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unprecedented production efficiency, but also a lossof individual ownership and personal pride in theproduction process. The Entrepreneurship Era: Building on the foundation of the industrial revolution, large-scaleentrepreneurs emerged in the second half of the1800s, building business empires. These industrialtitans created enormous wealth, raising the overallstandard of living across the country. But manyalso dominated their markets, forcing out competitors, manipulating prices, exploiting workers, anddecimating the environment. Toward the end of the1800s, the government stepped into the businessrealm, passing laws to regulate business and protect consumers and workers, creating more balancein the economy. The Production Era: In the early part of the 1900s,major businesses focused on further refining theproduction process and creating greater efficiencies.Jobs became even more specialized, increasingproductivity and lowering costs and prices. In 1913,Henry Ford introduced the assembly line, whichquickly became standard across major manufacturingindustries. With managers focused on efficiency, thecustomer was an afterthought. But when customerstightened their belts during the Great Depressionand World War II, businesses took notice. The “hardsell” emerged: aggressive persuasion designed toseparate consumers from their cash. standard of livingThe Marketing Era: AfterThe quality and quanWWII, the balance of powertity of goods andservices available toshifted away from producersa population.and toward consumers, floodquality of life Theing the market with enticoverall sense of welling choices. To differentiatebeing experienced byeither an individual orthemselves from their coma group.petitors, businesses began todevelop brands, or distinctiveidentities, to help consumersunderstand the differences among various products.The marketing concept emerged: a consumer focusthat permeates successful companies in everydepartment, at every level. This approach continues to influence business decisions today as globalcompetition heats up to unprecedented levels. The Relationship Era: Building on the marketingconcept, today, leading-edge firms look beyondeach immediate transaction with a customer andaim to build long-term relationships. Satisfiedcustomers can become advocates for a business,spreading the word with more speed and credibility than even the best promotional campaign.And cultivating current customers is more profitable than constantly seeking new ones. A key toolis technology. Using the Web and other digitalresources, businesses gather detailed informationabout their customers and use this data to servethem better.egagneCfetoayctirleppuorP Not DDoPartners with a purpose SUZANNAH SKELTON/ISTOCKPHOTO.COMA growing number of firms have developed nonprofitpartnerships with a profit-minded approach: using thesame investment dollars to improve society and to supporttheir own strategic mission. The key is finding the right fit.Here are three examples of business-nonprofit partnerships thatrepresent a double win:4 Kraft Foods: The Kraft vision, spelled out on their website, is “Helpingpeople around the world eat and live better.” In support of that mission,Kraft has partnered with America’s Second Harvest, a nonprofit organization that aims to create a hunger-free America.In 2005, Kraft donated 400,000 to America’s Second Harvest, mitigating the impact of a devastating social issue whileraising their public profile—all in complete alignment with their fundamental vision. Polo Ralph Lauren: Ralph Lauren is known for its all-American image and its American flag logo, so investing in the flagitself made sense on a number of levels. The company recently donated 10 million to restore and promote the flag thatinspired Frances Scott Key to write the national anthem. Promotion of the project supports the Ralph Lauren brand as itpreserves an American treasure for the benefit of everyone. Los Angeles Times: No paper will survive without readers, yet California literacy rates are shockingly low. In a smart strategic move, the Los Angeles Times stepped in to meet the need with a focus on their future. They launched the Readingby 9 program, designed to ensure that all southern California students are reading at grade level by the age of nine. Bynurturing stronger readers, the Los Angeles Times is working to improve literacy, while building their own potential customer base.Chapter 1BUSN3 C01 002-015.indd 5Business Now: Change Is the Only Constant512/15/09 10:34 AM

