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Business - Chapter Summaries

Open Posted By: surajrudrajnv33 Date: 28/09/2020 Graduate Assignment Writing

 Chapter Summaries for the chapters 8,9,10,11,12. Each chapter should be summarized in 3 pages. So its total of 15 pages minimum. Its should be written in APA format and I have attached the Text book along with grading rubric. 

Category: Accounting & Finance Subjects: Behavioral Finance Deadline: 12 Hours Budget: $120 - $180 Pages: 2-3 Pages (Short Assignment)

Attachment 1

INSTRUCTOR'S MANUAL

FOR

THE CONTEXT OF BUSINESS

Understanding the Canadian

Business Environment

Len Karakowsky York University

Natalie Guriel York University

Toronto

ISBN: 978-0-13-358955-9

Copyright © 2015 Pearson Canada Inc., Toronto, Ontario. All rights reserved. This work is protected by

Canadian copyright laws and is provided solely for the use of instructors in teaching their courses and

assessing student learning. Dissemination or sale of any part of this work (including on the Internet) will

destroy the integrity of the work and is not permitted. The copyright holder grants permission to

instructors who have adopted The Context of Business, by Karakowsky and Guriel, to post this material

online only if the use of the website is restricted by access codes to students in the instructor’s class that is using the textbook and provided the reproduced material bears this copyright notice.

Chapter 1 – Exploring Canadian Business: A Critical Approach

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CHAPTER 1

EXPLORING CANADIAN BUSINESS:

A CRITICAL APPROACH

CHAPTER SYNOPSIS

This chapter introduces students to the broad-based categories of the challenges and

opportunities of businesses and other organizations. Students are introduced to the external

environmental forces of political, economic, technological, societal, competitive and global, as

well as the internal forces that drive the business: labour, leadership, structure and strategy.

LEARNING OBJECTIVES

1. Identify the key internal forces that shape any business.

2. Identify the forces that compose the specific and general environments of organizations.

3. Discuss the nature of the external forces confronting organizations.

4. Explain the importance of each of the external forces within the Canadian business context.

CHAPTER OUTLINE

CHAPTER 1

 Exploring Canadian Business: A Critical Approach: What Are the Major Challenges Facing Business? 1

 Learning Objectives 1  The Business World: Can Canadian Tire Flourish In a Rapidly Changing Business

Context? 2

THE INTERNAL CONTEXT OF BUSINESS 4

 The Employment Relationship: Responsibilities Toward Labour 5  Leadership and Effectively Managing People 5  Developing a Suitable Organizational  Organizational Structure 6  Generating a Winning Business Strategy 7

THE EXTERNAL CONTEXT OF BUSINESS 7

 Specific or Task Environment 7  General Environment 8

a. Economic forces 8

b. Competitive forces 8

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c. Technological forces 9

d. Global forces 9

e. Political forces 10

f. Societal forces 10

 Sustainability 11  The Challenge of Change 12

THE CANADIAN CONTEXT: HOW’S BUSINESS IN CANADA, EH? 12  Economic Forces in Canada 13  Competitive Forces in Canada 16  Technological Forces in Canada 18  Global Forces in Canada 22  Political Forces in Canada 25  Societal Forces in Canada 28

CHAPTER SUMMARY 29

CHAPTER LEARNING TOOLS 35

 Key Terms 35  Multiple-Choice Questions 35  Discussion Questions 36  Concept Application: Facebook: When Your Friends Are Worth a Billion! 36

BUSINESS WORLD EXERCISE

1. Refer to the Business World article “Can Canadian Tire Flourish in A Rapidly Changing Business Context (page 2).” In recent years, how have the six external forces (eg. political, economic, technological, societal, competitive and global) impacted Canadian

Tire’s business and operations? State any assumptions you may have.

Teaching Note:

In the textbook, students can use Exhibit 1.7 The External Forces Framework:

Considerations for Analysis (page 30) Here in the Instructor’s resources, please see Appendix A.

Depending upon how current and in-depth you want students to answer the question, you

can either stick to the case/article facts or get students to use the company’s web site. The suggested answers typically will be limited to the case facts; however, sometimes

reasonable assumptions or inferences can be made when the case does not specifically

mention a particular fact. For instance, this case does not really discuss the political

force. You could make an inference Canadian Tire must comply to laws and regulations

for the industries that it operates in, such as automotive and of course, employment laws

because the company has employees.

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Political – Canadian Tire must comply to laws and regulations for the industries that it operates in, such as automotive, hardware, sports etc and of course, employment laws

because the company hires employees.

Economic – The state of the economy is not mentioned in the case. We can assume that if there was a recession, sales may go down; however, Canadian Tire sells many items that

people need every day, so it may not be impacted in the same way as a company, for

example, selling luxury goods, which people don’t need every day.

Technological – Changing technology that affects the internet or how consumers like to shop is forcing Canadian Tire to respond. In 2013, Canadian Tire announced plans to

significantly improve its digital technology practices, including a partnership with

Communitech, a technology company based in Kitchener, Ontario. The aim is to develop

apps, content, and other digital innovations to improve the shopping experience of

Canadian Tire customers, both online and in the store. Canadian Tire also recently

relaunched its online store after executives aborted a previous attempt in 2009. Among

the items sold online are tires and wheels, which have to be picked up at Canadian Tire

stores where many will also be installed.

Societal – Changing consumer preferences or trends have also impacted Canadian Tire.

