BUSN 1200 - Chapter 2 PDF

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BUSN 1200 Chapter 2 Understanding the Environment of Business Organizational Boundaries Environments: External Environment o Factors beyond an boundaries that cannot be controlled Organizational Boundary o That which separates the organization from its environment Dimensions of the External Environm...

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BUSN 1200 Chapter 2 – Understanding the Environment of Business Organizational Boundaries & Environments:  External Environment o Factors beyond an organization’s boundaries that cannot be controlled  Organizational Boundary o That which separates the organization from its environment Dimensions of the External Environment: 1. Economic environment 2. Political-Legal environment 3. Socio-cultural environment 4. Business environment 5. Global environment 6. Technological environment 7. Emerging challenges and opportunities  Outsourcing  Viral marketing  Business Process Management The Economic Environment - The conditions of the economic system in which an organization operates. Key Economic Goals:  Economic Growth - The main measure of growth is aggregate output: the total quantity of goods and services produced by an economic system during a given period. To put it simply, an increase in aggregate output is economic growth. o Standard of living  Total quantity & quality of goods & services that a country’s citizens can purchase with their currency. o Gross Domestic Product (GDP) - value of all goods & services produced by a national economy within a given period through domestic factors of production. o Often expressed as per capita GDP o Real vs. nominal GDP o Gross National Product (GNP) - value of all goods & services produced by a national economy within a given period o regardless of production location. o Productivity (efficiency) - 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 o Balance of Trade - Value of all exported products minus the value of imported products

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 Positive balance = more exports = economic growth  Negative balance means importing > exporting o 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 Economic Stability - Economic stability is defined as the balance between money and production, which results in little fluctuation in prices, interest rates and wages. It helps to maintain some equilibrium to guide planning for citizens, employees and business owners. o Threats to economic stability  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.  Not very common. Mostly happens with tech products and those are also included in the CPI.  Unemployment - Level of joblessness among people actively seeking work in an economic system. Often, it is an indicator of economic downturn.  Types of Unemployment o Frictional – temporarily out of work and actively looking o Seasonal – e.g.: ski instructor o Cyclical – downturn in economy leads to fewer jobs o Structural – out of work b/c don’t have the right skills Full Employment - Full employment occurs when everyone looking for work can find it. In reality, full employment does not exist, so economies seek to minimize unemployment.

How the Government Manages the Canadian Economy:  Fiscal policies o determine how the government collects (mostly through taxation) and spends its revenues. o The government takes action by increasing (to cool the economy) or decreasing (to stimulate the economy) taxes and its budget/spending.  Monetary policies o determine the size of a nation’s monetary supply o Managed through the Bank of Canada, which influences the banks to lend money or raise/lower interest rates.  High interest rates = tight monetary policy  Low interest rates = easy monetary policy

Managing the Canadian Economy:  Stabilization Policy - Using fiscal & monetary policies to stabilize prices and to smooth out fluctuations in output and unemployment. The Political-Legal Environment – Conditions reflecting the relationship between business & government  Certain gov’t policies have a great impact on businesses/economy in general through removing/adding barriers and creating or eliminating regulations and legislation. o Canadian gov’t moving more toward deregulation and privatization o Pro- or anti-business sentiment  Canadian government has put a halt to bank mergers The Socio-Cultural Environment – Conditions including customs, values, attitudes & demographic characteristics of the society in which an organization functions.  Customer preferences and tastes o vary across & within national boundaries o vary within the same country o change over time o affects job significance  Changes in Canadian population: o Aging o Increasingly diverse o More dual income earning families and single parent households The Business Environment:  The Industry Environment o Porter’s five forces model is used to analyze the competitive situation in an industry.

Emerging Challenges and Opportunities in the Business Environment:  The most successful firms are getting leaner by focusing on their core competencies o Core competencies - the skills and resources with which an organization competes best and creates the most value for owners. o Outsourcing – strategy of paying suppliers & distributors to perform certain business processes. o Viral marketing - using the Internet and word-of-mouth marketing to spread product information. The Technological Environment:  Technology - All the ways firms create value for their constituents. o Knowledge, methods, equipment, systems, etc.  Research and Development (R & D) o Basic (pure) o Applied Challenges for the coming century for Canadian business and economy: 1. Globalization and increased trading 2. Growth and management of technology and improving productivity 3. Dealing with national and personal debt 4. Environmental protection and ethics 5. Continued shift to service economy 6. More mergers and acquisitions 7. Increased deregulation and privatization 8. More outsourcing and downsizing Redrawing Corporate Boundaries:  Acquisitions and Mergers o Horizontal Merger – Companies from the same industry merge. o Vertical Merger – When a company takes over it’s customer or supplier. o Conglomerate Merger – When the companies are in unrelated businesses. o Friendly Takeover – The acquired company welcomes the acquisition, mainly because it needs cash or sees other benefits in the takeover. o Hostile Takeover – The acquiring company buys enough stock to take control of the acquired business even though the opposite business is against the takeover. o Poison pill - A defence tactic against a hostile takeover to make the firm look less attractive to the acquiring firm. Air Canada recently announced plans to institute a poison pill provision that would give all Class A and Class B shareholders the right to purchase stocks, at a discounted price, the moment any group or person announces the intention to buy more than 20 percent of the outstanding shares.  Divestitures and Spinoffs o Divestiture - Occurs when a company sells part of its existing business operations to another company.

o Spin Offs - Strategy of setting up one or more corporate units as new, independent corporations....