LO3 Nonprofitsand the Economy:The Business ofDoing GoodNonprofit organizations play acritical role in the economy, oftenfactors of producworking hand-in-hand with busition Four fundamennesses to improve the qualitytal elements—naturalresources, capital,of life in our society. Focusinghuman resources,on areas such as health, humanand entrepreneurship—that businessservices, education, art, relies need to achievegion, and culture, nonprofits aretheir objectives.business-like establishments, buttheir primary goals do not includeprofits. Chuck Bean, Executive Director of the NonprofitRoundtable explains: “By definition, nonprofits are notin the business of financial gain. We’re in the businessof doing good. However, nonprofits are still businessesin every other sense—they employ people, they take inrevenue, they produce goods and services and contribute in significant ways to our region’s economic stabilityand growth.” Nationwide, nonprofits employ about onein 15 workers, accounting for more paid workers thanthe entire construction industry and about four times asmany as real estate. And nonprofit museums, schools,theaters, and orchestras have become economicmagnets for many communities, drawing additionalinvestment.5AP IMAGES/THE DAILY RECORD, SONJA KINZERnonprofits Businesslike establishmentsthat employ peopleand produce goodsand services with thefundamental goal ofcontributing to thecommunity ratherthan generatingfinancial gain.In a recent survey more than 724,000Americans reported that eBay entrepreneurship provides their primaryor secondary source of income.across a surprising range of industries, from financial services to professional sports. You may be surprised to learn that in this context, capital does notinclude money, but clearly, businesses use moneyto acquire, maintain, and upgrade their capital.egagneCfetoayctirleppuorP Not DDo Human Resources: This factor encompasses thephysical, intellectual, and creative contributionsof everyone who works within an economy. Astechnology replaces a growing number of manuallabor jobs, education and motivation have becomeincreasingly important to human resource development. Given the importance of knowledge toworkforce effectiveness, some business experts,such as management guru Peter Drucker, breakout knowledge as its own category, separate fromhuman resources. Entrepreneurship: Entrepreneurs are people whotake the risk of launching and operating their ownbusinesses, largely in response to the profit incentive. They tend to see opportunities where othersdon’t, and they use their own resources to capitalize on that potential. Entrepreneurial enterprisescan kick-start an economy, creating a tidal waveof opportunity by harnessing the other factors ofproduction. But entrepreneurs don’t thrive in anenvironment that doesn’t support them. The keyingredient is economic freedom: freedom of choice(who to hire, for instance, or what to produce), freedom from excess regulation, and freedom from toomuch taxation. Protection from corruption and unfaircompetition is another entrepreneurial “must.”LO4 Factors of Production:The Basic Building BlocksBoth businesses and nonprofits rely on factors ofproduction—four fundamental resources—to achievetheir objectives. Some combination of these factorsis crucial for an economic system to work and createwealth. As you read through the factors, keep in mindthat they don’t come free of charge. Human resources,for instance, require wages, while entrepreneurs need aprofit incentive. Natural resources: This factor includes all inputsthat 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. (Notethat agricultural products, which people do createthrough planting and tending, are not a naturalresource.) The value of all natural resources tendsto rise with high demand, low supply, or both. Capital: This factor includes machines, tools, buildings, information, and technology—the syntheticresources that a business needs to produce goodsor services. Computers and telecommunicationscapability have become pivotal elements of capital6BUSN3 C01 002-015.indd 6Clearly, all of these factors must be in place for aneconomy to thrive. But which factor is most important?One way to answer that question is to examine current economies around the world. Russia and China areboth rich in natural resources and human resources.Chapter 1Business Now: Change Is the Only Constant12/15/09 10:34 AM

And both countries have a solid level of capital (growingin China, and deteriorating in Russia). Yet neither country is wealthy; both rank relatively low in terms of grossnational income per person. The missing ingredientseems to be entrepreneurship, limited in Russia largelythrough corruption and in China through governmentinterference and taxes. Contrast those examples to,say, Hong Kong. The population is small and the naturalresources are severely limited, yet Hong Kong has consistently ranked among the richest regions in Asia. Thereason: operating for many years under the British legaland economic system, the government actively encouraged entrepreneurship, which fueled the creation ofwealth. Recognizing the potential of entrepreneurship,China has recently done more to relax regulations andsupport free enterprise. The result has been tremendous growth, which may yet bring China into the ranksof the wealthier nations.6LO5 The Business Environment:The Context for SuccessThe EconomicEnvironmentbusiness environment The settingin which businessoperates. The fivekey components are:economic environment, competitiveenvironment, technological environment,social environment,and global environment.In September 2008 the U.S.economy plunged into the worstfiscal crisis since the great depression. Huge, venerable financialinstitutions faced collapse, spurring unprecedented bailouts bythe Federal government and theFederal Reserve. By the end ofthe year, the stock market had lost more than a third ofits value, and 11.1 million Americans were out of work.Housing prices fell precipitously, and foreclosure ratesreached record levels. As fear swept through the banking industry, neither businesses nor individuals couldborrow