This document discusses key concepts for developing a business mindset. It covers adding value in business through revenue generation and competitive advantages. Major types of businesses like goods-producing, services, and non-profits are identified. The five environments businesses operate in and six functional areas of organizations are outlined. Components of professionalism and important business professions are also summarized. Learning objectives focus on understanding businesses, making the transition to business thinking, and identifying professional skills.
A good way to understand what any business does is to view it as a system for satisfying
customers by transforming lower-value inputs into higher-value outputs (see Exhibit 1.1)
The relationship between risk and reward is fundamental to every modern economy. A company needs to
see some promise of reward before it will decide to accept the risks involved in creating and selling products.
However, to ensure responsible behavior, these risks need to stay attached to those decisions, meaning if a
decision turns out to be bad, that company would suffer the consequences. If the risk gets disconnected from the
decision—meaning someone else will suffer if the decision turns out bad—a situation known as moral hazard
is created. A significant recent example of this problem involved home-mortgage companies lending money
to homeowners who were practically guaranteed to default on their loans but then selling those loans as
investments and thereby transferring the risk of non-payment to someone else.
The relationship between risk and reward is fundamental to every modern economy. A company needs to
see some promise of reward before it will decide to accept the risks involved in creating and selling products.
However, to ensure responsible behavior, these risks needs to stay attached to those decisions, meaning if a
decision turn out bad, that company should suffer the consequences. If the risk gets disconnected from the
decision—meaning someone else will suffer if the decision turns out bad—a situation known as moral hazard
is created. A significant recent example of this problem involved home-mortgage companies lending money
to homeowners who were practically guaranteed to default on their loans but then selling those loans as
investments and thereby transferring the risk of nonpayment to someone else.
Your experiences as a consumer have taught you a great deal about business already. Now the challenge is to
turn those experiences around and view the world from a manager’s perspective. Examples of
how a business professional approaches some of the questions you’ve asked as a consumer are illustrated in Exhibit 1.3.