美国麦格劳—希尔教育出版公司工商管理最新教材（英文版） 商务学导论（第12版） Understanding Business（Twelfth Edition） [美] 威廉·尼克尔斯（William G. Nickels）詹姆斯·麦克休（James M. McHugh）苏珊·麦克休（Susan M. McHugh）著 清华大学出版社北京 北京市版权局著作权合同登记号图字：01-2020-4243 William G. Nickels, James M. McHugh, Susan M. McHugh Understanding Business, 12th Ed. EISBN: 978-1259929434 Copyright . 2019 by McGraw-Hill Education. All Rights Reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including without limitation photocopying, recording, taping, or any database, information or retrieval system, without the prior written permission of the publisher. This authorized English abridgement edition is jointly published by McGraw-Hill Education and Tsinghua University Press Limited.This edition is authorized for sale in the People’s Republic of China only, excluding Hong Kong, Macao SAR and Taiwan. Copyright . 2021 by McGraw-Hill Education and Tsinghua University Press Limited. 版权所有。未经出版人事先书面许可，对本出版物的任何部分不得以任何方式或途径复制或传播，包括但不限于复印、录制、录音，或通过任何数据库、信息或可检索的系统。本授权英文影印删减版由麦格劳 -希尔（亚洲）教育出版公司和清华大学出版社有限公司合作出版。此版本经授权仅限在中华人民共和国境内（不包括香港特别行政区、澳门特别行政区和台湾）销售。版权 .2021由麦格劳 -希尔（亚洲）教育出版公司与清华大学出版社有限公司所有 本书封面贴有 McGraw-Hill Education公司防伪标签，无标签者不得销售。版权所有，侵权必究。举报：010-62782989，beiqinquan@tup.tsinghua.edu.cn。 图书在版编目（CIP）数据 商务学导论：第 12版 = Understanding Business：英文 / (美 ) 威廉·尼克尔斯（ William G. Nickels）（美）詹姆斯·麦克休（ James M. McHugh），（美）苏珊 ·麦克休（ Susan M. McHugh）著 .—北京：清华大学，出版社，2021.1 美国麦格劳 -希尔教育出版公司工商管理最新教材：英文版 ISBN 978-7-302-57247-3 Ⅰ . ①商… Ⅱ . ①威…②詹…③苏… Ⅲ . ①商务－高等学校－教材－英文 Ⅳ . ① F7 中国版本图书馆 CIP数据核字 (2021)第 035191号 责任编辑：王青封面设计：傅瑞学责任印制：宋林出版发行：清华大学出版社 网址：http://www.tup.com.cn， http://www.wqbook.com 地址：北京清华大学学研大厦 A座邮编：100084社总机： 010-62770175 邮购：010-62786544 投稿与读者服务：010-62776969, c-service@tup.tsinghua.edu.cn质量反馈：010-62772015, zhiliang@tup.tsinghua.edu.cn 印装者：三河市铭诚印务有限公司经销：全国新华书店开本：203mm×260mm 印张：30 版次：2021年 3月第 1版印次：2021年 3月第 1次印刷定价：75.00元 产品编号：086626-01 Bill Nickels is emeritus professor of business at the University of Maryland, College Park. He has over 30 years’ experience teaching graduate and undergraduate business courses, including introduction to business, marketing, and promotion. He has won the Outstanding Teacher on Campus Award four times and was nominated for the award many other times. He received his MBA degree from Western Reserve University and his PhD from Ohio State University. Bill has written a marketing communications text and two marketing principles texts in addition to many articles in business publications. He has taught many seminars to businesspeople on subjects such as power communications, mar-keting, nonbusiness marketing, and stress and life management. His son, Joel, is a profes-sor of English at the University of Miami (Florida). Jim McHugh holds an MBA degree from Lindenwood University and has had broad experience in education, business, and government. As chair of the Business and Economics Department of St. Louis Community College–Forest Park, Jim coordinated and directed the development of the business curriculum. In addition to teaching sev-eral sections of Introduction to Business each semester for nearly 30 years, Jim taught in the marketing and management areas at both the undergraduate and graduate levels. Jim enjoys conducting business seminars and consulting with small and large businesses. He is actively involved in the public-service sector and served as chief of staff to the St. Louis County Executive. Susan McHugh is a learning specialist with extensive training and experience in adult learning and curriculum development. She holds an MEd degree from the University of Missouri and completed her course work for a PhD in education administration with a specialty in adult learning theory. As a professional curriculum developer, she has directed numerous curriculum projects and educator training programs. She has worked in the pub-lic and private sectors as a consultant in training and employee development. While Jim and Susan treasure their participation in writing projects, their greatest accomplishment is their collaboration on their three children. Casey is carrying on the family’s teaching tradi-tion as an adjunct professor at Washington University. Molly and Michael are carrying on the family writing tradition by contributing to the development of several supplementary materials for this text. 简明目录 第 1部分商务趋势：在多变的全球环境中培育企业 1 第 1章动态商务环境下的管理：承担风险，获取收益 1 第 2部分企业所有权：组建小企业 25 第 2章组建企业的方式 25第 3章创业与组建小企业 55 第 3部分企业管理：激励员工为顾客提供满意服务 83 第 4章管理和领导 83第 5章使组织适应当今的挑战 106第 6章生产与运作管理 132 第 4部分人力资源管理：激励员工提供优质产品和服务 155 第 7章员工激励 155第 8章人力资源管理：寻找和留住优秀员工 182 第 5部分营销：制订和实施以顾客为导向的营销计划 214 第 9章营销：帮助消费者购买 214第 10章产品与服务的开发和定价 239第 11章产品的分销 265第 12章采用有效的促销方式 293 第 6部分管理财务资源 317 第 13章了解会计与财务信息 317第 14章财务管理 345第 15章证券市场：融资和投资机会 371第 16章货币、金融机构与美联储 402尾声 427 Gold Standard xvi Prologue: Getting Ready for This Course and Your Career P PaRT 1 Business Trends: Cultivating a Business in Diverse, Global Environments 1 Taking Risks and Making Profits within the Dynamic Business Environment 1 PaRT 2 Business Ownership: Starting a Small Business 2 How to Form a Business 25 3 Entrepreneurship and Starting a Small Business 55 PaRT 3 Business Management: Empowering Employees to Satisfy Customers 4 Management and Leadership 83 5 Structuring Organizations for Today’s Challenges 106 6 Production and Operations Management 131 PaRT 4 Management of Human Resources: Motivating Employees to Produce Quality Goods and Services 7 Motivating Employees 155 8 Human Resource Management: Finding and Keeping the Best Employees 182 PaRT 5 Marketing: Developing and Implementing Customer-Oriented Marketing Plans 9 Marketing: Helping Buyers Buy 214 10 Developing and Pricing Goods and Services 239 11 Distributing Products 265 12 Using Effective Promotions 293 PaRT 6 Managing Financial Resources 13 Understanding accounting and Financial Information 317 14 Financial Management 345 15 Using Securities Markets for Financing and Investing Opportunities 371 16 Money, Financial Institutions, and the Federal Reserve 402 EPILOGUE 427 vi PROLOGUE Getting Ready for This Course and your Career P Learning the Skills you Need to Succeed Today and Tomorrow P-1 Using This Course to Prepare for your Career P-2 Assessing your Skills and Personality P-3 Using Professional Business Strategies Right Now P-3 Learning to Behave Like a Professional P-4 Doing your Best in College P-6 Study Hints P-6 Test-Taking Hints P-8 Time Management Hints P-9 Making the Most of the Resources for This Course P-9 Getting the Most from This Text P-11 PaRT 1 Business Trends: Cultivating a Business in Diverse, Global Environments 1 CHAPTER 1 Taking Risks and Making Profits within the Dynamic Business Environment 1 GETTING TO KNOw ANN-MARIE CAMPBELL OF HOME DEPOT 3 Business and Wealth Building 4 Revenues, Profits, and Losses 4 Matching Risk with Profit 4 Standard of Living and Quality of Life 5 Responding to the various Business Stakeholders 5 Using Business Principles in Nonprofit Organizations 6 The Importance of Entrepreneurs to the Creation of Wealth 7 The Five Factors of Production 7 The Business Environment 9 The Economic and Legal Environment 9 The Technological Environment 10 aDaPTING TO CHANGE UP, UP, aND awaY 12 The Competitive Environment 13 The Social Environment 13 The Global Environment 14 REaCHING BEYOND OUR BORDERS HOLLYwOOD CLIMBS THE GREaT waLL 16 The Evolution of U.S. Business 16 Progress in the agricultural and Manufacturing Industries 16 Progress in Service Industries 17 Your Future in Business 17 aDaPTING TO CHANGE SERvICES ExPaND THE CIRCULaR ECONOMY 19 Summary 19 Career Exploration 21 Critical Thinking 21 Developing Career Skills 22 Putting Principles to Work 22 Video Case: Grubhub and the Dynamic Business Environment 23 Notes 24 PaRT 2 Business Ownership: Starting a Small Business 25 CHAPTER 2 How to Form a Business 25 GETTING TO KNOw PETER CANCRO, FOUNDER OF JERSEy MIkE’S SUBS 27 Basic Forms of Business Ownership 28 Sole Proprietorships 28 advantages of Sole Proprietorships 28 Disadvantages of Sole Proprietorships 29 Partnerships 30 advantages of Partnerships 31 Disadvantages of Partnerships 32 Corporations 32 vii viii CONTENTS MaKING ETHICAL DECISIONS GOOD BUSINESS, BaD KaRMa? 33 advantages of Corporations 34 Disadvantages of Corporations 35 Individuals Can Incorporate 36 aDaPTING TO CHANGE KICKSTaRTING a BENEFIT CORPORaTION 37 S Corporations 37 Limited Liability Companies 38 Corporate Expansion: Mergers and Acquisitions 41 Franchises 42 advantages of Franchises 43 Disadvantages of Franchises 44 SPOTLIGHT ON SMALL BUSINESS UNLOCKING a GROwING FRaNCHISE 45 Diversity in Franchising 45 Home-Based Franchises 46 E-Commerce in Franchising 46 Using Technology in Franchising 47 Franchising in Global Markets 47 Cooperatives 48 Which Form of Ownership Is for you? 48 Summary 49 Career Exploration 51 Critical Thinking 51 Developing Career Skills 51 Putting Principles to Work 52 Video Case: Domino’s Still Rolling in the Dough 52 Notes 53 CHAPTER 3 Entrepreneurship and Starting a SmallBusiness 55 GETTING TO KNOw TRISTAN WALkER, FOUNDER OF WALkER AND COMPANy 57 The Job-Creating Power of Entrepreneurs in the United States 58 Why People Take the Entrepreneurial Challenge 58 SPOTLIGHT ON SMALL BUSINESS STUDENT STaRT-UPS 59 what Does It Take to Be an Entrepreneur? 59 Turning Your Passions and Problems into Opportunities 60 Entrepreneurial Teams 61 Entrepreneurship within Firms 61 Micropreneurs and Home-Based Businesses 61 Online Businesses 62 Encouraging Entrepreneurship: what Government Can Do 64 Getting Started in Small Business 65 Small versus Big Business 66 Importance of Small Businesses 66 Small-Business Success and Failure 66 Learning About Small-Business Operations 68 Learn from Others 68 Get Some Experience 68 Take Over a Successful Firm 68 MaKING ETHICAL DECISIONS SHOULD YOU STaY OR SHOULD YOU GO? 69 Managing a Small Business 69 Planning Your Business 70 Financing Your Small Business 70 Knowing Your Customers 74 Managing Your Employees 74 Keeping Records 75 Looking for Help 75 Going Global: Small-Business Prospects 76 Summary 77 Career Exploration 79 Critical Thinking 79 Developing Career Skills 80 Putting Principles to Work 80 Video Case: Launching a Business: JCF Health and Fitness 80 Notes 81 PaRT 3 Business Management: Empowering Employees to Satisfy Customers 83 CHAPTER 4 Management and Leadership 83 GETTING TO KNOw kEVIN PLANk, FOUNDER OF UNDER ARMOUR 85 Managers’ Roles Are Evolving 86 The Four Functions of Management 86 Planning and Decision Making 88 aDaPTING TO CHANGE wILL STRaTEGY ROBOTS REPLaCE MaNaGERS? 91 Decision Making: Finding the Best alternative 92 Organizing: Creating a Unified System 93 CONTENTS Tasks and Skills at Different Levels of Management 93 CONNECTING THROUGH SOCIAL MEDIA waNT TO BE a SOCIaL MEDIa MaNaGER? 95 Staffing: Getting and Keeping the Right People 95 Leading: Providing Continuous Vision and Values 96 MaKING ETHICAL DECISIONS wHaT DO YOU TELL THE TEaM? 97 Leadership Styles 97 Empowering workers 98 Managing Knowledge 99 Controlling: Making Sure It Works 99 a Key Criterion for Measurement: Customer Satisfaction 100 Summary 101 Career Exploration 103 Critical Thinking 103 Developing Career Skills 104 Putting Principles to Work 104 Video Case: Zappos’s Team Approach 104 Notes 105 CHAPTER 5 Structuring Organizations for Today’s Challenges 106 GETTING TO KNOw DENISE MORRISON, CEO OF CAMPBELL SOUP COMPANy 107 Organizing for Success 108 Building an Organization from the Bottom Up 108 MaKING ETHICAL DECISIONS wOULD YOU SaCRIFICE SaFETY FOR PROFITS? 109 The Changing Organization 109 The Development of Organizational Design 109 Turning Principles into Organizational Design 111 Decisions to Make in Structuring Organizations 112 Choosing Centralized or Decentralized authority 113 Choosing the appropriate Span of Control 113 Choosing between Tall and Flat Organizational Structures 113 weighing the advantages and Disadvantages of Departmentalization 114 Organizational Models 117 Line Organizations 117 Line-and-Staff Organizations 117 Matrix-Style Organizations 118 aDaPTING TO CHANGE GOING BOSSLESS 120 Cross-Functional Self-Managed Teams 120 Going Beyond Organizational Boundaries 120 Managing the Interactions among Firms 121 Transparency and virtual Organizations 121 Adapting to Change 122 Restructuring for Empowerment 123 CONNECTING THROUGH SOCIAL MEDIA BREaKING THE CONNECTION 124 Creating a Change-Oriented Organizational Culture 124 Managing the Informal Organization 125 Summary 126 Career Exploration 127 Critical Thinking 127 Developing Career Skills 128 Putting Principles to Work 128 Video Case: Freshii’s Winning Organization 129 Notes 130 CHAPTER 6 Production and OperationsManagement 131 GETTING TO KNOw SHAHID kHAN, CEO OF FLEx-N-GATE 133 Manufacturing and Services in Perspective 134 Manufacturers and Service Organizations Become More Competitive 134 REaCHING BEYOND OUR BORDERS CREaTING SKILLED wORKERS wITH GERMaN-STYLE aPPRENTICESHIPS 135 From Production to Operations Management 135 Operations Management in the Service Sector 136 Production Processes 137 The Need to Improve Production Techniques and Cut Costs 138 Computer-aided Design and Manufacturing 138 Flexible Manufacturing 138 Lean Manufacturing 139 Mass Customization 139 Robotics 139 3D Printing 140 Using Sensing, Measurement, and Process Control 140 Operations Management Planning 140 Facility Location 140 CONTENTS aDaPTING TO CHANGE THE vaST POSSIBILITIES OF 3D PRINTING 141 Facility Location for Manufacturers 141 MaKING ETHICAL DECISIONS SHOULD wE STaY OR SHOULD wE GO? 142 Interfirm Operations Management 142 Facility Location in the Future 143 Facility Layout 143 Materials Requirement Planning 143 Purchasing 145 Just-in-Time Inventory Control 145 Quality Control 145 The Baldrige awards 146 ISO 9001 and ISO 14001 Standards 146 Control Procedures: PERT and Gantt Charts 147 Preparing for the Future 148 Summary 149 Career Exploration 151 Critical Thinking 152 Developing Career Skills 152 Putting Principles to Work 152 Video Case: Production in the 21st Century 153 Notes 154 PaRT 4 Management of Human Resources: Motivating Employees to Produce Quality Goods and Services 155 CHAPTER 7 Motivating Employees 155 GETTING TO KNOw kIM JORDAN, CEO OF NEW BELGIUM BREWING COMPANy 157 The Value of Motivation 158 Frederick Taylor: The “Father” of Scientific Management 158 Elton Mayo and the Hawthorne Studies 159 Motivation and Maslow’s Hierarchy of Needs 160 Herzberg’s Motivating Factors 161 Mcgregor’s Theory x and Theory y 163 Theory x 164 Theory Y 164 Ouchi’s Theory Z 165 Goal-Setting Theory and Management by Objectives 166 Meeting Employee Expectations: Expectancy Theory 167 Treating Employees Fairly: Equity Theory 167 Putting Theory into Action 168 Motivating through Job Enrichment 168 Motivating through Open Communication 169 applying Open Communication in Self-Managed Teams 170 Recognizing a Job well Done 170 aDaPTING TO CHANGE EMPLOYEE ENGaGEMENT’S MOOD RING 171 Personalizing Motivation 172 Motivating Employees across the Globe 172 Motivating Employees across Generations 172 CONNECTING THROUGH SOCIAL MEDIA THREE CHEERS FOR PEERS! 174 Summary 175 Career Exploration 178 Critical Thinking 178 Developing Career Skills 178 Putting Principles to Work 179 Video Case: Appletree Answers 179 Notes 180 CHAPTER 8 Human Resource Management: Findingand keeping the Best Employees 182 GETTING TO KNOw HAMDI ULUkAyA, FOUNDER AND CEO OF CHOBANI 183 Working with People Is Just the Beginning 184 Developing the Ultimate Resource 185 The Human Resource Challenge 185 Laws Affecting Human Resource Management 186 Laws Protecting Employees with Disabilities and Older Employees 188 Effects of Legislation 188 Determining a Firm’s Human Resource Needs 189 Recruiting Employees From a Diverse Population 190 CONNECTING THROUGH SOCIAL MEDIA NEED a JOB? 192 Selecting Employees Who Will Be Productive 192 CONTENTS CONNECTING THROUGH SOCIAL MEDIA LET’S FaCE IT 194 Hiring Contingent workers 194 Training and Developing Employees for Optimum Performance 195 MaKING ETHICAL DECISIONS INTERN OR INDENTURED SERvaNT? 