money to meet their needs. Economic turmoilin the United States spread quickly around the world,fueling a global economic crisis. Most economists agreethat times are likely to get even tougher over the nextyear or two.But a longer-term perspective suggests that the U.S.economy will indeed recover. The Federal Reserve—theAmerican central banking system—has taken unprecedented, proactive steps to encourage an economic turnaround. And President Barack Obama has outlined plansfor a massive economic stimulus package, designed notonly to create jobs, but also to build infrastructure—withegagneCfetoayctirleppuorP Not DDoNo business operates in a vacuum. Outside factors playa vital role in determining whether each individual business succeeds or fails. Likewise, the broader businessenvironment can make the critical difference in whetheran overall economy thrives or disintegrates. The fivekey dimensions of the business environment are theeconomic environment, the competitive environment,the technological environment, the social environment,and the global environment, as shown in Exhibit 1.2.EXHIBIT 1.2 The Business EnvironmentEach dimension of the business environmentaffects both individual businesses and theeconomy in general.En Sovi ciro alnmentic tom enon nmEc irovEneitiv tpetnCom ronmeiEnvTechnologicalEnvironmentGEnv lobalironmentChapter 1BUSN3 C01 002-015.indd 7Business Now: Change Is the Only Constant DON BAYLEY/ iSTOCKPHOTO.COMBUSINESS712/15/09 10:34 AM

The state of the economy calls for action, bold andswift, and we will act—not only to create newjobs, but to lay a new foundation for growth.Barack Obama, 44th U.S. Presidenta focus on renewable energy—to position the U.S. economy for stability and growth in the decades to come.(The price, of course, will be more national debt, whichcould counterbalance some of the benefits.)The government also takes active steps on anongoing basis to reduce the risks of starting and runninga business. The result: free enterprise and fair competition flourish. Despite the economic crisis, researchsuggests that most budding entrepreneurs still plan tolaunch their firms in the next three years. One of thegovernment policies that support business is the relatively low Federal tax rate, both for individuals and businesses. And President Obama has proposed loweringthe tax rate even further for a large swath of individualtaxpayers and businesses. A number of states—fromAlabama to Nevada—make their local economies evenmore appealing by providing special tax deals to attractnew firms. The Federal government also runs entireagencies that support business, such as the SmallBusiness Administration. Other branches of the government, such as the Federal Trade Commission, activelypromote fair competitive practices, which help giveevery enterprise a chance to succeed.Another key element of the U.S. economic environment is legislation that supports enforceable contracts.egagneCfetoayctirleppuorP Not DDoAs the second decade of the 21st century begins, our nation stands at acrossroads. The day he took office, President Obama declared, “Today I say toyou that the challenges we face are real, they are serious and they are many. Theywill not be met easily or in a short span of time. But know this America: They willbe met.”We will meet these challenges with hard work and sacrifice. But we also willcount on the basic creativity that underpins the American economy. How canyou prepare to contribute? The first step is to debunk some common misconceptions about creativity: Myth: Lone geniuses drive creativity. Virtually anyone is capable of doing atleast some creative work. And the process doesn’t happen in a vacuum—collaboration is crucial. (So yes, hanging out with your buddies at the coffeeshop can be highly productive!) Myth: The best ideas come in bursts of brilliant insight. If you wait for the magic, opportunity may pass you by. But if youkeep plugging away at a problem, the answer may arrive in an “aha!” moment, when you least expect it. Myth: Nothing matters more than the idea itself. Ideas clearly do matter. But insight and execution are inextricably bound.Execution can spark insight that sparks execution that can ultimately build a breakthrough product. Myth: Time pressure fuels creativity. According to a recent study, people are least creative under severe time pressure. Notonly that, their creativity drops for the two days following the crunch—a “time pressure hangover” of sorts. Myth: Slacking never pays. For some of you, this may be the best news of all: doing nothing—some of the time—gets better results than always doing something. In fact, researchers recently confirmed that boredom may have the “power to exertpressure on individuals to stretch their inventive capacity.”78BUSN3 C01 002-015.indd 8Chapter 1AP IMAGES/RON EDMONDSFlex Your CreativityFor instance, if you contract a company to supply yoursilk screening business with 1,000 blank tee shirtsat 4.00 a piece, that firm must comply or face legalconsequences. The firm can’t wait until a day beforedelivery and jack up the price to 8.00 per piece,because you would almost certainly respond with asuccessful lawsuit. Many U.S. business people takeenforceable contracts for granted, but in a number ofdeveloping countries—which offer some of today’slargest business opportunities—contracts are often notenforceable (at least not in day-to-day practice).Corruption also affects the economic environment. Alow level of corruption and bribery dramatically reducesthe risk of running a business by ensuring that everyoneplays by the same set of rules—rules that are clearlyvisible to every player. Fortunately, U.S. laws keepdomestic corruption mostly—but not completely—atbay. Other ethical lapses such as shady accounting canalso increase the cost of doing business foreveryone involved. But in the wake of ethical meltdownsat major corporations suchas Enron andWorldCom, theBusiness Now: Change Is the Only Constant12/15/09 10:34 AM

