Business FundamentalsModule 1

Evolution of Business, Globalization, Ethics/CSR, and Entrepreneurship

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.

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

Important Reminder

Today’s Dynamic Business Environment

The

EVOLUTION

of

BUSINESS

Agriculture Era

Manufacturing Era

Service Era

Information-Based Era

LG8

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.

The MANUFACTURING ERA

• Industrialization in the 19th and 20th centuries, moved jobs from farms to factories.

• As technology improved productivity, fewer workers were needed in factories.

LG8

The SERVICE ERA

• 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.

LG8

The INFORMATION TECHNOLOGY ERA

• Information technology has affected all sectors of the economy:

- Agricultural- Industrial - Service- QVC, Fact Sheet

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.

Globalization1. Growth of global competition2. Increase of free trade among nations3. More efficient distribution systems and

communication advances.4. China’s GDP passes Japan, Latest ranking5. 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

GDP: BRIC Countries vs. US (2008)TIMS CIVETS

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

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.

Outsourcing

Ethics

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

• 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

STAKEHOLDERS

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.

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.

Factors Influencing Managerial Ethics

Individual Organizational Environmental• Values• Work Background• Family Status• Personality

• Top Level Management Philosophy

• Firm’s Reward System

• Job Dimensions

• Competition• Economic

Conditions• Social/Cultural

Institutions

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

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

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.

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.

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.

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

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.

Charitable Giving as % of GDP

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.

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

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

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

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.

America’s Most Admired Companies

• And the winners are…

Important Reminder

• Accepting the risk of starting and running a business.

ENTREPRENEURSHIP

Why Take the Risk?

• Opportunity

• Profit

• Independence

• Challenge

Entrepreneurship Videos

• A Classic (IMO)• Think Different• Gary Vaynerchuk video (first 6:30)

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

What Does It Take to be an Entrepreneur?

• Self-directed

• Self-nurturing

• Action-oriented

• Highly energetic

• Tolerant of uncertainty

• TED video

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.”

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

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

• 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

ENTREPRENEURIAL TEAMS

Source: World Features Syndicate, 2009.

• Tommy Hilfiger – First store went bankrupt

• Milton Hershey – First confectionary failed

• H.J. Heinz – Company went bankrupt six years after start

THEY DID WHAT?Famous Business Failures

• Walt Disney – First film company went bankrupt• Henry Ford – First two car companies failed• L.L. Bean – Almost went bankrupt in first year

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

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

Business Plans• Business Plan -- A detailed written statement that describes the nature

of the business, the target market, the advantages the business will have over competition, and the resources and owners qualifications.

• A business plan forces potential owners to be specific about what they will offer.

• A business plan is mandatory for talking with bankers or investors.

• A good executive summary catches interest and tempts potential investors to read on.

• Getting the plan into the right hands is almost as important as getting the right information in it.

• Business Plan Pro• There are many sources of help for starting your own business…

Sources for Help

• SBA• SCORE• Incubators• Other entrepreneurs

Closing Thought for Today

• Creativity and Schools– TED Video