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York University
Administrative Studies
ADMS 1000

ADMS 1000 Notes Lecture 1: The Context of Business – A Framework Case: Sam the Record Man Seven External Contexts that Act on all Businesses 1. Labour  The changing of the workforce/ increasing diverse & women in the workforce  How unions have an impact of work and society. (The union is the voice of the workers, protects them) 2. Competitive  Who competitors may be, may be at a local/national/global level. It may be open or restricted. What are the advantages/disadvantages of competition?  Globalization leading to more competition 3. Technological  Accessibility to markets through technology, affects operatingcosts.  Effects how work is done (Teleworkers, Flexible work practices)  Advances in technology makes work faster and more efficient (cheaper and better) 4. Global  Organizations must now think globally, and how things are seen and presented on an international level. How outsourcing effects business/jobs (gain a competitive advantage/cheap labour) 5. Societal  CSR (cooperate social responsibility), giving back to society, and how this is seen. Good publicity vs. bad.  Human Rights and how employees should be treated, pay equity and fairness  Business must adapt as society changes, need for change, the aging population, ethical and unethical behavior of corporations  Going Green – Eco-friendly alternatives 6. Political  How politics/leaders and gov’t can affect businesses. International relationships/trade agreements/ fewer trade barriers.  How gov’t deregulation (not helping) and gov’t intervention (helping) affects business and certain industries. (CAD moving to less intervention) 7. Economical  Economic slump means downsizing cuts in training, staff development & end of traditional work practices.  Economic Boom means expansion, extra training, R & D Relating this to Canada 1. Economic Context:  Gross Domestic Product (Total value of a country’s annual output of goods and services).  How it was doing up until 2007 (good 3.2 %) and how 2008 recession influenced it (dropped)  How Unemployment rate was doing until the recession (good at like 6%) then how it went up after the recession  Money from the production goes to employees, business owners and the gov’t (through taxes) 2. Competitive Context:  What competitors are doing in your industry obv will influence your success  CAD does a lot of work in the primary industry of extraction (oil, mining, forestry)  In CAD, we encourage competition in a mixed economy 3. Technological Context:  Resource based economy (farming, mining, forestry) now moving towards manufacturing, technology and service sector (E.g. Telecommunications, engery)  Technology eliminates human labour, so CAD workers are moving to manufacturing and service industries  This means we require more knowledgeable and educated workers 4. Labour Context:  CAD has a demographically diverse population, it’s important that we maximize the value of this diversity.  We have relatively small pop when compared to other industrialized countries  CAN population median age is 65-75, very old due to the baby boom, and markets will adjust accordingly, to meet their needs. More immigrants may be needed to fill the massive job void 5. Global Context:  CAD exports 40% of its GDP – a major trading nation due to NAFTA  Out proximity to the US also affects out business and how we do it. We tend to operate at a trade deficit meaning we import more then we export  Foreign ownership of CAD companies is becoming increasingly common (Branch plants) More jobs but profits also leave CAD.  The strength of the loonie also impacts our jobs, and how CAD products trade/sell globally (more expensive)  Foreign Ownership has lead to less CAD owned enterprises, leaving CAD as a branch plant economy 6. Political Context:  Capitalist economy, but the gov’t also has an important role in the business environment  (E.g. Taxes, subsidies, global trade agreements) (Has some gov’t intervention) 7. Societal Context:  Increasing need for higher education, immigration, aging population, changes in employment law, declining birthrates, women in the workforce  CAD is one of the most appealing countries to invest in and shows a bright future Chapter 1- The Context of a Business  Canada did fairly well during the recession, (Gained status) But since then (recovery) has not been as impressive and it is slipping down the ranks again (Income per capita, GDP and employment) What is an organization? 1. Public/Governmental – organizations that provide goods/services without necessarily generating a profit 2. Private/Non-governmental –organizations including voluntary organizations that offer goods/services without generating a profit 3. Private – Organizations that produce goods/services with the intent of making profit for their owners & shareholders What makes an organization? 1. Organizations are social entities (Have people running them) 2. Organizations are created to achieve a goal (They have a goal/reason behind it) 3. Organizations interact with the environment (raw materials, technology, financial capital into goods/services) (Inputs and outputs) Organizations (Machine, Living Organism, Political System, Theater, Sports team, Family) Organizations as open systems: Asserts that organizations are entities that are embedded in and dependent on exchanges with the environment they operate within. (Think connected to the environment around it) (pg 5 fig 1.2) Inputs  Process  Outputs  Physical resources  Transformation to  Goods/services o Plants goods/services generated o Capital generated by the o Materials organization (E.g. Outputs are generated to the  Human Recourses manufacturing environment o People process) o Knowledge  Technology Only when organizations become sufficiently complex closed system (Detached from its environment)  An organizations environment represents all the elements that exist outside the organization, and that potentially influence/affect the organization in some way. (Getting raw materials for production)  The environment of an organization will determine its fate (If they don’t produce goods/services required by their environment they will cease to exist) The external context of a business (Pg 6 Fig 1.3)  Specific or Task environment (Customers, Suppliers, Employees, Competitors, Unions, Distributors, Creditors, Local Public, Government)  General Environment (Economic Forces, Political Forces, Labour Forces, Societal Forces, Competitive Forces, Technological Forces, Global Forces) Terms Globalization – The integration of world economies Government Deregulation Protectionism and supporting local business GDP – The total value of a country’s output of goods/service in a given year Perfect Competition Monopolistic Competition Oligopoly Monopoly Demographics Trade Deficit Lecture 2 The Economic Context Of Business Assumptions: Are typically something you infer from the case, but the fact has not been clearly established. A reasonable idea/thought/conclusion The Economic environment refers to the conditions of the economic system in which an organization operates What Is an Economic System? An economic system allocates a nation’s resources among its citizens. 