

10 Financial Markets: Allocating Financial Resources 170

10-1 The Role of Financial Markets and Their Key Players 170 10-2 Reg ulating Financial Markets to Protect Investors and Improve Stability 173 10-3 Investing in Financial Secu rit ies: What Are the Options? 176 10-4 Issuing and Trading Securities: The Primary and Secondary Markets 180 10-5 Personal Investing

11-4 Customer Behavior: Decisions, Decisions, Decisions! 201 11-5 Marketing Research: So What Do They Really Think? 202 11-6 Social Responsibility and Technology: A Major Marketing Shift 205

12 Product and Promotion:

Creating and Communicating Value 208

183

10-6 Keeping Tabs on t he Market

11-3 Marketing Strategy: Where Are You Going, and How Will You Get There? 195

187

12-1 Product: It's Probably More Than You Thought

208

12-2 Product Differentiation and Planning: A Meaningful Difference 212

Part 4 MARKETING A BUSINESS

12-3 Innovation and t he Product Life Cycle: Nuts, Bolts, and a Spark of Brilliance 216 12-4 Promotion: Infl uencing Consumer Decisions

220

12-5 A Meaningful Message: Finding t he Big Idea

221

12-6 The Promot ional Mix: Communicating t he Big Idea 223

13 Distribution and Pricing: Right Product, Right Person, Right Place, Right Price 236

13-1 Distribution: Getting Your Product to Your Customer 236 13-2 Wholesalers: Sorting Out t he Options 13-3 Retailers: The Consumer Connection

11 Marketing: Building Profitable Customer Connections 190

11 -1 Marketing: Getting Value by Giving Value 11 -2 The Customer: Front and Center

VI

194

190

239 240

13-4 Physical Distribution: Planes, Trains, and Much, Much More 243 13-5 Pricing Objectives and Strategies: A High-Stakes Game 245 13-6 Pricing in Practice: A Real-World Approach

247

Cont ents Copyright 2019 Cengage Learning. AU Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02·200.202 Copyriglll 2019Ccni;igt lnrnulg. AO Ri.$h1~ Rcstn'Cd. May noc be cqiitd, icunntd. or wplkMtd. in 11b)lc (It in p;an.. Oi.e IIO den mnk rip , M'.llfllt 1hitd pll1)' «wucm may be suppcsia:d from the t.Boot -.ifot t0upi:r(i), &lilOIU.l R"\iew.• lwi dttmcd th11111ny :raapptt:c,;ed comcm O,lC',I nm mmcrially a««1 die U'ltml lcll'flin&upcricllC'C'. Ccngll!" lnmillg lnl:f'YCS lh: ris:h1io R'm!Wt addill(lllul ronai:M • •Y Ii.me if ~ -1rig.las rec1ric1ions roquitt it.

15-4 Human Resou rce Planning: Drawing the Map 274

Part 5 MANAGING A BUSINESS

15-5 Legal Issues: HR and the Long Arm of t he Law 283

16 Managing Information and

Technology: Finding New Ways to Learn and Link 286

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16-2 Cloud Computing: The Sky's t he Limit!

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16-3 Information Technology and Decision Making: A Crucial Aid 293

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16-1 Information Technology: Explosive Change

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16-4 Information Technology and the World of E-commerce 295 16-5 Challenges and Concerns Arising from New Technologies 299

17 Operations Management:

14 Management, Motivation,

Putting It All Together 306

and Leadership: Bringing Business to Life 252

14-1 Bringing Resou rces to Life

17-1 Operations Management: Producing Value in a Changing Environment 306

252

14-2 Motivation: Lighting the Fire

17-2 What Do Operations Managers Do?

255

17-3 Implications of a Service-Based Economy: Responding to Different Challenges 316

14-3 Planning: Figuring Out Where to Go and How to Get There 259 14-4 Organizing: Fitt ing Together t he Puzzle Pieces 14-5 Leadership: Directing and Inspiring 14-6 Controll ing: Making Sure It All Works

263

267 268

15 Human Resource Management: Building a Top-Quality Workforce 270 15-1 Human Resource Management: Bringing Business to Life 270 15-2 Human Resource Management Challenges: Major Hurdles 271 15-3 Human Resources Managers: Corporate Black Sheep? 273

310

17-4 The Technology of Operations 17-5 Focus on Quality

317

319

17-6 The Move to Be Lean and Green: Cutting Cost and Cutting Waste 323

Personal Finance Appendix 328 Endnotes 341 Glossary 362 Index 379 Tear-out cards Online Appendices Appendix 1 : Labor Unions and Collective Bargaining Appendix 2: Business Law

Contents Copyright 2019 Cengage Learning. AU Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02·200.202 Copyriglll 2019Ccni;igt lnrnulg. AO Ri.$h1~ Rcstn'Cd. May noc be cqiitd, icunntd. or wplkMtd. in 11b)lc (It in p;an.. Oi.e IIO denmnk rip , M'.llfllt 1hitd pll1)' «wucm may be suppcsia:d from the t.Boot -.ifot t0upi:r(i), &lilOIU.l R"\iew.• lwi dttmcd th11111ny :raapptt:c,;ed comcm O,lC',I nm mmcrially a««1 die U'ltml lcll'flin&upcricllC'C'. Ccngll!" lnmillg lnl:f'YCS lh: ris:h1 io R'm!Wt addill(lllul ronai:M • •Y Ii.me if ~ -1rig.las rec1ric1ions roquitt it.

VII

With love and appreciation to Kathy, the best friend imaginable! - Maree Kelly

To Jenny, the book is done, let's play! - Chuck Williams

Copyright 2019 Cengage Learning. AU Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02·200.202 Copyriglll 2019Ccni;igt lnrnulg. AO Ri.$h1~ Rcstn'Cd. May noc be cqiitd, icunntd. or wplkMtd. in 11b)lc (It in p;an.. Oi.e IIO d enmnk rip , M'.llfllt 1hitd pll1)' «wucm may be suppcsia:d from the t.Boot -.ifot t0upi:r(i), &lilOIU.l R"\iew.• lwi dttmcd th11111ny :raapptt:c,;ed comcm O,lC',I nm mmcrially a««1 die U'ltml lcll'flin&upcricllC'C'. Ccngll!" lnmillg lnl:f'YCS lh: ris:h1io R'm!Wt addill(lllul ronai:M • •Y Ii.me if ~ -1rig.las rec1ric1ions roquitt it.

LETTER TO STUDENTS

The idea for t his book-a whole new way of learningbegan wit h students like you across the country. We paid attention to students who wanted to learn about business w ithout slogging through endless pages of dry text. We listened to students who wanted to sit through class w ithout craving a t riple espresso. We responded to st udents who wanted to use t heir favorite gadgets to prepare for tests. So we are confident that BUSN w ill meet your needs. The short , lively text covers all t he key concepts w ithout the fluff. The examples are relevant and engaging, and t he visual style makes the book fun to read. But the text is only

part of t he package. You can access a rich variety of study tools via computer or iPad-the choice is you rs. We did one other t hing we hope you'll like. We paid a lot of attent ion to students' concerns about the high price of college textbooks.We made it our mission to ensure t hat our package not only meets you r needs but does so w ithout bust ing your budget' This innovative, student-focused package was developed by the authors-Maree Kelly and Chuck Williamsand the experienced (engage Learning publishers. The (engage team cont ributed a deep understanding o f students and professors across the nation, and the authors brought years of teaching and business experience. Maree Kelly,who earned her MBA from UCLA's Anderson School of Management, spent the first 14 years of her career in marketing, building brands for Neutrogena and The Walt Disney Corporat ion. But her t rue love is teaching, so in 2000 she accepted a full-time teaching posit ion at Santa Monica College. Professor Kelly has received seven Outstanding Instructor awards from t he International Educat ion Center and has been named four t imes to

Who's Who Among American Teachers.