Smartphones - Canadian Tire recognizes that consumers are using their smartphones to

compare prices and shop smarter. In 2013, Canadian Tire announced plans to

significantly improve its digital technology practices, including a partnership with

Communitech, a technology company based in Kitchener, Ontario. The aim is to develop

apps, content, and other digital innovations to improve the shopping experience of

Canadian Tire customers, both online and in the store.

Online shopping – Online shopping has become more of an expectation by consumers. Consumers expect to log onto a companies’ website and see all the products and services it offers, the price and other variables. For example, Canadian Tire recently relaunched its

online store after executives aborted a previous attempt in 2009. Among the items sold

online are tires and wheels, which have to be picked up at Canadian Tire stores where

many will also be installed. This effort was in response to a growing trend of Canadians

buying their tires online through US-based websites and having them shipped directly to

local mechanics.

Competitive – Canadian Tire is a diversified Canadian retailer. It competes in many industries because of the products and services that it sells. As the name indicates,

Canadian Tire sells tires and automotive goods and services such as repair and

maintenance services. The company also sells hardware, sports equipment and clothing.

In other services, Canadian Tire owns a banking operation, Canadian Tire Financial

Services for its credit card, and the company recently began offering home installation

services such as garage door openers, central vacuum installations and heating and

cooling systems. Its competitors are therefore many. As a department store retailer, some

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examples are Walmart, Target, and Home Depot. However, Canadian Tire’s competitors can be sub-categorized according to all the sub-industries it operates in.

Global – Global retailers such as Walmart, Target and Home Depot have forced Canadian Tire to compete against larger box stores.

TALKING BUSINESS EXERCISES

1. Refer to the Talking Business 1.1 - “Changing GM’s Organizational Structure.” (page 6) How has GM’s change in structure helping its operations?

Generally, GM’s change in structure is:  allowing a better alignment with the company goals and strategies (eg. branding)  improving communication (eg. messaging, sharing)  providing clearer roles  helping future needs

2. Refer to the Talking Business 1.2, “Growth in Provincial Labour Productivity: A Problem from Coast to Coast.” (page 20) How can Canada improve its labour productivity?

Canada can improve its labour productivity in three ways: labour composition, capital

intensity and multifactor productivity.

Labour composition - generally refers to the skill set of the workforce. Certainly, having

a better educated and skilled workforce can improve productivity by understanding how

to do things better and more efficiently.

Capital intensity - typically refers to the amount of capital invested per worker. Policies

that reduce corporate taxes and regulations; in other words, leave more money in the

hands of business can boost investment and lead to greater productivity.

Multifactor Productivity (MFP) growth – sometimes is viewed as the efficiency created from the right labour and capital mix. Government initiatives such as investments to

public infrastructure and a reduction in interprovincial trade barriers have helped

provinces increase MFP growth. Business spending on research and development has

also helped boost MFP.

3. Refer to Talking Business 1.3, “Job Productivity and Innovation: How Health Care Drives the Economy.” (page 25) How does health care contribute to Canada’s economy?

Jobs - The health care sector employs about 1.4 million doctors, nurses, and medical

administration staff, which makes up 9% of total jobs in Canada. Through its supply

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chain of medical and clinical equipment and other professional services, another 45,000

jobs exist.

Productivity – The health care sector contributes to productivity. That is, how efficient goods and services are produced. Certainly, the health care sector has played a role in

trying to decrease worker absenteeism rates from stress, disability and illness. In other

words, healthier workers are more productive workers.

Innovation – The health care sector contributes much to research and innovation that has led to economic output of trillions of dollars. Clearly, improvements to health care allow

people to live longer lives and thus, people remain in the labour force longer and

contribute to consumer spending and wealth creation.

SAMPLE CLASS DISCUSSION QUESTIONS

1. Choose a company. Research it on the internet, and perform an external forces analysis.

How have the political, economic, technological, societal, competitive and global forces

impacted this company?

Teaching note: Usually pick a time frame of the most recent 1-3 years, otherwise some

facts may be too old to be relevant anymore.

2. What is Canada’s competitive advantage today? What do we excel at? Consider, is this sustainable?

Teaching note: For example, if you picked natural resources, what type of resource is a

competitive advantage exactly? Is it oil and gas, trees, etc? Is this a non-renewable

resource that is depleting and will soon be used up? How then does Canada compete

with the rest of the world?

3. What are the strengths of Canadian banks?

Teaching note: The answer is in the textbook page 14-15.

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CHAPTER LEARNING TOOLS

Multiple Choice Answers (also available in the back of the textbook, page 487)

1. B, 2. D, 3. B, 4. C, 5. D, 6. D, 7. D, 8. D, 9. D, 10. B, 11. A, 12. D, 13. B, 14. C, 15. B

Discussion Questions

1. Identify and explain four internal challenges for business

The four internal challenges for business are labour, leadership, strategy and structure.

Labour - Labour or workers are usually interested in maximizing the income they receive

from the sale of their labour, whereas businesses usually desire to maximize profit. These

two objectives can clash, creating conflicts that can have negative effects on productivity

and profits, as well as the economy and society more generally.

Leadership – How do we manage people in order to meet the objectives of the organization and allow successful results?

Structure – An organizational structure is a deliberately planned network or pattern of relationships that exists among individuals in various roles or positions. This includes the

formal hierarchy of authority, the distribution or grouping of work (for example, into

departments) and the rules or procedures that control and coordinate behaviour in the

organization.

Strategy – Deciding what strategies the organization should pursue is a key task of managers. There are three generic strategies.

2. Describe the difference between the general environment and the specific environment.

The general environment – is the environment shared by all organizations in a society, such as the economic and political environments, and technological, societal, competitive

and global forces.