Federal government has passed tough-minded new regulations to increase corporate accountability. If the newlegislation effectively curbs illegal and unethical practices,every business will have a fair chance at success.Upcoming chapters on economics and ethics willaddress these economic challenges and their significance in more depth. But bottom line, we have reasonfor cautious (some would say very cautious) optimism.The American economy has a proven track record offlexibility and resilience, which will surely help us navigate this crisis and uncover new opportunity.The Competitive EnvironmentAs global competition intensifies yet further, leadingedge companies have focused on customer satisfactionlike never before. The goal: to develop long-term, mutually beneficial relationships with customers. Getting current customers to buy more of your product is a lot lessexpensive than convincing potential customers to tryyour product for the first time. And if you transform yourcurrent customers into loyal advocates—vocal promoters of your product or service—they’ll get those newcustomers for you more effectively than any advertisingor discount program. Companies such as Coca Cola,Toyota, and Google lead their industries in customersatisfaction, which translates into higher profits evenwhen the competition is tough.8Customer satisfaction comes in large part fromdelivering unsurpassed value. The best measure ofvalue is the size of the gap between product benefitsand price. A product has value when its benefits to thecustomer are equal to or greater than the price that thecustomer pays. Keep in mind that the cheapest product doesn’t necessarily represent the best value. If a99-cent toy from Big Lots breaks in a day, customersmay be willing to pay several dollars more for a similarspeed-to-markettoy from somewhere else. ButThe rate at which aif that 99-cent toy lasts all year,new product movesfrom conception tocustomers will be delighted bycommercialization.the value and will likely encouragetheir friends and family to shopat Big Lots. The key to value isquality, and virtually all successful firms offer top-qualityproducts relative to their direct competitors.Jack Trout, author, consultant, and 40-year veteranof marketing wars, sums up the current competitiveenvironment by pointing out that markets he used tothink were intensely competitive look like a tea partyby today’s standards. He recommends that companiescope by following four basic principles:1.Avoid your competitors’ strength, and exploit theirweakness. Don’t even try to beat them at their owngame—instead, start a new one.2.Always be a little bit paranoid about competition.This means never, ever underestimating your competitors.egagneCfetoayctirleppuorP Not DDoEXHIBIT 1.3 Global Brand Champions and theOnes to Watch, BusinessWeek and Interbrand 9MOST VALUABLEBRANDSBIGGEST GAINERS /PERCENTAGE GAIN1. Coca-Cola1. Google 43%2. IBM2. Apple 24%3. Microsoft3. Amazon 19%4. GE4. Zara 15%5. Nokia5. Nintendo 13%6. Toyota7. Intel8. McDonald’s9. Disney10. GoogleChapter 1BUSN3 C01 002-015.indd 9Business Now: Change Is the Only Constant3.4.Remember that competitors will usually get betterif pushed. So don’t assume that they won’t fix theirproblems.Don’t forget that competitors are sometimes irrational when threatened. They may sacrifice their ownprofits to drive you out of business.10A recent ranking study by BusinessWeek magazineand Interbrand consulting firm highlights brands that useimagination and innovation to deliver value to their customer. Exhibit 1.3 shows the winners and the up-andcomers in the race to capture the hearts, minds, anddollars of consumers around the world.Leading Edge versus Bleeding Edge Speed-tomarket—the rate at which a firm transforms conceptsinto actual products—can be another key source ofcompetitive advantage. And the pace of change justkeeps getting faster. In this tumultuous setting, companies that stay ahead of the pack often enjoy a distinctadvantage. But keep in mind that there’s a differencebetween leading edge and bleeding edge. Bleedingedge firms launch products that fail because they’retoo far ahead of the market. During the late 1990s, forexample, in the heart of the dot.com boom, WebVan, agrocery delivery service, launched to huge fanfare. Butthe firm went bankrupt just a few years later in 2001,partly because customers weren’t yet ready to dumptraditional grocery stores in favor of cybe

Charles Koch 19,000,000,000 manufacturing, energy David Koch 19,000,000,000 manufacturing, energy. EXHIBIT 1.1 . The Richest Americans, Forbes. Magazine . 2. value . The relation-ship between the price of a good or a service and the ben-efits that it offers its customers. business . Any ac