Chapter 1

The Dynamic Business Environment

Learning Objectives

1. Business’s profit/risk assumption2. Stakeholder roles3. Role of entrepreneurship in wealth

creation4. Elements of business environment 5. Competitive strategies6. Rise of the service sector

Objectives of Business

SurvivalSurvival

GrowthGrowthSocial Social

ResponsibilityResponsibilityProfitProfit

Earning a Buck:Risk Reward Trade-Offs

Risk is often defined as variation in expected returns

The Capital Asset Pricing Model (CAPM) suggests that for increasing levels of risk there should be increasing returns

The firm manages risk to reduce variability and to match the organizational level of risk with the market.

Stakeholders: Those Who Stand to Lose or Gain

Customers want value Employees want security Stockholders want returns Suppliers want to be paid Dealers want support Bankers want returns Community groups want “equity” Governments want compliance

Creating Economic Wealth

Five Factors of Production1. Land (natural resources)2. Labour (workers)3. Capital (physical assets not money)4. Entrepreneurship5. Knowledge

Entrepreneurs Create Wealth By

Joseph Schumpeter (Active) – Initiators who create instability through

their actions in a process known as creative destruction.

Israel Kirzner (Passive) – Alert individuals who look for

disequilibria in the market place to act on.

Canadian Entrepreneurs

Name Worth Company

Kenneth Thompson $21 B Thompson Corp.

Galen Weston $9 B Superstores

Jeff Skoll $5 B eBay

J, A & J Irving $4 B Irving Oil J.D. Irving

Bernard Sherman $3 B Apotex Group

Business Environment

Legal & Regulatory

Competitive

Social

Technology

Economic

+ Geographic Environment

Economic Environment

Tradable currency Minimum taxes and regulation

(effects of the political environment) Imports and exports Employment levels Productivity

Ability to make stuff easily Legal & Regulatory

Competitive

Social

Technology

Economic

Technological Environment

Information Machines and technology for

manufacturing & communication Databases Bar codes The internet

Legal & Regulatory

Competitive

Social

Technology

Economic

Social Environment

Ethinic Diversity Languages spoken Demographic changes Family

Legal & Regulatory

Competitive

Social

Technology

Economic

Competitive Environment

Customer service (warrantys, product selection, sizes)

Stakeholder recognition Employee service Concern for the environment

Legal & Regulatory

Competitive

Social

Technology

Economic

Legal & Regulatory Environment

Freedom of ownership Contract laws Red tape Regulations for running a business Elimination of corruption

Legal & Regulatory

Competitive

Social

Technology

Economic

Geographic Environment

geographical size and east-west spread of Canada effects communications population density low  outside of major urban

centers

Legal & Regulatory

Competitive

Social

Technology

Economic

Geographic Environment

topographical and climatic challenges many areas of Canada not suitable to living all

year round weather effects growing seasons for food cost of food effects health and lifestyles mountains act as barriers to transportation,

communication, and limit habitable land space Legal &

Regulatory

Competitive

Social

Technology

Economic

Geographic Environment

the "gifts" of our natural resources endowed us with timber for logging, lumber,

paper rich soil for agriculture coastline for fishing many species of marine

life minerals to mine, gold, silver, coal, copper,

nickel, uranium, etc Legal & Regulatory

Competitive

Social

Technology

Economic

Competitive Strategies

Exceed customer expectations Business is becoming customer driven

Deliver faster (speed) Service, new product introduction

Restructuring and Empowerment Responsibility, authority, autonomy,

training & equipment to front line Concern for environment

Evolution of Business

Agricultural/Manufacturing

Service Industries

Future???

Global Environment

Quality

Productivity

War & Terrorism

Global Changes

19%19%

Does Global Experience Help Your Career?

20%20%

56%56%

Source: USA Today

5%

Very HelpfulSomewhat

Unnecessary

No Response

The Future by 2025http://www.7revs.org/

SEVEN REVOLUTIONS is an effort at the Centre for Strategic and International Studies (CSIS) to identify and analyze the issues that policy makers, business figures, and other leaders will face out to the year 2025.

The Future

Demography Key theme is stratification Grow from 6.30B to 8.30 B 80% will live in countries least able to

support them Rate of growth will fall to 1% Developed world is shrinking and older

undeveloped will have young (aids) Hyper-urbanization

The Future

Resource Management Key theme is not availability but

allocation and distribution Will increases in productivity keep up

with population growth Water will be the most scarce resource Current reliance on hydrocarbons but..

Production in Persian Gulf will decline Demand in developing world increases

The Future

Technology Three major & simultaneous drivers

1. Computation – computers will become iniquitous (homes, on and in the body)

2. Genomics – diagnostics, therapy 3. Nanotechnology – movement to the

molecular and even atomic levels

Did you know? IBM made a computer circuit with organic

molecules so small, 200B fit on a thumbnail

The Future

Knowledge Information economy – knowledge will

be dominant factor of production Knowledge diffusion –breaking down

national barriers & evolving culture Knowledge gap –will create social

inequities (the digital divide) Information Flows and Security –

dependence = vulnerability

The Future

Economic Integration Advances in technology have resulted

in a staggering increase in the cross-border flow of goods and services

The benefits of integration will continue to flow to all

Income will widen not shrink for individuals

The Future

Conflict Patterns of conflict are changing in an

era when nation states no longer have a monopoly over super violence

Asymmetric warfare – Sep 11 as herald of new era of conflict

Cyber-warfare – capacity to destabilize society

Intra-state warfare will rise

The Future

Governance Of the world's 100 largest economic

entities, 42 are now corporations, not countries

NGOs (Non governmental organizations) - Expect more alliances

Corporations – Will juggle triple bottom line

Governments – continue to fall behind International Organizations – realities will

outpace the structures

Skill Level Required

Level 1Level 1 Level 2Level 2 Level 3Level 3 Level 4Level 4 Level 5Level 5 Level 6Level 6

Source: Source: Hudson Institute as reported in Arnold Packer, “Retooling the American Worker,” Washington Post Hudson Institute as reported in Arnold Packer, “Retooling the American Worker,” Washington Post

Average SkillAverage Skill Level: 3.6Level: 3.6

2%2%

58%58%

40%40%

Current Skill Level

Level 1Level 1 Level 2Level 2 Level 3Level 3 Level 4Level 4 Level 5Level 5 Level 6Level 6

Average Skill Average Skill Level: 2.6Level: 2.6

6.8%6.8%

70.5%70.5%

6.6%6.6%

16.1%