SM 131 Exam 1 (Chapter 1)

Why do Businesses exist (More Generally)?
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Why do Businesses exist (More Generally)?
- Formed by entreprenuers to address an opportunity or problem in the market.
- Earn a financial return for owners/shareholders.
- Passion and drive motivates successful entreprenuers.
Why does Peter Drucker believe Businesses Exist?
To create a customer.
According to Peter Drucker, what are the two basic functions of a business?
1.) Marketing
2.) Innovation
How has Walmart understood their customers' needs and demands?
- Identify underserved communities.
- Offer everyday low prices.
- Constant push to lower costs and prices.
- Spend money where needed but not where customers do not care.
- Seek international markets.
How has Walmart developed innovative solutions to satisfy these needs?
- Redefine the discount store.
- Efficient central distribution system.
- Early investment in IT to run the business.
- Experiment, improvise, learn, improve.
- Profit sharing with employees.
- SAM's Wholesale.
- SuperCenters
10 Leadership Principles of Walmart
Commit, Share Profits, Motivate, Communicate, Appreciate, Celebrate, Listen, Exceed, Control Expenses, and Swim Upstream
What are the basic ingredients needed for a business?
Land, Labor, Capital, Entrepreneurship, and Knowledge
What are the three basic forms of Business?
1.) Sole Proprietor
2.) Partnership
3.) Corporation
What is a Sole Proprietor?
- The limited resources of one person.
- High personal risk (All personal assets exposed)
- Significant amount of total businesses, but small amount of total business revenues.
What is a Partnership?
- Pulled resources across two or more partners.
- High personal risk, but spread across partners.
- Small amount of total businesses, and small amount of total business revenues.
What is a Corporation?- Ability to draw capital from many investors. - Minimal personal risk (Amount invested) - 20% of total businesses, and significant amount (majority) of total business revenues. - Complex governance structure with many checks and balance mechanisms)What is the Governance structure of a Corporation?Owners, Board of Directors, Officers, Managers, EmployeesWhy do governments across the world support limiting the liability of business people?- It is good for society to protect the personal assets of business investors (Supports entrepreneurship, risk-taking, and innovation) - This creates growth and wealth, a central tenet of the capitalistic economic model.What did Peter Drucker believe about profits?- He believed that even profit businesses are not just about profits, and results only exist on the outside (A satisfied customer) - Economic, Environmental, and Social impactsWhat did Peter Drucker believe about management?- He believed management is about human beings, and is deeply embedded in cultural and social contexts.The emergence of management has converted this from a social ornament and luxury into the true capital of any economy?KnowledgeAccording to Drucker, which of the following allowed low-wage countries to become efficient enough to compete with higher-wage countries?TrainingAccording to Drucker, which of the following is the single largest reason for the decline of existing organizations:Lack of InnovationAccording to Drucker, which of the following is most responsible for the sacrifice of long-range wealth-producing capacity to short-term gains?Hostile TakeoversDrucker would most likely believe that?Balancing a professional education with humanities/liberal arts is criticalAccording to Drucker, the one valid definition of business purpose is to create a customer. According to Drucker, which of the following best describes what customers value?Maximizing the utility a product supplies themDrucker believes that the business enterprise only has two basic functions. They are?Innovation and MarketingWhich of the following is the first and most crucial question to be asked in defining the purpose and mission of a business?Who is our customer?Which of the following is NOT a characteristic of business objectives?They determine the future of a businessWhich of the following leadership principles is not a leadership principle at Walmart?Lower a customer's expectationsWhat is true about a corporation?They can draw a large amount of capital from many investorsWhat is Triple Bottom Line?People, Planet, ProfitWhat are the typical motives to start a business?- Address an opportunity or problem in the market. - To earn a financial return for the owners/shareholders/venture capitalists. - Entrepreneurs have passion and drive to make an impact in the world.What are the two basic competitive strategies according to Porter?Lower Cost and DifferentationWhat is Creative Destruction?- Failure is normal in Capitalism, and the evolution of products is a fundemental process - Destory older products and replace them with newers products.What does Peter Drucker mean by "Creating a customer"He means that a business needs to create a market, which can be done by: 1.) Understanding customers' needs and demands. 2.) Developing innovative solutions to satisfy needs.What are the three factors of production that a business depends on?1.) Human Resources 2.) Capital Resources 3.) Physical ResourcesWhat are the three kinds of innovation in every business?Product, Social, and ManagerialWhy do successful companies usually fail?1.) Management choices (Leadership) 2.) Organization Adaptation (Business models) 3.) Unable to change to their enviromentWhat does Economic Activity require?Land, Labor, and Capital