Managing Within the Dynamic Business Environment Legal & Regulatory Economic Competitive Technology Social Learning Objectives 1. 2. 3. 4. 5. Business’s profit/risk assumption Stakeholder roles Role of entrepreneurship in wealth creation Elements of business environment Rise of the service sector Chapter 1 Slide 2 Research In Motion A Canadian success story When the most powerful person on the planet uses your product… Chapter 1 Slide 3 Objectives of Business Survival Growth Profit Social Responsibility Chapter 1 Slide 4 Objectives of Business
A business is any activity that seeks to provide goods and services to others while operating at a profit. Growth Profit Profit is the amount of money a business earns above and beyond what it spends for salaries and other expenses. Since not all businesses make a profit, starting a business can be risky. Chapter 1 Slide 5 Earning a Buck: Risk Reward Trade-Offs • Starting a business involves risk. • Risk is the chance an entrepreneur takes of losing time and money on a business that may not prove profitable. • Different people have different tolerances for risk. To decide which is the best choice for you, you have to calculate the risks and the potential rewards of each decision. Chapter 1 Slide 6 Matching Risk with Profit • Profit is revenue minus expenses. • Revenue is the total amount of money a business takes in during a given period by selling goods and services. • A loss occurs when a business’s expenses are more than its revenues. • Risk is the chance an entrepreneur takes of losing time and money on a business that may not prove profitable. Chapter 1 Slide 7 Risk and Rewards • Rewards and risk are RELATED. The more risks you take, the higher the ewards may be. As a potential business owner, you should do research to find the right balance between risk and profit. • Risk exists in all business. • Risks come about for many reasons. Some are internal and some are external to the business.
• Not all risks are bad. • Risks can present opportunities as well as threats to a a business. Chapter 1 Slide 8 Risk and Risk Events • Risk has two primary components for a given event: • A probability (likelihood) of occurrence of that event • Impact of the event (expected value of the risk event or amount at stake) Risk = f(Probability, Impact) event In general, as either the probability or impact increases so does the risk. Chapter 1 Slide 9 How Does a Business Deal with Risks? • Businesses focus in developing and implementing strategies to make: • the negative risks smaller or eliminate them entirely, as well as • finding ways to make positive risks more likely to happen or greater in impact. Chapter 1 Slide 10 Strategies for Negative Business Risks or Threats • Avoid (Avoidance) • To avoid a risk means you’ll evade it altogether, eliminate the cause of the risk event, or change some elements of the business to protect the business from the risk event. Transfer (Transference, deflection, allocation) • To transfer the risk means make a third party responsible for the risk. • Mitigate (Mitigation) • Reduce the probability that a risk will occur and reduce the impact of the risk to a level where you can accept the risk and its outcomes Chapter 1 Slide 11 Strategies for Positive Business Risks or Opportunities • Exploit • This is the strategy of choice when you’ve identified positive risks that you want to make certain will occur in your business. • Share The share strategy is similar to transferring because you’ll assign the risk to a third-party who is best able to bring about the opportunity the risk event presents. • Examples include forming a joint venture (JV), Strategic Alliances, etc. • Enhance
• The enhance strategy closely watches the probability or impact of the risk event to ensure assure that your business realizes the benefits. Chapter 1 Slide 12 Responding to Various Business Stakeholders Chapter 1 Slide 13 Stakeholders: Those Who Stand to Lose or Gain The challenge for companies in the 21st century will be to BALANCE s much as possible, the needs of ALL stakeholders. • Pleasing all stakeholders is not easy and requires balancing many factors. Chapter 1 Slide 14 Offshoring and Outsourcing • Offshoring entails sourcing part of the purchased inputs outside of the country. • Outsourcing means contracting with other companies to do some or all of the functions of a firm, such as production or accounting. • Outsourcing decisions affect the boundaries of the firm, what production takes place within the firm and what is purchased from outside the firm. Changes in offshoring may be, but are not necessarily, related to changes in outsourcing. Chapter 1 Slide 15 Non-profit Organizations (NPOs) • A non-profit organization is an organization whose goals do not include making a personal profit for its owners or organizers. – Non-profit organizations—such as schools, hospitals, and charities—also make a major contribution to the welfare of society. • Social entrepreneurs are people who use business principles to start and manage non-profit organizations and help countries with their social issues. Chapter 1 Slide 16
There are two ways to succeed in business: 1. Work within a company and rise to the top. 2. Start your own company. • The advantage of working for others is that somebody else assumes the entrepreneurial risk and provides you with benefits. • When you consider Canada’s wealthiest citizens, you will find that they arrived at their wealth as a result of this entrepreneurial spirit. Chapter 1 Slide 17 Creating Economic Wealth • Five Factors of Production: 1. Land (natural resources) 2. Labour (workers) 3. Capital (physical assets not money) 4. Entrepreneurship 5. Knowledge Chapter 1 Slide 18
