Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. CHAPTER 2 Understanding the Environments of Business

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 2-2 Chapter Outline Organizational Boundaries & Environments The Economic Environment The Global Economy in the 21 st Century The Technological Environment The Political-Legal Environment The Socio-cultural Environment The Business Environment

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 2-3 Organizational Boundaries & Environments External Environment Uncontrollable factors beyond an organization’s boundaries Organizational Boundary That which separates the organization from its environment

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 2-4 Dimensions of the External Environment

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 2-5 The Economic Environment (1 of 2 ) The conditions of the economic system in which an organization operates Key economic factors: Economic Growth Aggregate Output & Standard of Living Gross Domestic Product Productivity Balance of Trade National Debt

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 2-6 The Economic Environment (2 of 2 ) Economic Stability Inflation Measuring Inflation: The CPI Unemployment Recessions and Depressions

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 2-7 Economic Growth Business cycle The typical pattern of short-term ups and downs in an economy (peak, recession, trough and recovery) 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 Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 2-8 Measuring Economic Growth Measuring Economic Growth Gross Domestic Product (GDP) value of all goods & services produced within a given period by a national economy 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 ( 1 of 4)

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 2-9 Measuring Economic Growth Measuring Economic Growth Real Growth Rates Adjust for inflation & currency fluctuations GDP per Capita Real GDP Purchasing Power Parity ( 2 of 4) ( 2 of 4)

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Measuring Economic Growth Measuring Economic Growth Productivity : measure of economic growth that compares production with the resources required ( 3 of 4) ( 3 of 4)

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Measuring Economic Growth Measuring Economic Growth Balance of Trade Value of all exported products minus the value of imported products National Debt Amount of money that a government owes its creditors ( 4 of 4)

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc 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 Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Inflation Inflation widespread price increases in an economic system Consumer Price Index (CPI) Measures the prices of typical products purchased by consumers Deflation A period of generally falling prices

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Recent CPI Figures 2-14

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc When Did the Cost of a Hamburger Go Up?

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Recessions and Depressions Recession a period during which aggregate output, as measured by real GDP, declines Depression a particularly severe and long-lasting recession

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Unemployment Level of joblessness among people actively seeking work in an economic system Types of Unemployment Seasonal Cyclical Frictional Structural

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Managing the Canadian Economy (1 of 2) Fiscal policies determine how the government collects and spends its revenues Monetary policies determine the size of a nation’s monetary supply

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Managing the Canadian Economy (2 of 2) Stabilization Policy Using fiscal & monetary policies to stabilize prices and to smooth out fluctuations in output and unemployment

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Major Forces in the Global Economy The information revolution enhanced productivity New technological breakthroughs emergence of new industries Increasing globalization larger markets tougher competition

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Internet Users per 1,000 People

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Information-Technology Spending

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc The Export Resurgence

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc The Technological Environment Technology: All the ways firms create value for their constituents Product and Service Technologies Technologies employed for creating products—both physical goods and services—for customers

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc 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 Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc ERP Applications

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc The Political Environment Reflects the relationship between business & government Certain government policies have a tremendous impact Removing barriers Creating new regulations Degree of flexibility The Canadian government has put a halt to bank merger discussions for the time being.

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc The Socio-Cultural Environment Conditions including the customs, mores, values and 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

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc 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 Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Redrawing Corporate Boundaries 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 Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc 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