196 Management Development 197 Networking 198 Diversity in Management Development 198 Appraising Employee Performance to Get Optimum Results 199 Compensating Employees: Attracting and keeping the Best 200 Pay Systems 200 Compensating Teams 200 Fringe Benefits 202 REaCHING BEYOND OUR BORDERS MaNaGING a GLOBaL wORKFORCE 203 Scheduling Employees to Meet Organizational and Employee Needs 203 Flextime Plans 203 Home-Based work 204 Job-Sharing Plans 206 Moving Employees Up, Over, and Out 206 Promoting and Reassigning Employees 206 Terminating Employees 206 Retiring Employees 207 Losing valued Employees 207 Summary 208 Career Exploration 210 Critical Thinking 210 Developing Career Skills 211 Putting Principles to Work 211 Video Case: Teach for America 211 Notes 212 PaRT 5 Marketing: Developing and Implementing Customer-Oriented Marketing Plans 214 CHAPTER 9 Marketing: Helping Buyers Buy 214 GETTING TO KNOw MICHELLE PHAN, FOUNDER OF IPSy 215 What Is Marketing? 216 The Evolution of Marketing 217 CONNECTING THROUGH SOCIAL MEDIA SNaPPING UP a CUSTOMER BaSE 218 Nonprofit Organizations and Marketing 219 The Marketing Mix 219 applying the Marketing Process 220 Designing a Product to Meet Consumer Needs 221 Setting an appropriate Price 222 Getting the Product to the Right Place 222 Developing an Effective Promotional Strategy 222 Providing Marketers with Information 223 The Marketing Research Process 223 The Marketing Environment 225 Global Factors 225 Technological Factors 225 Sociocultural Factors 225 Competitive Factors 226 Economic Factors 226 SPOTLIGHT ON SMALL BUSINESS CREaTING MaSS aPPEaL FOR a CUSTOM PRODUCT 227 Two Different Markets: Consumer and Business- to-Business (B2B) 227 The Consumer Market 228 Segmenting the Consumer Market 228 Reaching Smaller Market Segments 230 Building Marketing Relationships 230 The Consumer Decision-Making Process 230 The Business-to-Business Market 231 aDaPTING TO CHANGE BUILDING RELaTIONSHIPS BY BUILDING SUBSCRIBERS 232 your Prospects in Marketing 233 Summary 234 Career Exploration 235 Critical Thinking 236 Developing Career Skills 236 Putting Principles to Work 236 Video Case: Dunkin’ Donuts and the 4 Ps 237 Notes 237 CHAPTER 10 Developing and Pricing Goods andServices 239 GETTING TO KNOw ANTHONy kATZ, FOUNDER OF HyPERICE 241 Product Development and the Total Product Offer 242 CONTENTS CONNECTING THROUGH SOCIAL MEDIA PLaYING wITH THE SOCIaL GaMING STaRS 243 Distributed Product Development 243 Product Lines and the Product Mix 244 Product Differentiation 244 Marketing Different Classes of Consumer Goods and Services 245 Marketing Industrial Goods and Services 246 Packaging Changes the Product 248 The Growing Importance of Packaging 248 MaKING ETHICAL DECISIONS NaTURaL GOODS: REaLLY FROM NaTURE? 249 Branding and Brand Equity 249 REaCHING BEYOND OUR BORDERS PLaYING THE NaME GaME 250 Brand Categories 250 Generating Brand Equity and Loyalty 251 Creating Brand associations 251 Brand Management 252 The New-Product Development Process 252 Generating New-Product Ideas 252 Product Screening 253 Product analysis 253 Product Development and Testing 253 Commercialization 253 SPOTLIGHT ON SMALL BUSINESS MaDE BY MOMMY 254 The Product Life Cycle 254 Example of the Product Life Cycle 254 Using the Product Life Cycle 255 Competitive Pricing 255 Pricing Objectives 257 Cost-Based Pricing 257 Demand-Based Pricing 258 Competition-Based Pricing 258 Break-Even analysis 258 Other Pricing Strategies 258 How Market Forces affect Pricing 259 Nonprice Competition 259 Summary 260 Career Exploration 262 Critical Thinking 262 Developing Career Skills 262 Putting Principles to Work 263 Video Case: Developing New Products at Domino’s 263 Notes 264 CHAPTER 11 Distributing Products 266 GETTING TO KNOw TONy MCGEE, PRESIDENT AND CEO OF HNM GLOBAL LOGISTICS 267 The Emergence of Marketing Intermediaries 268 why Marketing Needs Intermediaries 268 SPOTLIGHT ON SMALL BUSINESS wHaT waS MINE IS NOw YOURS 269 How Intermediaries Create Exchange Efficiency 269 The value versus the Cost of Intermediaries 269 The Utilities Created by Intermediaries 272 Form Utility 272 CONNECTING THROUGH SOCIAL MEDIA I’M LOvIN’ aLL-DaY EGG MCMUFFINS 273 Time Utility 273 Place Utility 273 Possession Utility 274 Information Utility 274 Service Utility 274 Wholesale Intermediaries 275 Merchant wholesalers 275 agents and Brokers 275 Retail Intermediaries 276 Retail Distribution Strategy 277 Online Retailing and other Nonstore Retailing 277 Online Retailing 277 Telemarketing 278 vending Machines, Kiosks, Carts, and Pop-Ups 278 Direct Selling 279 Multilevel Marketing 279 Direct Marketing 279 Building Cooperation in Channel Systems 280 Corporate Distribution Systems 280 Contractual Distribution Systems 280 administered Distribution Systems 280 Supply Chains 281 Logistics: Getting Goods to Consumers Efficiently 282 aDaPTING TO CHANGE ONLINE GROCERY SHOPPING 283 Trains are Great for Large Shipments 283 Trucks are Good for Small Shipments to Remote Locations 284 water Transportation Is Inexpensive but Slow 284 Pipelines are Fast and Efficient 285 air Transportation Is Fast but Expensive 285 Intermodal Shipping 285 CONTENTS xiii The Storage Function 285 Tracking Goods 286 What All This Means to your Career 286 Summary 287 Career Exploration 289 Critical Thinking 289 Developing Career Skills 289 Putting Principles to Work 290 Video Case: FedEx 290 Notes 291 CHAPTER 12 Using Effective Promotions 293 GETTING TO KNOw MICHAEL DUBIN, COFOUNDER AND CEO OF DOLLAR SHAVE CLUB 295 Promotion and the Promotion Mix 296 Advertising: Informing, Persuading, and Reminding 297 Television advertising 298 Product Placement 299 CONNECTING THROUGH SOCIAL MEDIA HOw SOCIaL MEDIa MOvE Tv RaTINGS 300 Infomercials 300 Online advertising 300 Social Media advertising 301 Global advertising 301 REaCHING BEYOND OUR BORDERS OREO: wORLD’S FavORITE COOKIE? 302 Personal Selling: Providing Personal Attention 302 Steps in the Selling Process 302 The Business-to-Consumer Sales Process 304 Public Relations: Building Relationships 305 Publicity: The Talking arm of PR 306 Sales Promotion: Giving Buyers Incentives 306 Word of Mouth and Other Promotional Tools 308 Social Networking 308 Blogging 309 Podcasting 309 E-Mail Promotions 309 Mobile Marketing 309 Managing the Promotion Mix: Putting It all Together 309 aDaPTING TO CHANGE OUTDOOR “EYES” aRE PULLING YOU IN 310 Promotional Strategies 310 Summary 311 Career Exploration 312 Critical Thinking 313 Developing Career Skills 313 Putting Principles to Work 313 Video Case: SxSW 314 Notes 315 PaRT 6 Managing Financial Resources 317 CHAPTER 13 Understanding Accounting and Financial Information 317 GETTING TO KNOw SHELLy SUN, CEO OF BRIGHTSTAR CARE 319 The Role of Accounting Information 320 what Is accounting? 320 The Accounting Cycle 320 Using Technology in accounting 322 Understanding key Financial Statements 323 The Fundamental accounting Equation 323 The Balance Sheet 324 Classifying assets 324 Liabilities and Owners’ Equity accounts 326 The Income Statement 327 Revenue 327 Cost of Goods Sold 328 SPOTLIGHT ON SMALL BUSINESS OUT wITH THE OLD; IN wITH THE NEw 329 Operating Expenses 329 Net Profit or Loss 330 The Statement of Cash Flows 330 The Need for Cash Flow analysis 330 MaKING ETHICAL DECISIONS wHEN YOU aRE JUDGE aND JURY! 332 Analyzing Financial Performance Using Ratios 332 Liquidity Ratios 333 Leverage (Debt) Ratios 333 Profitability (Performance) Ratios 334 activity Ratios 334 Accounting Disciplines 336 Financial accounting 336 Managerial accounting 337 xiv CONTENTS auditing 337 Tax accounting 337 aDaPTING TO CHANGE aCCOUNTING: CSI 338 Government and Not-for-Profit accounting 338 REaCHING BEYOND OUR BORDERS THE wIDE, wIDE wORLD OF aCCOUNTING 339 Summary 340 Career Exploration 341 Critical Thinking 342 Developing Career Skills 342 Putting Principles to Work 342 Video Case: The Accounting Function at Goodwill Industries 343 Notes 343 CHAPTER 14 Financial Management 345 GETTING TO KNOw kATHy WALLER, ExECUTIVE VICE PRESIDENT AND CFO OF COCA-COLA 347 The Role of Finance and Financial Managers 348 The Value of Understanding Finance 349 what Is Financial Management? 350 Financial Planning 350 Forecasting Financial Needs 350 working with the Budget Process 351 Establishing Financial Controls 352 The Need for Operating Funds 354 Managing Day-by-Day Needs of the Business 354 Controlling Credit Operations 354 MaKING ETHICAL DECISIONS NOT wHaT THE DOCTOR ORDERED! 355 acquiring Needed Inventory 355 Making Capital Expenditures 355 alternative Sources of Funds 356 Obtaining Short-Term Financing 356 Trade Credit 357 Family and Friends 357 Commercial Banks 357 Different Forms of Short-Term Loans 358 Factoring accounts Receivable 358 aDaPTING TO CHANGE FINaNCING JUST a CLICK awaY 359 Commercial Paper 359 Credit Cards 360 Obtaining Long-Term Financing 360 Debt Financing 361 Equity Financing 361 Comparing Debt and Equity Financing 362 Lessons Learned from the Financial Crisis and Great Recession 363 SPOTLIGHT ON SMALL BUSINESS LOOKING FOR a SLaM DUNK 364 Summary 365 Career Exploration 367 Critical Thinking 367 Developing Career Skills 367 Putting Principles to Work 368 Video Case: Starting Up: Tom and Eddie’s 368 Notes 369 CHAPTER 15 Using Securities Markets for Financing andInvesting Opportunities 371 GETTING TO KNOw JIM CRAMER, HOST OF CNBC’S Mad Money 373 The Function of Securities Markets 374 The Role of Investment Bankers 375 Stock Exchanges 375 CONNECTING THROUGH SOCIAL MEDIA JOBS aCT RULES CROwDINvESTING 376 Securities Regulations and the Securities and Exchange Commission 377 Foreign Stock Exchanges 377 How Businesses Raise Capital by Selling Stock 378 advantages and Disadvantages of Issuing Stock 379 Issuing Shares of Common Stock 379 Issuing Shares of Preferred Stock 379 How Businesses Raise Capital by Issuing Bonds 380 Learning the Language of Bonds 380 advantages and Disadvantages of Issuing Bonds 381 Different Classes of Bonds 382 Special Bond Features 382 How Investors Buy Securities 383 Investing through Online Brokers 383 aDaPTING TO CHANGE R2-D2 TO THE INvESTOR’S RESCUE 384 Choosing the Right Investment Strategy 384 MaKING ETHICAL DECISIONS MONEY GOING UP IN SMOKE 385 Reducing Risk by Diversifying Investments 385 Investing in Stocks 386 Stock Splits 386 Buying Stock on Margin 387 Understanding Stock Quotations 387 Investing in Bonds 388 Investing in High-Risk (Junk) Bonds 389 Investing in Mutual Funds and Exchange-Traded Funds 389 Understanding Stock Market Indicators 391 Riding the Market’s Roller Coaster 392 Summary 395 Career Exploration 397 Critical Thinking 398 Developing Career Skills 398 Putting Principles to Work 399 Video Case: Where Did All My Money Go? 399 Notes 400 CHAPTER 16 Money, Financial Institutions, and the Federal Reserve 402 GETTING TO KNOw JANET yELLEN, CHAIR OF THE FEDERAL RESERVE 403 Why Money Is Important 404 what Is Money? 404 aDaPTING TO CHANGE SaYING GOODBYE TO BEN FRaNKLIN 406 Managing Inflation and the Money Supply 407 The Global Exchange of Money 407 Control of the Money Supply 407 Basics about the Federal Reserve 408 The Reserve Requirement 408 Open-Market Operations 409 The Discount Rate 409 The Federal Reserve’s Check-Clearing Role 410 The History of Banking and the Need for the Fed 411 Banking and the Great Depression 412 The U.S. Banking System 412 Commercial Banks 413 Services Provided by Commercial Banks 413 Services to Borrowers 413 MaKING ETHICAL DECISIONS aN OPEN aND SHUT OPTION 414 CONTENTS xv Savings and Loan associations (S&Ls) 414 Credit Unions 414 Other Financial Institutions (Nonbanks) 414 The Banking Crisis and How the Government Protects your Money 415 SPOTLIGHT ON SMALL BUSINESS BECOMING YOUR BEST FRIEND IN BaNKING 416 Protecting Your Funds 417 The Federal Deposit Insurance Corporation (FDIC) 417 The Savings association Insurance Fund (SaIF) 417 The National Credit Union administration (NCUa) 417 Using Technology to Make Banking More Efficient 417 Online Banking 418 International Banking and Banking Services 419 Leaders in International Banking 419 The world Bank and the International Monetary Fund 419 REaCHING BEYOND OUR BORDERS NEw DaY, NEw ISSUES aCROSS THE GLOBE 420 Summary 421 Career Exploration 423 Critical Thinking 423 Developing Career Skills 424 Putting Principles to Work 424 Video Case: The Financial Crisis 425 Notes 425 EPILOGUE Getting the Job you Want 427 Job Search Strategy 429 Searching for Jobs Online 431 Job Search Resources 432 writing Your Résumé 433 Putting Your Résumé Online 434 writing a Cover Letter 435 Preparing for Job Interviews 438 Being Prepared to Change Careers 441 FUTURE-REaDY LEaRNERS Congratulations. You’ve made an excellent selection. welcome to the preeminent teaching and learning experience ever created for Introduction to Business classes. Our experienced and diverse authors and long-tenured editorial team have created a product that meets the needs of nearly all classrooms, no matter the size, teaching modality, or learning objectives. The content is unmatched in depth, breadth, currency, and relevancy, and is presented in an extremely readable format for students with all learning styles. a wealth of technology solutions engages students, enriches learning, furthers understanding, and simplifies instructors’ assessment processes. Course supplements tightly align with chapter concepts and enhance retention, making instructors of all experience levels Grade-a rock stars. and unparalleled support from our digital faculty consultants helps ensure you and your students benefit from the full experience of what is now the gold standard in Introduction to Business classes. Nickels/McHugh/McHugh, Understanding Business, 12th Edition does more than teach—it prepares students to create real impact on the world. 1. THE GOLD STANDARD IN RELEVANCy AND CURRENCy Real-world case studies—across nearly all industries and company sizes—ensure your students are apprised of the most current challenges businesspeople face today. From Brexit and ransomware to 3D printing and robo-advisors, you have access to numerous relevant samples that tie directly into chapter lessons. Plus with the option to take advantage of the From the News to the Classroom blog, you can enrich the learning experience with content that is updated multiple times each week and includes abstracts of relevant news stories, videos tied to chapter topics, and critical thinking questions that streamline your prep time and help create an ultra-current course. 2. THE GOLD STANDARD IN RESULTS-DRIVEN TECHNOLOGy Interactive learning tools increase teaching effectiveness and learning efficiency by facilitating a stronger connection between the course material and the modern student. Where the Science of Learning Meets the Art of Teaching McGraw-Hill Connect is the leading online assignment and assessment solution that connects students with the tools and resources they need to achieve success. It also allows instructors to quickly and easily choose the content and assignments that will best emphasize the learning objectives they prefer to cover. The result is a customized course, rich with engaging presentations and activities that prepare students for the business world. The First and Only Adaptive Reading Experience SmartBook creates a dynamic reading experience and personalizes content for each student, helping students master and retain foundational concepts. Tracking xvi each student’s progress, it automatically assesses comprehension levels and delivers the content required to reinforce topics needing more attention. This con-tinuously adaptive learning path is proven to accelerate learning and strengthen memory recall, all while providing instructors a turnkey tool that ensures students stay on track. Bridging the Gap between Theory and Real Life Having knowledge is the first step—and understanding how to apply that knowl-edge is what determines a person’s success in the working world. That’s why we provide an array of application exercises that are as educational as they are engag-ing. Click-and-Drag exercises reinforce key models and processes, and demon-strate application-level knowledge. Video Cases allow students to observe and analyze key concepts as they are utilized by companies and organizations they know and recognize. Case analyses expose students to real-world scenarios and engage their critical-thinking and analysis skills. and 20-minute Mini-Simulations put students in the role of business professionals, allowing them to make decisions and learn from the results. 