The specific environment – is the environment within which a particular organization operates, which is ultimately shaped by the general environment and includes

stakeholders, customers, competitors, suppliers, and so on.

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3. Identify and describe the six external challenges for business.

Political – Political forces are the government forces of a country that impose laws and regulations on a business or organization to comply to. The political environment can

dictate changes in how a business competes or what services it offers and how they can

be offered.

Economic – The state of the economy can affect the profitability of a business. A recession can increase unemployment, reduce consumer spending and subsequently,

cause a drop in sales. On the other hand, a strong economy can reduce unemployment,

encourage consumer spending and subsequently cause an increase in sales.

Technological – Technology plays a central role in how an organization functions, how it obtains resources, and, ultimately, how effectively it competes. Improved technology can

reduce a business’s operating costs, allow telework for employees and allow business processes to be redesigned or reengineered.

Societal - Societal forces represent the members of society that can exert influence on a

business. Customers, the general public and the media are three examples. Certainly,

changes to customer preferences, demographics and/or values and ethics can affect how

society responds to a business product, service or initiative.

Competitive – Competitors are organizations operating in the same industry and selling similar products and services. However, competitors may compete in different

ways. For instance, competitive forces operate both domestically and globally. Clearly,

increased competition is an ongoing threat for most businesses.

Global - Global forces, in many ways, are forces that could be considered part of general

economic, political, technological, competitive, or societal forces, but are international in

nature.

4. Provide five examples of an external stakeholder.

Teaching Note:

Students here can choose from a wide variety of stakeholders. You can also frame the

question to ask which 5 external stakeholders are likely most influential or most

important for business to satisfy?

Customers – want quality products at the best price.

The general public – wants to ensure the business is acting appropriately in the community it operates in. For example, providing jobs, complying with laws, and not

harming its workers or surrounding environment.

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The government – wants to collect business taxes, regulates industries through laws and regulations.

Suppliers – want to ensure business will buy goods from them, as well as pay for their products and services in a timely manner.

Creditors – want to ensure the company remains profitable to collect loans or other liabilities owing.

Lawyers – may need to assist business in reviewing contracts, defending lawsuits, etc

Auditors – may need to audit the companies’ financial statements.

Media – may write business news articles, providing either positive and negative reports.

Environmentalist – may boycott unsafe or harmful products to the environment

Industry associations – may want to help business members be successful and deal with challenges etc.

Other interest groups?

5. How can the political force influence business?

The political environment can dictate changes in how a business competes or what

services it offers and how they can be offered. The political force can impact how a

business operates due to country stability, laws and regulations, taxes, trade relationships,

environmental fees, business incentives, crown corporation activities and deregulation

and privatization activities.

Teaching Note: Students can consider the following:

Country stability - Are there wars, natural disasters, national debt, civil unrest, or other

issues that threaten the government and businesses being able to function?

Laws and regulations - How do municipal, provincial, federal, or international laws and

regulations affect business operations, projects, and activities?

Taxes - What taxes does your organization have to pay? For example, corporate tax,

property tax, sales tax, land transfer tax, tariffs on imported goods, etc.

Trade relationships - How is a country’s trade relationship with another country affecting business? - Is there a free trade agreement (e.g., NAFTA) or trade barriers (e.g., quotas

and tariffs)? Does the relationship protect domestic business or open up the market to

foreign competition?

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Environmental fees - Are there environment fees that businesses need to collect and

remit? For example, are there recycling fees on designated electronic products or garbage

collection fees?

Business incentives - What incentives does the government give businesses to encourage

them to operate in a particular region, create jobs, increase profitability, or increase

competitiveness? For example, in Canada, the Scientific Research and Experimental

Development (SR&ED) tax credit for eligible companies encourages research and

innovation; subsidies (e.g., free cash or loans by government) also support certain

industries.

Crown corporations - Are there certain industries the government has control over that

affect how your business operates and competes? (For example, the Liquor Control

Board of Ontario (LCBO), Canada Post, etc.)

Deregulation/privatization - Are there certain industries the government is releasing

control over that may affect how your business operates and competes?

6. How can the societal force influence business?

The societal force can include customers, the general public, bloggers, the media and so

on. Certainly, society can influence business due to consumer preferences, demographics

and values. For example, if consumers prefer to access emails from their mobile devices

rather than their desktop computer, businesses like Yahoo may be forced to change

advertising to make it more suitable for smaller viewing. Another example is

demographics. As society ages, there will be more demand for health services and related

support products. And of course, society has a growing concern over business and its

ethical behaviour. Individuals can easily boycott a product or write about it on a blog.

7. Compare and contrast competitive force and technological force. How do they relate to

one another?

To compete effectively, organizations must continually create new and better methods of

serving customers. Competitors are organizations operating in the same industry and

selling similar products and services. However, competitors may compete in different

ways. Often competition can become more intense or change as new technology is

invented or improved. Technology plays a central role in how an organization functions,

how it obtains resources, and, ultimately, how effectively it competes. Certainly,

technological evolution can cause industry evolution.

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8. Why is organizational learning important to a company’s success?

Organizational learning allows organizations to effectively change or adapt to their

environment by learning how to recognize the need for change, and what actions are

necessary to adapt. Some management scholars have suggested that organizational

learning represents the collective experience of individuals within the organization and

happens when organizational procedures change as a result of what has been learned.

