Chapter 1

Taking Risks and Making

Profits within the Dynamic
Business Environment

©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.
 Chapter Contents
Business and Wealth Building
The Importance of Entrepreneurs to the Creation of Wealth
The Business Environment
The Evolution of U.S. Business

©McGraw-Hill Education.
 Learning Objectives 1 of 2
LO 1-1 Describe the relationship between profit and risk,
and show how businesses and nonprofit
organizations can raise the standard of living for all.
LO 1-2 Explain how entrepreneurship and the other factors
of production contribute to the creation of wealth.
LO 1-3 Analyze the effects of the economic environment
and taxes on businesses.
LO 1-4 Describe the effects of technology on businesses.

©McGraw-Hill Education.
 Learning Objectives 2 of 2
LO 1-5 Demonstrate how businesses can meet and beat
competition.
LO 1-6 Analyze the social changes affecting businesses.
LO 1-7 Identify what businesses must do to meet global
challenges, including war and terrorism.
LO 1-8 Review how past trends are being repeated in the
present and what those trends mean for tomorrow’s
college graduates.

©McGraw-Hill Education.
 Ann-Marie Campbell
Home Depot

Emigrated from Jamaica and began a

job at Home Depot to pay for college
Earned a Master of Business
Administration
Worked her way up to executive vice
president in 2016
Works to provide opportunities for
advancement to employees

Sources: Doug Gillett, “Ann-Marie Campbell’s American Dream,” Georgia State University Magazine, accessed September 2017; Ellen McGirt,
“How Home Depot’s Ann-Marie Campbell Rose from Cashier to the C-Suite,” Fortune, September 13, 2016; Henry Unger, “‘If You Have a Seat
at the Table, Speak Up,’” Atlanta Journal Constitution, March 26, 2015; Paul Ziobro, “Home Depot Replaces Head of U.S. Stores Business,”
The Wall Street Journal, January 19, 2016; Boardroom Insiders, “Ann-Marie Campbell,” accessed September 2017.

©McGraw-Hill Education. © Melissa Golden/Redux

 Name that Company
Even though this company had not been hacked itself, in
2017 it reported that some customer accounts were
breached when the customers secured their accounts with
the same passwords they used on other sites that were
hacked.

©McGraw-Hill Education.
 Business and Wealth Building 1 of 9
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 (that can’t be held in your
hand) such as education, health care, insurance, recreation,
and travel.

LO 1-1
©McGraw-Hill Education.
 Business and Wealth Building 2 of 9
Successfully filling a market need means you could make
money for yourself.
Entrepreneur — A person who risks time and money to
start and manage a business.

LO 1-1
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 POLLING QUESTION _____ refers to the total amount of
money a business takes in during a
given period.
A. Profit
B. Loss
C. Revenue
D. Risk

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 Business and Wealth Building 3 of 9
Revenues, Profits, and Losses
• 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.

LO 1-1
©McGraw-Hill Education.
 Business and Wealth Building 4 of 9
Matching Risk with Profit
• Risk — The chance an entrepreneur takes of losing time and
money on a business that may not prove profitable.
• Not all enterprises make the same amount of profit.
• Businesses take risks, but with big risks could come big profits.

LO 1-1
©McGraw-Hill Education.
 Risk and Reward
In 1979, Geral Fauss took 5,000 oversized foam fingers to
the Sugar Bowl in New Orleans not knowing if he would
sell a single one. Fortunately, the Sugar Bowl crowd liked
them. He sold every last finger and launched a company
that is still going strong. What risks and rewards did Fauss
face when starting his business?

LO 1-1
©McGraw-Hill Education. ©Tom Hauck/AP Images
 Business and Wealth Building 5 of 9
Standard of Living and Quality of Life
• Standard of living — The amount of goods and services people
can buy with the money they have.
• The United States has one of the highest standards of living in
the world.
• Workers in other countries may make more money, but prices for
products are higher.

LO 1-1
©McGraw-Hill Education.
 Business and Wealth Building 6 of 9
Standard of Living and Quality of Life continued
• 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.
• High quality of life requires combined efforts of businesses,
nonprofits, and government agencies.

LO 1-1
©McGraw-Hill Education.
 Business and Wealth Building 7 of 9
Responding to the Various Business Stakeholders
• 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.
• A primary challenge is to recognize and respond to the needs of
stakeholders.

LO 1-1
©McGraw-Hill Education.
 Figure 1.1 A Business and Its
Stakeholders

Jump to long description in

appendix
LO 1-1
©McGraw-Hill Education. Source: John Mackey and Raj Sisodia, Conscious Capitalism (Boston, MA: Harvard Business Review Press, 2013).
 Business and Wealth Building 8 of 9
Responding to the Various Business Stakeholders continued
• Outsourcing — Contracting with other companies (often in
other countries) to do some of the functions of a firm, like
production or accounting.
• Many foreign companies are opening offices and factories in the
United States, which is called insourcing.