Creating Economic Wealth If you were to analyze rich countries versus poor countries to see what causes the differences in the levels of wealth, you’d have to look at the factors of production in each country. Chapter 1 Slide 19 Creating Economic Wealth • The factors of production are the resources used to create wealth: land, labour, capital goods, entrepreneurship, and knowledge. • Some experts believe that the most important factor of production is KNOWLEDGE. It is important to get as much education as possible to prepare for knowledge-oriented jobs. – Information is not the same as knowledge. What makes rich countries richer is not land, labour, or capital; it is a combination of entrepreneurship, and the effective use of knowledge. Chapter 1 Slide 20 Business External Environment: PEST or STEP Model The business environment consists of the surrounding factors that either help or hinder the development of businesses. Businesses grow and prosper in a healthy environment. STEP: Social, Technological, Economic and Political (STEP) environments in a country. This process becomes extremely important when doing business in a global environment. S E T P http://www. learnmarketing. et/ pestanalysis. htm Legal and Regulatory Environment: Political Environment • Reflects the government’s relationship with business. • Governments can do a lot to lessen the risk of starting and running a business through laws. • Examples of laws include the Canada Small Business Financing Act, the Consumer Packaging and Labeling Act, the Trade Unions Act. , Contract Laws, etc. • Political stability is important—it can affect domestic and international business. • Freedom of ownership • Elimination of corruption • Elimination of trade barriers. • Etc. Chapter 1 Slide 23
Economic Environment • The economic environment looks at income, expenditures, and resources that affect the cost of running a business. • Businesses review the results of major economic indicators such as consumer spending, employment levels, and productivity. • Examples: – Tradable currency – Minimum taxes and regulation – Imports and exports – Employment levels and productivity – Interest rates, Exchange rates, Inflation, Recession Chapter 1 Slide 24 Technological Environment • Technology refers to inventions or innovations from applied science or engineering research. Companies must adjust business practices to compete in the global business world • New technologies, online shopping, research and development, and global access. • Technology is expensive and time-consuming. • Benefits include lower costs and improved productivity, security, and communications. • Telecommuting, teleconferencing and other tools help human relations and globalization. • The Internet aids company operations. Chapter 1 Slide 25 Technological Environment • The use and application of technology affects productivity. Productivity is the amount of output you generate given the amount of input. – The more you can produce in any given period of time, the more money you are worth to companies. – Effectiveness means producing the desired result. – Efficiency means producing goods and services using the least amount of resources. Chapter 1 Slide 26 Technological Environment E-Business refers to a wide range of business activities on the web from simple posting of product photos to B2B marketplaces. E-commerce refers to the websites that allow transactions so that customers can buy products online.
Generally speaking e-commerce is considered a subset of ebusiness. Chapter 1 Slide 27 Technological Environment E-commerce • There are two major types of e-commerce transactions: – business-to-consumer (B2C) – business-to-business (B2B) Chapter 1 Slide 28 Technological Environment E-commerce • B2G means the business that companies do with government agencies and departments to supply goods and services. • G2C refers to the business that government does online with people, such as renewing licences or applying for permits. Chapter 1 Slide 29
Technological Environment Identity Theft • obtaining personal information about a person, such as a social insurance number and/or credit card number, and using that information for illegal purposes, such as buying things with them. See www. witiger. com/ecommerce/identitytheft. htm Chapter 1 Slide 30 Social Environment • Consumer behaviour/preferences will affect decisions – Social trends, population, demographics, and ethnicity • We’re particularly interested in the demographic trends that most affect businesses and career choices. Demography: the statistical study of the human population with regard to its size, density, and other characteristics such as age, race, gender, and income. – Diversity, Demographic changes, Family • The Green Movement – Environmental concerns – New product opportunities Chapter 1 Slide 31 Social Environment The Aging Population More people are living longer due to: • better medical knowledge and technology • better health habits, including: – proper nutrition – more exercise – a reduction in the number of people who smoke Chapter 1 Slide 32 Social Environment
Chapter 1 Slide 33 Social Environment Managing Diversity • Canada has a strong multicultural population. • Since the 1980s, it has welcomed 5. 1 million immigrants. • Between 2001 and 2006 alone, 1. 4 million newcomers. Chapter 1 Slide 34 Business External Environment: PEST or STEP Model Chapter 1 Slide 35 Competitive Environment • All the environments are important, but the degree to which you need to deal with them depends on whether you do or do not have competition. • Customer service • Stakeholder recognition • Employee service • Concern for the environment
Chapter 1 Slide 36 Competitive Environment • Competing by giving employees decision-making authority: empowerment. • To meet the needs of customers, firms must give their front-line workers (office clerks, front-desk clerks at hotels, salespeople, etc. ) the responsibility, authority, freedom, training, and equipment they need to respond quickly to customer requests and to make other decisions essential to producing quality goods and providing good service. Chapter 1 Slide 37 Competitive Strategies Exceed customer expectations – Business is becoming customer-driven • Deliver faster (speed) – Service, new product introduction • Restructuring and empowerment – Responsibility, authority, autonomy, training, and equipment to front line • Concern for environment Chapter 1 Slide 38 Evolution of Business • Goods • Agricultural/Manufacturing • Manufacturing directly accounts for 17 percent of the Canadian economy Evolution of Business • Services are intangible products (i. e. , products that cannot be held in your hand), such as education, health care, insurance, recreation, and travel and tourism. • Service Industries • Future???
Chapter Summary 1. Business’s profit/risk assumption – Since not all businesses make a profit, starting a business can be risky. 2. Stakeholder roles – Your stakeholders want you to succeed. 3. Role of entrepreneurship in wealth creation – Canada’s wealthiest citizens got their $$$ as a result of having entrepreneurial spirit. Chapter 1 Slide 41 Chapter Summary 4. Elements of business environment (PEST) – Legal and Regulatory Environment – Economic Environment – Technological Environment – Competitive Environment – Social Environment 5. Rise of the service sector – intangible products Chapter 1 Slide 42