Chapter 1 Business Now: Change is the Only Constant
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In today’s fast-paced business environment, change is the only constant. And the most successful firms have figured out how to embrace change. Their core goal is to deliver unsurpassed value to their customers. A business, by definition, is any activity that provides goods and services in an effort to earn a profit. Of course profit is the financial reward that comes from starting and running a business. People who risk their time, money, and other resources to start and manage a business are called entrepreneurs. As entrepreneurs create wealth for themselves, they produce a ripple effect that enriches everyone around them—including their staff, contractors, favourite places to shop, and even government entities that collect taxes from them. Looking at the bigger picture, business drives up the standard of living for people worldwide, contributing to a higher quality of life. Businesses provide the products and services that people enjoy. They provide the jobs that people need. And don’t forget the impact of their tax dollars and socially responsible efforts. But, unlike today, businesses haven’t always been so focused on the consumer and his or her wants. Canadian business has changed dramatically over the past few centuries. The history of our business can be divided into five distinct eras: the Industrial Revolution, the Entrepreneurship Era, the Production Era, the Marketing Era, and the Relationship Era. During the Industrial Revolution—from the mid-1700s to the mid-1800s—mass production took hold. Huge factories replaced skilled artisan workshops, hiring semiskilled workers who specialized in a limited number of tasks. The result was unprecedented production efficiency—but a loss of individual ownership and personal pride in the production process. Building on that foundation, large-scale entrepreneurs emerged in the second half of the 1800s—the Entrepreneurship Era. They built business empires, created enormous wealth, and raised the standard of living for the entire country. Yet success came with a price. In this cutthroat environment, many forced out competitors, manipulated prices, and exploited workers. By the end of the 1800s, the government stepped in to create laws to regulate business, protect consumers and workers, and bring more balance to the economy. The early part of the 1900s sparked the Production Era, when major businesses focused on achieving even greater efficiencies in the production process. Jobs became more specialized—increasing productivity while lowering costs and prices. When Henry Ford introduced his assembly line in 1913, it quickly became the standard across industry. Managers focused on efficiency, leaving consumers as an afterthought. But the belt tightening of the Great Depression and World War II brought a new attitude from businesses, which took to the hard sell to separate consumers from their cash. After World War II, the balance of power shifted away from producers and toward consumers. It was the Marketing Era when businesses began establishing brands to differentiate themselves from competitors. The “marketing concept” emerged: a consumer orientation began to permeate successful companies in every department, at every level. This approach continues to influence business decisions even now as global competition heats up to unprecedented levels. In today’s Relationship Era, businesses building on the marketing concept strive to foster long-term relationships with customers. Satisfied customers can be more effective than the best promotional campaign, and cultivating current customers is more profitable than constantly seeking new ones. Technology is key. The Web and other digital resources help businesses gather detailed information about their customers—data that can be used to serve them better.
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While companies are in business to turn a profit, not-for-profit organizations are in business “to do good.” They also play a critical role in our economy. Nonprofits are “business-like” organizations focusing on such areas as health, human services, education, art, religion, and culture. Though their primary goal is to “do good,” not-for-profit organizations are like businesses in every other way. They employ people, produce goods and services, take in revenue, and contribute to Canada’s economic stability. There are more than 161 000 not-for-profit and volunteer organizations in Canada, contributing more than $80 billion to Canadian gross domestic product (GDP) annually. And non-profit museums, schools, theatres, and orchestras are economic magnets that attract additional investments in many communities.
Whether not-for-profit or for-profit, organizations rely on four fundamental factors of production to achieve their goals. Some combination of these factors—natural resources, capital, human resources, and entrepreneurship—is crucial for an economic system to work and create wealth. And none comes for free.
Natural Resources include all inputs that offer value in their natural state, such as land, fresh water, wind, and mineral deposits. Most natural resources must be extracted, purified, or harnessed; people cannot actually create them.