LO 1-1
©McGraw-Hill Education.
 Business and Wealth Building 9 of 9
Using Business Principles in Nonprofit Organizations
• Nonprofit organization — An organization whose goals do not
include making a personal profit for its owners or organizers.
• Nonprofit organizations use financial gains to meet social or
educational goals.

LO 1-1
©McGraw-Hill Education.
 Management in Nonprofit
Organizations
The goals of nonprofit
organizations are social and
educational, not profit-
oriented. The Red Cross, for
example, provides
assistance to around 30
million people annually, from
refugees to victims of
natural disasters. Why do
good management
principles apply equally to
profit-seeking businesses
and nonprofit organizations?
LO 1-1
©McGraw-Hill Education. © Jorge Guerrero/AFP/Getty Images
 Well-Known Nonprofits in the United States

United Way

American Heart Association

Salvation Army

American Cancer Society

American Red Cross

LO 1-1
©McGraw-Hill Education.
 Keeping Strong Employees at Nonprofits

1. Offer flexible schedules.

2. Set ambitious, but realistic goals.

3. Allow all employees to work with the groups they are

serving.

4. Give employees a break. Nonprofit work is draining.

LO 1-1
©McGraw-Hill Education. Source: Sumac, www.sumac.com, accessed November 2017.
 Test Prep 1
1. What is the difference between revenue and profit?

2. What is the difference between standard of living and

quality of life?

3. What is risk, and how is it related to profit?

4. What do the terms stakeholders, outsourcing, and

insourcing mean?

©McGraw-Hill Education.
 The Importance of Entrepreneurs to
the Creation of Wealth 1 of 2
The Positives to Being an Entrepreneur
• The freedom to succeed
• Make your own decisions
• Possible wealth

The Negatives to Being an Entrepreneur

• The freedom to fail
• No paid vacations
• No health insurance

LO 1-2
©McGraw-Hill Education.
 Importance of Entrepreneurs

To create wealth for its citizens,

a country requires more than
natural resources. It needs the
efforts of entrepreneurs and
the skill and knowledge to
produce goods and services.
How can government support
entrepreneurship and the
spread of knowledge?

LO 1-2
©McGraw-Hill Education. © Rosemarie Gearhart/Getty Images RF
 Women in the Workforce

Jump to long description in

appendix
LO 1-2
©McGraw-Hill Education. Source: U.S. Department of Labor, www.dol.gov, accessed November 2017; and Forbes, www.forbes.com, accessed November 2017.
 The Importance of Entrepreneurs to
the Creation of Wealth 2 of 2
The Five Factors of Production
• Factors of production — The resources used to create wealth.
• The five factors:
1. Land (or natural resources)
2. Labor (workers)
3. Capital
4. Entrepreneurship
5. Knowledge

• What makes rich countries rich today is entrepreneurship and

knowledge.

LO 1-2
©McGraw-Hill Education.
 Figure 1.2 The Five Factors
of Production

LO 1-2
©McGraw-Hill Education. Source: Drucker Institute, druckerinstitute.com, April 2017.
 Test Prep 2
1. What are some of the advantages of working for
others?
2. What benefits do you lose by being an entrepreneur,
and what do you gain?

3. What are the five factors of production? Which ones

seem to be the most important for creating wealth?

©McGraw-Hill Education.
 The Business Environment 1 of 11
Business environment — The surrounding factors that
either help or hinder the development of businesses.
1. Economic and legal environment
2. Technological environment
3. Competitive environment
4. Social environment
5. Global business environment

LO 1-2
©McGraw-Hill Education.
 Figure 1.3 Today’s Dynamic Business
Environment

Jump to long description in

appendix
LO 1-2
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 The Business Environment 2 of 11
The Economic and Legal Environment
• Government can promote entrepreneurship by:
1. Allowing private ownership of businesses
2. Minimizing interference with the free exchange of goods and
services
3. Passing laws that enable businesspeople to write enforceable
contracts
4. Establishing a currency that’s tradable in world markets
5. Minimizing corruption

LO 1-3
©McGraw-Hill Education.
 Differences between Countries
Starting a business is more difficult in some countries than
in others. In India, for example, it takes a time-consuming
and bureaucratic process to obtain government permission.
What do you think would be the effect of a little more
freedom to create business opportunities in this country of
over a billion people?