Organizational learning, in this sense, involves a three-stage evolution in which the

highest stage incorporates three aspects of learning: adapting to the environment, learning

from employees, and contributing to the learning of the wider community or context. The

ability of organizations to adapt to and change with a changing environment is dependent

on the ability of their members to change and adapt. The best business leaders are

essentially facilitators of change. Such facilitators are individuals with vision who can

encourage others to leap into a new paradigm.

9. How is the resource industry impacting Canada’s economy?

Canada’s resource industry is made up of Canada’s forests, farms, fisheries, mines, and oil and gas sectors. Traditionally, most provincial economies benefited from the resource

sector.

Canada’s economy was built on extracting and exporting these raw materials. As early as the 1600s, companies began selling Canadian resources abroad. In 1670, for example, the

Hudson’s Bay Company was formed and began trading fur with European countries. By the early 1900s, significant industry had developed in Canada. Numerous mining

companies began extracting minerals and coal from Alberta’s landscape. Similarly, other companies saw great opportunity to extract and manufacture forestry products. In 1909,

for example, a pulp and paper mill was established in Grand Falls, Newfoundland.

Similarly, the Maritime provinces had flourishing fishing industries with easy access to

the Atlantic Ocean and other bodies of water. Across Canada, individuals moved to

places of employment, and towns grew around industry leaders. The resource sector

became the foundation of Canada’s economy and economic growth for the next century, creating jobs and prosperity for many. Today, the resource sector is still an important part

of Canada’s economy, but faces a number of challenges:

Depleting resources: Over the past century, many renewable and non-renewable

resources have been significantly depleted. Mining companies have had to rely on lower-

grade ores; in the forestry industry, depletion of high-quality fibre has led companies to

exploit second- and third-growth timber in less accessible areas; and in the fishing sector,

the Newfoundland cod fishery had been essentially exhausted by the late 1980s.

New technology and equipment: Costs have increased significantly for improved

technology and extraction equipment. New equipment has been required to improve

production efficiency, to extract resources requiring advanced extraction systems, to gain

greater value from production inputs, and to sustain Canada’s competitive position in

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the global commodities marketplace.

Foreign competition: Foreign competition presents another challenge to Canada’s natural resource industries. The US softwood lumber producers, for example, have been a major

competitor to Canada, resulting in several legal battles over unfair competition practices.

Inexpensive labour costs have also been a competitive advantage for foreign producers.

In 2009, AbitibiBowater Inc. (now known as Resolute Forest Products), closed its Grand

Falls pulp and paper mill because of reduced demand for paper and increasing labour

costs.

Pressure from environmental groups: Similarly, environmental concerns have resulted

in new regulations for Canadian companies, to which foreign producers are not subject.

The high rate of extraction of natural resources has led environmental groups to

lobby governments to protect wilderness areas, reduce yields extracted, and require

10. Does Canada have a competitive advantage?

Typically, a competitive advantage is achieved when an organization excels in one or

more attributes that allow it to outperform its competitors. An attribute might be having a

highly skilled staff, a patented technology, a unique marketing strategy, a well-known

brand, or something else that makes the company a leader in its field. In terms of a

country having a competitive advantage in an ‘area’ is certainly open to debate.

In the global economic environment, countries compete through trade and strive for

a competitive advantage based on the goods and services they sell. Some countries are

recognized for their superior products. The United States, for example, is known for

producing world-class Hollywood movies. Belgium is known for crafting decadent

chocolates. And England is recognized for its fine bone china. But what is Canada known

for?

Some observers will argue that its our natural resources that give us a competitive

advantage. Other observers disagree and argue that we aren’t ‘making’ anything. For instance, while we produce lumber, we are not known as the best furniture makers in the

world.

Teaching note: This may be a good classroom discussion question, where students can

research Canadian industries that are in demand globally. Students can start by

researching the question: what are strong Canadian exports?

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Conception Application

Case: Facebook: When your friends are worth a billion

1. What elements of the external and internal environment do you think contributed to

Facebook’s success?

External forces:

Political - Laws about the internet were limited, so there were no regulations limiting its

grow or usage.

Economic - Membership growth was not dependent on the state of the economy, since the

social media service was free. Customers did not have to pay for it.

Technology - The social media site is internet-based, so it is available in most countries.

Various types of technology have been used to create interest and encourage members to

log onto the site regularly. There is the technology that allows photos to be posted;

'pokes' and 'likes' are interactive; online games are another example. The technology

allowed people a free way for family and friends to communicate and stay in touch,

replacing long-distance phone calls, letter writing etc.

Societal - Facebook was originally used only by Harvard students, so there was privacy

and exclusivity. However, as it grew amongst universities and then to the general public,

Facebook allowed family, friends and even coworkers a free and enjoyable way to

communicate with each other and stay and touch, by posting messages, photos, etc.

Competitive - Facebook quickly grew and became the leader in social media. As of 2013,

it has over 1 billion members. Initially, there weren't as many competitors. So, it grew

quickly.

Global - Since Facebook is internet-based, membership grew quickly in the United

States, Canada and globally, allowing a presence in various countries.

Internal forces:

Managing people - Workers are encouraged to work in teams. Workers who haven't

finished their training programs are encouraged to work on the live site.

Structure - It is a company without a large hierarchical structure. There are only 4,600

workers globally, so a lean company. Facebook therefore may be able to adapt quicker to

market changes, with less lines of authority and 'approvals' required.

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2. Which elements of the external and internal environment are beginning to create

challenges for Facebook?

Political - Privacy laws vary in different countries, Therefore, Facebook must be

compliant with privacy laws globally or otherwise its could face penalties, as well as,

countries may block their sites. Disgruntled shareholders have also filed lawsuits against

Facebook questioning the validity of the valuation of its initial public offering.