Maree Kelly

Chuck Williams' interests include employee recruit ment and turnover, performance appraisal, and employee t raining and goal setting. Most recently, he was the Dean of But ler University's College of Business. He has taught in execut ive development programs at Oklahoma State University, the University of Oklahoma, Texas Christian University, and the University of t he Pacific. Dr. Williams was honored byTCU's MJ. Neeley School of Business w ith the undergraduate Outstanding Facu lty Teaching Award, was a recipient ofTCU's Dean's Teaching Award, and was TCU's nominee for t he U.S. Professor of the Year competit ion sponsored by the Carnegie Foundat ion for t he Advancement ofTeaching. He has written three other text books: Management, Effective Management: A Multimedia Approach, and MGMT. We would appreciate any comments or suggest ions you want to offer about this package. You can reach Chuck Williams at crwill [email protected], and Maree Kelly at [email protected]. We w ish you a fun, posit ive, productive term, and look forward to your feedback'

Chuck Williams Letter to Students Copyright 2019 Cengage Learning. AU Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02·200.202 Copyriglll 2019Ccni;igt lnrnulg. AO Ri.$h1~ Rcstn'Cd. May noc be cqiitd, icunntd. or wplkMtd. in 11b)lc (It in p;an.. Oi.e IIO denmnk rip, M'.llfllt 1hitd pll1)' «wucm may be suppcsia:d from the t.Boot -.ifot t0upi:r(i), &lilOIU.l R"\iew.• lwi dttmcd th11111ny :raapptt:c,;ed comcm O,lC',I nm mmcrially a««1 die U'ltml lcll'flin&upcricllC'C'. Ccngll!" lnmillg lnl:f'YCS lh: ris:h1 io R'm!Wt addill(lllul ronai:M • •Y Ii.me if ~ -1rig.las rec1ric1ions roquitt it.

IX

Business Now: Change Is the Only Constant LEARNING OBJECTIVES After studying thischapter, you will be able to:

Define business and discuss the role of b usiness in the economy

Remember to visit Explain the evolution of modem business

PAGE17

G, Discuss the role of nonprofit organizations in the economy

for additional

· Outline the core factors of production and how they affect the economy

C, Describe today's business environment and discuss each key dimension •

•

STUDYTOOLS

Explain how current business ttends might affect your career choices

BUSINESS NOW: MOVING AT BREAKNECK SPEED

Day by day, the business world simply spins faster. Industries rise- and som etimes fall- in the course of a few short months. Technologies forge instant connections across the globe. Powerful new trends surface and submerge, sometimes within less than a year. In this fast -paced, fl uid environment, change is the only constant. According to Ch arles Darwin, it is not the strongest of the species that survive, nor the m ost intelligent, but the one most responsive to ch ange. And so it is with business. Successful firms lean forward and embrace the change. They seek the opportunit ies and avoid t he pitfalls. They carefully evaluate risks. They completely understand t heir market, and t hey adhere to ethical practices.Their core goal: to generate long-term profits by delivering unsurpassed value to t heir customers. (1'1.'[I' · The relationship between Over t he past decade, the price of a good or a service the explosive growth in soand the benefits that it offers its cial media has played a pivcustomers. otal new role for businesses

2

and consumers alike in today's dynamic business environment. Digging deeper into cu rrent culture, several leadingedge trendspotting experts have recently identified an array of key trends likely to shape the world's econom ies as we close out t he turbulent teenage years of the twentyfirst century. A few highlight s:

•

Instant Skill s: Remem ber how the rise of lnstagram made all of us into pseudo professiona l photographers? Well, Trendwatching.com pred ict s t hat hundreds of m illions of status-h ungry

PART ONE: The Business Environment Copyright 2019 Cengage Learning. AU Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02·200.202 Copyriglll 2019Ccni;igt lnrnulg. AO Ri.$h1~ Rcstn'Cd. May noc be cqiitd, icunntd. or wplkMtd. in 11b)lc (It in p;an.. Oi.e IIO denmnk rip, M'.llfllt 1hitd pll1)' «wucm may be suppcsia:d from the t.Boot -.ifot t0upi:r(i), &lilOIU.l R"\iew.• lwi dttmcd th11111ny :raapptt:c,;ed comcm O,lC',I nm mmcrially a««1 die U'ltml lcll'flin&upcricllC'C'. Ccngll!" lnmillg lnl:f'YCS lh: ris:h1io R'm!Wt addill(lllul ronai:M • •Y Ii.me if ~ -1rig.las rec1ric1ions roquitt it.

"consum ers w ill care less about what t hey have or

buy and

more about what they can do or create"seeking services t hat eliminate t ime and learning

GRETZKY.

barriers to t heir creation o f professional quality output.

•

Fun and Games: Research suggests t hat the averof humor. For instance, Slack al lows users to create

age human attention span, cu rrently only slight ly longer than that of a goldfish, is decreasing rapidly.

custom emojis using colleagues' faces and d isplays error messages such as, "We've seen this problem

Not surprisingly, ca pturing and retaining the attention of customers, employees, and investors is more

clear up wit h a restart of your browser, a solut ion which we suggest to you now only wit h g reat regret and self-loat hing.·

challenging t han ever. In spite of declining attent ion spans, creating a sense of fun is gaining momentum as an effect ive tool for engaging audiences. It's fairly easy to understand why-wouldn't you rat her do something fun than something boring? Swedish

•

Robolove: Everyone knows that robots can save t ime and money-and who doesn't like efficiency? But do we like t he robots themselves? Many people imagine a bleak robotic future w ith robocops out of

amusement park Liseberg recent ly released an app to accom pany its new Helix roller coaster. Attendees

contro l and robo-workers putting human workers

standing in line for the attraction could use t he app to play a free Helix-themed game, and every 15 minutes,

out o f work. That may well happen, but Trendwatching.com predicts that many of us w ill t horoughly

the player w ith the highest score got a pass to ski p

enjoy our early contacts w ith robot s. For instance,

the line.This strategy was not only creative, but it also increased v isitors' funl Similarly, workplace messaging

Dusseldorf Airport in Germany recently unveiled the world's first robotic parking valet. Customers leave

app Slack became one of the fastest growing business applications in history due, in part, to its playful sense

t heir car, and a robot picks it up and positions the vehicle in one of 249 ded icated spaces. The system CHAPTER 1: Bu siness Now: Change Is the Only Constant

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3

connects to the airport's flight database, meaning that customers find their vehicle ready and waiting for them upon their return. Hard to get more convenient than that-and the robotic valet doesn't even expect a tipl'

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'

(or maybe you were the one plowing people down)-knows j ust how immersive a virtual o r augmented rea lity experience can be. Trendspotting experts at Trendwatching.com bold ly project that "digital experiences will quickly come to ca rry a statusweight equal to 'real' experiences, if not become more sought-after and prized.' Take music concerts for example. The holographic "performance· of rapper Tupac's Shakur at the 2012 Coachella music festival (15 years after the artist's death) garnered more headlines than any other concert that year. A holographic Michael Jackson made similar waves two years later at the 2014 Billboa rd Awards. China, an ea rly developer and adopter of virtual real ity games and shopping programs, seems poised to become a leading-edge p layer in the virtual experience economy.2

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4

I will vote. Always.

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I will force myself to finally make a phone call.

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If my first-born is a boy, I promise not to name him Uber.

Joking aside, m illennials now represent both the largest customer and the largest employee segment of the population, which means that successful businesses must take them seriously. As baby boomers continue to retire in record numbers, businesses will soon beg in to face a severe leadership g ap. Training and developing m illennials to fill that gap will be a critical success factor for many businesses in the very ' near future.

\

Virtual Experience Economy: Anyone who was nearly p lowed over in 2016 by someone with his or her head down-totally engrossed in the sea rch for an elusive Pokemon

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Preparing for Generation Z: As the last millennials move th rough college and enter the workforce, Generat ion Z-comprised of people born between 1996 and 2011-is roll ing in right behind them. Generation Z, also known as the Digital Native generation, outnumbers m illennia ls by one m illion people. In fact, more than a q uarter of America's population belongs to th is generation.

