BANGLADESH UNIVERSITY
Introduction to Business
Course Teacher: Md. Hasan Talukdar
Fundamentals of Business and Economics (cont’d)
PEOPLE FORM THE CORE OF BUSINESS
Owners
The human element is the core of business. Business needs people as owners, managers,
employees, and consumers. People need business for the production of goods and services and
the creation of jobs. Whether business is transacted in Mexico, Canada, or Nigeria does riot
matter. Businesses may be operated differently and the objectives of businesses may differ, but
the universal element in all business activities is people.
People who own a business, as well as those who invest money in one, do so because they expect
to earn a profit. Most of the giant corporations, such as General Motors. Eastman Kodak, Dow
Chemical, Du Pont. and Exxon. are owned by large numbers of people. General Motors has
over 1.2 million shareholders (owners) and 820,000 employees. When making decisions, the
professional managers in business organizations need to consider the owners and what they
expect from the business.
Managers
The person responsible for operating the business may be the owner (an owner-manager, also called
an entrepreneur) or a professional manager employed by the owner. Both types of managers seek
to achieve profit. growth. survival, and social responsibility.
The owner-manager sets his or tier own objectives, whereas a professional manager attempts
to achieve objectives set by others. The professional manager is accountable to the owners of
the business, who judge the manager's performance by how well their objectives have been
accomplished over a period of time.
Many of these business owners are entrepreneurs, people who take the risks necessary to
organize and manage a business and receive the financial profits and nonmonetary rewards. In
Chapter 3. a more thorough discussion of entrepreneurs will be presented. The entrepreneur of the
1990s is expected to be innovative, practical, and strong willed. This view was actually
established' years ago by noted Austrian economist Joseph Schumpeter. He stated:
The function of entrepreneurs is to reform or revolutionize the pattern of production by
exploiting an invention or, more generally, an untried technological possibility for producing
a new commodity or producing an old one in a new way. opening a new source of supply of
materials or a new outlet for products. by reorganizing a new industry.
Employees
Employees supply the skills and abilities needed to provide a product or service and to earn a
profit. Most employees expect to receive an equitable wage or salary and to be given gradual
increases in the amount they are paid for the use of their skills and abilities. To compete with
other businesses, a business enterprise needs a committed and effective team of employees.
Consumers
A consumer is a person who purchases a good or service for personal or organizational use. A
business enterprise attempts to satisfy consumer needs and desires while earning a profit. To
do so, businesses must determine what those consumer needs and desires are. Because
consumers continually want more and better things, new businesses are formed, and other
businesses make adjustments to accommodate the demand. When a need or desire for
products or services exists, a business can earn a profit by supplying it promptly and
efficiently. The uncertainty and risk involved in assessing consumer needs and wants
provide a challenge to the business decision maker attempting to earn a profit.
Trends in the Business Environment and Competition
Which trends are reshaping the business, microeconomic, and macroeconomic
environments and competitive arena?
Trends in the business and economic environment occur in many areas. As noted earlier,
today’s workforce is more diverse than ever, with increasing numbers of minorities and
older workers. Competition has intensified. Technology has accelerated the pace of work
and the ease with which we communicate. Let’s look at how companies are meeting the
challenges of a changing workforce, the growing demand for energy, and how companies
are meeting competitive challenges.
Changing Workforce Demographics
As the baby boomer generation ages, so does the U.S. workforce. In 2010, more than 25
percent of all employees were retirement age. Fast forward to the U.S. labor force in 2017,
however, and millennials have taken over the top spot in the labor market, with more than
40 percent of the total workforce. Although older workers are now retiring closer to the
traditional retirement age of 65, many plan to keep working beyond 65, often into their
70s. No longer is retirement an all-or-nothing proposition, and older workers in the baby
boomer generation are taking a more positive attitude toward their later years. A surprising
number of Americans expect to work full- or part-time after “retirement,” and most would
probably work longer if phased retirement programs were available at their companies.
Financial reasons motivate most of these older workers, who worry that their longer life
expectancies will mean outliving the money they saved for retirement, especially after
retirement savings took a hit during the global recession of 2007–2009. For others,
however, the satisfaction of working and feeling productive is more important than money
alone.
These converging dynamics continue to create several major challenges for companies
today. And by 2020, additional generational shifts are projected to occur in the U.S. labor
force, which will have an even bigger effect on how companies do business and retain their
employees. Today’s workforce spans five generations: recent college graduates
(Generation Z); people in their 30s and 40s (millennials and Generation X); baby boomers;
and traditionalists (people in their 70s). It is not unusual to find a worker who is 50, 60, or
even 70 working for a manager who is not yet 30. People in their 50s and 60s offer their
vast experience of “what’s worked in the past,” whereas those in their 20s and 30s tend to
be experimental, open to options, and unafraid to take risks. The most effective managers
will be the ones who recognize generational differences and use them to the company’s
advantage.