1. Market Economies: An economic system based on competition in the marketplace & private ownership of the factors of production (resources) o Private Property o Freedom of choice o Profits o Competition 2. Command Economies: Communism exists when the gov’t owns all the country’s resources and makes economic decisions centrally 3. Socialism: An economic system whereby the gov’t has large ownership or control of it’s major industries essential to the country’s economy 4. Mixed Economies: An economy that combines features of more than one economic system. An economy where gov’t owns certain industries but others are owned by the private sector. (Canada is a market/socialist economy” o The primary difference is how organizations manage their factors of production under a combination of policies, laws, and choices made by the gov’t. o Who makes the key choices/decisions about what goods/services are produced, how they are produced and distributed? Factors of Production 1. Natural Resources – (Land and raw materials) 2. Labour – (workers) 3. Capital – (Buildings, machinery, tools and equipment) 4. Information resources/knowledge – (knowledge workers with specialized skills/experience) 5. Entrepreneurs - (Individuals who start up businesses) Types of Competition: 1. Perfect/Pure Competition: (Ex Beverage Industry) o Large number of buyers and sellers, acting independently o Product or service is undifferentiated o The market determines the price o Low barriers to entry 2. Monopoly: (Ex The Canadian wheat board) o Where there is only one producer in a given market o No substitute product exists o The company is able to determine the selling price o Natural Monopoly happens when the gov’t owns it (LCBO & Ontario Hydro) 3. Oligopoly: (Ex Oil/Gas & Cell phone providers) o When only a few competitors dominate an industry o High barriers to entry 4. Monopolistic Competition: (Ex Canadian Banks) o A large number of companies compete with each other o Products/services are differentiated at least in a small way o Market sets the price The Business Cycle 1. Expansionary 2. Peak 3. Contraction (Recession/Depression) 4. Trough 5. Recovery GDP : Gross domestic Product: : Refers to the total value of goods and services produced within a given period of time by a national economy through domestic factors of production. (Only CAD) GNP: Gross national product: Refers to the total value of goods and services produced by a national economy within a given period of time regardless, regardless of where factor of production are located. Productivity: A measure of economic growth that compares how much a system produced with the resources needed to produce it The Balance of Trade & the National Debt o Trade Surplus = Exports greater than imports o Trade Deficit = Imports greater than exports The National Debt: Is debt accumulated by the government. All local, regional or nation governments can have debt. A budget Deficit: The negative difference between incoming tax revenues (or receipts) and outgoing government expenditures Inflation/Deflation o Inflation is rising prices o Deflation is decreasing or falling prices o Measure this using the consumer price index CPI (Think purchasing power) What is unemployment? o Unemployment is a situation where there are qualified individuals activity looking for work who are not able to secure employment o The labour force is the total amount of people who are employed and unemployed o The unemployment rate is the percentage of people who are unemployed out of the total labour force Types of Unemployment: 1. Frictional Unemployment: o Normal labour market turnover o People are constantly entering and leaving the labour force 2. Structural Unemployment: o The available jobs do not correspond to the skills of the labour force o Unemployed individuals do not live in a region where jobs are available 3. Cyclical Unemployment: o Related to the pace of the economy or business cycle 4. Seasonal Unemployment: o Is unemployment due to the seasonal nature of the job Purchasing Power: Is the value of a currency expressed in terms of the amount of goods or services that one unit of money can buy. Economic Stability: A condition in which the amount of money available in an economic system and the quality of goods and services produced are growing at about the same rate. (Affected by inflation, deflation and unemployment) PETS that don’t go well together are Cats and Goldfish  Political  Economic  Technological  Societal and Labour  Competitive  Global Lecture 3 Societal Context Business: Private, commercially oriented organizations Society: A community/national or group of people with common values, traditions, institutions, activities and interests The relationship b/w business and society is “embeddedness” and organizations as open systems Corporate Social Responsibility CSR: The obligation of decision makers to take actions which protect and improve the welfare of society as a whole along with their own interests. (Going above and beyond) The social responsibility of business encompasses the economic, legal, ethical and discretionary (philanthropic) expectations that society has of organizations at a given point in time. The CSR Pyramid  o Components can be interdependent rather than mutually exclusive o However there may also be tensions b/w the components (Profits vs. Ethics) o Being overly ethical and conflict with profits at times o This model implies that business is responsible to more than simply it’s owners or shareholders Economic Responsibilities – Generate rational business strategy, make profits, minimize costs Legal Responsibilities – Honour all relevant laws/regulations governing business activities Ethical Responsibilities – Engage