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'II Although it would be easy to characterize

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Generation Z as an exaggerated version of millennials, it wou ldn't do them justicethey are fundamentally different. Millennials shaped the Internet, but digital natives can't remember a World Without it. The defining event of generation Z was the Great Recession, which means that many of them don't trust business. Wh ile their millennial counterparts were glad to be 'wal king billboards" for trendy brands such as Hollister, Abercrombie & Fitch, and Supreme, the most stylish d igital natives are likely to sport vintage clothing from thrift stores.

Kipargeter/Shutterstock.com

Taki ng Millennials Seriously: The m illennial generation-comprised of people born between 1980 and 1995-likely includes many of the students reading this text. Millennials have been at the butt end of a lot of jokes about their outsized sense of entitlement, large number of meaningless trophies, and'addiction'to their cell phones. The Los Angeles Times, for example, recently publ ished a "Mil lennial Pledge"that it suggested all millennials affi rm before they qualify for actua l adulthood. A few excerpts: •

Just once, I will try eating without texting.

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I will not consider the cilantro on my taco to be a vegetable.

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Each yea r, I will pen at least one thank-you note using what's left of my cursive writing skills.

Digital natives don't feel entitled to a great job when they g raduate college; they think they'll be lucky to get one. In the meantime, they are saving thei r money, on ly spending when a business offers them value. Digital natives use their considerable technica l prowess to seek out the best possible values; no-frills, only-pay-for-what-you-use businesses are highly appea ling to them. Similar to millennials, digital natives tend to be extremely tolerant and inclusive, w ith little understanding of or room in their lives for bigotry of any kind . They also tend to have very short attention spans (8 seconds on average), in part because they juggle their lives among an

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OOPS! WHAT WfRf THfY THINKING1 Not Every Dumb Move Is an Utter Disaster...

In the wake of disastrous mistakes and outrageous mismanagement across our economy, it might be tough to remember that some mistakes are actually pretty amusing. Several examples might help remind you. • Bad fabric, not fat thighs: In early 2013, lululemon Athletica was forced to recall its popular (and expensive) yoga pants, because many women found them utterly see-t hrough. Later in the year, t he founder of the firm was forced to resign after blaming the problem on women with fat thighs who rubbed the fabric too sheer with multiple uses.' • Apple angst: In a rare display of new product devel· opment weakness, Apple released its Maps program before it was ready for the Big Time. Mostly harmless, the program baffled millions of t rusting consumers. But in Fairbanks, Alaska, it directed hapless users onto active runways of the

average of five d ifferent screens. In sum, millennials approached adulthood hoping to be d iscovered, while d ig ital natives approach adulthood planning to work for success.7

t -t a Business Basics: Some Key

Definitions Wh ile you can certainly recogn ize a business when you see one, more formal definitions may help as you read through t his book. A business is any organization or activity t hat provides goods and services in an effort to earn a Profit is the financial reward t hat comes from starting and running a business. More specifically, profit is the money that a business earns in sales (or revenue}, minus expenses such as t he cost of goods and the cost of sa laries. But clearly, not every business earns a profit all the t ime. When a business brings in less money than it needs to cover expenses, it incurs a loss. If you launch a music label, for instance, you'll need to pay your artists, lease a studio, and purchase equipment, among ot her expenses. If your label generates hits, you'll earn more than enough to cover all your expenses and make yourself rich. But a series of duds could leave you hold ing the bag. Just the possibility o f earning a profit provides a powerful incentive for people of all backg rounds to launch their own enterprises. But unfortunately, t he rate of new business start-ups has been decreasing over t he past few years.

international airport. Fortunately, t here were no collisionsthe worst harm done was to Siri's reputation as a navigator.' • Geography lessons needed: In 2016, Coca·Cola sent a promotional tweet featuring an outdated map of Russia. Offended Russian patriots responded with pictures of themselves pouring the soft drink into toilets with the hashtag #BanCocaCola.• • Thank you, Captain Obvious! A surprising number of firms just can't seem to credit t heir customers with even basic intelligence. Marks & Spencer's labeled one of their Bread Puddings, PRODUCT WILL BE HOT AFTER HEATING. On a Sears hairdryer, DO NOT USE WHILE SLEEPING. And on packaging for a Rowenta iron, DO NOT IRON CLOTHES ON BODY. While these warnings most likely have a legal backstory, it's hard for a reasonable consumer not to see them as silly goofs.•

As the economy has finally emerged from the Great Recession, and unemployment and financial ru in are less o f a t hreat, fewer people have been motivated to risk start ing new businesses.8 People who do risk their time, money, and ot her resources to start and manage a business are called entrepreneurs. Interest ingly, as ent repreneurs create wealth for themselves, they produce a ripple effect that enriches everyone around them. For instance, if your new website becomes t he next Facebook, who will benefit7 Clearly, you will. And you'll probably spend at least some of that money enriching your local clubs, clothing stores, and car dealerships. But ot hers w ill benefit, too, incl uding your members, advert isers on your site and t he staff who support them, contractors who build your facilit ies, and the government t hat collects your taxes. The impact of one successful entrepreneur can extend to t he far reaches of t he economy. In fact, fastgrowing new firms generate about 10% of all new jobs in any g iven year.9 Multiply t he impact by t housands of entrepreneurs-each

Any organization or activity that provides goods and services in an effort to earn a profit. The money that a business earns in sales (or revenue), minus expenses, such as the cost of goods and the cost of salaries. Revenue Expenses = Profit (or l oss). • When a business incurs expenses that are greater than its revenue.

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People who risk their time, money, and other resources to start and manage a business.

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5

working in his or her own self-interest-and you can see how the profit motive benefits v irtually everyone. From a bigger-picture perspective, business drives up the standard of living for people worldwide, contributing to a higher quality of life. Businesses not on ly provide the products and services that people enjoy but also provide the jobs that people need. Beyond the obvious, business contributes to society through innovation-think cars, TVs, and tablet computers. Business also helps raise the standard of living through taxes, which the government spends on projects that range from streetlights to environmental cleanup. Socially responsible firms contribute even more by actively advocating for the well-being of the society that feeds their success.

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Henry Ford's assembly line began operation on December 1, 1913. Initially developed for the Model T, this new production system allowed manufacturers of all kinds to output products like never before.

THE HISTORY OF BUSINESS: PUTTING IT ALL IN CONTEXT

You may be surprised to learn that-unlike todaybusiness hasn't always been focused on what the customer wants. In fact. business in the United States has changed rather dramatically over the past 200-300 years. Most busi-

laws to reg ulate business and protect consumers and workers, creating more balance in the economy.

ness historians divide the history of American business into five d istinct eras, which overlap d uring the periods of transition:

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The Industrial Revolution: Technologica l advances fueled a period of rapid industrialization in America from the mid-1700s to the mid-1800s. As mass production took hold, huge factories replaced skilled artisan workshops. The factories hired large numbers of semiskilled workers who specialized in a

the customer was an afterthought. But when customers tightened their belts during the Great Depression and World War II, businesses took notice.

lim ited number of tasks. The result was unprecedented production efficiency but also a loss of individual ownership and personal pride in the production process.

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The Entrepreneurship Era: Building on the foundation of the Industrial Revolution, large-scale entrepreneurs emerged in the second half of the 1800s, bui lding business empires. These industrial t itans created enormous wealth, ra ising the overall standard of

The"hard sell" emerged: aggressive persuasion designed to separate consumers from their cash.

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liv ing across the country. But many also dominated their markets, forcing out competitors, manipulat· •· • • The quality and quantity of goods and services available to a population.

sense of well-being experienced by either an individual or a group.