LO 1-3
©McGraw-Hill Education. © Partha Pal/The Image Bank/Getty Images
 Corruption Worldwide

Least Corrupt Most Corrupt

1. Denmark 1. Somalia
2. New Zealand 2. South Sudan
3. Finland 3. North Korea
4. Sweden 4. Syria
5. Switzerland 5. Yemen

LO 1-3
©McGraw-Hill Education. Source. Transparency International, www.transparency.org, accessed November 2017.
 The Business Environment 3 of 11
The Technological Environment
• Technology — Everything from phones to computers and the
various software programs that make business processes more
effective, efficient, and productive.
• How Technology Benefits Workers and You
• Effectiveness — Producing the desired result.
• Efficiency — Producing goods and services using the least amount
of resources.
• Productivity — The amount of output you generate given the
amount of input (e.g., hours worked).

LO 1-4
©McGraw-Hill Education.
 The Business Environment 4 of 11
The Technological Environment continued
• The Growth of E-Commerce
• E-commerce — The buying and selling of goods over the Internet.
• Business-to-consumer (B2C)
• Business-to-business (B2B)

LO 1-4
©McGraw-Hill Education.
 Cyber Attacks on Businesses

100 percent of businesses that suffered a cyber attack in

2015 experienced viruses; 97 percent were through
malware.

59 percent were victims of phishing.

Only 36 percent were victims of stolen equipment.

Cyber attacks costs are expected to reach 2 trillion dollars

by 2019.

Most of the damage is due to business disruption and

information loss.
LO 1-4
©McGraw-Hill Education. Source: The Wall Street Journal, www.wsj.com, accessed November 2017; and Forbes, www.forbes.com, accessed November 2017.
 The Business Environment 5 of 11
The Technological Environment continued
• Using Technology to Be Responsive to Customers
• 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.

LO 1-4
©McGraw-Hill Education.
 Using Technology for Customers
Walt Disney World introduced MyMagic+, a convenient
way for guests to create their ideal vacation experience.
The key element is the MagicBand, providing an all-in-
one way to effortlessly connect all the vacation choices
guests make online. The MagicBand uses RF technology.

LO 1-4
©McGraw-Hill Education. © Jennifer Blankenship RF
 Protect Yourself from Identity Theft

Follow these steps to help protect yourself:

• Protect your Social Security Number.
• Shred financial documents and items with personal information.
• Don’t give out personal information unless you know whom you
are dealing with, especially online or over the phone.
• Use strong passwords.
• Use passcodes on all devices.
• Never click links in suspicious emails.
• Monitor your credit report.

LO 1-4
©McGraw-Hill Education. Source: Lisa Gersterner, “How to Thwart Identity Thieves,” Entrepreneur, November 2016; and Federal Trade Commission, www.ftc.gov, accessed November 2017.
 The Business Environment 6 of 11
The Competitive Environment
• Customers want good quality products at low prices with great
customer service.
• Because business is more customer-driven, some managers
give frontline employees more decision-making power.
• Empowerment — Giving frontline workers the responsibility,
authority, freedom, training, and equipment they need to respond
quickly to customer requests.

LO 1-5
©McGraw-Hill Education.
 POLLING QUESTION With the definition of empowerment in
mind, do you think you were empowered
in your most recent job?

A. yes
B. no

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 The Business Environment 7 of 11
The Social Environment
• Demography — The statistical study of the human population
with regard to its size, density, and other characteristics such as
age, race, gender, and income.

LO 1-6
©McGraw-Hill Education.
 Demography of the U.S. by Age

LO 1-6
©McGraw-Hill Education. Source: U.S. Census Bureau, www.census.gov, accessed November 2017.
 Current Demography of the U.S. by Race

LO 1-6
©McGraw-Hill Education. Source: U.S. Census Bureau, www.census.gov, accessed November 2017.
 Projected Demography of the U.S. by Race
in 2050

LO 1-6
©McGraw-Hill Education. Source: U.S. Census Bureau, www.census.gov, accessed November 2017.
 The Business Environment 8 of 11
The Social Environment continued
• Managing Diversity
• Diversity has grown from just recruiting minority and female workers.

• The Increase in the Number of Older Citizens

• People aged 65 to 74 are currently the richest demographic group.
• Retired people will be draining the economy of wealth due to Social
Security.

• The Increase in the Number of Single-Parent Families

• Growth of single-parent households has encouraged businesses to
implement programs such as family leave and flextime.

LO 1-6
©McGraw-Hill Education.
 Diversity in Age

The U.S. workforce is

widely diverse in terms
of age, which means that
managers must adapt to
the generational
demographics of the
workplace. What are
some challenges of
working with someone
much younger or much
older than you?

LO 1-6
©McGraw-Hill Education. © Cathy Yeulet/123RF
 Single-Parent Families

More and more working

families consist of single
parents who must juggle
the demands of a job and
the responsibilities of
raising children. What can
managers do to try to
retain valued employees
who face such challenges?

LO 1-6
©McGraw-Hill Education. © Julie Toy/Photographer’s Choice/Getty Images
 Who Will Support Social Security?
Number of Workers per Retiree

LO 1-6
©McGraw-Hill Education. Source: U.S. Census Bureau, www.census.gov, accessed November 2017.
 What Is Diversity?

