Chapter 1 Summary 5e
         Chapter 1 Business Now: Change is the Only Constant
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         In today’s fast-paced business environment, change is the only constant. And the most successful 
         firms have figured out how to embrace change. Their core goal is to generate long-term profits by 
         delivering unsurpassed value to their customers. 
            One change to embrace: social media. The explosive growth in Facebook and Twitter is 
         playing a pivotal part in forging a new role for both businesses and consumers.
            A business is any organization that provides goods and services in an effort to earn a 
         profit. Of course profit is the financial reward that comes from starting and running a business. 
         Sales or revenue minus expenses equals profit. If a business doesn’t bring in enough to cover 
         expenses, it incurs a loss.
            Despite the economic meltdown of 2008, American business start-ups in 2009 reached 
         their highest level in 14 years. People who risk their time, money, and other resources to start and 
         manage a business are called entrepreneurs. As entrepreneurs create wealth for themselves, they 
         produce a ripple effect that enriches everyone around them—including their staff, favorite stores, 
         and even governments that collect taxes from them. In the last 30 years, all net job creation in this 
         country occurred in firms less than five years old.
            Looking at the bigger picture, business drives up the standard of living for people 
         worldwide, contributing to a higher quality of life. Businesses provide the products and services 
         that people enjoy—as well as the jobs that people need. And don’t forget the impact of their tax 
         dollars and socially responsible efforts. 
            But businesses haven’t always been so focused on the consumer and his or her wants. U.S.
         business has changed dramatically over the past few centuries. The history of American business 
         can be divided into five distinct eras: the Industrial Revolution, the Entrepreneurship Era, the 
         Production Era, the Marketing Era, and the Relationship Era. 
            During the Industrial Revolution—from the mid-1700s to the mid-1800s—mass 
         production took hold. Huge factories replaced skilled artisan workshops with semiskilled workers 
         specializing in a limited number of tasks. The result was unprecedented production efficiency—
         but a loss of individual ownership and personal pride in the production process. 
            Large-scale entrepreneurs emerged in the second half of the 1800s—the Entrepreneurship
         Era. They built business empires, created enormous wealth, and raised the standard of living for 
         the entire country. Yet success came with a price. Many forced out competitors, manipulated 
         prices, exploited workers, and decimated the environment. By the end of the 1800s, the 
         government stepped in to create laws to regulate business, protect consumers and workers, and 
         bring more balance to the economy. 
            The early part of the 1900s sparked the Production Era, when major businesses focused 
         on achieving even greater efficiencies in the production process. Jobs became more specialized—
         increasing productivity while lowering costs and prices. When Henry Ford introduced his 
         assembly line in 1913, it quickly became the standard across industry. Managers focused on 
         efficiency, leaving consumers as an afterthought. But the belt tightening of the Great Depression 
         and World War II brought a new attitude from businesses, which took to hardselling to separate 
         consumers from their cash. 
            After World War II, the balance of power shifted away from producers and toward 
         consumers. It was the Marketing Era when businesses began establishing brands to differentiate 
         themselves from competitors. The “marketing concept” emerged: a consumer focus began to 
         permeate successful companies in every department, at every level. This approach continues to 
         influence business decisions even now as global competition heats up to unprecedented levels. 
            In today’s Relationship Era, businesses building on the marketing concept strive to foster 
         long-term relationships with customers. Satisfied customers can be more effective than the best 
         promotional campaign, and cultivating current customers is more profitable than constantly 
         seeking new ones. Technology is key. The Web and other digital resources help businesses gather 
         detailed information about their customers—data that can be used to serve them better. 
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         Working with businesses to improve society’s quality of life, nonprofits play a critical role in our 
         economy. Nonprofits are “business-like” establishments focusing on such areas as human services,
         education, and art. Though their primary goal is to “do good,” nonprofits are like businesses in 
         every other way. They employ people, produce goods and services, take in revenue, and contribute
         to the nation’s economic stability. Nationwide, nonprofits employ about 1 in 10 workers, and 
         nonprofit museums, schools, and theaters are economic magnets that attract additional 
         investments in many communities.
            Whether nonprofit or for-profit, organizations rely on four fundamental factors of 
         production to achieve their goals. Some combination of these factors—natural resources, capital, 
         human resources, and entrepreneurship—is crucial for an economic system to work and create 
         wealth. And none comes for free.
            Natural Resources include all inputs that offer value in their natural state, such as land, 
         fresh water, wind, and mineral deposits. Most natural resources must be extracted, purified, or 
         harnessed; people cannot actually create them.
            In this context, capital does not include money. Capital refers to the machines, tools, 
         buildings, information, and technology—the synthetic resources that a business needs to produce 
         goods or services. 
            Human Resources includes the physical, intellectual, and creative contributions of 
         everyone who works within an economy. As technology replaces a growing number of manual 
         labor jobs, education and motivation have become increasingly important to human resource 
         development.