6

ing prices, exploiting

The Marketing Era: After World War II, the balance of power shifted away from producers and toward consumers, flooding the market with enticing choices. To differentiate themselves from their competitors, businesses began to develop brands, or distinctive identities, to help consumers understand the differences among various products. The marketing concept emerged: a consumer focus that permeates successful companies in every department, at every level. This approach co11tinues to influence business decisions today as global competition heats up to unprecedented levels.

workers, and decimating the environment. Toward the end of the 1800s, the government stepped into the business realm, passing

The Production Era: In the early part of the 1900s, major businesses focused on further refining the production process and creating greater efficiencies. Jobs became even more specia lized, increasing productivity and lowering costs and prices. In 1913, Henry Ford introduced the assembly line, which quickly became standard across major manufacturing industries. With managers focused on efficiency,

•

The Relationship Era: Building on the marketing concept, today, leading-edge firms look beyond each

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The Connection Economy Success today no longer requires building great things, although t here will always be big rewards for building the best new things (see Apple, Tesla, and Virgin, among other success stories). According to industry leaders, the most successful firms of t he present rely on connection- either connecting buyers and sellers or connecting consumers and information. Uber, the largest ride-sharing company, owns no vehicles but connects people to rides and drivers to customers. Airbnb, the largest provider of accommodations, owns no real estate but connects people to lodging. Kickstarter and lndiegogo, both giants of crowdfunding, have no money to invest but may soon surpass traditional venture capital firms by connecting investors to opportunities. According to entrepreneur and author Seth Godin, the connection economy works best when the following four conditions are met: 1. Coordination. Without coordination, connections can't happen. In fact, the most significant business opportunities may lie in areas that currently appear chaotic.

immediate t ransaction wit h a customer and aim to build long-term relationships. Satisfied customers can become advocates for a business, spreading t he word with more speed and credibility than even the best promot ional campaign. And cult ivating cu rrent customers is more profitable t han constantly seeking new ones. One key tool is technology. Using t he Web and ot her digital resources, businesses gat her detailed information about their customers and use t hese data to serve them better, "bringing a level of customer centricity that we've never seen before; according to Graeme Noseworthy, market ing directo r for IBM.

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NONPROFITS AND THE ECONOMY: THE BUSINESS OF DOING GOOD

Nonprofit o rganizations play a c ritical role in the economy, o ften working hand in hand with businesses to im prove the quality of life in our society. Focusing on areas such as health, human services, education, art, rel ig ion, and cu lture, nonprofits are business-like establ ishments, but their p rimary goals do not include profits. Chuck Bean, executive d irecto r of t he Nonprofit Roundtable, explains: "By definition, nonprofits are not in t he business of fi nancial gain. We're in t he business of doing good . However, nonprofit s are still businesses in every ot her sensethey em ploy people, t hey take in revenue, they p rod uce

2. Trust. Finding ways t o connect and create value only works when t he players share basic trust. 3. Permission. When you offer ideas to people who give you permission to do so, it's a resource. Without t hat permission, it's an annoyance. What's new and significant is t hat t he permission must be earned, and not requested. 4. The exchange ofideas. True value emerges when people exchange ideas deliberately and with established purpose (at a meet-up or conference, for instance). Godin also emphases t he importance of generosity and art. No one wants to connect with a person who always takes but never gives back. You must add value to all of your interactions to make t he connection wort hwhile. Art is important, according to Godin, because forward-thinking people are looking for the ext raordinary. Traditional systems are inherently boring and unremarkable. In the connection economy, people are seeking t he remarkable- the t hings that are truly worthy of remark."

goods and services and contribute in significant ways to ou r region's economic stability and g rowth.' Nationwide, nonprofits em ploy about one in ten workers, accounting for mo re paid workers than the entire construction industry and mo re than the finance, insurance, and real -estate sectors combined. And nonprofit m useums, schools, theaters, and orchestras have become economic magnet s for many comm unities, drawing add itional investment. "

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FACTORS OF PRODUCTION: THE BASIC BUILDING BLOCKS

Both businesses and nonprofits rely on factors of production-four fundamental resources-to achieve their object ives. Some combinat ion of t hese factors is crucial for an economic system to work and create wealth. As you read t hrough the factors, keep in mind that they don't come free of charge. Human Business-like establishments that employ people resources, for instance, reand produce goods and services with quire wages, while ent reprethe fundamental goal of contributing neurs need a profit incentive. to the community rather than

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Natura l Resources:

generating financial gain.

This factor includes all inputs that offer value in t heir natural state, such as land, fresh water, w ind, and m ineral deposits. Most natu ral

fundamental elements-natural resources, capital, human resources, and entrepreneurship-that businesses need to achieve their objectives.

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7

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Entrepreneursh ip : Entrepreneurs are people who take the risk o f launching and operati ng their own businesses, largely in response to the profit incent ive. They tend to see opportunities where ot hers don't. and they use their own resources to capitalize on t hat potentia l. Entrepreneu rial enterprises can kick-start an economy, creati ng a tidal wave of opportun ity by harnessing the other factors o f production. But entrepreneu rs don't t hrive in an environment that doesn't support t hem. The key ingredient is econom ic freedom: freedom of choice (whom to hire, for instance, or what to produce), freedom from excess regu lation, and freedom from too much taxat ion. Protection from corruption and un fair com pet ition is anot her entrepreneurial "must."

Many businesses work with nonprofits to boost their impact in the community. resources must be ext racted, purified, or harnessed; people cannot actually create them. (Note that agricu ltural products, which people do create through planting and tend ing, are not a natural resource.) The value of all natural resources tends to rise wit h high demand, low supply, or both.

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Capital: Th is factor incl udes machines, tools, buildings, information, and technology-t he synthetic resou rces that a business needs to produce goods o r services. Computers and telecommunicat ions capability have become pivotal element s of capital across a surprising range o f industries, from financial services to professiona l sports. You may be su rprised to learn t hat in th is context, capital does not incl ude money, but, clearly, businesses use money to acquire, maintain, and upgrade their capital.

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Human Resources: This factor encom passes the physical, intellectual, and creative cont ributions o f everyone who works w ithin an economy. As technology replaces a growing number o f manual labor jobs, education and motivation have become increasingly important to human resou rce development. Given t he imporThe

setting in which business operates. The five key components are economic environment, competitive environment. technological environment. social environment, and global environment.

8

tance o f knowledge to workforce effect iveness, some business experts, such as management guru Peter Drucker, break out knowledge as it s own category, separate from human resources.

Clearly, all o f these factors m ust be in place for an economy to thrive. But which factor is most important ? One way to answer that question is to examine current economies around t he world. Russia and China are both rich in nat ural resources and human resources, and both countries have a so lid level o f capital (growing in Ch ina, and deteriorating in Russia). Yet, neither country is wealthy; bot h ran k relatively low in terms of gross nationa l income per person. The missing ingredient seems to be entrepreneu rsh ip, limited in Russia largely t hrough corruption and in China through government interference and taxes. Contrast those examples w ith, say, Hong Kong. The population is small, and the natural resources are severely limited, yet Hong Kong has consistently ranked among t he richest regions in Asia. The reason: operating for many years under the British lega l and economic system, the government actively encouraged entrepreneursh ip, wh ich fueled the creation o f wea lth. Recognizing the potential of entrepreneursh ip, Ch ina has recently done mo re to relax regulations and support free enterprise. The result has been t remendous g rowth, which may yet bring China into the ranks o f t he wea lthier nations.'2

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THE BUSINESS ENVIRONMENT: THE CONTEXT FOR SUCCESS

No business operates in a vacuum. Outside factors play a vital role in determining whether each individual business succeeds o r fails. Likewise, the broader business environment can make the critical difference in whet her an overall economy thrives or d isintegrates. The five key dimensions of t he business environment are t he economic environment, the competitive environment,

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the technolog ical environment. t he social environment. and the global environment, as shown in Exhib it 1.1.