Economic - The economy may now play more of a role in Facebook's success, since

Facebook's business has diversified into advertising revenue, smartphone sales and online

game revenues. If there is a downturn into the economy, organization may lower their

advertising budget and not advertise on Facebook. On the other hand, if the economy is

in a downturn, there may be more people unemployed and therefore at home and using

Facebook, so companies may see this as a good time to advertise on Facebook. Similarly,

our businesses, such as smartphones sales, could go down during a recession. On the

other hand, a recession and more unemployed people could cause a rise in online game

sales, since people are at home and have more time on their hands.

Technology - Facebook needs to ensure technology is always working 100% so members

do not get frustrated with using the site. Other new technological features need to be

added occasionally to keep users interested and engaged in the site.

Societal - Concerns over privacy, cyberbullying, safety and security etc are discouraging

some people from using the site. Certainly any additional problems with privacy can lead

to bad publicity and discourage future membership; and therefore, will affect advertising

revenues and growth.

Competitive - Facebook has many more competitors now than it did a decade ago. A few

examples include GooglePlus, Twitter and LinkedIn. Clearly, customers have more

choice in social media sites that are also free to use. Facebook’s competitive environment today involves a few industries: advertising, selling information about users, online

games, and selling smartphones. For example, Facebook also competes against

smartphone companies as it entered the smartphone market in 2013 with the HTC First.

Facebook therefore competes against Apple, Blackberry, Samsung, Noika and other

smartphone companies.

Global - Global competitors are increasing too. Certainly some markets are already

dominated by certain sites. In China, 1.3 billion users use Sina Weibo, Renren, and

Tencent. In Russia, another large market, 100 million citizen use VKontakte.

3. Which force must Facebook work the hardest to address to continue to prosper? Why?

Teaching note: Which force Facebook must work the hardest to address is open to

interpretation, and should be supported by strong arguments. Students should state why

certain forces need to be addressed the most. To have a strong answer, students can also

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indicate why other forces are weaker and not as important. The answer of this question

may change due to changes in the business and related news developments. This question

can also be used as a research question and students can research the current status of

the company and what are its most immediate concerns and challenges.

Certainly, competition has increased. However, students can also argue that Facebook

may have more of a niche, whereby it is used for family and friends to stay in touch,

whereas LinkedIn, for example, serves more as a professional resource tool.

Privacy concerns are also growing since people are concerned about identity theft and so

on.

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Appendix A

The External Forces Framework: Considerations for Analysis

Economic

a. State of the economy

 Is the economy growing or slowing down?  What stage of the business cycle is the economy in?

o expansionary (slow, moderate, high growth)

o peak

o contractionary (recession)

o trough

 How is the economy affecting business? Are businesses expanding operations or downsizing?

b. Interest rates

 What are the lending interest rates?  Are they low, moderate, or high?  How are interest rates affecting business?  low interest rates = lower financing costs  high interest rates = higher financing costs

c. Currency rate

 What is the domestic currency rate compared to other countries?  Is the currency rate appreciating or depreciating?  How is the currency rate affecting business?  If the domestic currency is appreciating,

= more expensive for foreign countries to buy Canadian goods (exports)

= less expensive for Canadians to buy foreign goods (imports)

 If the foreign currency is appreciating, = more expensive for Canadians to buy foreign goods (imports)

= less expensive for foreign countries to buy Canadian goods (exports)

d. Unemployment rate

 What is the unemployment rate?  How is the unemployment rate affecting business?  low unemployment = more people working = increased spending power  high unemployment = less people working = decreased spending power

e. Inflation rate

 What is the inflation rate?  How is inflation affecting business?

low inflation = price level increasing at a slow pace

high inflation = price level increasing at a rapid pace

f. National debt

 What is the national debt?  Is a country’s debt so high that it is creating economic instability in the country?

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Competitive

a. Type of competition

 What type of competition exists in your industry? o perfect competition

o monopoly

o oligopoly

o monopolistic competition

b. Phase of the industry in industry life-cycle model

 What phase of the industry life-cycle model is your industry in? o introduction

o growth

o mature

o decline

c. Intra-industry competition

 How competitive is your industry? (Low, moderate, or high?)  How large is your company compared to your competitors?  Does your company dominate the industry?  Did your company create an industry standard?  Who are your competitors?  How many competitors do you have?  Do you have domestic and foreign competition?  What opportunities and threats exist in your industry that can affect your company being

more competitive or less competitive?

Technological

a. Type of technology

 What types of technology are used in your company’s industry?  How is technology impacting or changing business?

o Work approaches

 Videoconferencing versus in-person meetings  Tablets versus desktop computers

o Equipment

 Manufacturing assembly line  Special computer-aided tools

o Electronics

 Smartphones, tablets, robotics, etc. o Telecommunications

 Internet, phone service, etc. o Processing systems

 Computers, data processing systems, etc. Political/Legal

a. Country stability - Are there wars, natural disasters, national debt, civil unrest, or other issues

that threaten the government and businesses being able to function?

b. Laws and regulations - How do municipal, provincial, federal, or international laws and

regulations affect business operations, projects, and activities?