in business practices that are in line with what society considers acceptable, fair and just Philanthropic Responsibilities – Engage in activities that help the betterment of society (eg volunteerism, charity) Stakeholders, Business and Society What is a Stake? o An interest or share in an activity o A right – A legal right (Eg to fair treatment or a moral right, Eg to expect satisfactory service) o Ownership – a legal title to an asset/property A stakeholder is any individual or group who can affect or is affected by the actions, decisions, policies, practices or goals of the organization Cases against CSR: Cases For CSR: 1. Business is Business – Sole responsibility of 1.Business should conform to social rules – business is to make a profit Business plays a role in society and they are built to serve the public need 2. Business plays by its own rules – Strategies and 2. Adapt CSR as a Practical Business Strategy – tactics are used to gain the advantage in business Creates good press and positive image for (bluffing in poker) organizations. 3. Business has enough power, Business Should 3. They should help all their stakeholders, not not dictate morality - Let the gov’t control and just shareholders – Give back to all people with a affect morality and social policies. Business having invested interest and relation to the business both economic power and political power is dangerous. 4. Organizations cannot be held accountable 4. CSR provides long term benefits by enhancing business environment – It creates positive images and relations with society and create a loyalty and trust factor. 5. Costs of CSR would be passed on to consumers and limit national competitiveness Lecture 4 Competitive and Technological contexts How does competition evolve over time in industries? How does technological change and innovation affect competition?  Regulations and technological advances both allow new industries to grow What is an Industry?  Businesses that may have similar resources, technology or consumers  Can be defined broadly or narrowly (E.g airline industry vs. transportation industry)  Given a long enough period of observation almost all industries exhibit a very similar pattern of growth Industrial Evolution  Closely related to the evolution of technology  Had various stages Introduction o Establish industry’s new dominant model o New Industries emerge through technology (biotechnology) and regulator (gov’t privatizing the provision of electricity in Ontario/satellite radio) o Some industries are highly uncertain and risky, do not make it past the early stage o Early entrants are small entrepreneur firms, with a high degree of technological innovation as competitors search for the industry’s dominant design and standard o More competition makes the industry seem more legitimate Growth o Sales and market share o Adoption of dominant design o Accelerates Growth o Standardization of products (Less innovation and change) o Focus is on marketing products o Lower prices Maturity o Market growth beings to slow down, very little entry and rivalry becomes fierce amount remaining firms o Market concentration increases with more exits and acquisitions o Products become more commoditized/undifferentiated and innovations are incremental o Process improvements rather than product improvements (Focus on lowering production costs and being more efficient rather than focusing on changing the product) o Things become more of a “mechanistic structure” (The assembly line) Decline o Industries begin to decline as a result of changes in  Demographics (baby food in the 1960s)  Consumer needs/tastes (Cigarettes)  Technology (Typewriters, VCRS) o Firms can pursue four different strategies to cope 1. Maintain Industry leadership – Continue investment in marketing, support, production development 2. Target niche markets – Find a specific segment of the market that may not decline as rapidly 3. Harvest Profits – Drastically reduce costs, restrict/eliminate any investments, followed by exit strategy 4. Early Exit – Sell assets and leave prematurely 5. Consolidate the remaining industry players – Mergers and acquisitions Legitimacy o Socio-political legitimacy – Refers to the endorsement of an industry, activity, or organizational form by key stakeholders and institutions such as the state and gov’t officials, opinion leaders and the general public o Cognitive legitimacy – refers to the level of public knowledge of a new industry and it’s conformity to established norms and methods reflected in the extent to which it is taken for granted as a desirable and appropriate activity. (Industry standard product – Windows has 90% share in the CPU market) Acceptable Standard o Defacto – The industry standard (product) after use (After the dust is settled) (E.g. Windows) o Dejure – Legally mandated and approved product by the government or standards organization. Life Cycle Stage Impacts  Degree of competition  Strategy needed  Success factors Main Drivers of Industry Evolution  Demand for Growth  Creationism and diffusion of technology and knowledge Organizations whose approach does not change or adapt to the dominant model and industry standard change or exit during a shakeout Stakeout – A large number of firms exits from the market as aggregate the output of the industry increases. They are considered healthy and natural Technological discontinuities can be  Competence enhancing – Technological innovations that build on a firms existing knowledge and skills in certain areas  Competence destroying - Innovation that renders obsolete an organization’s technical skills and capabilities. For CSR Against CSR 1. Business should conform to social rules 1. Business is Business, Profit 2. It’s a good business strategy 2. Business plays by its own rules 3. Stakeholders and Shareholders 3. CSR means higher prices due to extra CSR costs & More 4. CSR given long term benefits spending on CSR means less competitive business 4. Businesses cannot be held accountable (Individual actions of a person under stress) Lecture 5: The Global Context I, II Globalization: Is a process involving the integration of world economies Is a process that involves  Expansion of degree and forms of cross border transactions, among people, assets, goods and services  Growth in direct foreign investment across the world  Increase in economic interdependence – including the integration of world markets and economies Push Factors
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