1-sa

The Economic Environment

In September 2008, t he U.S. economy plunged into the worst fiscal crisis since the Great Depression. Huge, venerable financial inst itut ions faced col lapse, spurring unprecedented bailouts by the federal government and the Federal Reserve. By the end of the year, t he stock market had lost more t han a t hird of its value, and 11 .1 million Americans were out of work. Housing prices fell precipitously, and foreclosure rates reached record levels. As fear swept through the banking industry, neither businesses nor individuals could borrow money to meet their needs. Economic turmoil in the United States spread quickly around the world, fueling a global economic crisis. The U.S. economy cont inued to stagger through 2010 and 2011, w ith unemployment remaining stubbornly high, although signs of recovery began to emerge in late 2012, and certa inly in 2013. The Federal Reserve-the U.S. cent ral banking system-took unprecedented, proactive steps to encourage an economic t urnaround. And President Barack Obama spearheaded passage of a massive economic st imulus package, designed not only to create jobs but also to build infrastructure-wit h a focus

Exhibit 1.1

The Business Environment

Each dimension of the business environment affects both individual businesses and the economy in general.

"A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain." -MARK TWAIN. AMERICAN AUTHOR

on renewable energy-to position the U.S. economy for stability and growth in the decades to come. (The price, of course, was more national debt. which w ill ultimately counterbalance some of t he benefit s.) Although the U.S. economic recovery cont inued through 2015, t he ent ire world economy began to stagger in early 2016 as economic instability in China caused frightening ripples around t he globe. The government also takes act ive steps on an ongoing basis to reduce t he risks o f starting and running a business. The result: free enterprise and fair competition flourish. Despite the economic crisis, research suggests t hat most budding ent repreneurs still p lan to launch t heir firms in the next three years. One government policy that supports business is t he relatively low federal tax rate, both for individuals and businesses. A number of states-from Alabama to Nevada-make their local economies even more appealing by provid ing special tax deals to att ract new firms. The federal government also runs ent ire agencies that support business, such as t he Small Business Administrat ion. Ot her branches o f t he government, such as t he Federal Trade Commission, actively promote fair compet it ive pract ices, which help give every enterprise a chance to succeed. Anot her key element o f the U.S. economic environment is legislation that support s enforceable contracts. For instance, if you contract a baker to supply your health food company w ith 10,000 pounds of raw ka le ch ips at $1.00 per pound, t hat firm must comply or face legal consequences. The firm can't wa it unt il a day before delivery and jack up t he price to $10.00 per pound because you wou ld almost certainly respond w ith a successful lawsuit. Many U.S. businesspeople take enforceable contracts for granted, but in a number o f developing countries-which offer some o f today's largest business opportunitiescontracts are o ften not enforceable (at least not in dayto-day pract ice). Corruption also affects the economic environment. A low level of corruption and bribery dramatica lly reduces the risks of running a business by ensuring t hat everyone plays by the same set o f ru les-rules t hat are CHAPTER 1: Bu siness Now: Change Is the Only Constant

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9

clearly visible to every player. Fortunately, U.S. laws keep domestic corruption mostly-but not completely-at bay. Other ethical lapses, such as shady accounting, can also increase the cost o f doing business for everyone involved. But in t he wake of corpora te ethical meltdowns such as Enron, the federal government has passed tough-minded new regulations to increase corporate accountabi lity. If the new legislation effectively curbs illegal and unethical practices, every business will have a fair chance at success. Upcoming chapters on economics and ethics will add ress t hese economic challenges and their significance in more depth. But bottom line, we have reason for cautious (some would say very cautious) optimism. The American economy has a proven track record of flexibility and resilience, which will surely help us navigate this crisis and uncover new opportunities.

t-sb

The Competitive Environment

As global competition intensifies yet further, leadingedge compan ies have focused on customer sat isfaction like never before. The goal: to develop long-term, mutually beneficial relationships with customers. Getting cu rrent customers to buy more of your product is a lot less expensive than convincing potent ial customers to try your product for the first time. And if you t ransform your current customers into loyal advocates-vocal promoters of your product or service-t hey'll get those new customers for you more effectively than any advertising o r discount p rogram. Companies such as Amazon, Coca-Cola, and Northwestern Mutual life insurance lead their industries in customer satisfaction, which translates into higher p rofits even when t he competition is tough. 13 Customer satisfaction comes in large part from delivering unsurpassed value. The best measure of value is t he size of t he gap between product benefits and price. A product has value when its benefits to the customer are equal to or greater than the price that t he customer pays. Keep in mind that the cheapest product doesn't necessarily represent the best value. If a 99-cent toy from Big Lot s breaks in a day, customers may be willing to pay several dollars more for a similar toy from somewhere else. But if that 99-cent toy lasts all year, customers w ill be delighted by the value and will likely encourage their friends and family to shop at Big Lots.The key to value is q uality, and virtually all successful firms offer top-quality products relative to their ••, • The rate at d irect competitors. which a new product moves from A recent ranking conception to commercialization. study by consulting firm

10

Apple

Facebook

+ 48%

Google

Amazon

+ 33%

Coca-Cola

Lego

+ 25%

Microsoft

Nissan

+22%

Toyota

Adobe

+ 21%

IBM

Starbucks

+ 20%

Samsung

Zara

+ 19%

Amazon

Mercedes-Benz

+18%

Meocecles-Benz

Porsche

+ 18%

GE

Hermes

+1 7%

Sourat: Best Gtobal Brands 2016, htertrand. http://interbrand.001Tl,/best·brands)best"'91ci>al-brands/2016 /ranking!, accessed January 23, 2017.

lnterbrand highlights brands t hat use imagination and innovation to deliver value to their customers. Exhibit 1.2 shows the winners and the up-and-comers in the race to capture the hearts, minds, and dollars of consumers around the world.

Leading Edge versus Bleeding Edge Speed-to-

market-the rate at which a firm t ransforms concepts into actual products-can be another key source of competit ive advantage. And the pace of change just keeps getting faster. In this tumultuous setting, companies that stay ahead of the pack often enjoy a distinct advantage. But keep in mind t hat there's a difference between leading edge and bleeding edge. Bleeding-edge firms launch products that fail because t hey're too far ahead of the market. During t he late 1990s, for example, in the heart of the dot.com boom, Webvan, a grocery delivery service, launched to huge fanfare. But the firm went bankrupt just a few years later in 2001, partly because customers weren't yet ready to dump t raditional grocery stores in favor of cyber-shopping. Leading-edge firms, on the ot her hand, offer products just as the market becomes ready to embrace them.14 Apple provides an excellent example of leading edge. You may be surprised to learn that Apple-which controls about 70% 1s of the digital music player market-did not offer the first MP3 player. Instead, it surveyed the existing market to help develop a new product, the iPod, which was far superior in terms of design and ease-of-use. But Apple didn't stop with one successful MP3 player. Racing

PART ONE: The Business Environment Copyright 2019 Cengage Learning. AU Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02·200.202 Copyriglll 2019Ccni;igt lnrnulg. AO Ri.$h1~ Rcstn'Cd. May noc be cqiitd, icunntd. or wplkMtd. in 11b)lc (It in p;an.. Oi.e IIO denmnk rip, M'.llfllt 1hitd pll1)' «wucm may be suppcsia:d from the t.Boot -.ifot t0upi:r(i), &lilOIU.l R"\iew.• lwi dttmcd th11111ny :raapptt:c,;ed comcm O,lC',I nm mmcrially a««1 die U'ltml lcll'flin& upcricllC'C'. Ccngll!" lnmillg lnl:f'YCS lh: ris:h1io R'm!Wt addill(lllul ronai:M • •Y Ii.me if ~ -1rig.las rec1ric1ions roquitt it.

role in both employee satisfaction and st rong stock performance." Finding and holding the best talent w ill likely become a crucial competit ive issue in the next decade as the baby boom generation begins to retire. The 500 largest U.S. companies anticipate losing about half of their senior managers over the next five to six years. Since January 1, 2011, approximately 10,000 baby boomers began to tu rn 65 (the traditional retirement age) every day, and the Pew Research Center anticipates that t his trend will continue for 19 years.

