Page 22 - Business Principles and Management

Chapter 1 • Characteristics of Business

Focusing on the Right Things

Businesses often study their own operations to determine whether they are doing
the right things and doing the right things well. Two terms are used to describe the
best business practices. First, effectiveness means making the right decisions about
what products or services to offer customers and the best ways to produce and
deliver them. Second, efficiency means producing products and services quickly, at
low cost, without wasting time and materials. Firms that provide products at the
lowest cost while maintaining the quality customers expect will usually succeed.
Some companies are extremely efficient but very ineffective, whereas others are
effective but inefficient. Good managers focus on both effectiveness and efficiency
and are able to achieve both.

ACHIEVING EFFECTIVENESS

Making the right decisions requires both common sense and skill. Knowing
what customers want is critical to business success and to achieving
effectiveness. What kind of sleeping bags, for example, will best satisfy
the needs of the Inglish family when they take their summer vacation in the
mountains? In the early days of manufacturing, customers bought whatever was
available because there were few brands, colors, and styles from which to select.
Today, the choices for most products have increased because many businesses
provide similar products. Consumers can usually choose among the products
offered by both domestic and foreign firms. Domestic goods (products made by
firms in the United States) must compete with foreign goods (products made by
firms in other countries). American car producers have
Businesses today focus efforts on gathering information from consumers, study- learned to equal or exceed for-
ing their buying habits, testing new products with prospective customers, and eign car makers in the quality of
adding new features to existing products. New designs, different materials and col- their products. Is quality an im-
ors, understandable instructions, and ease of product use are features customers portant factor when you buy a
like. Large businesses spend millions of dollars examining customers’ preferences. car or other expensive product?
Equally important, businesses also invest heavily in keeping customers satisfied
after products are sold. Product guaran-
tees and follow-up with customers to
make sure the product is working well
help keep customers loyal.
To meet their needs, customers
increasingly are concerned about the
quality of products they buy. They want
them to work well and last a long time.
A growing emphasis of American pro-
ducers is to improve the quality of the
products they produce. Japanese car
makers are an excellent example of
how foreign producers captured a large
portion of the market worldwide by
providing customers with reliable and
attractive cars. In the past, American
car producers were not meeting quality PHOTO: © GETTY IMAGES/PHOTODISC.
needs as well as Japanese producers in
the view of many buyers. Too many
new cars had defects that required nu-
merous trips to car dealers to correct.

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