Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada CHAPTER 2 Understanding the Environments of Business

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 2-2 Chapter Outline Organizational Boundaries & Environments The Economic Environment The Technological Environment The Political-Legal Environment The Socio-cultural Environment The Business Environment Redrawing of Corporate Boundaries

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 2-3 Organizational Boundaries & Environments External Environment  Factors beyond an organization’s boundaries Organizational Boundary  That which separates the organization from its environment

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 2-4 Dimensions of the External Environment Economic environment Technological environment Sociocultural environment Business environment Global environment Political-Legal environment Emerging challenges and opportunities  Outsourcing  Viral marketing  Business Process Management

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 2-5 The Economic Environment The conditions of the economic system in which an organization operates Key economic goals:  Economic Growth  Aggregate Output & Standard of Living  Gross Domestic Product  Productivity  Balance of Trade  National Debt

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 2-6 The Economic Environment  Economic Stability  Inflation  Measuring Inflation: The CPI  Full Employment  Low unemployment

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 2-7 Economic Growth Business cycle  The typical pattern of short-term ups and downs in an economy (peak, recession, trough and recovery)  Recession = a period during which aggregate output declines  Depression = severe and prolonged recession

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 2-8 Economic Growth Aggregate output  Measure of economic growth  Total quantity of goods & services produced by an economic system during a given period Standard of living  Total quantity & quality of goods & services that a country’s citizens can purchase with their currency

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 2-9 Measuring Economic Growth Measuring Economic Growth Gross Domestic Product (GDP)  value of all goods & services produced by a national economy within a given period through domestic factors of production Gross national product (GNP)  value of all goods & services produced by a national economy within a given period regardless of production location

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 2-10 Measuring Economic Growth Measuring Economic Growth Real Growth Rates  Adjust for inflation & currency fluctuations GDP per Capita Real GDP Purchasing Power Parity

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 2-11 Measuring Economic Growth Measuring Economic Growth Productivity : measure of economic growth that compares production with the resources required  Increases in productivity = increases in standard of living  Growth reflected in real GDP growth

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 2-12 Measuring Economic Growth Measuring Economic Growth Balance of Trade  Value of all exported products minus the value of imported products  Positive balance = more exports = economic growth National Debt  Amount of money that a government owes its creditors  Increases by amount of budget deficit  Can decrease when have budget surplus  Lower debt = more $ for private investment

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 2-13 Economic Stability Condition in an economic system in which the amount of money available and the quantity of goods and services produced are growing at about the same rate Threats to economic stability  Inflation  Deflation  Unemployment

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 2-14 Inflation Inflation  widespread price increases in an economic system Consumer Price Index (CPI)  Measures the changes in prices of typical products purchased by consumers Deflation  A period of generally falling prices

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 2-15 When Did the Cost of a Hamburger Go Up?

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 2-16 Unemployment Level of joblessness among people actively seeking work in an economic system Types of Unemployment  Frictional  Seasonal  Cyclical  Structural

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 2-17 Managing the Canadian Economy Fiscal policies  determine how the government collects and spends its revenues Monetary policies  determine the size of a nation’s monetary supply  High interest rates = tight monetary policy  Low interest rates = easy monetary policy

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 2-18 Managing the Canadian Economy Stabilization Policy Using fiscal & monetary policies to stabilize prices and to smooth out fluctuations in output and unemployment

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 2-19 The Technological Environment Technology:  All the ways firms create value for their constituents  Knowledge, methods, equipment, systems, etc. Research and Development (R & D)  Basic (pure)  Applied

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 2-20 The Technological Environment Product and Service Technologies  Technologies employed for creating products—both physical goods and services—for customers  R&D intensity = % of sales spent on R&D  Technology Transfer = getting new technology out of lab and into the marketplace

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 2-21 Process Technologies Enterprise Resource Planning (ERP)  a large-scale information system for organizing and managing a firm’s processes across product lines, departments and geographic locations

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 2-22 ERP Applications Human Resources  Benefits  Payroll Data Analysis  Product costs  Job costs Sales and Marketing  Sales orders  Pricing system Customer Service  Field service  Quality

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 2-23 ERP Applications Supply-Chain Management  Forecasting  Purchasing  Distribution Accounting and Finance  Accounts payable and receivable  Asset management Manufacturing  Material requirements planning  Scheduling

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 2-24 The Political-Legal Environment Reflects the relationship between business & government, e.g. regulations  Pro- or anti-business sentiment  Canadian government has put a halt to bank mergers  Political stability  International relations

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 2-25 The Socio-Cultural Environment Customs, values, attitudes & demographic characteristics of the society in which an organization functions Customer preferences and tastes  vary across & within national boundaries  vary within the same country  change over time  affects job significance Ethical Compliance and Responsible Behaviour

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 2-26 The Business Environment Porter’s five forces model is used to analyze the competitive situation in an industry.  Rivalry Among Existing Competitors  Threat of Potential Entrants  Suppliers  Buyers  Substitutes

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 2-27 Emerging Challenges and Opportunities in the Business Environment The most successful firms are getting leaner by focusing on their core competencies Core competencies  the skills and resources with which an organization competes best and creates the most value for owners

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 2-28 Emerging Challenges and Opportunities in the Business Environment Outsourcing  paying suppliers & distributors to perform certain business processes Viral marketing  using the Internet and word-of-mouth marketing to spread product information Business process management  moving away from department-oriented organizations toward process-oriented teams

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 2-29 Redrawing Corporate Boundaries Acquisitions and Mergers  Horizontal, vertical or conglomerate mergers  Friendly or hostile takeovers  Poison pill defence against hostile takeover Divestitures and Spinoffs  Selling part of existing business or setting it up as a new corporation

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 2-30 Redrawing Corporate Boundaries Employee-Owned Corporations  Employee stock ownership programs (ESOPs) Strategic Alliances  Two or more companies temporarily join forces Subsidiary and Parent Corporations  Parent corporations own subsidiary corporations