Workforce Magazine named American Express as its top company for HR management in 2016. Google, Accenture, USAA, and AT&T rounded out the rest of the top five.

to stay ahead, t hey soon int roduced t he colorfu l, more affordable iPod mini. And before sales reached t heir peak, they launched the iPod Nano, which essent ially pulled t he rug from under t he blockbuster iPod m ini just a few short months before the holiday selling season. Why? If t hey hadn't done it, someone else may well have done it instead. And Apple is almost maniacally focused on maintaining its compet itive lead.'6

1-sc

The Workforce Advantage

Employees can contribute anot her key d imension to a firm's competitive edge. Recent research suggests t hat invest ing in worker satisfaction yields tangible, bottom-line resu lts. The researchers evaluated the stock price of Fortune magazine's annual list of the ·100 Best Companies to Work for in America· to the S&P 500, which reflects the overall market. From 2009 to 2014, cumulat ive stock market returns for the "100 Best' were up + 205%, compared to + 121% for the S&P 500. On an annualized basis, this translates to a return of about + 20.4% per year for t he"l 00 Best;and about+ 14.1% per year for the S&P 500 over the same time period. While the crit ical d ifference in performance most likely stemmed from employee satisfaction, other factors-such as excellent product and superb top management-likely also played a

Replacing t he skills and experience t hese workers bring to t heir jobs may be tough: baby boomers include about 77 million

people, while t he generat ion that follows includes on ly 46 million. Firms that cult ivate human resources now w ill find themselves better able to compete as t he market for top talent tightens.18 However, job market cont raction may not be an issue, because a growing number of baby boomers opt to either post pone ret irement or cont inue working part-time during retirement, in the face of inadequate financial resources.

1-sd

The Technological Environment

The broad definition of business technology includes any tools t hat businesses can use to become more efficient and effective. But more specifical ly, in today's world, business technology usually refers to computers, telecommunicat ions, and other digital tools. Over the past few decades, the impact of d ig ital technology on business has been utterly transformative. New industries have emerged, wh ile oth• • • • Any tools-especially computers, ers have disappeared. And telecommunications, and other some fields-such as t ravel, digital products-that businesses banking, and music-have can use to become more efficient changed dramatically. Even in categories w ith relatively

and effective.

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11

The Uber Syndrome No doubt about it- senior executives make the most money in business. They also have the most to worry about, however. In a 2015 study of senior executives, one participant described her firm's biggest worry as "the 'Uber Syndrome' - where a competitor with a completely different business model enters your industry and flattens you:' In today's tumultuous business world, this concern is completely understandable. Analyzing the research, Fortune magazine editor Geoff Colvin noticed that this year, for the first time, most business leaders expected new competitors to be outsiders. Business leaders know they must disrupt- or be disrupted. The solution to this impending threat, according to the small cohort of highly successful firms that the research dubs "torchbearers;• seems to be to focus more on customers and less on competitors. When a disruptive player makes its move, loyal customers are less likely to defect and destroy your business. According to a separate survey of CEOs released in 2016, the two largest concerns among chief executives around the world

unchanged products, companies have leveraged technol-

networks with suppliers and distributors to create a more

ogy to streaml ine production and create new efficiencies.

seamless flow of goods and services.20

Examples include new processes such as computerized billing, d igital an imation, and robotic manufacturing. For fast-moving firms, the technologica l environment represents a rich source of competitive advantage, but it clearly can be a major threat for companies that are slow to adopt

ping recommendations from Amazon, you'll have a sense of how personal web marketing can feel. Online technology

or to integrate new approaches.

also allows leading-edge firms to offer customized products

The creation of the World Wide Web has transformed not only business but also people's lives. Anyone,

at prices that are comparable to standardized products. On the Burton website, for instance, customers can "custom

anywhere, anytime can use the Web to send and receive images and data (as long as access is available}. One result is the rise of e-commerce or online sa les, which allow

build" professiona l quality"Custom

ting at home in their pajamas. Nike offers a similar service for NikelD shoes, clothing, and gear.

businesses to tap into a worldwide community of potential customers. In the wake of

As technology continues to evolve at breakneck speed, the scope of change-both in everyday life and

the g lobal economic crisis,

business operations-is almost unimaginable. In this envi-

e-commerce has slowed

ronment, compan ies that welcome change and manage it well will clearly be the winners.

The service that allows computer user.; to easily access and share information on the Internet in the form of text. graphics, video, apps, and animation. , · Business transactions conducted online, typically via the Internet The

measurable characteristics of a population. Demographic factors indude population size and density, as well as specific traits such as age, gender, and race.

12

Alternative selling strategies thrive on the Internet, giving rise to a more individualized buying experience. If you've browsed seller reviews on eBay or received shop-

m[l!i!m:·~·

••

are the global economic environment and geopolitical tensions. The global economy is more integrated today than ever before, and a crisis within any major country can quickly spread around the world. We've seen t his time and time again in recent years, from the Grecian debt crisis of 2009 to the Chinese stock market plunge of early 2016. Dennis Nally, global chairman of PwC Consultancy, explains why geopolitical tension is a threat to the global economy:"[lf] you've got hot spots anywhere in the world, it creates instability . .. business leaders hate instability:'The latest PwC survey of CEOs shows that among American CEOs in particular, there is widespread recognition that a strong corporate purpose is vital in t he digital world. In addition, CEOs are focused on building stronger trust with employees and customers alike. So if your life goal is to reach the top rung at a major corporation, don't expect to leave your worries behind. It would seem that t he higher you go, the more pressing the worries."

from the breakneck 20%+ g rowth rates of the past five years, but even so, analysts predict that solid growth

x· snowboards while sit-

1-se The Social Environment

will continue. Business-to-

The social environment embodies the values, attitudes, customs, and beliefs shared by groups of people. It also covers

business selling comprises the vast majority of total

demographics, or the measurable characteristics of a

e-commerce sales (and an

population. Demographic factors include popu lation size and density and specific traits such as age, gender, race, educa-

even larger share of the profits}. A growing num-

tion, and income. Clearly, given all these influences, the social

ber of businesses have also

environment changes dramatically from country to country. And a nation as diverse as the United States features a num-

connected

ber of different social environments. Rather than cover the

their

d ig ital

PART ONE: The Business Environment Copyright 2019 Cengage Learning. AU Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02·200.202 Copyriglll 2019Ccni;igt lnrnulg. AO Ri.$h1~ Rcstn'Cd. May noc be cqiitd, icunntd. or wplkMtd. in 11b)lc (It in p;an.. Oi.e IIO denmnk rip, M'.llfllt 1hitd pll1)' «wucm may be suppcsia:d from the t.Boot -.ifot t0upi:r(i), &lilOIU.l R"\iew.• lwi dttmcd th11111ny :raapptt:c,;ed comcm O,lC',I nm mmcrially a««1 die U'ltml ltll'flin& upcriellC'C'. Cengugt lnmillg lnl:f'Yts lh: ris:h1io ll'lfKWt addill(lllul ronai:M • •Y Ii.mt if ~ -1rig.las rec1ric1ions roquitt it.

Do You Do It? More than 1,000 t imes a minute, someone in America bites into a Jack in the Box taco- one of more than a million Jack in the Box tacos sold every day. With such numbers, you might think that Jack unearth ed the secret to t he perfect-tasting taco . . . but you'd be wro ng. Jack's taco has been variously described by its fans as: •

"a wet envelope of cat food"

•

"vile a nd amazing"

•

"disgusting a nd delectable"

•

"repulsive and yet irresistible"

So why does the Jack in the Box taco do so well? Food writer Sophie Egan offers three possible reasons. First, it's cheap. At two for $.99 it's a real deal. Second, it's fried. As much as we like the idea of fru its and vegetables- fried stuff tastes good! Finally, it's a metaphorical flip of th e bird to the "food police," who many believe are attempting to exert too much control over ou r rights to eat whatever we please."

full spectrum, this section focuses on the broad social trends that have the strongest impact on American business. Under· standing the various dimensions of the social environment is crucial since successful businesses must offer goods and ser· vices that respond to it.