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c. Taxes - What taxes does your organization have to pay? For example, corporate tax, property

tax, sales tax, land transfer tax, tariffs on imported goods, etc.

d. Trade relationships - How is a country’s trade relationship with another country affecting business? - Is there a free trade agreement (e.g., NAFTA) or trade barriers (e.g., quotas and

tariffs)? Does the relationship protect domestic business or open up the market to foreign

competition?

e. Environmental fees • Are there environment fees that businesses need to collect and remit? For example, are there recycling fees on designated electronic products or garbage collection

fees?

f. Business incentives - What incentives does the government give businesses to encourage

them to operate in a particular region, create jobs, increase profitability, or increase

competitiveness? For example, in Canada, the Scientific Research and Experimental

Development (SR&ED) tax credit for eligible companies encourages research and

innovation; subsidies (e.g., free cash or loans by government) also support certain industries.

g. Crown corporations - Are there certain industries the government has control over that affect

how your business operates and competes? (For example, the Liquor Control Board of

Ontario (LCBO), Canada Post, etc.)

h. Deregulation/privatization - Are there certain industries the government is releasing control

over that may affect how your business operates and competes?

Societal

a. Societal customs, attitudes, values, ethics

 What does society think about certain issues (the environment, foreign-made goods, workers’ rights, health and safety issues, etc.)?

 What demands are consumers requiring businesses to adhere to that are driven by values, customs, attitudes, and ethics? (Corporate social responsibility, fair reporting,

sustainability, etc.)

b. Demographics

 Is the majority of the population young or old?  How is the age of the population affecting consumer spending and demand for certain

products and services?

 How are demographics affecting or changing business? c. Consumer preferences

 What products and services are customers preferring and willing to pay for?  Are consumer preferences changing? If so, why?  How are consumers’ changing tastes affecting business?

Global

Global forces include all of the forces described above in an international context.

a. Political - Are political issues and events in foreign countries affecting how domestic

companies do business? (Country stability, laws, taxes, trade relationships, etc.)

b. Economic - How are foreign economic conditions affecting domestic businesses? (e.g., Will

the debt problems of Europe affect the economy in Canada and the global economy?)

c. Technological - How do foreign technological innovations affect competition for Canadian

firms? (e.g., iPhone technology versus BlackBerry technology?)

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d. Societal - How do Canadian societal values, attitudes, and expectations affect business

operations in other countries? How do foreign societal values, attitudes, and expectations affect

businesses in Canada?

e. Competitive - How do foreign companies impact how domestic firms operate and compete?

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CHAPTER 2

THE EMPLOYEE-EMPLOYER

RELATIONSHIP

CHAPTER SYNOPSIS This chapter focuses on the employee-employer relationship and the role of labour in organizations. Legal responsibilities and the definition of an employee is addressed as well as government policy. Four perspectives on the governance of work are also considered such as the neoclassical, managerial, industrial pluralist, and the critical perspective. The chapter also introduces to students the role of unions and diversity opportunities and challenges in the workplace.

LEARNING OBJECTIVES

1. Discuss the meaning and significance of employment and explain how it differs from other forms of work arrangements.

2. Explain the difference between the standard employment and the nonstandard employment relationship.

3. Identify and explain the main perspectives that shape debates about the appropriate role of markets, management, unions, and legislation.

4. Explain how we balance the interests of employers and employees when employment relationships are terminated.

5. Identify and explain the business responsibilities and opportunities within Canada’s diverse labour force environment.

CHAPTER OUTLINE CHAPTER 2  The Employee–Employer Relationship: What Responsibilities Do Bosses Have to Their

Employees? 40  Learning Objectives 40  The Business World: Is Working For Free Illegal? 41 THE LABOUR ENVIRONMENT AND CANADIAN SOCIETY 43  Distinguishing Work and Employment 43  What Is an Employee? 46  From Standard to Nonstandard Employment Relationships 47  Perspectives on Work and Government Policy 47

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THE LABOUR CONTEXT IN CANADA: WHERE ARE WE NOW? 53  Dismissing Employees 55  Common Law Rules Requiring Notice of Termination 56  Statutory Minimum Notice of Termination 57  Unemployment Insurance Programs 58  Current Issues in the Workplace: Managing Workforce Diversity 58  Protecting Diversity and Guarding Against Discrimination in Canadian Law 58  The Model of the Employment Equity Act 68 CHAPTER SUMMARY 72 CHAPTER LEARNING TOOLS 72  Key Terms 72  Multiple-Choice Questions 72  Discussion Questions 73  Concept Application: Immigrants Are Sometimes Unsure About Their Labour Rights 74

BUSINESS WORLD EXERCISE

1. Refer to the Business World article “Is Working for Free Illegal (page 41).” Explain the pros and cons of unpaid internships for companies, students and the overall economy.

Teaching note:

Students can draw direct examples from the case, as well as make reasonable

assumptions or inferences where appropriate.

Companies

Pros Cons

 Companies get free labour which helps save money on salary, benefits, and administration costs.

 Companies develop an available, trained labour pool to potentially hire from.

 Companies may benefit from fresh ideas.

 Students may not be as committed if no pay is involved.

 Companies may incur some administration costs in interviewing and training interns.

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Students

Pros Cons

 Students gain work experience to help find a future job.

 Students learn about the industry.  Students can get a potential job

reference.

 Students complete educational requirements.

 Students may develop some interpersonal skills (eg. working with people).

 Students have no income to pay rent, food, student loans or other obligations.

 Students may have to work a part- time paying job to pay bills on top of internship work.

 Unpaid interns are not employees, so they have no employment rights.

 There are no labour laws to protect interns.

 There is no guarantee of full-time employment.

Economy

Pros Cons

 Companies have lower labour costs, so are more profitable and therefore can use profits for other investment and business growth.

 Unpaid internships help students gain work experience to find employment and contribute to the economy.

 Unpaid internships replace real jobs and drive down wages.

 Unpaid internships lead to higher unemployment among youth.