3. THE GOLD STANDARD IN TEACHING RESOURCES whether it’s your first or fortieth year teaching, you can benefit from a wealth of assessments and class-tested resources that simplify your evaluation process and enrich the learning experience. assessment Tools: . SmartBook, which holds students accountable for class preparation and engagement. . Chapter quizzes that are prebuilt to cover all chapter learning objectives. . Test bank that is by far the largest and most accurate collection of questions on the market, with over 300 questions per chapter. . Application exercises reinforce concepts and facilitate application-level comprehension. . Video assignments help explain difficult concepts and show business con-cepts in action in companies large and small. . Mini-simulations allow students to immerse themselves in critical-thinking and problem-solving opportunities of realistic business scenarios. . Business Plan Prep assignments support students building their semester project. additional Resources: . new teacher’s resource manual includes tools to improve retention and engagement, while helping save the instructor’s time. . From the News to the Classroom blog is updated multiple times each week, featuring abstracts of relevant news stories, video tied to chapter top-ics, and critical-thinking questions that streamline your prep time and help create an ultra-current course. . PowerPoint presentations include integrated polling questions that improve student engagement. . Test bank and quizzes are unparalleled in the number of test items pro-vided and the depth and currency, and make testing student knowledge a simple and efficient process. xvii . Video library with video Teaching Guide includes: ■ Company case videos produced specifically to expound on chapter learning objectives via real-world business situations across a broad range of industries, sizes, and geographic locations, allowing students to contextualize the chapter’s content. ■ Hotseat videos offer short cases that show real business professionals confronting a variety of workplace challenges. ■ iSeeIt! animated video explanations clarify some of the most important topics and can be accessed within the e-book. ■ Current video clips on the From the News to the Classroom blog tie to chapter topics and keep your classroom current. 4. THE GOLD STANDARD IN SUPPORT, SERVICE, AND SOLUTIONS we want you to get the most out of our products, and we do everything possible to help provide your students an exceptional learning experience. From the first to the last day of the semester, we support you with: . Learning technology representatives . Digital faculty consultants . Student ambassadors . Implementation consultants . Technical support . Integration with your learning management system . Content your way/customizable content/a robust library of cross-disciplinary content . Student progress-tracking . Accreditation and assurance of learning ready . Fully automated lecture capture via Tegrity. Our team of digital faculty consultants and extensive toolbox of support programs ensure you receive the full value of all this product has to offer. THE BOTTOM LINE The business world is constantly changing, and your classroom needs to keep up. with Nickels/McHugh/McHugh, Understanding Business, 12th Edition, both you and your students can experience the Gold Standard in Introduction to Business classes. CHANGES TO THE NEW EDITION Users of Understanding Business have always appreciated the currency of the material and the large number of examples from companies of all sizes and indus-tries (e.g., service, manufacturing, nonprofit, and profit) in the United States and around the world. a glance at the Chapter Notes will show you that almost all of them are from 2016 or 2017. accordingly, the latest business practices and other developments affecting business include: . Brexit . Compassionate capitalism . Gig economy . Withdrawal from TPP . Lifting of Cuba trade restrictions . UN’s Sustainable Development Goals (SDGs) . Social media advertising . Social networking . Benefit corporations . Circular economy . Products as services . Human Resource Information Systems (HRISs) . Market-based pay structure . On-call scheduling . Continuous performance reviews . Bullying in the workplace . Ban-the-box job application and initial interview rule . Holocracy . Drones . 3D printing and additive manufacturing . Wells Fargo and Volkswagen scandals . 2016 Supreme Court decision on insider trading . Robo-advisors . Ransomware . And much, much more Learning the Skills you Need to Succeed Todayand Tomorrow Your life is full. You’re starting a new semester, perhaps even beginning your college career, and you’re feeling pulled in many directions. Why take time to read this introduc-tion? We have lightheartedly offered our top 10 reasons, but the real importance of this section is no joking matter. Its purpose, and that of the entire text, is to help you learn principles, strategies, and skills for success that will serve you not only in this course but also in your career and your life. Whether you learn them is up to you. Learning them won’t guarantee success, but not learning them—well, you get the picture. This is an exciting and challenging time. Success in any venture comes from under-standing basic principles and knowing how to apply them effectively. What you learn now could help you be a success—for the rest of your life. Begin applying these skills now to gain an edge on the competition. READ THIS SECTION BEFORE YOUR FIRST CLASS and make a great first impression! Good luck. We wish you the best. Bill Nickels Jim McHugh Susan McHugh P-1 P-2 PROLOGUE FIGURE P.1 SALARy COMPARISON OF HIGH SCHOOL VERSUS COLLEGE GRADUATES Using this Course to Prepare for your Career Since you’ve signed up for this course, we’re guessing you already know the value of a college education. The holders of bachelor’s degrees make an average of about $51,000 per year compared to about $28,000 for high school graduates.1 That’s 75 per-cent more for college graduates than those with just a high school diploma. Compounded over the course of a 30-year career, the average college grad will make more than a half-million dollars more than the high school grad! Thus, what you invest in a college education is likely to pay you back many times. See Figure P.1 for more of an idea of how much salary difference a college degree makes by the end of a 30-year career. That doesn’t mean there aren’t good careers available to non–college graduates. It just means those with an education are more likely to have higher earnings over their lifetime. The value of a college education is more than just a larger paycheck. Other ben-efits include increasing your ability to think critically and communicate your ideas to others, improving your ability to use technology, and preparing yourself to live in a diverse and competitive world. Knowing you’ve met your goals and earned a college degree also gives you the self-confidence to work toward future goals. Many college graduates in the last generation held seven or eight different jobs (often in several different careers) in their lifetime. Today, Millennials are changing jobs just as rapidly; most jump jobs four times in the first decade after graduation.2 Many returning students are changing their careers and their plans for life. In fact, more than half of all part-time college students are older than 25.3 You too may want to change careers someday. It can be the path to long-term hap-piness and success. That means you’ll have to be flexible and adjust your strengths and talents to new opportunities. Today companies are looking for skills that machines lack, including creativity, interpersonal skills, and fine motor control. Learning has become a lifelong job. It’s not going to be just what you know now that counts, but what you learn in the future and how you adapt your skills to add value to yourself, your job, and your company.4 If you’re typical of many college students, you may not have any idea what career you’d like to pursue. That isn’t necessarily a big disadvantage in today’s fast-changing job market. After all, many of the best jobs of the future don’t even exist today. Figure P.2 lists 10 careers that didn’t exist 10 years ago. There are no perfect or certain ways to prepare for the most interesting and challenging jobs of tomorrow. Rather, you should continue your college education, develop strong technology skills, improve your verbal and written communication skills, and remain flexible and forward thinking while you explore the job market. PROLOGUE P-3 FIGURE P.2 NEW CAREERS THESE CAREERS DIDN’T ExIST 10 yEARS AGO: . App Developer . Big Data Analyst/Data Scientist . Social Media Manager . Sustainability Manager . Uber Driver . YouTube Content Creator . Driverless Car Engineer . Drone Operator . Cloud Computing Specialist . Millennial Generational Expert Source: world Economic Forum, weforum.org, accessed December 2016. One of the objectives of this class, and this book, is to help you choose an area in which you might enjoy working and have a good chance to succeed. You’ll learn about economics, global business, ethics, entrepreneurship, management, marketing, account-ing, finance, and more. At the end of the course, you should have a much better idea which careers would be best for you and which you would not enjoy. But you don’t have to be in business to use business principles. You can use market-ing principles to get a job and to sell your ideas to others. You can use your knowledge of investments to make money in the stock market. You’ll use your management skills and general business knowledge wherever you go and in whatever career you pursue—includ-ing government agencies, charities, and social causes. Assessing your Skills and Personality The earlier you can do a personal assessment of your interests, skills, and values, the better it can help you find career direction. Hundreds of schools use software exercises like the System for Interactive Guidance and Information (SIGI) and DISCOVER to offer self-assessment exercises, personalized lists of occupations based on your interests and skills, and information about different careers and the preparation each requires. Visit your col-lege’s placement center, career lab, or library soon and learn what programs are available for you. Of course, there are career assessment tools online, but many are as accurate as a Magic 8 ball. You can find reviews of online assessments at www.livecareer.com/quint-essential/online-assessment-review. While no test can give you a definitive answer about what the perfect career for you is, the assessments can point you to career paths that you may not have considered before. Self-assessment will help you determine the kind of work environment you’d prefer (technical, social service, or business); what values you seek to fulfill in a career (security, variety, or independence); what abilities you have (creative/artistic, numerical, or sales); and what job characteristics matter to you (income, travel, or amount of job pressure ver-sus free time). Using Professional Business StrategiesRight Now Here are two secrets to success you can start practicing now: networking and keeping files on subjects important to you. Networking is building a personal array of people you’ve met, spoken to, or cor-responded with who can offer you advice about and even help with your career options.5 Start with the names of your professors, both as employment references and as resources about fields of interest to you. Add additional contacts, mentors, and resource people, and keep the notes you make when talking with them about careers including salary informa-tion and courses you need to take. P-4 PROLOGUE All students need a way to retain what they learn. An effective way to become an expert on almost any business subject is to set up your own information system. You can store data on your computer, tablet, and cell phone (back up these files!), or you can establish a comprehensive filing system on paper, or you can use a combination of the two. Few college students take the time to make this effort; those who don’t lose much of the information they read in college or thereafter. Keep as many of your textbooks and other assigned readings as you can, as well as your course notes. Read a national newspaper such as The Wall Street Journal, The New York Times, or USA Today. Read your local newspa-per. Each time you read a story that interests you, save a paper copy or add a link to the story online in your elec-tronic file, under a topic heading like careers, small busi- ness, marketing, economics, or management. Don’t rely on just one Internet site for information (and be wary of Wikipedia)! Get familiar with a variety of sources and use them. Start a file for your résumé. In it, keep a copy of your current résumé along with reference letters and other information about jobs you may have held, including projects accomplished and additions to your responsibilities over time, plus any awards or special recognition you may have received. Soon you’ll have a tremendous amount of informa-tion to help you prepare a polished résumé and answer challenging job interview questions with ease. Watching television shows about business, such as Nightly Business Report and Jim Cramer’s Mad Money, helps you learn the language of business and become more informed about current happenings in business and the economy. Try viewing some of these shows or listening to similar ones online, and see which ones you like best. Take notes and put them in your files. Keep up with business news in your area so that you know what jobs are available and where. You may also want to join a local business group to begin networking with people and learning the secrets of the local business scene. Many business groups and professional business societies accept student members. Learning to Behave Like a Professional There’s a reason good manners never go out of style. As the world becomes increasingly competitive, the gold goes to teams and individuals with that extra bit of polish. The per-son who makes a good impression will be the one who gets the job, wins the promotion, or clinches the deal. Good manners and professionalism are not difficult to acquire; they’re second nature to those who achieve and maintain a competitive edge. Not even a great résumé or designer suit can substitute for poor behavior, including verbal behavior, in an interview. Say “please” and “thank you” when you ask for some-thing. Certainly make it a point to arrive on time, open doors for others, stand when an older person enters the room, and use a polite tone of voice. You may want to take a class in etiquette or read a book on etiquette to learn the proper way to eat in a nice restaurant, what to do at a formal party, when and how to text/e-mail business associates properly, and so on. Of course, it’s also critical to be honest, reliable, dependable, and ethical at all times. Some rules are not formally written anywhere; instead, every successful businessper-son learns them through experience. If you follow these rules in college, you’ll have the skills for success when you start your career. Here are the basics: 1. Making a good first impression. An old saying goes, “You never get a second chance to make a good first impression.” You have just a few seconds to make an impression. Therefore, how you dress and how you look are important. Take your PROLOGUE P-5 cue as to what is appropriate at any specific company by studying the people there who are most successful. What do they wear? How do they act? 2. Focusing on good grooming. Be aware of your appearance and its impact. Wear appropriate, clean clothing and a few simple accessories. Revealing shirts, nose rings, and tattoos may not be appropriate in a work setting. Be consistent, too; you can’t project a good image by dressing well a few times a week and then showing up looking like you’re getting ready to mow a lawn. Many organizations have adopted “business casual” guidelines, but others still require traditional attire, so find out what the organization’s policies are and choose your wardrobe accordingly. Casual doesn’t mean sloppy or shabby. Wrinkled clothing, shirttails hanging out, and hats worn indoors are not usually appropriate. For women, business casual attire includes simple skirts and slacks (no jeans), cotton shirts, sweaters (not too tight), blazers, and low-heeled shoes or boots. Men may wear khaki trousers, sport shirts with collars, sweaters or sport jackets, and casual loafers or lace-up shoes. 