External environment
Everything outside an organization that might affect it
Organizational boundary
Separates the organization from its environment
Economic environment
Conditions of the economic system in which an organization operates
Recent economic environment characteristics
Low growth, fairly low unemployment rates, and low inflation
Aggregate output
Total quantity of goods and services produced by an economic system during a given period (basically increase in aggregate output is economic growth)
What happens when output grows more quickly than the population
output per capita increases and quantity/quality of goods and services are more of what people want
Standard of living
Total quantity and quality of goods and services they can purchase with the currency used in their economic system
Business cycle
Pattern of short term highs and lows in an economy
Four stages of the business cycle
Peak, recession, trough, recovery
Recession
Two consecutive quarters of negative economic growth
Depression
6-8 consecutive quarters of negative economic growth
Gross domestic product (GDP)
Total value of all goods and services produced within a given period by an economy through domestic factors of production (everything made within the country)
Canada’s GDP in 2017
$2.1 trillion
Gross national product (GNP)
Total value of all goods and services produced by a national economy within a given period regardless of where the factors of production are located (everything made through domestic companies including those made abroad)
GDP per capita
GDP per person (GDP of the country divided by the population)
Real GDP
GDP adjusted for inflation
Nominal GDP
GDP measured in current dollars
Purchasing power parity
Exchange rates are set so that the prices of similar products in different countries are about the same. This can give us a good idea of the standard of living in different countries
Productivity
Compares how much a system produces with the resources needed to produce it
Canada’s productivity ranking
16th, at 48.9%
Balance of trade
Value of all the products that a country exports minus its imported products
National debt
Money the government owes its creditors
Budget deficit
When the government is spending more money than is coming in through taxes
Economic stability
Money available and quantity of goods and services are growing at the same rate
Three factors that threaten stability
Inflation, unemployment, deflation
Inflation
Overall and ongoing price rise in an economy
Consumer price index (CPI)
Changes in the cost of a basket of goods and services that a typical family of four buys
Deflation
Period of generally falling prices
Unemployment
Level of people without jobs who are actively searching for work
Frictional unemployment
Moving between jobs
Seasonal unemployment
Out of work due to seasonal nature of their job
Structural unemployment
People lack the skills necessary to perform at a job
Cyclical unemployment
Out of work due to the business cycle
Fiscal policy
Government collects and spends revenue
Monetary policy
Government controls nation’s money supply
Research and development (R&D)
New ideas for products, services, and processes (basic : general improve in knowledge, applied : focusing on a specific technological innovation)
Technology transfer
Process of putting new technology in the market from the lab and capitalizing on it
Politcal-legal environment
Relationship between business and government
Socio-cultural environment
Customs, values, attitudes, and demographic characteristics of the society in which a company operates
Five forces
Rivalry among competitors, threat of potential entrants, bargaining power of suppliers, bargaining power of buyers, threat of substitutes
Rivalry among competitors
Intense price competition, elaborate advertising campaigns, and an increased emphasis on customer service
Threat of potential entrants
Can cause big changes depending on if the industry is easy or difficult
Power of suppliers
Influenced by the number of substitute products available
Power of consumers
Buyers have a great deal of bargaining power when there are few buyers and many suppliers
Threat of substitutes
If many substitute products are available, the industry is more competitive
Core competencies
Skills and resources used to compete best and create the most value for business owners
Outsourcing
Paying suppliers to perform certain business processes or to provide needed materials
Process
Activity that adds value to an input, transforming it into an output for a customer
Business process management
Moving from organizing around departments and toward organizing around process-oriented team structures
Acquisition
One business buys another business out
Merger
One business consolidates with another
Horizontal merger
When companies in the same industry merge
Conglomerate merger
When companies from different industries merge
Poison pill
Defense tactic adopted to make a business less attractive to a hostile suitor in a takeover attempt
Divestiture
When a company decides to sell part of its existing business operations to another corporation
Spinoff
When a company sets up a new unit as a new independent company because it might be more valuable that way
Strategic alliance
2+ enterprises cooperating in the research, development, manufacture, or marketing of a product
Subsidiary corporation
Owned by another corporation
Parent corporation
Owns subsidiary corporation