Many companies have developed programs such as flexible hours and telecommuting to
retain older workers and benefit from their practical knowledge and problem-solving skills.
In addition, companies should
continually track where employees are in their career life cycles, know when they are
approaching retirement age or thinking about retirement, and determine how to replace
them and their knowledge and job experiences.
Another factor in the changing workforce is the importance of recognizing diversity
among workers of all ages and fostering an inclusive organizational culture. According to
a recent report by the U.S. Census Bureau, millennials are the largest generation in U.S.
history, and more than 44 percent classify themselves as something other than “white.” In
addition, women continue to make progress on being promoted to management, although
their path to CEO seems to be filled with obstacles. Recent statistics suggest that fewer
than 5 percent of Fortune 500 companies have female CEOs. The most successful
organizations will be the ones that recognize the importance of diversity and inclusion as
part of their ongoing corporate strategies.
Global Energy Demands
As standards of living improve worldwide, the demand for energy continues to rise.
Emerging economies such as China and India need energy to grow. Their demands are
placing pressure on the world’s supplies and affecting prices, as the laws of supply and
demand would predict. For example, in recent years, China and India were responsible for
more than half of the growth in oil products consumption worldwide. State- supported
energy companies in China, India, Russia, Saudi Arabia, and other countries will place
additional competitive pressure on privately owned oil companies such as BP, Chevron,
ExxonMobil, and Shell.
Countries worldwide worry about relying too heavily on one source of supply for energy.
The United States imports a large percentage of its oil from Canada and Saudi Arabia.
Europeans get 39 percent of their natural gas from Russia’s state-controlled gas utility
OAO Gazprom. This gives foreign governments the power to use energy as a political
tool. For example, continuing tensions between Russia and Ukraine in November 2015
caused Russia to stop sending natural gas to Ukraine, which also causes gas disruptions in
Europe because Russia uses Ukraine’s pipelines to transport some of its gas deliveries to
European countries. In 2017, Russia announced plans to build its own pipeline alongside
Ukraine’s gas line in the Baltic Sea, which would allow Russia to bypass Ukraine’s
pipelines altogether and deliver gas directly to European countries.
Countries and companies worldwide are seeking additional sources of supply to prevent
being held captive to one supplier. For example, the relatively new technology of
extracting oil from shale rock formations in the United States (known as fracking) has help
create an important resource for the country’s oil industry. This innovative approach to
finding new sources of energy now accounts for more than half of the country’s oil output,
which can help reduce U.S. dependence on foreign oil and create new jobs.
Meeting Competitive Challenges
Companies are turning to many different strategies to remain competitive in the global
marketplace. One of the most important is relationship management, which involves
building, maintaining, and enhancing interactions with customers and other parties to
develop long-term satisfaction through mutually beneficial partnerships. Relationship
management includes both supply chain management, which builds strong bonds with
suppliers, and relationship marketing, which focuses on customers. In general, the longer a
customer stays with a company, the more that customer is worth. Long-term customers buy
more, take less of a company’s time, are less sensitive to price, and bring in new customers.
Best of all, they require no acquisition or start-up costs. Good long-standing customers
are worth so much that in some industries, reducing customer defections by as little as
five points—from, say, 15 percent to 10 percent per year—can double profits.
Another important way companies stay competitive is through strategic alliances (also
called strategic partnerships). The trend toward forming these cooperative agreements
between business firms is accelerating rapidly, particularly among high-tech firms. These
companies have realized that strategic partnerships are more than just important—they are
critical. Strategic alliances can take many forms. Some companies enter into strategic
alliances with their suppliers, who take over much of their actual production and
manufacturing. For example, Nike, the largest producer of athletic footwear in the world,
does not manufacture a single shoe.
Other companies with complementary strengths team up. For example, Harry’s Shave
Club, an online men’s grooming subscription service, recently teamed up with retail giant
Target to improve sales and boost its brand presence among Target shoppers. Harry’s
products are now available in Target’s brick-and-mortar stores and on Target’s website as
part of an exclusive deal that makes Target the only mass retailer to carry Harry’s
grooming products. The men’s shaving industry accounts for more than $2.6 billion in
annual sales.
References:
Gitman, L. J., Mcdaniel, C., Shah, A., Reece, M., Koffel, L., Talsma, B., & Hyatt, J. C (2018).
Introduction to Business. 743.
Steven J. Skinner and Johm. M. Ivancevich, Business for the 21st Century, (Latest edition),
IRWIN, IL. USA