 Unpaid work can contribute to less consumer spending.

 Unpaid work results in no taxable income to pay for government programs and services.

TALKING BUSINESS EXERCISES

1. Refer to the Talking Business 2.1 - “Are Unpaid Interns Employees.” (page 45) What are some of the factors that must be considered in determining whether or not an intern is an

employee?

Some of the factors that must be considered are:

 Who performs the work?  Who supplies the services?  Who receives training from the employer?

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 Is the internship part of a higher education co-op program?  Are there any employees that are displaced?  Is the training similar to a vocational school?  Who mainly benefits from the training: the individual or employer?  Does the individual have the right to become an employee?  Is the individual advised about receiving no remuneration?

2. Refer to the Talking Business 2.2, “The State of Canadian Unions – Down but Not Out” (page 53) and refer to the Talking Business 2.3, “Are Unions Relevant in Canada Today” (page 55). According to the two articles, what are some of the challenges unions are

currently facing?

Some of the challenges are:

Wages not as high - Union wages (compared to non-union wages) are not as high as they once were. The difference in wages is less than 8%. Less unionized workers – Today, there are less workers covered by a collective agreement. Only about 29-31%. So, there is less union membership and therefore, less union dues. Many industries not unionized - There is difficulty in organizing certain industries such as agriculture, services and financial sectors. Limitations of traditional model - There are some limitations with the traditional union model. Some unions want to include students, retirees and the unemployed but they have not yet determined how to do so. Unions need to adapt - Unions need to adapt to today’s realties: slow economic growth, rapid technological change and increasing global competition. Political change - There are legislative changes restricting union certification processes. Economic change - There are changes in the economy, such as a reduction (“hollowing out”) of the manufacturing sector. Societal changes - Demographic changes have affected the perception of the value that unions can bring to the labour force. For instance, many older workers support unions, while many younger workers do not. During their employment, older workers had experienced wage gains, advances for women, racial equality and better working conditions. On the other hand, the younger generation has been the benefactor of these past gains and has not directly seen the before and after results.

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3. Refer to the Talking Business 2.2, “The State of Canadian Unions – Down but not Out” (page 53) and Refer to the Talking Business 2.3, “Are Unions Relevant in Canada Today” (page 55). According to the two articles, what have been some of the benefits of unions?

Some of the benefits of unions are:

Increased wage competitiveness - Union wages in collective agreements have served as a benchmark and have influenced non-union wages as they increased wage competitiveness. Improved equity and working conditions - Unions have increased wages and helped with pay equity for women, racial equality and improved working environments. Improved public policy - Unions have lobbied the government and achieved public policy improvements in workplace health and safety, pension benefits and literacy.

4. Refer to Talking Business 2.4, “Organizations Seeing the Light about Faith at Work.” (page 61) How can organizations benefit by having policies that support religious

diversity?

Benefits of policies that support religious diversity include:

 Attracting and retaining valued employees  Improving employee morale  Improving employee loyalty  Improving efforts towards corporate social responsibility  Leveraging unique knowledge, talents and backgrounds

5. Refer to Talking Business 2.5, “He Says, She Says: Gender Gap Persists in Attitudes toward Women’s Advancement in the Workplace.” (page 63) What are some factors that affect women’s advancement in the workplace?

Factors that can affect women’s advancement in the workplace include:

 Abilities  Motivation  Leadership opportunities  Attitudes

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6. Refer to Talking Business 2.6, “Aboriginal Workers: Integral to Canada’s ongoing Competitiveness and Performance.” (page 65) According to the Conference Board of Canada article, what factors may help Aboriginal workers contribute to Canada’s ongoing competitiveness and performance?

Factors that may help Aboriginal workers include:

 Continuing education to advanced degrees  Additional work experience and skills  Better transportation and access to jobs  A reduction in negative stereotypes by society

7. Refer to Talking Business 2.7, “Ontario Employers Have a New Tool to Improve Accessibility for People with Disabilities.” (page 67) What is the purpose of the Employers’ Toolkit?

The purpose of the Employer’s Toolkit is:

 To assist employers in understanding and implementing the Employment Standard in regards to the Accessibility for Ontarians with Disabilities Act (AODA).

 To make workplaces more inclusive where everyone has access to work, is treated with respect and is valued.

 To reduce the unemployment rate for people with disabilities.  To help prepare for looming labour shortages.

8. Refer to Talking Business 2.8, “Employment Equity Resources.” (page 70) Identify what are three government departments that help employers and workers with labour and

equity issues?

Three government departments that help employers and workers with labour and equity issues:

 Government of Canada Labour Program  Employment and Social Development Canada  Human Resources and Skills Development Canada

9. Refer to Talking Business 2.9, “Immigrants Make Significant Contributions to Innovation.” (page 70) How is immigration contributing to Canada’s economy?

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Immigration is contributing to Canada’s economy in the following ways: Improving trade - Immigration rates can affect trade levels. For example a one percentage point increase in the number of immigrants can translate into an increase in exports by 0.11 per cent.

Improving innovation - Immigrants bring diverse knowledge and experience that can increase innovation. Immigrants are motivated, risk takers and predisposed to be innovative.

Improving foreign direct investment - Foreign direct investment increases when Canada increases immigration from those countries.

SAMPLE CLASS DISCUSSION QUESTIONS

1. Ask the class a general question: Put up your hand if you have had a part-time,

temporary or contract position? Ask what type of job was it; the number of hours per

week; the pay range; and what if any benefits it provided?