3. Being on time. When you don’t come to class or work on time, you’re sending this message to your teacher or boss: “My time is more important than your time. I have more important things to do than be here.” In addition to showing a lack of respect to your teacher or boss, lateness rudely disrupts the work of your colleagues. Pay attention to the corporate culture. Sometimes you have to come in earlier than others and leave later to get that promotion you desire. To develop good work habits and get good grades, arrive in class on time and avoid leaving (or packing up to leave) early. 4. Practicing considerate behavior. Listen when others are talking—for example, don’t check your cell phone for messages, read the newspaper, or eat in class. Don’t interrupt others when they are speaking; wait your turn. Eliminate profanity from your vocabulary. Use appropriate body language by sitting up attentively and not slouching. Sitting up has the added bonus of helping you stay awake! Professors and managers alike get a favorable impression from those who look and act alert. 5. Practicing good text/e-mail etiquette. The basic rules of courtesy in face-to-face communication also apply to text and e-mail exchanges. Introduce yourself at the beginning of your first e-mail message. Next, let your recipients know how you got their names and e-mail addresses. Then proceed with your clear but succinct message, and always be sure to type full words (ur is not the same thing as your). Finally, close the e-mail with a signature. Do not send an attachment unless your correspondent has indicated he or she will accept it. Ask first! You can find much more information about proper Internet etiquette, or netiquette, online—for example, at NetManners.com. 6. Practicing good cell phone manners. Your Introduction to Business class is not the place to be arranging a date for tonight. Turn off the phone during class or in a business meeting unless you are expecting a critical call. If you are expecting such a call, let your professor know before class. Turn off your ringer and put the phone on vibrate. Sit by the aisle and near the door. If you do receive a critical call, leave the room before answering it. Apologize to the professor after class and explain the situation. 7. Practicing safe posting on social media. Be careful what you post on your Facebook page or any other social media. Although it may be fun to share your latest adventures with your friends, your boss or future boss may not appreciate your latest party pictures. Be aware that those pictures may not go away even if you delete them from your page. If anyone else downloaded them, they are still out there waiting for a recruiter to discover. Make sure to update your privacy settings frequently. It’s a good idea to separate your list of work friends and limit what that group can view. Also be aware that some work colleagues aren’t interested in becoming your Facebook friends. To avoid awkwardness, wait for work associates to reach out to P-6 PROLOGUE you first. Make sure you know your employer’s policy on using social media on company time. Obviously, they will probably frown on using it for personal use on company time, but there may be rules about sharing technical matter, company information, and so on. Be mindful that social media accounts time-stamp your comments. 8. Being prepared. A businessperson would never show up for a meeting without having read the appropriate materials and being prepared to discuss the topics on the agenda. For students, acting like a professional means reading assigned materials before class, having written assignments ready to be turned in, asking and responding to questions in class, and discussing the material with fellow students. 9. Learning local customs. Just as traffic laws enable people to drive more safely, business etiquette allows people to conduct business with the appropriate amount of consideration. Sharpen your competitive edge by becoming familiar with its rules. If you travel internationally, learn the proper business etiquette for each country you visit.6 Customs differ widely for such everyday activities as greeting people, eating, giving gifts, presenting and receiving business cards, and conducting business in general. In Japan, businesspeople typically bow instead of shaking hands, and in some Arab countries it is insulting to sit so as to show the soles of your shoes. Honesty, high ethical standards, and reliability and trustworthiness are important for success in any country. 10. Behaving ethically. Having a reputation for integrity will enable you to be proud of who you are and contribute a great deal to your business success. Unethical behavior can ruin your reputation; so think carefully before you act. When in doubt, don’t! Ethics is so important to success that we include discussions about it throughout the text. Doing your Best in College The skills you need to succeed in life after college are the same ones that will serve you well in your studies. Career, family, and hobbies all benefit from organizational and time management skills you can apply right now. Here are some tips for improving your study habits, taking tests, and managing your time. Study Hints For the remainder of your college career, consider studying to be your business. Though you may hold another job while enrolled in this class, you’re in school because you want to advance yourself. So until you get out of school and into your desired occupation, study-ing is your business. And like any good businessperson, you aim for success. Follow these strategies: 1. Go to class. It’s tempting to cut a class on a nice day or when there are other things to do. But nothing is more important to doing well in school than going to class every time. If possible, sit in the front near the instructor. This will help you focus better and avoid distractions in the room. 2. Listen well. It’s not enough to show up for class if you use the time for a nap. Make eye contact with the instructor. In your mind, form a picture of what he or she is discussing. Include your existing knowledge and past experiences in your picture. This ties new knowledge to what you already know. 3. Take careful notes. Make two columns in your notebook, laptop, or tablet. On one side write down important concepts, and on the other examples or more detailed explanations. Use abbreviations and symbols whenever possible and wide spacing PROLOGUE P-7 to make the notes easier to read. Edit your notes after class to make sure you fully understand what was discussed in class. Rereading and rewriting help store the information in your long-term memory. Learn the concepts in your courses the same way you learn the words to your favorite song: through repetition and review. 4. Find a good place to study. Find a place with good lighting and a quiet atmosphere. Some students do well with classical music or other music without lyrics playing in the background. Keep your study place equipped with extra supplies such as mobile devices, pens, pencils, calculator, folders, and paper so you don’t have to interrupt studying to hunt for them. 5. Read the text using a strategy such as “survey, question, read, recite, review” (SQ3R). a. Survey or scan the chapter first to see what it is all about. This means looking over the table of contents, learning objectives, headings, photo essays, and charts so you get a broad idea of the content. The summaries at the end of each chapter in this text provide a great overview of the concepts in the chapter. Scanning will provide an introduction and help get your mind in a learning mode. b. Write questions, first by changing the headings into questions. For example, you could change the heading of this section to “What hints can I use to study better?” Read the questions that appear throughout each chapter in the Test Prep sections to give yourself a chance to recall what you’ve read. c. Read the chapter to find the answers to your questions. Be sure to read the boxes in the chapter as well. They offer extended examples or discussions of the concepts in the text. You’ve probably asked, “Will the material in the boxes be on the tests?” Even if your instructor chooses not to test over them directly, they are often the most interesting parts of the chapter and will help you retain the chapter concepts better. d. Recite your answers to yourself or to others in a study group. Make sure you say the answers in your own words so that you clearly understand the concepts. Research has shown that saying things is a more effective way to learn them than seeing, hearing, or reading about them. While often used in study groups, recitation is also good practice for working in teams in the work world. e. Review by rereading and recapping the information. The chapter summaries are written in a question-and-answer form, much like a classroom dialogue. They’re also tied directly to the learning objectives so that you can see whether you’ve accomplished the chapter’s objectives. Cover the written answers and see whether you can answer the questions yourself first. 6. Use flash cards. You’ll master the course more easily if you know the language of business. To review the key terms in the book, write any terms you don’t know on index cards and go through your cards between classes and when you have other free time. 7. Use Connect Introduction to Business (if your professor has recommended it for your course). Connect’s online features include interactive presentations, LearnSmart (adaptive learning technology that identifies what you know and don’t know, and personalizes your learning experience, ensuring that every minute spent studying with LearnSmart is the most efficient and productive study time possible), SmartBook (creates a personalized reading experience by highlighting the most impactful concepts you need to learn at that moment in time), and interactive applications. P-8 PROLOGUE 8. Go over old exams, if possible. If old exams are not available from your professor, ask how many multiple-choice, true/false, and essay questions will be on your test. It’s acceptable to ask your professor’s former students what kind of questions are given and what material is usually emphasized. It is unethical, though, to go over exams you obtain illegally. 9. Use as many of your senses in learning as possible. If you’re an auditory learner— that is, if you learn best by hearing—record yourself reading your notes and answering the questions you’ve written. Listen to the tape while you’re dressing in the morning. You can also benefit from reading or studying aloud. If you’re a visual learner, use pictures, charts, colors, and graphs. Your professor has a set of videos that illustrate the concepts in this text. If you’re a kinesthetic learner, you remember best by doing, touching, and experiencing. Doing the Developing Career Skills exercises at the end of each chapter will be a big help. Test-Taking Hints Often students will say, “I know this stuff, but I’m just not good at taking multiple-choice (or essay) tests.” Other students find test taking relatively easy. Here are a few test-taking hints: 1. Get plenty of sleep and have a good meal. It’s better to be alert and awake during an exam than to study all night and be groggy. If you keep up with your reading and your reviews on a regular basis, you won’t need to pull an all-nighter. Proper nutrition also plays an important part in your brain’s ability to function. 2. Bring all you need for the exam. Sometimes you’ll need No. 2 pencils, erasers, and a calculator. Ask beforehand. 3. Relax. At home before the test, take deep, slow breaths. Picture yourself in the testing session, relaxed and confident. Reread the chapter summaries. Get to class early to settle down. If you start to get nervous during the test, stop and take a few deep breaths. Turn the test over and write down information you remember. Sometimes this helps you connect the information you know to the questions on the test. 4. Read the directions on the exam carefully. You don’t want to miss anything or do something you’re not supposed to do. 5. Read all the answers in multiple-choice questions. Even if there is more than one correct-sounding answer to a multiple-choice question, one is clearly better. Read them all to be sure you pick the best. Try covering up the choices while reading the question. If the answer you think of is one of the choices, it is probably correct. If you are still unsure of the answer, start eliminating options you know are wrong. Narrowing the choices to two or three improves your odds. 6. Answer all the questions. Unless your instructor takes off more for an incorrect answer than for no answer, you have nothing to lose by guessing. Also, skipping a question can lead to inadvertently misaligning your answers on a scan sheet. You could end up with all your subsequent answers scored wrong! 7. Read true/false questions carefully. All parts of the statement must be true or else the entire statement is false. Watch out for absolutes such as never, always, and none. These often make a statement false. 8. Organize your thoughts before answering essay questions. Think about the sequence in which to present what you want to say. Use complete sentences with correct grammar and punctuation. Explain or defend your answers. 9. Go over the test at the end. Make sure you’ve answered all the questions, put your name on the exam, and followed all directions. PROLOGUE P-9 Time Management Hints The most important management skill you can learn is how to manage your time. Now is as good an opportunity to practice as any. Here are some hints other students have learned—often the hard way: 1. Write weekly goals for yourself. Make certain your goals are realistic and attainable. Write the steps you’ll use to achieve each goal. Reward yourself when you reach a goal. 2. Keep a “to do” list. It’s easy to forget things unless you write them down. Jot down tasks as soon as you know of them. That gives you one less thing to do: remembering what you have to do. 3. Prepare a daily schedule. Use a commercial printed or electronic daily planner or create your own. Write the days of the week across the top of the page. Write the hours of the day from the time you get up until the time you go to bed down the left side. Draw lines to form columns and rows and fill in all the activities you have planned in each hour. Hopefully, you will be surprised to see how many slots of time you have available for studying. 4. Prepare for the next day the night before. Having everything ready to go will help you make a quick, stress-free start in the morning. 5. Prepare weekly and monthly schedules. Use a calendar to fill in activities and upcoming assignments. Include both academic and social activities so that you can balance your work and fun. 6. Space out your work. Don’t wait until the last week of the course to write all your papers and study for your exams. If you do a few pages a day, you can write a 20-page paper in a couple of weeks with little effort. It is really difficult to push out 20 pages in a day or two. 7. Defend your study time. Study every day. Use the time between classes to go over your flash cards and read the next day’s assignments. Make it a habit to defend your study time so you don’t slip. 8. Take time for fun. If you have some fun every day, life will be full. Schedule your fun times along with your studying so that you have balance. “Time is money,” the saying goes. Some, however, would argue that time is more valuable than money. If your bank account balance falls, you might be able to build it back up by finding a better-paying job, taking a second job, or even selling something you own. But you have only a limited amount of time and there is no way to make more. Learn to manage your time well, because you can never get it back. Making the Most of the Resourcesfor This Course College courses and textbooks are best at teaching you concepts and ways of thinking about business. However, to learn firsthand how to apply those ideas to real business situa-tions, you need to explore and interact with other resources. Here are seven basic resources for the class in addition to the text: 1. The professor. One of the most valuable facets of college is the chance to study with experienced professors. Your instructor is a resource who’s there to answer some questions and guide you to answers for others. Many professors get job leads they can pass on to you and can provide letters of recommendation too. Thus it’s important to develop a friendly relationship with your professors. P-10 PROLOGUE 2. The supplements that come with this text. Connect Introduction to Business online course material (if your professor has recommended it for your course) will help you review and interpret key material and give you practice answering test questions. Even if your professor does not assign these materials, you may want to use them anyhow. Doing so will improve your test scores and help you compete successfully with the other students. 