Diversity

While t he American population has al· ways included an array of different cultu res, the United States has become more ethnically diverse in recent years. Caucasians continue to represent the largest chunk of the population at 63%, but according to t he direc· tor of t he U.S. Census Bureau, "The next half century marks a turning point in continuing t rends-the U.S. will be· come a plurality nat ion, where the non-Hispanic white pop· ulation remains the largest single group, but no g roup is in the majority~ This will probably happen in about 2043. The Hispanic and Asian populat ions will probably cont inue to grow faster t han any other et hnic groups. By 2060, nearly one in three U.S. residents will be Hispanic, up from about one in six today. This w ill happen even though the overwhelming wave of immigration from Mexico to the United States has stalled and even begun to reverse in the past few years; nev· ertheless, among Mexican-born people worldwide, one in ten currently lives in the United States.22 Exhibit 1.3 demon· strates the shifting populat ion breakdown. But t he national statistics are somewhat misleading, since ethnic groups tend to cluster together. African Ameri· cans, for example, currently comp rise about 37% of t he Mississippi population, Asians comprise about 39% of t he Hawaii population, and Hispanics comprise about 47% of the New Mexico populat ion.2l

So what does this mean for business? Growing eth· nic populations offer robust profit potential for firms that pu rsue t hem . For instance, a number o f major brands such as Coca-Cola, Genera l Mills, Ford, Nestle, Pu ri na, and Walmart have invested heavily in the Hispanic mar· ket over the past five years. Recognizing the potential of t he Hispan ic market, Japanese automakers have begun actively targeti ng Latino custom ers. Because o f these ef· forts, Hispanic customers are reportedly 15% more likely t han any other g roup to buy a Japanese-made car.Toyota,

Exhibit 1.3

U.S. Population Estimates c: 0

:; :, c.

!

0

"#-

80 70 60 50 40 30 20 10 0

• 2014 • 2060

2.0%4.9%

Whit e

Black

Hispanic

Asian

Two or more races

Population Group Swte: Projecbol\S of the Sim and Coltl»$lbOn of the U.S. Populabon: 2014 to 2060, U.S.Census Bureau. March 2015, https://wWW,.CSl\$1JS.90Y/oontm\/dam/Coosus/l1brary/publicati:lns/20l 5/doolo /p25--1143 .p:lf, axes:sed May 9, 2016.

CHAPTER 1: Business Now: Change Is the Only Constant Copyright 2019 Cengage Learning. AU Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02·200.202 Copyriglll 2019Ccni;igt lnrnulg. AO Ri.$h1~ Rcstn'Cd. May noc be cqiitd, icunntd. or wplkMtd. in 11b)lc (It in p;an.. Oi.e IIO d enmnk rip , M'.llfllt 1hitd pll1)' «wucm may be suppcsia:d from the t.Boot -.ifot t0upi:r(i). &lilOIU.l R"\iew.• lwi dttmcd th11111ny :raapptt:c,;ed comcm O,lC',I nm mmcrially a««1 die U'IC!ml IC!ll'flin&upc,ricllC'C'. Ccngll!" lnmillg lnl:f'YC!S lh: ris:h1io R'Q'Kl'lt addill(lllul ronai:M • •Y Ii.mt if ~ -1rig.las rec1ric1ions roquitt it.

13

in particular, has been the top-sell ing brand among Latinos for more t han ten years thanks to its h ighly targeted marketing. Targeti ng an et hnic market can also yield remarkable results for products that cross over into mainstream culture. Music mogul and entrepreneur Russell Simmons, for example, initial ly targeted his music and cloth ing to the African American market. but his success quickly spilled over to mainstream culture, help ing him build a hip-hop empire.2• Growing diversity also affects t he workforce. A diverse staff-one t hat reflects an increasingly diverse marketplace-can yield a powerful competitive advantage in terms of both innovation and ability to reach a broad customer base. From global behemoths, such as Coca-Co la and Verizon, to local corner stores, companies have taken pro active steps to hire and nurture people from a broad range o f backg rounds. And that doesn't just reflect racial or ethnic roots. True diversity also incl udes differences in gender, age, religion, and nationality, among other areas. Leading -edge firms have also taken proactive steps to tra in t heir entire workforce to manage diversity for top performance.2 s Effectively managing diversity should on ly become easier as t ime goes by. Multiple studies demonst rate that young American adults are the most tolerant age group, and they are moving in a more tolerant direction than earlier generations regarding racial differences, immigrants, and homosexuality. As this generation gathers influence and experience in t he workforce, they are likely to leverage diversity in their organ izat ions to hone their edge in a fiercely competitive marketplace.26

Aging Population As life spans increase and birth-

number of people in China over t he age of 60 w ill double, leading to a nation where t he retired will outnumber t he entire population o f Western Europe. There are currently six workers to every retiree, but China's one-ch ild policy suggest s that the number of people providing for t he old w ill rapidly collapse 27 The rapidly aging population brings opportunities and t hreats for business. Companies in fields t hat cater to the elderly-such as healthcare, pharmaceut icals, travel, recreation, and financial management-will clearly boom. But creative companies in ot her fields w ill capita lize on the trend as wel l by reimagining their current prod uct s to serve older cl ients. Possibilities incl ude books and movies-maybe even video games-with mature characters; low-i mpact fit ness progra ms such as water aerobics; and cell phones and PDAs w ith more readable screens. Again, the potential payoff of age diversity is clear: companies w ith older employees are more likely to find innovative ways to reach the aging consumer market. But the larger numbers of retired people also pose significant threats to overall business success. With a smaller labor pool, companies will need to compete even harder for top talent, driving up recruitment and payroll costs. As state and federa l governments stretch to serve the aging population, taxes may increase, putting an additional burden on business. And as mid-career workers spend more on elder care, they may find themselves w ith less to spend on other goods and services, shri nking the size o f t he consumer market.

Rising Worker Expectations Workers of al l ages continue to seek flexibility from their employers. Moreover, fol lowing massive corporate layoffs in the early 2000s, employees are much less apt to be loyal to t heir firms. A study released in 2013 showed that on average, employees in Fortune 500 fi rms have a median tenure o f on ly 3.68 years. As young people today enter the workforce, t hey bring higher expectations for their employers in terms of salary, job responsibility, and flexibility-and

rates decrease, t he American population is rapidly aging. The U.S. Census Bureau projects that the nation's population age 65 and older w ill more than double between 2005 and 2060. By 2060, older Americans w ill represent j ust over one in five residents, up from one in seven today. Also, t he number of working-age Americans w ill sh rink from 63% to 57% of the population, dramatically increasing t he number o f people In Asia, the average who are depending on each workperson's living ing American. And the United standards are States isn't alone in t his trend. The population is aging across the currently set to rise developed world, from Western by 10,000% in one Europe to Japan. China faces the same issue, magnified by its huge population. Demographers estimate that in the next 20 years the

14

lifetime!

-NEWSWEEK

less willingness to pay dues by working extra-long hours or doing a high volume o f "grunt work." Smart firms are responding to the change in worker expectations by forging a new part nership wit h t heir employees. The goal is a greater level o f mutual respect through open communication, information shari ng, and t raining. And t he not-so-hidden agenda, o f course, is stronger long-term performance.28

PART ONE: The Business Environment Copyright 2019 Cengage Learning. AU Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02·200.202 Copyriglll 2019Ccni;igt lnrnulg. AO Ri.$h1~ Rcstn'Cd. May noc be cqiitd, icunntd. or wplkMtd. in 11b)lc (It in p;an.. Oi.e IIO d enmnk rip, M'.llfllt 1hitd pll1)' «wucm may be suppcsia:d from the t.Boot -.ifot t0upi:r(i), &lilOIU.l R"\iew.• lwi dttmcd th11111ny :raapptt:c,;ed comcm O,lC',I nm mmcrially a««1 die U'ltml lcll'flin&upcricllC'C'. Ccngll!" lnmillg lnl:f'YCS lh: ris:h1 io R'm!Wt addill(lllul ronai:M • •Y Ii.me if ~ -1rig.las rec1ric1ions roquitt it.