            Entrepreneurs take the risk of launching and operating their own businesses, often seeing 
         opportunities where others don’t. Entrepreneurial enterprises can kick-start an economy, yet they 
         can’t thrive in an environment that doesn’t support them. The key is economic freedom: freedom 
         to choose who to hire and what to produce and freedom from excess regulation and too much 
         taxation. Protection from corruption and unfair competition is also critical.
            All four fundamental factors of production must be in place for an economy to thrive. 
         Which is most important? Well, Russia and China are both rich in national resources and human 
         resources, and both have a solid level of capital. Yet both rank relatively low in terms of gross 
         national income per person. The missing ingredient seems to be entrepreneurship, limited in 
         Russia largely through corruption and in China through government interference and taxes. In 
         contrast, Hong Kong has a small population, severely limited natural resources—yet it consistently
         ranks among the richest regions in Asia. Perhaps it’s not coincidence that Hong Kong operated for
         many years under the British legal and economic system—which actively encouraged 
         entrepreneurship. Recognizing the potential of entrepreneurship, China has recently done more to 
         relax regulations and support free enterprise—resulting in tremendous growth.
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         The business environment can make the critical difference in whether an economy thrives or 
         plummets. Five key dimensions of the business environment are the economic environment, the 
         competitive environment, the technological environment, the social environment, and the global 
         environment. 
            In September 2008, the U.S. economy plunged into the worst fiscal crisis since the Great 
         Depression—an economic crisis that quickly spread around the world. Through 2009 the U.S. 
         economy began to recover, although unemployment remained high. The Federal Reserve took 
         proactive steps to encourage economic turnaround, and President Obama spearheaded passage of 
         a massive economic stimulus package designed to create jobs and build infrastructure. 
            The government also has ongoing efforts to reduce the risks of starting and running a 
         business. A relatively low federal tax rate for individuals and organizations supports business, as 
         do government agencies like the Small Business Administration and the Federal Trade 
         Commission. Many states offer special tax incentives to attract new firms. Legislation also 
         supports enforceable contracts and curbs corruption and unethical practices—another key to 
         strong economic environments. 
            As global competition heats up, customer satisfaction is paramount. After all, getting 
         current customers to buy more of your product is a lot less expensive than convincing potential 
         customers to try your product for the first time. Customer satisfaction translates into higher profits
         —even when the competition is tough, and comes from delivering unsurpassed value. A product 
         has value when its benefits to the customer are equal to or greater than the price that the customer 
         pays. And the key to value is quality. Speed to market can be another source of competitive 
         advantage, as can happy employees.
            Business technology includes any tools that businesses can use to become more efficient 
         and effective. Technology is transforming business. New industries have emerged, and others have 
         disappeared. For fast-moving firms, the technological environment represents a rich source of 
         competitive advantage, but it can clearly be a major threat for companies that are slow to adapt or 
         to integrate new approaches. The creation of the World Wide Web is an example of a development
         that has transformed business as well as people’s lives. People have anwhere/anytime access to 
         send and receive data. Even after the global economic crisis e-commerce is posting solid growth. 
         Businesses are connecting their digital networks with suppliers and distributors for a more 
         seamless flow of goods and services. And alternative selling strategies thrive on the Internet. As 
         technology continues to evolve, companies that welcome change and manage it well will be most 
         successful.
            The social environment embodies the values, attitudes, customs, and beliefs shared by 
         groups of people. It also covers demographics such as population size and density, and specific 
         traits like age, gender, race, education, and income. Social environments change drastically from 
         county to country. The U.S. itself has a number of different social environments. While the 
         American population has always included an array of different cultures, the U.S. has become more
         ethnically diverse in recent years. Growing ethnic populations offer robust profit potential for 
         firms that pursue them. The rapidly aging population also brings opportunities and threats for 
         business.
            Following the high-profile ethical meltdowns that dominated headlines the past few years, 
         workers, consumers, and goverments now hold businesses and their leaders to a higher standard. 
         Consumers and workers also expect more efforts to improve communities. Sustainability—doing 
         business today without harming the ability of future generations to meet their needs—has become
         a core issue in the marketplace.
            The U.S. economy operates within the context of the global environment. Over the last 
         two decades, technology and free trade have blurred the lines between individual economies 
         around the world. Thanks to the General Agreement on Tariffs and Trade or GATT—signed by 
         125 countries—goods move more freely than ever across international borders. But even in a 
         global economy, there are multiple threats. In the past decade alone, war, terrorism, disease, and 
         natural disasters have taken a horrific toll in human lives as well as industries like tourism.
            Whatever your career choice, business will impact your life. Both the broader economy 
         and your own business skills will influence the level of your personal financial success. But 
         experts advise you to “do what you love.” Today’s environment values abilities like creativity, 
         communication, and caring over routine, programmable skills that computers can emulate. 
            Following your passion doesn’t guarantee a fat paycheck, but it does boost your chances 
         of both financial and personal success.