Unformatted text preview: AEM220, Introduction to Business Management AEM220,
Monday 1/26 Business and the Business Environment What is business? Profits, risk and business Corporate social responsibility What is business? What
Activity seeking profit Activity profit By providing goods/services (transaction side) to By consumers, other businesses, gov’t, and in that process create value for everyone that’s involved process That satisfy standard of living- quality of life Objectives of Business Objectives
Growth in sales; Google started as a search engine, now it is seen as a marketing arena, offers a variety of services, and so forth and has emerged into a huge successful business. Growth is a natural consequence of success. Can owners of business chose to stay small? Yes, but has to be a decision and well thought out. Survival is the most important objective; proper management of cash flow, proper accumulation of sales, proper relationships w/ employees and suppliers all gear towards survival. Survival Survival Growth Growth Profit Social Social Responsibility Responsibility A business survives grows and retains a profit by providing value to its consumers and to society as a whole. Drug dealing doesn’t provide long term wealth, tobacco doesn’t provide long term wealth. All of these come together for sustainable profit, and a well born business much keep all of these in mind. Why Profit? (rewards of risk-taking in open market) open
As long as people are free to engage with each other in As voluntary economic transaction, the self-interest of people (and companies) results in public benefit; (and Greed and self interest are two different things!
In a greedy environment we don’t care about long term In sustainability of customers. You don’t care about your customers or your long term survival of your business. However, self interest will promote sustainability because it will benefit themselves too. Monopolies also hurt economic freedom; Monopolies
They make tremendous more profit; including oligopolies; prices of text messages is considered greed prices Distorted prices may result in net impoverishment.
Market power and price distortions pry on individuals Businesses use factors of production and turns them into goods and services for customers and in Businesses process grow in a social responsible way and create profit; Object of business is to twort proper functioning of economics. However, an intelligent businessman will find ways in which to keep equilibrium from happening by changing factors that change demand and supply curves equilibrium The Five Factors of Production The In a risk-free economy, if such existed, supply and demand would meet and never move again. Business people want to change that supply demand relationship and obtain a profit in the process, but do so by taking a risk. So they can lose money. They do that by taking a look at available knowledge. Profit and Risk Profit
Revenue – Expense = Profit (Loss); The higher the risk, the higher the probability of The losing a large amount of money; amount Investment of factors/resources/capital will Investment occur only if there is a equally large or larger only probability of winning a large amount of money. winning Risk vs. Uncertainty Risk
Risk Known likelihood of losing a large amount of money; money; Known unknown Uncertainty Unknown likelihood of losing a large amount Unknown of money; of Unknown unknown Which one is the riskiest situation and which is the most uncertain? which
A.) High downside and low upside (riskiest) B.) High downside and high upside (uncertainty) C.) Low downside and high upside D.) Low downside and low upside Can a company grow w/o making a profit? Yes, think Starbucks, happens a lot of time. Profit Yes, comes from relationship b/w sales and costs comes Forms of Participation in a Business Enterprise Forms
Entrepreneurship An entrepreneur is a person who risks time and money to An entrepreneur start and manage a business (strongest relationship b/w a customer and a business) customer Personal Institutional Risk goes down as you move down on this list. Ownership (even owning stock) Employment (part of belonging/participating in a Employment business) business) Others Customer (Buying a product, take risk in the products Customer store and company) store Supplier Supplier Government (taxes, keeping economy running) Business Stakeholders Business
Stockholders Bankers Suppliers Government Employees Dealers and retailers Activists and environmentalists Community Customers Etc, etc, etc
Who is the most important Stakeholder? a.) Customer b.) Employees c.) Gov’t d.) Shareholders e.) Suppliers f.) All are equally important It depends on the business, but it is hard for a business to argue that all of these five aren’t equally important Key Distinctions between Shareholder and Stakeholder Firms Stakeholder
Attibute Goals Shareholder Firm Stakeholder firm Maximize shareholder wealth Pursue multiple objectives of parties with different interests Managers are agents of shareholders; control is the key task. Shareholder value sufficient to maintain investor commitment. Shareholders Investors / owners Coordination, cooperation, conflict resolution are key tasks. Fair distribution of value created to maintain commitment of multiple stakeholders. All stakeholders All stakeholders Governance structures and key processes Performance metrics Residual risk holders Stakeholder influence Sustainability Sustainability
Meeting the needs of the present generation Meeting without compromising the ability of future generations to meet their own needs.
Brundtland Commission, 1987. Brundtland Business management depends on the judicious application of self interest, however greed goes against sustainability greed Corporate social responsibility Corporate
Refers to the comprehensive approach that a Refers corporation takes to meet or exceed stakeholder expectations beyond measures of revenue, profit and legal obligation. community investment, community human rights and employee relations, human environmental practices ethical conduct. ethical Profits Environmental sustainability Social responsibility But, can it all be measured? And is the economy But, really so static? really The Triple Bottom Line The The Stakeholder Corporation and CSR: a critique and
There is one and only one social responsibility of There business-to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition, without deception or fraud. without
Milton Friedman – Nobel laureate Some References Some
The Economist, “Survey on Corporate Social The Responsibility”, January 22, 2005 Responsibility”, Kochan and Rubinstein, “Towards a Stakeholder Kochan Theory of the Firm: The Saturn Partnership”, Organization Science, 11(4):367-386, 2000 Organization Take-aways Take-aways
Businesses are organizations oriented towards Businesses offering products and services with the objectives of surviving, growing, and serving the public while making a profit; public The main difference in resource utilization and The modes of participation in business activities is the level of risk associated with the business; the Business obtains resources and legitimacy from Business society, and it is therefore responsible to it. society, ...
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