3. Outside readings. One secret to success in business is staying current. Review and become familiar with the following magazines and newspapers during the course and throughout your career: The Wall Street Journal, Forbes, Barron’s, Bloomberg Businessweek, Fortune, Money, The Economist, Hispanic Business, Harvard Business Review, Black Enterprise, Fast Company, Inc., and Entrepreneur. You may also want to read your local newspaper’s business section and national news magazines such as Time and Newsweek. You can find them in your school’s learning resource center or the local public library. Some are also available online free. 4. Your own experience and that of your classmates. Many college students have had experience working in business or nonprofit organizations. Hearing and talking about those experiences exposes you to many real-life examples that are invaluable for understanding business. Don’t rely exclusively on the professor for all the answers and other exercises in this book. Often there is no single “right” answer, and your classmates may open up new ways of looking at things for you. Part of being a successful businessperson is learning how to work with others. Some professors encourage their students to work together and build teamwork as well as presentation and analytical skills. Students from other countries can help you learn about different cultures and different approaches to handling business problems. There is strength in diversity, so seek out people different from you to work with on teams. 5. Outside contacts. Who can tell you more about what it’s like to start a career in accounting than someone who’s doing it now? One of the best ways to learn about different businesses is to visit them in person. The world can be your classroom. When you go shopping, think about whether you would enjoy working in and managing a store. Think about owning or managing a restaurant, an auto body shop, a health club, or any other establishment you visit. If something looks interesting, talk to the employees and learn more about their jobs and the industry. Be constantly on the alert to find career possibilities, and don’t hesitate to talk with people about their careers. Many will be pleased to give you their time and honest opinions. 6. The Internet. The Internet offers more material than you could use in a lifetime. Throughout this text we present information and exercises that require you to use the Internet. Information changes rapidly, and it is up to you to stay current. 7. The library or learning resource center. The library is a great complement to the Internet and a valuable resource. Work with your librarian to learn how to best access the information you need. PROLOGUE P-11 Getting the Most from This Text Many learning aids appear throughout this text to help you understand the concepts: 1. List of Learning Objectives at the beginning of each chapter. Reading through these objectives will help you set the framework and focus for the chapter material. Since every student at one time or other has found it difficult to get into studying, the Learning Objectives are there to provide an introduction and to get your mind into a learning mode. 2. Getting to Know and Name That Company features. The opening stories will help you get to know professionals who successfully use the concepts presented in the chapters. The Name That Company feature at the beginning of each chapter challenges you to identify a company discussed in the chapter. 3. Photo essays. The photos offer examples of the concepts in the chapter. Looking at the photos and reading the photo essays (captions) before you read the chapter will give you a good idea of what the chapter is all about. 4. Self-test questions. Periodically, within each chapter, you’ll encounter set-off lists of questions called Test Prep. These questions give you a chance to pause, think carefully about, and recall what you’ve just read. 5. Key terms. Developing a strong business vocabulary is one of the most important and useful aspects of this course. To assist you, all key terms in the book are highlighted in boldface type. Key terms are also defined in the margins, and page references to these terms are given at the end of each chapter. A full glossary is located in the back of the book. You should rely heavily on these learning aids in adding new terms to your vocabulary. 6. Boxes. Each chapter contains a number of boxed extended examples or discussions that cover major themes of the book: (a) ethics (Making Ethical Decisions); (b) small business (Spotlight on Small Business); (c) global business (Reaching Beyond Our Borders); (d) social media (Connecting through Social Media); and (e) contemporary business issues (Adapting to Change). They’re interesting to read and provide key insights into important business issues; we hope you enjoy and learn from them. 7. End-of-chapter summaries. The chapter summaries are directly tied to the chapter Learning Objectives so that you can see whether you’ve accomplished the chapter’s objectives. 8. Career Exploration exercise. At the end of each chapter, we offer a brief list of potential careers that deal with the concepts present in the chapter and encourage you to find out more about them in the Occupational Outlook Handbook. 9. Critical Thinking questions. The end-of-chapter questions help you relate the material to your own experiences. 10. Developing Career Skills exercises. To really remember something, it’s best to do it. That’s why Developing Career Skills sections at the end of each chapter suggest small projects that help you use resources, develop interpersonal skills, manage information, understand systems, and sharpen technology skills. 11. Putting Principles to Work exercises. These exercises direct you to dynamic outside resources that reinforce the concepts introduced in the text. You might want to bookmark some of the websites you’ll discover. 12. Video cases. These cases feature companies, processes, practices, and managers that bring to life the key concepts in the chapter and give you real-world information to think over and discuss. If you use the suggestions we’ve presented here, you’ll actively participate in a learn-ing experience that will help you greatly in this course and your chosen career. The most important secret to success may be to enjoy what you’re doing and do your best in every-thing. To do your best, take advantage of all the learning aids available to you. P-12 PROLOGUE 1. “How to E-D-U,” howtoedu.org, accessed September 2017; Claire Groden, “a Millennial’s Field Guide to Mastering Your Career,” Fortune.com, January 1, 2016; Christopher S. Rugaber, “Pay Gap between College Grads and Everyone Else at a Record,” associated Press, January 12, 2017. 2. Heather Long, “The New Normal: 4 Job Changes by the Time You’re 32,” CNN Money, money.cnn.com, accessed September 2017; Richard Fry, “Millennials aren’t Job-Hopping any Faster Than Generation x Did,” Pew Research Center, april 19, 2017. 3. U.S. Census Bureau, www.census.gov, accessed September 2017. 4. “Future Pursuits,” Geico Now, Spring/Summer 2016; Cybele weisser, Kerri anne Renzulli, and Megan Leonhardt, “The 21 Most valuable Career Skills,” Money.com, June 2016; Max Opray, “Seventeen Jobs, Five Careers: Learning in the age of automation,” The Guardian, april 14, 2017. 5. John Rampton, “How to Network without wasting Time,” Huffington Post, huffingtonpost.com, December 2016; Michael S. Solomon, “Networking for Introverts—7 Seven Simple Steps,” Huffington Post, huffingtonpost.com, accessed December 2016. 6. Ritu Kochar, “International Business Etiquette for Entrepreneurs,” Entrepreneur, February 8, 2016. Taking Risks andMaking Profits withinthe Dynamic BusinessEnvironment . After you have read and studied this chapter, you LEARNING OBJECTIVES should be able to LO 1–1 Describe the relationship between profit and risk, and show how businesses and nonprofit organiza-tions can raise the standard of living for all. Explain how entrepreneurship and the other fac-tors of production contribute to the creation of wealth. Analyze the effects of the economic environment and taxes on businesses. Describe the effects of technology on businesses. Demonstrate how businesses can meet and beat competition. Analyze the social changes affecting businesses. Identify what businesses must do to meet global challenges, including war and terrorism. Review how past trends are being repeated in the present and what those trends mean for tomor-row’s college graduates. 1 business Any activity that seeks to provide goods and services to others while operating at a profit. goods Tangible products such as computers, food, clothing, cars, and appliances. services Intangible products (i.e., products that can’t be held in your hand) such as education, health care, insurance, recreation, and travel and tourism. entrepreneur A person who risks time and money to start and manage a business. revenue The total amount of money a business takes in during a given period by selling goods and services. profit The amount of money a business earns above and beyond what it spends for salaries and other expenses. loss When a business’s expenses are more than its revenues. risk (1) The chance an entrepreneur takes of losing time and money on a business that may not prove profitable. (2) The chance of loss, the degree of probability of loss, and the amount of possible loss. Describe the relationship between profit and risk, and show how businesses and nonprofit organizations can raise the standard of living for all. Business and Wealth Building Success in business is based on constantly adapting to changes in the market. A business is any activity that seeks to provide goods and services to others while operating at a profit. To earn that profit, you provide desired goods, jobs, and services to people or other busi-nesses. Goods are tangible products such as computers, food, clothing, cars, and appli-ances. Services are intangible products (i.e., products that can’t be held in your hand) such as education, health care, insurance, recreation, and travel and tourism. Once you have developed the right goods and services, based on consumer wants and needs, you need to reach those consumers using whatever media they prefer, including TV, social media, online advertising, and more. Although you don’t need to have wealth as a primary goal, one result of successfully filling a market need is that you can make money for yourself, sometimes a great deal, by giving customers what they want. Sam Walton of Walmart began by opening one store in Arkansas and, over time, became one of the richest people in the United States. Now his heirs are some of the richest people in the United States.1 There are over 13.5 million millionaires in the United States.2 Maybe you will be one of them someday if you start your own business. An entrepreneur is a person who risks time and money to start and manage a business. Revenues, Profits, and Losses Revenue is the total amount of money a business takes in during a given period by sell-ing goods and services. Profit is the amount of money a business earns above and beyond what it spends for salaries and other expenses needed to run the operation. A loss occurs when a business’s expenses are more than its revenues. If a business loses money over time, it will likely have to close, putting its employees out of work. Over 175,000 busi-nesses in the United States close each year.3 As noted, the business environment is constantly changing. What seems like a great opportunity one day may become a huge failure when the economy changes. Starting a business may thus come with huge risks. But huge risks often result in huge profits. We’ll explore that concept next. matching Risk with Profit Risk is the chance an entrepreneur takes of losing time and money on a business that may not prove profitable. Profit, remember, is the amount of money a business earns above and beyond what it pays out for salaries and other expenses. For example, if you were to start a business selling hot dogs from a cart in the summer, you would have to pay for the cart rental. You would also have to pay for the hot dogs and other materials, and for someone to run the cart while you were away. After you paid your employee and yourself, paid for the food and materials you used, paid the rent on the cart, and paid your taxes, any money left over would be profit. Keep in mind that profit is over and above the money you pay yourself in salary. You could use any profit to rent or buy a second cart and hire other employees. After a few summers, you might have a dozen carts employing dozens of workers. Not all enterprises make the same amount of profit. Usually those who take the most risk may make the most profit. There is high risk, for example, in making a new kind of automobile. It’s also risky to open a business in an inner city, because insurance and rent are usually higher than in suburban areas, but reduced competition makes substantial profit possible. Big risk can mean big profits. ChAPTER 1 Taking Risks and Making Profits within the Dynamic Business Environment Standard of Living and Quality of Life Entrepreneurs such as Sam Walton (Walmart), Bill Gates (Microsoft), Jeff Bezos (Amazon), and Sara Blakely (Spanx) not only became wealthy themselves; they also provided employment for many other people. Walmart is currently the nation’s largest private employer. Businesses and their employees pay taxes that the federal government and local com-munities use to build hospitals, schools, libraries, playgrounds, roads, and other public facilities. Taxes also help keep the environment clean, support people in need, and provide police and fire protection. Thus, the wealth business generate, and the taxes they pay, help everyone in their communities. A nation’s businesses are part of an economic system that contributes to the standard of living and quality of life for everyone in the country (and, potentially, the world). How has the slow economic recovery affected the standard of liv-ing and quality of life in your part of the world? The term standard of living refers to the amount of goods and services people can buy with the money they have. For example, the United States has one of the highest stan-dards of living in the world, even though workers in some other countries, such as Germany and Japan, may on average make more money per hour. How can that be? Prices for goods and services in Germany and Japan are higher than in the United States, so a person in those countries can buy less than what a person in the United States can buy with the same amount of money. For example, a bottle of beer may cost $7 in Japan and $4 in the United States. Often, goods cost more in one country than in another because of higher taxes and stricter government regulations. Finding the right level of taxes and regulation is important in making a country or city prosperous. At this point, it is enough to understand that the United States enjoys a high standard of living largely because of the wealth created by its businesses. The term quality of life refers to the general well-being of a society in terms of its political freedom, natural environment, education, health care, safety, amount of leisure, and rewards that add to the satisfaction and joy that other goods and services provide. Maintaining a high quality of life requires the combined efforts of businesses, nonprofit organizations, and