In this context, capital does not include money. Capital refers to the machines, tools, buildings, information, and technology—any of the synthetic resources that a business needs to produce goods or services.
Human Resources includes the physical, intellectual, and creative contributions of everyone who works within an economy. As technology replaces a growing number of manual labour jobs, education and motivation have become increasingly important to human resource development.
Entrepreneurs take the risk of launching and operating their own businesses, often seeing opportunities where others don’t. Entrepreneurial enterprises can kick-start an economy, yet they can’t thrive in an environment that doesn’t support them. The key is economic freedom: freedom to choose who to hire and what to produce and freedom from excess regulation and too much taxation. Protection from corruption and unfair competition is also critical.
All four fundamental factors of production must be in place for an economy to thrive. Which is most important? Well, Russia and China are both rich in national resources and human resources, and both have a solid level of capital. Yet both rank relatively low in terms of gross national income per person. The missing ingredient seems to be entrepreneurship, limited in Russia largely through corruption and in China through government interference and taxes. In contrast, Hong Kong has a small population, severely limited natural resources—yet it consistently ranks among the richest regions in Asia. Perhaps it’s not coincidence that Hong Kong operated for many years under the British legal and economic system—which actively encouraged entrepreneurship. Recognizing the potential of entrepreneurship, China has recently done more to relax regulations and support free enterprise—resulting in tremendous growth.
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The business environment can make the critical difference in whether an economy thrives or plummets. Five key dimensions of the business environment are the economic environment, the competitive environment, the technological environment, the social environment, and the global environment.
Canada is one of the G8 group of industrialized nations. One reason that the Canadian economy remains relatively strong is that the government promotes a positive economic environment for business. For example, the government works to reduce the risks of starting and running a business. A relatively low federal tax rate for individuals and organizations also supports business, as do a number of government agencies and initiatives promoted mainly through Industry Canada. Legislation also supports enforceable contracts and curbs corruption and unethical practices—another key to strong economic environments. Some of the threats to the strength of the Canadian economic environment include the growing pay gap between corporate CEOs and average employees, rapidly increasing consumer debt, and a federal debt that is threatening to mushroom.
As global competition heats up, customer satisfaction is paramount. After all, getting current customers to buy more of your product is a lot less expensive than convincing potential customers to try your product for the first time. Customer satisfaction translates into higher profits—even when the competition is tough. Customer satisfaction comes from delivering unsurpassed value. A product has value when its benefits to the customer are equal to or greater than the price that the customer pays. And the key to value is quality.
Business technology includes any tools that businesses can use to become more efficient and effective. Technology is transforming business. New industries have emerged, and others have disappeared. For fast-moving firms, the technological environment represents a rich source of competitive advantage, but it can clearly be a major threat for companies that are slow to adapt or to integrate new approaches. As technology continues to evolve at breakneck speeds, companies that welcome change and manage it well will be more successful. The social environment embodies the values, attitudes, customs, and beliefs shared by groups of people. It also covers demographics such as population size and density, and specific traits like age, gender, race, education, and income. Social environments change drastically from county to country. Canada itself has a number of different social environments. The Canadian economy operates within the context of the global environment. Over the last two decades, technology and free trade have blurred the lines between individual economies around the world. The General Agreement on Tariffs and Trade or GATT—signed by 125 countries—and the resulting World Trade Organization promote global free trade, enabling goods to move more freely than ever across international borders. But even in a global economy, there are multiple threats. In the past decade alone, war, terrorism, disease, and natural disasters have taken a horrific toll in human lives as well as industries such as tourism. Whatever your career choice—from videogame developer, to real estate agent, to Web designer—business will impact your life. Both the broader economy and your own business skills will influence the level of your personal financial success. But experts advise you to “do what you love.” Today’s environment values less routine abilities such as creativity, communication, and caring over routine, programmable skills that computers can emulate. Following your passion doesn’t guarantee a fat paycheque, but it does boost your chances of both financial and personal success.