Download Economic growth

Chapter 2
Understanding the
Environments of Business
Copyright © 2006 Pearson Education Canada Inc.
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Learning Objectives
Explain organizational boundaries
and multiple organizational
environments
Explain the importance of the
economic environment and identify
the factors to evaluate the
performance of an economic system
Copyright © 2006 Pearson Education Canada Inc.
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Learning Objectives
Discuss the current economic picture in
Canada
Describe the technological, political-legal,
and socio-cultural environments and their
impact on business
Identify emerging challenges and
opportunities in the business environment
Copyright © 2006 Pearson Education Canada Inc.
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Organizational Boundaries
& Environments
External environment

Everything outside an organization’s
boundaries that might affect it
Organizational boundary

That which separates the organization
from its environment
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Dimensions of the External
Environment
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The Economic Environment
The conditions of the economic system in
which an organization operates
Key economic factors:
 Economic growth
 Economic stability
 Full employment
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The Economic Environment

Economic growth
 Aggregate output
 Standard of living
 Gross domestic output
 Productivity
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The Economic Environment

Economic stability
 Inflation
 Measuring inflation: the CPI
 Deflation
 Unemployment
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The Economic Environment

Full employment
 Frictional unemployment
 Seasonal unemployment
 Cyclical unemployment
 Structural unemployment
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Economic Growth
Business cycle


The typical pattern of short-term ups and
downs (expansions and contractions) in an
economy
Four phases: peak, recession, trough and
recovery
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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
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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
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Measuring Economic Growth
Real growth rates

Adjust for inflation & currency fluctuations
GDP per capita
Real GDP

Nominal GDP
Purchasing power parity
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Measuring Economic Growth
Productivity

Measure of economic growth that compares how much a
system produces with the resources needed to produce it
Balance of trade

The total of a country’s exports minus its imports
National debt

The total amount of money that a government owes its
creditors
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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
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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
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Recent CPI Figures
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Unemployment
Level of joblessness among people
actively seeking work in an economic
system
When unemployment is low, there is a
shortage of labour available, and wages
tend to rise
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Full Employment
Everyone who wants to work has an
opportunity to do so
In reality, full employment is impossible,
because there will always be people
looking for work
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Managing the Canadian
Economy
Fiscal policies

Policies whereby governments collect and
spend revenues
Monetary policies

Policies whereby the government controls the
size of the nation’s money supply
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The Business Environment
Three most serious issues facing
Canadian business:

Globalization/international
competitiveness

Taxation

Productivity
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The Industry 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
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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
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Emerging Challenges and Opportunities
in the Business Environment
Outsourcing

Paying suppliers & distributors to perform
certain business processes
Vertical Integration

Strategy of owning the means by which an
organization produces goods or services
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Emerging Challenges and Opportunities
in the Business Environment
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
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