government agencies. Remember, there is more to quality of life than simply making money. Responding to the Various Business Stakeholders Stakeholders are all the people who stand to gain or lose by the policies and activities of a business and whose concerns the business needs to address. They include customers, employees, stockholders, suppliers, dealers (retailers), bankers, people in the surrounding community, the media, environmentalists, competitors, unions, critics, and elected govern-ment leaders (see Figure 1.1).4 A primary challenge for organizations of the 21st century will be to recognize and respond to the needs of their stakeholders. For example, the need for the business to make profits may be balanced against the needs of employees to earn sufficient income or the need to protect the environment. Ignore the media, and they might attack your busi-ness with articles that hurt sales. Oppose the local community, and it may stop you from expanding. Staying competitive may call for outsourcing. Outsourcing means contracting with other companies (often in other countries) to do some or all of the functions of a firm, like its production or accounting tasks. Outsourcing has had serious consequences in some states where jobs have been lost to overseas competitors. The other side of the outsourcing coin is insourcing. Many foreign companies are set-ting up design and production facilities here in the United States. For example, Korea-based Hyundai operates design and engineering headquarters in Detroit, Michigan, and produces cars in Montgomery, Alabama.5 Japanese automaker Honda has been producing cars in the United States for years, and opened its 12th U.S. manufacturing plant in 2016.6 Charter standard of living The amount of goods and services people can buy with the money they have. quality of life The general well-being of a society in terms of its political freedom, natural environment, education, health care, safety, amount of leisure, and rewards that add to the satisfaction and joy that other goods and services provide. stakeholders All the people who stand to gain or lose by the policies and activities of a business and whose concerns the business needs to address. outsourcing Contracting with other companies (often in other countries) to do some or all of the functions of a firm, like its production or accounting tasks. PART 1 Business Trends: Cultivating a Business in Diverse, Global Environments FIGuRE 1.1 A BuSINESS AND ITS STAkEhOLDERS Often the needs of a firm’s various stakeholders will conflict. For example, paying employees more may cut into stockholders’ profits. Balancing such demands is a major role of business managers. Source: John Mackey and Raj Sisodia, Conscious Capitalism (Boston, MA: Harvard Business Review Press, 2013). nonprofit organization An organization whose goals do not include making a personal profit for its owners or organizers. brought back its Spanish-speaking call centers to the United States.7 Insourcing creates many new U.S. jobs and helps offset those jobs being outsourced. It may be legal and profitable to outsource, but is it best for all the stakeholders? Business leaders must make outsourcing decisions based on all factors. Pleasing stake-holders is not easy and often calls for trade-offs. using Business Principles in Nonprofit Organizations Despite their efforts to satisfy their stakeholders, businesses cannot do everything needed to make a community all it can be. Nonprofit organizations—such as public schools, civic asso-ciations, charities like the United Way and the Salvation Army, and groups devoted to social causes—also make a major contribution to the welfare of society. Anonprofit organizationis an organization whose goals do not include making a personal profit for its owners or organizers. Nonprofit organizations often do strive for financial gains, but they use them to meet their social or educational goals rather than for personal profit. Your interests may lead you to work for a nonprofit organization. That doesn’t mean, however, that you shouldn’t study business in college. You’ll still need to learn business skills such as information management, leadership, marketing, and financial management. The knowledge and skills you acquire in this and other business courses are useful for careers in any organization, including nonprofits. We’ll explore entrepreneurship right after the Test Prep. ChAPTER 1 Taking Risks and Making Profits within the Dynamic Business Environment 7 Explain how entrepreneurship and the other factors of production contribute to the creation of wealth. The Importance of Entrepreneursto the Creation of Wealth There are two ways to succeed in business. One is to rise through the ranks of a large company. The advantage of working for others is that somebody else assumes the compa-ny’s entrepreneurial risk and provides you with benefits like paid vacation time and health insurance. It’s a good option, and many people choose it. The other, riskier, but often more exciting, path is to become an entre-preneur. The national anthem, “The Star Spangled Banner,” says that the United States is the “land of the free and the home of the brave.” Part of being free is being able to own your own business and reap the profits from it. But freedom to succeed also means freedom to fail, and many small busi-nesses fail each year. It takes a brave person to start one. As an entrepre-neur, you don’t receive any benefits such as paid vacation time, day care, a company car, or health insurance. You have to provide them for yourself! But what you gain—freedom to make your own decisions, opportunity, and possible wealth—is often worth the effort. Before you take on the chal-lenge, you should study successful entrepreneurs to learn the process. You can talk to them personally and read about them in Chapter 3, as well as in other books, magazines (e.g., Entrepreneur, Fast Company, and Inc.), and at websites (e.g., Small Business Administration at www.sba.gov). The Five Factors of Production Have you ever wondered why some countries are relatively wealthy and others poor? Economists have been studying the issue of wealth creation for many years. They began by identifying five factors of production that seemed to contribute to wealth (see Figure 1.2): 1. Land (or natural resources). Land and other natural resources are used to make homes, cars, and other products. 2. Labor (workers). People have always been an important resource in producing goods and services, but many people are now being replaced by technology. 3. Capital. This includes machines, tools, buildings, or whatever else is used in the production of goods. It might not include money; money is used to buy factors of production but is not always considered a factor by itself. 4. Entrepreneurship. All the resources in the world have little value unless entrepre-neurs are willing to take the risk of starting businesses to use those resources. 5. Knowledge. Information technology has revolutionized business, making it pos-sible to quickly determine wants and needs and to respond with desired goods and services. factors of production The resources used to create wealth: land, labor, capital, entrepreneurship, and knowledge. PART 1 Business Trends: Cultivating a Business in Diverse, Global Environments FIGuRE 1.2 ThE FIVE FACTORS OF PRODuCTION Traditionally, business and economics textbooks emphasized only four factors of production: land, labor, capital, and entrepreneurship. But the late management expert and business consultant Peter Drucker said the most important factor of production in our economy is and always will be knowledge.8 What do we find when we compare the factors of production in rich and poor coun-tries? Some poor countries have plenty of land and natural resources. Russia, for example, has vast areas of land with many resources such as timber and oil, but it is not considered a rich country (yet). Therefore, land isn’t the critical element for wealth creation. Most poor countries, such as Mexico, have many laborers, so it’s not labor that’s the primary source of wealth today. Laborers need to find work to make a contribution; that is, they need entrepreneurs to create jobs for them. Furthermore, capital—machinery and tools—is now fairly easy for firms to find in world markets, so capital isn’t the missing ingredient either. Capital is not productive without entrepreneurs to put it to use. What makes rich countries rich today is a combination of entrepreneurship and the effective use of knowledge. Entrepreneurs use what they’ve learned (knowledge) to grow their businesses and increase wealth. Economic and political freedom also matter. The business environment either encourages or discourages entrepreneurship. That helps explain why some states and cities in the United States grow rich while others remain relatively poor. In the following section, we’ll explore what makes up the business environment and how to build an environment that encourages growth and job creation. ChAPTER 1 Taking Risks and Making Profits within the Dynamic Business Environment The Business Environment The business environment consists of the surrounding factors that either help or hinder the development of businesses. Figure 1.3 shows the five elements in the business environment: 1. The economic and legal environment. 2. The technological environment. 3. The competitive environment. 4. The social environment. 5. The global business environment. Businesses that create wealth and jobs grow and prosper in a healthy environment. Thus, creating the right business environment is the foundation for social benefits of all kinds, including good schools, clean air and water, good health care, and low rates of crime. Businesses normally can’t control their environment, but they need to monitor it carefully and do what they can to adapt as it changes. LO 1–3 Analyze the effects of the economic environment and taxes on businesses. The Economic and Legal Environment People are willing to start new businesses if they believe the risk of losing their money isn’t too great. The economic system and the way government works with or against busi-nesses can have a strong impact on that level of risk. For example, a government can mini-mize spending and keep taxes and regulations to a minimum—policies that tend to favor business. Much of the debate in recent elections has focused on whether or not to raise taxes, how to lower government spending, and whether to cut regulations. One way for government to actively promote entrepreneurship is to allow private ownership of businesses. In some countries, the government owns most businesses, and there’s little incentive for people to work hard or create profit. Around the world today, however, some governments are selling those businesses to private individuals to create more wealth. One of the best things the governments of developing countries can do is to minimize interference with the free exchange of goods and services. The government can further lessen the risks of entrepreneurship by passing laws that enable businesspeople to write enforceable contracts. In the United States, the Uniform Commercial Code, for example, regulates business agreements such as contracts and war-ranties so that firms know they can rely on one another. In countries that don’t yet have such laws, the risks of starting a business are that much greater. The government can also establish a currency that’s tradable in world markets. That is, the currency lets you buy and sell goods and services anywhere in the world when it is easily exchanged for that of the other countries where you do business. If the Chinese did not want to trade their yuan for the U.S. dollar, for instance, it’s hard to imagine how Coca-Cola or Disney would have been able to sell their products and services there. (You can read more about currency in Chapter 16). Finally, the government can help minimize corruption in business and in its own ranks. Where governments are corrupt, it’s difficult to build a factory or open a store with-out a government permit, which is obtained largely through bribery of public officials. Among businesses themselves, unscrupulous leaders can threaten their competitors and unlawfully minimize competition. Many laws in the United States attempt to minimize corruption. Nonetheless, corrupt and illegal activities at some companies do negatively affect the business community and the economy as a whole. The news media widely report these scandals. Ethics is so impor-tant to the success of businesses and the economy as a whole that we feature stories about ethics in most chapters. business environment The surrounding factors that either help or hinder the development of businesses. 10 PART 1 Business Trends: Cultivating a Business in Diverse, Global Environments FIGuRE 1.3 TODAY’S DYNAMIC BUSINESS ENVIRONMENT technology Everything from phones and copiers to computers, medical imaging devices, personal digital assistants, and the various software programs that make business processes more effective, efficient, and productive. Governments from different countries can work together to create an environment that allows entrepreneurship to thrive. For example, in 2015 the United Nations adopted what it calls Sustainable Development Goals (SDGs) that list specific targets for ending poverty and improving the lives of the disadvantaged in the next 15 years. The ultimate goal is to move toward prosperity by partnering governments, businesses, and nonprofits in order to solve problems at the ground level in developing countries. LO 1–4 Describe the effects of technology on businesses. The Technological Environment Since prehistoric times, humans have felt the need to create tools that make work easier. Few technological changes have had a more comprehensive and lasting impact on busi-nesses, however, than information technology (IT). IT has completely changed the way people communicate with one another. Advertisers and other businesspeople have created ways of using these tools to reach their suppliers and customers. Even politicians have harnessed the power of the Internet to advance their causes.9 IT is such a major force in business today that we discuss its impact on businesses throughout the entire text. how Technology Benefits workers and you Technology means every-thing from phones to computers, mobile devices, medical imaging machines, robots, the Internet, social media, and the various software programs and apps that make business ChAPTER 1 Taking Risks and Making Profits within the Dynamic Business Environment 11 processes more effective, efficient, and productive.10 Effectiveness means producing the desired result. Efficiency means producing goods and services using the least amount of resources. The Adapting to Change box discusses how one form of technology, drones, can make businesses more effective and efficient. Productivity is the amount of output you generate given the amount of input, such as the number of hours you work. The more you can produce in any given period, the more money you are worth to companies. The problem with productivity today is that workers are so productive that fewer are needed.11 Technology affects people in all industries. For example, a farmer can use his com-puter to compare data from the previous year’s harvest with drone or satellite photos of his farm that show which crops are flourishing. He can check the latest grain prices and use the website www.newAgTalk.com to converse with other farmers from all over the world. He can also save money on chemicals by bidding for bulk fertilizer on FarmTrade. com, an online agricultural exchange. High-tech equipment tells him how and where to spread fertilizer and seed, tracks yields yard by yard, and allows him to maintain high profit margins.12 Of course, more tech often means fewer workers. Is that a good or bad thing for farmers? The Growth of E-Commerce E-commerce is the buying and selling of goods online. There are two major types of e-commerce transactions: business-to-consumer (B2C) and business-to-business (B2B). As important as the Internet has been to online retailers in the consumer market, it has become even more important in the B2B market, where businesses sell goods and services to one another, such as IBM selling consulting