The U.S. Equal Employment Opportunity Commission

prohibits laws discriminating against:
• Age
• Disability
• Genetic information
• National origin
• Pregnancy
• Race
• Religion
• Sex

LO 1-6
©McGraw-Hill Education. Source: United States Equal Employment Opportunity Commission, www.eeoc.gov, accessed November 2017.
 The Business Environment 9 of 11
The Global Environment
• Globalization has grown due to efficient distribution systems and
communication systems such as the Internet.
• War and Terrorism
• They have drained trillions of dollars from the U.S. economy.
• Money was diverted to the war effort.
• Adds to the cost of insurance and security.

LO 1-7
©McGraw-Hill Education.
 The Business Environment 10 of 11
The Global Environment continued
• How Global Changes Affect You
• As businesses expand to serve global markets, new jobs will be
created.
• Rapid changes create a need for continuous learning.

LO 1-7
©McGraw-Hill Education.
 The Business Environment 11 of 11
The Global Environment continued
• The Ecological Environment
• Climate change — The movement of the temperature of the planet
up or down over time.
• Greening — The trend toward saving energy and producing
products that cause less harm to the environment.
• Many companies say the evidence for climate change is
overwhelming.
• General Electric, Coca-Cola, Shell, Nestlé, DuPont, Johnson &
Johnson, British Airways, Shanghai Electric

LO 1-7
©McGraw-Hill Education.
 Test Prep 3
1. What are four ways the government can foster
entrepreneurship?

2. What is the difference between effectiveness, efficiency,

and productivity?

3. What is empowerment?
4. What are some of the major issues affecting the
economy today?

©McGraw-Hill Education.
 The Evolution of U.S. Business 1 of 2
Progress in the Agricultural and Manufacturing Industries
• In the 1800s, the agricultural industry led economic
development.
• Technology, like the harvester and cotton gin, made large-scale
farming successful.
• This led to fewer farmers with larger farms.
• Industrialization in the 19th and 20th centuries moved jobs from
farms to factories.
• As technology improved productivity, fewer workers were
needed in factories.

LO 1-8
©McGraw-Hill Education.
 Technology and Agriculture

Technology has increased

productivity and made
farmers more efficient,
allowing for larger farms.
This trend has helped
reduce the increase in
price of some foods for
consumers, but has also
reduced the number of
small, family-run farms.
Does the new technology
also help smaller farms
compete? If so, how?
LO 1-8
©McGraw-Hill Education. © Richard Hamilton Smith/Newscom
 The Evolution of U.S. Business 2 of 2
Progress in Service Industries
• Services make up over 80 percent of the value of the U.S.
economy.
• Since the mid-1980s, the service industry generated almost all
the increases in employment.
• There are more high-paying jobs in service industries.

Your Future in Business

• We’re in the midst of an information-based global and technical
revolution.

LO 1-8
©McGraw-Hill Education.
 Test Prep 4
1. What major factor caused people to move from
farming to manufacturing and from manufacturing to
the service sector?

2. What does the future look like for tomorrow’s college

graduates?

©McGraw-Hill Education.
 Appendix of Long Image
Descriptions

©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.
 Appendix 1 Figure 1.1 A Business and Its
Stakeholders
Typical U.S. business stakeholders are:
Stockholders
Customers
Surrounding community
Environmentalists
Dealers (retailers)
Employees
Government leaders
Suppliers
Media
Bankers
Return to original slide

©McGraw-Hill Education.
 Appendix 2 Women in the Workforce
In 1970, women made up 35 percent of the workplace, 11
percent were college graduates, 4 percent earned more
than their husbands, and women contributed about 27
percent to the household income. In 2017, however,
women made up 47 percent of the workplace, 40 percent
were college graduates, 29 percent earned more than their
husbands, and they contributed 36 percent to the
household income.

Return to original slide

©McGraw-Hill Education.
 Appendix 3 Figure 1.3 Today’s Dynamic
Business Environment
A circle shows Business Management and Job Creation in the center. Surrounding this are four
quadrants for the four environments.
The Economic and Legal Environment:
1. Freedom of ownership
2. Contract laws
3. Elimination of corruption
4. Tradable currency
5. Minimum taxes and regulation
The Technological Environment:
1. Information technology
2. Databases
3. Bar codes
4. The Internet
The Social Environment:
1. Diversity
2. Demographic changes
3. Family changes
The Competitive Environment:
1. Customer service
2. Stakeholder recognition
3. Employee service
4. Concern for the environment
The global business environment affects the economic, legal, and technological environments.
Global competition and free trade affect the competitive environment.
The quality imperative affects the social environment.
Return to original slide

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