Download No Slide Title

CHAPTER 2
Understanding the
Environments of Business
Business Fifth Canadian edition, Griffin, Ebert & Starke
© 2005 Pearson Education Canada Inc.
Chapter Outline
Organizational Boundaries & Environments
The Economic Environment
The Global Economy in the 21st 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.
2-2
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.
2-3
Dimensions of the External Environment
Business Fifth Canadian edition, Griffin, Ebert & Starke
© 2005 Pearson Education Canada Inc.
2-4
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.
2-5
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.
2-6
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.
2-7
Measuring Economic Growth
( 1 of 4)
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
Business Fifth Canadian edition, Griffin, Ebert & Starke
© 2005 Pearson Education Canada Inc.
2-8
Measuring Economic Growth
( 2 of 4)
Real Growth Rates
Adjust for inflation & currency fluctuations
GDP per Capita
Real GDP
Purchasing Power Parity
Business Fifth Canadian edition, Griffin, Ebert & Starke
© 2005 Pearson Education Canada Inc.
2-9
Measuring Economic Growth ( 3 of 4)
Productivity: measure of economic growth that
compares production with the resources required
Business Fifth Canadian edition, Griffin, Ebert & Starke
© 2005 Pearson Education Canada Inc.
2-10
Measuring Economic Growth
( 4 of 4)
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
Business Fifth Canadian edition, Griffin, Ebert & Starke
© 2005 Pearson Education Canada Inc.
2-11
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.
2-12
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.
2-13
Recent CPI Figures
Business Fifth Canadian edition, Griffin, Ebert & Starke
© 2005 Pearson Education Canada Inc.
2-14
When Did the Cost of a Hamburger Go Up?
Business Fifth Canadian edition, Griffin, Ebert & Starke
© 2005 Pearson Education Canada Inc.
2-15
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.
2-16
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.
2-17
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.
2-18
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.
2-19
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.
2-20
Internet Users per 1,000 People
Business Fifth Canadian edition, Griffin, Ebert & Starke
© 2005 Pearson Education Canada Inc.
2-21
Information-Technology Spending
Business Fifth Canadian edition, Griffin, Ebert & Starke
© 2005 Pearson Education Canada Inc.
2-22
The Export Resurgence
Business Fifth Canadian edition, Griffin, Ebert & Starke
© 2005 Pearson Education Canada Inc.
2-23
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.
2-24
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.
2-25
ERP Applications
Business Fifth Canadian edition, Griffin, Ebert & Starke
© 2005 Pearson Education Canada Inc.
2-26
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.
2-27
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.
2-28
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.
2-29
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.
2-30
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 Fifth Canadian edition, Griffin, Ebert & Starke
© 2005 Pearson Education Canada Inc.
2-31