services to a local bank. E-commerce has become so important that we discuss it in many chapters throughout the text. using Technology to Be Responsive to Customers A major theme of this text is that those businesses most responsive to customer wants and needs will succeed. Technology can help businesses respond to customer needs in many ways. For example, businesses use bar codes to identify products you buy and their size, quantity, and color. The scanner at the checkout counter identifies the price but can also put all your purchase information into a database, an electronic storage file for information. productivity The amount of output you generate given the amount of input (e.g., hours worked). e-commerce The buying and selling of goods over the Internet. database An electronic storage file for information. identity theft The obtaining of individuals’ personal information, such as Social Security and credit card numbers, for illegal purposes. Databases enable stores to carry only the merchandise their local customers want. But because companies routinely trade database information, many retailers know what you buy and from whom you buy it. Thus they can send you online ads or catalogs and other direct mail advertising offering the kind of products you might want based on your past purchases. We discuss many of the other ways businesses use technology to be responsive to consumers throughout the text. Unfortunately, the legitimate collection of personal customer information also opens the door to identity theft. Identity theft is the obtaining of individuals’ personal informa-tion, such as Social Security and credit card numbers, for illegal purposes. For example, in 2017 even though Apple itself was not hacked, it reported that some Apple customers who secured their iCloud accounts with the same passwords they use on other sites that were hacked (especially accounts on LinkedIn, Yahoo!, and Dropbox) suffered breaches to their Apple accounts as well.13 Experts advise us to create new passwords for each account so that if the password on one account is stolen, the hackers can’t access the rest of your accounts too. They also recommend storing them in a password manager, and activating two-factor authentication, which is an additional layer of security, when possible.14 The Federal Trade Commission says millions of U.S. consumers are victims of identity theft each year. Cybersecurity will continue to be a major concern of governments, business, and consumers.15 Many people are concerned about how technology might be used to invade the pri-vacy of their phone or e-mail conversations or even to track their movement through facial recognition technology used in stores, casinos, cruise ships, and other public places.16 12 ChAPTER 1 Taking Risks and Making Profits within the Dynamic Business Environment LO 1–5 Demonstrate how businesses can meet and beat competition. The Competitive Environment Competition among businesses has never been greater. Some have found a competitive edge by focusing on quality. The goal for many companies is zero defects—no mistakes in making the product. However, even achieving a rate of zero defects isn’t enough to stay competitive in world markets. Companies now have to offer both high-quality products and good value—that is, outstanding service at competitive prices. Competing by Exceeding Customer Expectations Today’s customers want not only good quality at low prices but great service as well. Every manufacturing and service organization in the world should have a sign over its door telling its workers that the customer is king. Business has become more customer-driven, not management-driven as often occurred in the past. Successful organizations must now listen more closely to customers to determine their wants and needs, and then adjust the firm’s products, poli-cies, and practices accordingly. We will explore these ideas in more depth in Chapter 9. Competing by Restructuring and Empowerment To meet the needs of customers, firms must give their frontline workers—for example, office clerks, front-desk people at hotels, and salespeople—the responsibility, authority, freedom, training, and equipment they need to respond quickly to customer requests. They also must allow workers to make other decisions essential to producing high-quality goods and services. The process is called empowerment, and we’ll be talking about it throughout this book. As many companies have discovered, it sometimes takes years to restructure an orga-nization so that managers can and will give up some of their authority and employees will assume more responsibility. We’ll discuss such organizational changes in Chapter 5. LO 1–6 Analyze the social changes affecting businesses. empowerment Giving frontline workers the responsibility, authority, freedom, training, and equipment they need to respond quickly to customer requests. The Social Environment Demography is the statistical study of the human population with regard to its size, den-sity, and other characteristics such as age, race, gender, and income. In this text, we’re particularly interested in the demographic trends that most affect businesses and career choices. The U.S. population is going through major changes that are dramatically affect-ing how people live, where they live, what they buy, and how they spend their time. Fur-thermore, tremendous population shifts are leading to new opportunities for some firms and to declining opportunities for others. For example, there are many more retired work-ers than in the past, creating new markets for all kinds of goods and services. managing Diversity Diversity has come to mean much more than recruiting and keeping minority and female employees. Diversity efforts now include older adults, people with disabilities, people with different sexual orientations, atheists, religious, extroverts, introverts, married people, and singles. It also means dealing sensitively with workers and cultures around the world.17 Legal and illegal immigrants have had a dramatic effect on many regions, and will continue to do so as the government debates immigration reform. Businesses, schools, and hospitals have been especially affected.18 Some local governments are making efforts to adapt, including changing signs, brochures, websites, and forms to include other languages. Has your city experienced such changes? What are some of the impacts you’ve noticed? How has the debate about changing immigration policies affected your community? The Increase in the Number of Older Citizens People aged 65 to 74 are currently the richest demographic group in the United States.19 Therefore they represent a demography The statistical study of the human population with regard to its size, density, and other characteristics such as age, race, gender, and income. 14 PART 1 Business Trends: Cultivating a Business in Diverse, Global Environments lucrative market for companies involved with food service, transportation, entertainment, education, lodging, and so on. By 2030 the percentage of the population 65 or older will be over 20 percent, by 2050 it will more than double.20 What do these changes mean for you and for businesses in the future? Think of the products and services that middle-aged and elderly people will need—medicine, nursing homes, assisted-living facilities, adult day care, home health care, transportation, recreation, and the like—and you’ll see oppor-tunities for successful businesses of the 21st century. Don’t rule out computer games and online services. Businesses that cater to older consumers will have the opportunity for exceptional growth in the near future. The market is huge. On the other hand, retired people will be draining the economy of wealth. Social Security has become a major issue. The pay-as-you-go system (in which workers today pay the retirement benefits for today’s retirees) operated just fine in 1940, when 42 work-ers supported each retiree; but by 1960, there were only 5 workers per retiree, and today, as members of the baby-boom generation (born between 1946 and 1964) retire, that number is under 3 and is pro-jected to drop to 2 by 2030.21 In addition, the government has been spending the accumulated Social Security money instead of leaving it in a Social Security account. Soon, less money will be coming into Social Security than will be going out. The government will have to do something to make up for the shortfall: raise taxes, reduce Social Security benefits (e.g., raise the retirement age at which people qualify for payments), reduce spending elsewhere (e.g., in other social programs like Medicare or Medicaid), or borrow on the world market. In short, paying Social Security to senior citizens in the future will draw huge amounts of money from the working population. That is why there is so much dis-cussion in the media today about what to do with Social Security. The Increase in the Number of Single-Parent Families It is a tremen-dous task to work full-time and raise a family. Thus, the rapid growth of single-parent households has also had a major effect on businesses. Single parents, including those forced by welfare rules to return to work after a certain benefit period, have encouraged businesses to implement programs such as family leave (giving workers time off to attend to a sick child or elder relative) and flextime (allowing workers to arrive or leave at selected times). You will read about such programs in more detail in Chapter 8. LO 1–7 Identify what businesses must do to meet global challenges, including war and terrorism. The Global Environment The global environment of business is so important that we show it as surrounding all other environmental influences (see again Figure 1.3). Two important changes here are the growth of global competition and the increase of free trade among nations. World trade, or globalization, has grown thanks to the development of efficient distri-bution systems (we’ll talk about these in Chapter 11) and communication advances such as the Internet. Globalization has greatly improved living standards around the world. China and India have become major U.S. competitors. Shop at Walmart and most other U.S. retail stores, and you can’t help but notice the number of “Made in China” stickers you see. Call for computer help, and you are as likely to be talking with someone in India as someone in the United States. As the Reaching Beyond our Borders box on the next page discusses, China has become a key to success for even Hollywood and the movie business. ChAPTER 1 Taking Risks and Making Profits within the Dynamic Business Environment 15 World trade has its benefits and costs. You’ll read much more about its importance in the other Reaching Beyond Our Borders boxes throughout the text. war and Terrorism War and terrorism have drained trillions of dol-lars from the U.S. economy.22 Some companies—like those that make bullets, tanks, and uniforms—have benefited greatly. Others, however, lost workers to the armed forces, and still others (e.g., tourism) have grown more slowly as money was diverted to the war effort. The threat of more wars and terror-ism leads the government to spend even more money on spying and the mili-tary. Such expenditures are subject to much debate. The increased unrest in the world adds great uncertainty. This uncertainty is considered by some to be the biggest risk in business. It is difficult to plan when there are so many unknown factors such as how changes in military policy will affect the economy.23 The threat of terrorism also adds greatly to organizational costs, includ-ing the cost of insurance. In fact, some firms are finding it difficult to get insurance against terrorist attacks. Security, too, is costly. Airlines, for exam-ple, have had to install stronger cockpit doors and add more passenger screen-ing devices. Like all citizens, businesspeople benefit from a peaceful and prosperous world. One way to lessen international tensions is to foster global economic growth among both profit-making and nonprofit organizations. how Global Changes Affect you As businesses expand to serve global mar-kets, new jobs will be created in both manufacturing and service industries. Global trade also means global competition. The students who will prosper will be those prepared for the markets of tomorrow. Rapid changes create a need for continuous learning, so be pre-pared to continue your education throughout your career. You’ll have every reason to be optimistic about job opportunities in the future if you prepare yourself well. The Ecological Environment Few issues have captured the attention of the international business community more than climate change. Climate change is the move-ment of the temperature of the planet up or down over time. There are some who remain unconvinced of the dangers of global warming.24 However, most scientists and many of the world’s largest firms—including General Electric, Coca-Cola, Shell, Nestlé, DuPont, Johnson & Johnson, British Airways, and Shanghai Electric—say the evidence for climate greening The trend toward saving change is overwhelming. Saving energy and producing products that cause less harm to the 25 energy and producing environment, such as solar energy, is called greening. products that cause less harm to the environment. Review how past trends are being repeated in the present and what those trends mean for tomorrow’s college graduates. The Evolution of U.s. Business Businesses in the United States have become so productive that they need fewer workers than ever before to produce goods. If global competition and improved technology are putting skilled people out of work, should we be concerned about the prospect of high unemployment rates and low incomes? Where will the jobs be when you graduate? These important questions force us all to look briefly at the U.S. economy and its future. Progress in the Agricultural and manufacturing Industries The United States has experienced strong economic development since the 1800s. The agricultural industry led the way, providing food for the United States and much of the world. Cyrus McCormick’s invention of the harvester in 1834, other inventions such as Eli Whitney’s cotton gin, and modern improvements on such equipment did much to make large-scale farming successful. Technology has made modern farming so efficient that the number of farmers has dropped from about 33 percent of the population to less than 1 percent today. However, average farm size is now about 430 acres versus 150 acres in the past.26 16 ChAPTER 1 Taking Risks and Making Profits within the Dynamic Business Environment Agriculture is still a major industry in the United States. What has changed is that the millions of small farms that existed previously have been replaced by some huge farms, some merely large farms, and some small but highly specialized farms. The loss of farm-workers over the past century is not a negative sign. It is instead an indication that U.S. agricultural workers are the most productive in the world. Most farmers who lost their jobs during the 19th and 20th centuries went to work in factories springing up around the country. Manufacturers, like farms, began using new technology, new tools, and machines to become more productive. Eventually the conse-quence in manufacturing, as in farming, was the elimination of many jobs. Again, the loss to society is minimized if the wealth created by increased productivity and efficiency creates new jobs elsewhere—and that’s exactly what has happened over the past 50 years. Many workers in the industrial sector found jobs in the growing service sec-tor. Most of those who can’t find work today are people who need retraining and education to become qualified for jobs that now exist or will exist in the near future, such as building wind farms or making electric automobiles. We’ll discuss the manufacturing sector and production in more detail in Chapter 6. Progress in Service Industries In the past, the fastest-growing industries in the United States produced goods like steel, automobiles, and machine tools. Today, the fastest-growing firms provide services in areas such as law, health, telecommunications, entertainment, and finance. Together, services make up nearly 80 percent of the value of the U.S. economy.27 Since the mid-1980s, the