-

Ethics and Social Responsibility With high-profile ethical meltdowns dominating the headlines in the past few years, workers, consumers, and government alike have begun to the people who run hold businesses-and them-to a higher standard. Federal legislat ion, passed in the wake of the Enron fiasco, demands transparent financial management and more accountability from sen ior executives. And recogn izing their key role in business success, a growing number of consumers and workers have begun to insist that compan ies play a proactive role in making t heir communities-and often the world commun ity-bet ter p laces. Sustainability-doing business today without harming the ability of future generations to meet their needs-has become a core issue in the market place, driving business policies, investment decisions, and consumer purchases on an unprecedented scale.29

1-st

The Global Environment

The U.S. economy operates wit hin the context of t he global environment, interacting continually w ith other economies. In fact, over the past two decades, technology and free trade have blurred the lines between individual economies around t he world. Technology has forged unprecedented links among count ries, making it cost effective-even efficient-to establish computer help centers in Mumbai to serve customers in Boston, or to hire programmers in Buenos Aires to make websites for companies in Stockholm. Not surprisingly, jobs have migrated to the lowest bidder w ith the highest quality-regardless of where that bidder is based. Often, t he lowest b idder is based in China or India. Both economies are growing at breakneck speed, largely because they at t ract enormous foreign invest ment.

e 8

~

Over t he past couple of decades, China has been a magnet for manufacturing jobs because of the high population and low wages-about $3.50 per hour (includ ing government-mandated benefit s) versus about S19.50 in the United States-although the gap is rapidly closing due to double-digit annual wage inflat ion in China. And India has been especially adept at attracting h igh-tech jobs, in part because of their world-class, English-speaking university graduates who are willing to work for less t han t heir counterparts around the globe.30 The migration of j obs relates closely to the globa l movement t owa rd free trade. In 1995, a renegot iat ion of the General Agreement on Tariffs and Trade (GATT)-signed by 125 count ries-took bold steps to lower t ariffs (t axes on imports) and to reduce t rade rest rict ions worldwide. The result: goods move more free ly than ever across international boundaries. Individual groups of count ries have gone even further, creating b locs of nations w ith virtually unrestricted t rade. Mexico, Canada, and the United States have laid t he groundwork for a free-t rade mega-market t hrough the North American Free Trade Ag reement (NAFTA), and 25 European countries have created a =·-'-'~ An international powerful free-trading b loc e"- lt,:Clnl'IIOns rc,q111tt II..

'°

27

-

entering the market. Not only that, segm ent s of the ag riculture market-such as organ ic farm s and hormone-free dairies-have emerged w ith h it products that command m uch higher prices than the com pet ition.

• Monopolistic competition is a market struct ure w ith many competitors sell ing differentiated prod-

G oogle

ucts. (Caution! Monopolistic co mpet it ion is quite d ifferent from a monopoly, which we will cover shortly.) Producers have some contro l over t he price of their wares, depending on the value that they offer their customers. And new producers can fairly easily enter categories marked by monopol istic competition. In fact, in monopolistic competit ion, a successful product usually attracts new suppliers quite quickly. Examples of monopolistic competit ion include t he clothing indust ry and the restaurant business. Think about the clot hing business, for a moment, in local terms. How many firms do you know that sel l T-shirts? You cou ld probab ly think of at least 50

I'm,..

ng

In April 2016, the European Union filed antitrust charges against Google for forcing manufacturers to load 11 undeletable apps onto their Android-based smartphones. If Google is found guilty, it faces up to $7.5 billion in fines.

w ithout too much trouble. And the quaIity and price are all over the bo ard: designer T-sh irts can sell for

business, and network television. Breaking into a mar-

well over S100, but p lenty of options go for less than S10. How hard would it be to start your own T-sh irt

ket characterized by oligopoly can be tough because it typically requires a huge upfront investment.

business? Probably not hard at all. In fact, chances are strong t hat you know at least one person who sel ls T-shirts on the side. In terms of product and price variation, number o f firms, and ease of ent ry, the T-shirt business clearly

• A market structure with many competitors selling differentiated products. Barriers to entry are low.

• ••• A market structure with only a handful of competitors selling products that can be similar or different. Barriers to entry are typically high. A market structure with one producer completely dominating the industry, leaving no room for any significant competitors. Barriers to entry tend to be virtually insurmountable. , • • , A market structure with one company as the supplier of a product because the nature of that product makes a single supplier more efficient than multiple, competing ones. Most natural monopolies are government sanctioned and regulated.

28

demonst rates the characterist ics of monopolistic

You could start making T-shirts in your kitchen, for instance, but you'd need a pretty expensive facility to start manufacturing cars. Ol igopolies typically avoid intense price competition, since they have nothing to gain-every competitor simply makes less money. When price wars do flare up, the results can be devastating for entire industries.

• Monopoly is a market structure wit h just a single

competit ion.

producer completely dominating the industry, leaving

•

no room for any significant competitors. Monopolies

Oligopoly is a market st ructure w ith only a handful of competitors selling products that can be similar or d ifferent. The retail gasoline business and the car manufacturing indust ry, for instance, are bot h oligopo lies, even t hough gas stations offer very similar products, and car companies offer quite d ifferent models and features. Other

usually aren't good for anyone but the company t hat has control, since wit hout com petit ion there isn't any incent ive to hold down prices or increase quality and choices. Because monopolies can harm the economy, most are illegal according to federal legislation such as t he Sherman Antit rust Act of 1890 and the Clayton Ant itrust Act of 1914. M icrosoft is t he latest example of an industry giant that ran afou l of antimonopoly laws due to its posit ion and policies in the software business. Even t hough M icrosoft is not an actual monopo ly, it was convicted of"monopolistic practices" t hat undermined fair competition. However, in a few instances, the government not only allows monopolies but actua lly encourages t hem. This usually occu rs when it wou ld be too inefficient for

examples of oligopo ly include the soft drink

each com pet itor to build its own infrastructure to serve

industry, t he computer

t he publ ic. A natural monopoly arises. Public ut ilities

PART ONE: The Business Environment Copyright 2019 Cengage Learning. AU Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02·200.202 Copyriglll 2019Ccni;igt lnrnulg. AO Ri.$h1~ Rcstn'Cd. May noc be cqiitd, icunntd. or wplkMtd. in 11b)lc (It in p;an.. 0i.e '° denmnk rip M'.llfllt 1hitd p111Y «wucm mav be suppcsia:d from the t.Boot -.ifot tOupi:r(i) &lilOIU.l R"\iew.• lwi dttmcd th11111ny :raapptt:c,;ed comcm O,lC',I nm mmcrially a««1 die U'ltml lcll'flin&upcricllC'C'. Ccngll!" lnmillg lnl:f'YCS lh: ~ hi io R"m!Wt addill(lllul ~.. • •Y Ii.me if ~ -1rig.las rec1ric1ions roqultt it.

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C;m.,;ing the USTr:ule Deflc:it,"' Suite 10 1, April 27, 2010, http:/Avww.s1lite 101 .oouv'c.'emlwr 2012. Pg. 42 Fact: Stephen C"¥.1ncld , -n1is Time for Africa?", Time mng:v.in(', :,..Jovember 1, 2010, http:// c.-onh'nt.tinw .c.-om/ti me/ magazincd nrticlf>.I0,917 l, 2026S97 ,DO.html, :K't.-esscd Octofwr 19, 2016. Pg. 51 F:ict: Anup Slmh, ..Causes of Po,1•rty," Clob:i.l I ss•tc-?S, http:/A,", w.glohuliss1 ,es.orgli.s.,;uc/'2 /c:mscs-of-pm·(!rt)', nc.'C.'ess('d Kcl\'('mhcr 2012.

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