service industry has generated almost all the increases in employ-ment. Although service-sector growth has slowed, it remains the largest area of growth. Chances are very high that you’ll work in a service job at some point in your career. Figure 1.4 lists many service-sector jobs; look it over to see where the careers of the future are likely to be. Retailers like Nordstrom Rack are part of the service sector. Each new retail store can create managerial jobs for college graduates. Another bit of good news is that there are more high-paying jobs in the service sec-tor than in the goods-producing sector. High-paying service-sector jobs abound in health care, accounting, finance, entertainment, telecommunications, architecture, law, software engineering, and more.28 Projections are that some areas of the service sector will grow rapidly, while others may have much slower growth (see the Adapting to Change box). The strategy for college graduates is to remain flexible, find out where jobs are being created, and move when appropriate. your Future in Business Despite the growth in the service sector we’ve described above, the service era now seems to be coming to a close as a new era is beginning. We’re in the midst of an information-based global and technical revolution that will alter all sectors of the economy: agricultural, industrial, and service. It’s exciting to think about the role you’ll play in that revolution. You may be a leader who will implement the changes and accept the challenges of world competition based on world quality standards. This book will introduce you to some of the concepts that make such leadership possible, not just in business but also in govern-ment agencies and nonprofit organizations. Business can’t prosper in the future without the cooperation of government and social leaders throughout the world. There’s much talk about the service sector, but few discussions actually list what it includes. Here are examples of businesses in the service sector. how businesses and nonprofit organizations can raise thestandard of living for all. what is the relationship of businesses’ profit to risk assumption? Profit is money a business earns above and beyond the money that it spends for salaries and other expenses. Businesspeople make profits by taking risks. Risk is the chance an entrepreneur takes of losing time and money on a business that may not prove profitable. A loss occurs when a business’s costs and expenses are higher than its revenues. who are stakeholders, and which stakeholders are most important to a business? Stakeholders include customers, employees, stockholders, suppliers, dealers, bankers, the media, people in the local community, environmentalists, and elected government 19 20 PART 1 Business Trends: Cultivating a Business in Diverse, Global Environments leaders. The goal of business leaders is to try to recognize and respond to the needs of these stakeholders and still make a profit. LO 1–2 Explain how entrepreneurship and the other factors of produc-tion contribute to the creation of wealth. what are the advantages and disadvantages of entrepreneurship? Working for others means getting benefits like paid vacations and health insurance. Entrepreneurs take more risks and lose those benefits. They gain the freedom to make their own decisions, more opportunity, and possible wealth. what are the five factors of production? The five factors of production are land, labor, capital, entrepreneurship, and knowledge. Of these, the most important are entrepreneurship and knowledge. Entrepreneurs are people who risk time and money to start and manage a business. What makes rich countries rich today is a combination of entrepreneurship and the effective use of knowledge. LO 1–3 Analyze the effects of the economic environment and taxes onbusinesses. what can governments in developing countries do to reduce the risk of starting businesses and thus help entrepreneurs? The government may allow private ownership of businesses, pass laws that enable businesspeople to write contracts that are enforceable in court, establish a currency that’s tradable in world markets, help lessen corruption in business and government, and keep taxes and regulations to a minimum. From a business perspective, lower taxes mean lower risks, more growth, and thus more money for workers and the government. LO 1–4 Describe the effects of technology on businesses. how has technology benefited workers, businesses, and consumers? Technology enables workers to be more effective, efficient, and productive. Effectiveness means doing the right thing in the right way. Efficiency means producing items using the least amount of resources. Productivity is the amount of output you generate given the amount of input (e.g., hours worked). LO 1–5 Demonstrate how businesses can meet and beat competition. what are some ways in which businesses meet and beat competition? Some companies have found a competitive edge by focusing on making high-quality products, all the way to zero defects. Companies also aim to exceed customer expectations. Often that means empowering frontline workers by giving them more training and more responsibility and authority. LO 1–6 Analyze the social changes affecting businesses. how have social changes affected businesses? Diversity has come to mean much more than recruiting and keeping minority and female employees. Diversity efforts now include older adults, people with disabilities, people with different sexual orientations, atheists, extroverts, introverts, married people, and singles. Managing diversity means dealing sensitively with workers and cultures around the world. Providing Social Security benefits to senior citizens in the future will draw huge amounts of money from the working population. That is why there is so much discussion about Social Security in the media today. ChAPTER 1 Taking Risks and Making Profits within the Dynamic Business Environment 21 LO 1–7 Identify what businesses must do to meet global challenges, including war and terrorism. which countries are creating the greatest challenges? China and India are two major competitors. what will be the impacts of future wars and terrorism? Some businesses, such as those in the defense industry, may prosper. Others, such as tourism, may suffer. One way to minimize world tensions is to help less developed countries become more prosperous. LO 1–8 Review how past trends are being repeated in the present andwhat those trends mean for tomorrow’s college graduates. what is the history of our economic development in the united States, and what does it tell us about the future? Agricultural workers displaced by improved farm technology went to work in factories. Improved manufacturing productivity and increased competition from foreign firms contributed to the development of a service economy in the United States. The service era is now giving way to an information-based global revolution that will affect all sectors of the economy. The secret to long-term success in such an economy is flexibility and continuing education to be prepared for the opportunities that are sure to arise. what job opportunities for college graduates exist in the service sector? Check over Figure 1.4, which outlines the service sector. That is where you are most likely to find the fast-growing firms of the future. At the end of each chapter, we offer a brief list of potential careers that deal with the concepts present in the chapter. Since this first chapter is an overview of all the different fields of business, we thought we’d concentrate on iden-tifying a few careers in the sector with the most jobs: ser-vices. Find out about the tasks performed, skills needed, pay, and opportunity outlook in these careers in the Occu-pational Outlook Handbook (OOH) at www.bls.gov. Lodging manager—ensures that guests on vaca-tion or business travel have a pleasant experience at a hotel, motel, or other type of establishment with accommodations and that the business is run effi-ciently and profitably. meeting and event planner—coordinate all aspects of events and professional meetings, including arrang-ing meeting locations, transportation, and other details. Interior designer—select and specify colors, furni-ture, and other materials to create useful and stylish interiors for buildings. Network and computer systems administra-tor—responsible for the day-to-day operation of com-puter networks. Imagine you are thinking of starting a restaurant in your community. Answer the following questions: 1. Who will be the various stakeholders of your business? 2. What are some of the things you can do to benefit your community other than provid-ing jobs and tax revenue? 3. How will you establish good relationships with your suppliers? With your employees? 22 PART 1 Business Trends: Cultivating a Business in Diverse, Global Environments 4. Do you see any conflict between your desire to be as profitable as possible and your desire to pay employees a living wage? 5. Which of the environmental factors outlined in this chapter might have the biggest impact on your business? How? cycles or sun spots, are the primary cause. Discuss what students can do to mini-mize human effects on the environment regardless of the primary causes of cli-mate change. Are there any negative consequences to trying to minimize humans’ impact on the environment? 2. Imagine you are a local businessperson who has to deal with the issue of outsourc-ing. You want to begin with the facts. How many, if any, jobs have been lost to outsourcing in your area? Are there any foreign firms in your area that are creating jobs (insourcing)? You will need to go online to find the data you need. 3. What indicates that you and other people in the United States have a high standard of living? What are some signs that maintaining such a high standard of living may have a negative impact on quality of life? Does everyone in the United States enjoy a high standard of living? If not, how does this impact their quality of life? 4. Use Yelp to find five businesses that provide services in your area. List those busi-nesses and, for each, describe how social trends might affect them in both positive and negative ways. Be prepared to explain your descriptions to your team or the whole class, as your instructor directs. 5. Form into teams of four or five and discuss the technological and e-commerce revolutions. How many students shop for goods and services online? What have been their experiences? What other technology do they use (smartphones, tablets, laptops, etc.)? Discuss what life, school, and work would be like without these devices. PuRPOSE To learn what changes are occurring in the business environment today and how those changes are affecting businesses. EXERCISE 1. Go to the National Taxpayers Union website (www.ntu.org). Search for “Who Pays Income Taxes?” Study the tables showing what percentage of taxes the various income groups pay. Do you think that everyone pays their fair share? What percentage of taxes does the top 1 percent of earners pay? What about the top 5 percent? The lowest 50 percent? How do such tax rates affect incentives to become a successful entrepreneur? 2. Go to the Census Bureau’s website (www.census.gov) and learn what the population of the United States is at this moment. While at the site, you may want to look up the population in your town or city. Explore what other data are available at this site. What trends seem most important to you and to businesspeople in general? ChAPTER 1 Taking Risks and Making Profits within the Dynamic Business Environment 23 3. Do a Google search for “business blogs” and check out some of the available results. Go to one of the blogs that seems interesting to you and write a brief paragraph about it—including such things as who sponsors it, who contributes the posts, and what other features it has—and how it may help a student in an introductory business course. Grubhub and the Dynamic Business Environment Every night, people all across America ask the same thing: “What’s for dinner?” Entrepreneurs Matt Maloney and Mike Evans realized how common this question can be and decided to do something about it. The pair developed and founded Grubhub, an online and mobile takeout food ordering com-pany. Today, hungry customers can use the company’s digital platform to order meals directly from more than 50,000 take-out restaurants in 1,100 cities throughout the United States. Like other successful entrepreneurs, Matt and Mike were able to start Grubhub and expand it rapidly thanks to the business environment in the United States. To be suc-cessful, businesses must navigate factors that impact the five key business environments: the economic and legal environment, technological environment, competitive environment, social environment, and global environment. Even though businesses cannot control these environments, they must be quick to adapt to changes that affect them. For instance, the social environment in the United States has undergone many changes since Grubhub’s launch in 2004. At first the company focused on serving students and young professionals. But in response to demographic changes and other trends, Grubhub soon expanded its target market beyond students toward families, working moms, and people in smaller cities and suburbs. Grubhub’s restaurant network has grown to provide a vast array of food options beyond traditional takeout foods like pizza and burgers. Customers today can order low-fat or vegan food as easy as ordering a pepperoni pizza. Businesses can cater a lunch or order donuts for a morning meeting with just a few clicks. The economic and legal environment in the United States is very favorable for businesses. The government supports private ownership of businesses by providing a stable currency and a legal system that enforces contracts, keeps regulations to a minimum, and avoids bureaucratic roadblocks that hinder businesses. However, companies like Grubhub must follow any laws and regulations that apply to their industry. The expanding technological environment has been a key reason for the success of Grubhub. The vibrant mobile platform developed by Grubhub allows customers to place orders or schedule future deliveries with ease. When the company first entered the market, competi-tion was very slim. That’s not the case today, with com-petitors such as Postmates and DoorDash providing daily challenges to Grubhub. The competitive environment in the United States has also opened the door to giant firms such as Amazon and Uber to enter the food delivery busi-ness. Even though Grubhub holds the advantage of being in business the longest, the company must still work hard every day to keep its 50,000 restaurant customers. The company’s policy of “no menu markup” helps keep it unique among competitors. In business today, every company needs to consider the global environment. Advances in communication and the Internet make it possible for companies like Grubhub to build a business overseas. In the years since its founding, Grubhub has had a tre-mendous impact on the restaurant industry and has been very profitable. For example, the company was responsi-ble for $3 billion in restaurant food sales in 2016. Further research showed that revenue growth in restaurants that used the firm’s platform was six times greater than restau-rants that didn’t use it. Going forward, the company will remain committed to connecting diners and restaurants. By responding to the challenges of the business environ-ment and improving the experience for diners, drivers, and restaurants, Grubhub plans to be part of the U.S. business landscape for the long term. ThINkING IT OVER 1. What are the risks and benefits of becoming an entre-preneur as opposed to working for others? 2. What is the major challenge presented by Amazon and Uber to Grubhub’s business? 3. Does the restaurant industry seem like a stable option for aspiring entrepreneurs to pursue? 24 PART 1 Business Trends: Cultivating a Business in Diverse, Global Environments 1. www.forbes.com, accessed September 2017. 2. Michael Douglass, “Here’s How Many American Millionaires There Are,” The Motley Fool, January 23, 2017. 3. U.S. Bureau of Labor Statistics, www.bls.gov, accessed September 2017. 4. 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