Teaching note: Students can discuss this in groups or as a class to get a sense of the

different types of precarious jobs that currently exist and how they may vary.

2. Do you think Canada’s employment laws do enough to protect workers from

discrimination? Why or why not?

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CHAPTER LEARNING TOOLS

Multiple Choice Answers (also available in the back of the textbook, page 487) 1. D 2. B 3. A 4. B 5. C 6. D 7. D 8. D 9. B 10. D 11. D 12. C 13. A 14. C 15. D

Discussion Questions

1. Why does the distinction between employment and other forms of work arrangements

matter to businesses in Canada?

Whether a work arrangement is characterized as employment or as some other form of business arrangement has significant implications in Canada. That is because many legal rights and entitlements are tied to the existence of an employment relationship. For example, Canadian governments have enacted a considerable amount of legislation to regulate employment based on the theory that employees require government protection because of their vulnerability to the employer. Employment standards legislation is one example. It entitles employees to a minimum wage, overtime pay, mandatory time off and holiday pay, and notice of termination among other benefits. None of these entitlements apply unless the arrangement is characterized as employment. Similarly, human rights laws prohibit discrimination in employment relationships, and access to unemployment insurance, public pension schemes, and workers’ compensation benefits are often contingent upon a worker having been employed for a period of time prior to making their claim for benefits. Tax systems also treat employees and nonemployees differently—nonemployees can deduct business expenses from their taxable income, whereas employees cannot.

2. What are some potential benefits and disadvantages to businesses of hiring employees

rather than retaining independent contractors?

Benefits Disadvantages

 foster worker commitment  retain knowledge and skills learned by

employees

 promote loyalty

 must comply with employment standards laws such as minimum wage, overtime pay, mandatory time off, holiday pay

 must pay insurance premiums  must provide notice to employees upon

termination

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3. Explain the difference between standard and nonstandard employment.

The Standard Employment Relationship (or SER) is characterized by regular, full-time hours at a single employer, often spanning an entire working career. Employees working under an SER receive periodic pay raises and their employers usually provide health benefits and pension plans. The SER functions in the shadow of an extensive array of government regulation that guides the relationship and is underpinned by a strong social security net that provides protection to employees whose employment ends for one reason or another. For example, an employee who is laid off due to lack of work is entitled to unemployment insurance benefits, and an employee injured at work is entitled to workers’ compensation benefits. Unemployment and workers’ compensation benefits are funded by mandatory employer contributions.

Nonstandard employment (or NSE) is less stable and is characterized by part time, temporary, or variable working hours; lower pay; fewer employer-provided benefits; shorter job tenure; and no access to collective bargaining. A 2009 study of Canadian labour standards found that NSE accounts for about 32% of the Canadian workforce. Many of these workers are young, recent entrants into the labour force. This trend toward NSE means that young people graduating from university today are far less likely to experience the sort of stable, predictable employment patterns that were the norm for earlier generations. Many other workers are being characterized as independent contractors, sometimes at their own request, but often at the behest of businesses seeking to benefit from the financial savings and legal flexibility associated with eliminating “employees.” The shift from standard employment to “self-employment” is a major contributor to growing income inequality in Canada, since self-employed workers tend to be lower paid, have fewer employer-paid benefits, have less job security, and are not entitled to the many social protections (unemployment insurance, workers’ compensation) or guarantees (minimum wage, overtime pay, paid holidays) available only to people who are or were “employees.” Workers employed under NSE arrangements and low-income workers who are treated as independent contractors are often described as vulnerable or precarious workers. They live on the cusp of poverty and are unable to save or plan for the future because their source of income is always on the verge of disappearing.

4. Which of the various perspectives on work and government policy do you most agree

with, and why?

Teaching note: This is open to classroom discussion and debate.

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5. Identify and describe three approaches used in Canada to protecting employees when

their employment is terminated.

Common law of the employment contract - All non-union employees in Canada have an employment contract with their employer. Sometimes the contract is written, but if it is not then the parties have a verbal contract. Disputes about what an employment contract says or how it should apply in a given situation are resolved by judges in courts of laws. Over time, a large body of decisions by judges interpreting employment contracts have been released and recorded in law books and, more recently, on electronic websites. This body of case law is known as the common law of the employment contract. Reasonable Notice - One rule that judges created and that forms part of the common law of the employment contract is a requirement for employers to provide employees with reasonable notice of the termination of the employment contract. How much notice is “reasonable” is decided by judges and depends on a number of factors, including the length of the employee’s service, the employee’s age, and the type of work the employee performed. For long service employees, the notice period required can be as much as one to two years. The notice can be working notice, or pay in lieu of notice, meaning that the employer can just pay the employee their wages for the period of notice without requiring the employee to actually work. This requirement for employers to give reasonable notice helps employees transition from one job to the next. Mandatory minimum statutory notice - If an employer fails to provide the employee with reasonable notice, the employee can sue the employer in court to recover it. However, this is costly and takes a lot of time, so most workers do not bother. To provide a less expensive, quicker, and more informal means of ensuring employees receive some notice of their termination, governments have imposed notice requirements. Employment standards statutes in Canada include mandatory minimum statutory notice provisions.

6. Identify and explain three types of laws used in Canada to address worker diversity.

The Charter of Rights and Freedoms - The Charter of Rights and Freedoms forms part of Canada’s Constitution. It governs the relationship between governments and citizens by protecting fundamental rights and freedoms of Canadians against state interference, including the following:

 fundamental freedoms of speech, press, assembly, association, and religion  democratic rights  mobility rights regarding the right to move freely from province to province for

the purposes of residence or employment

 legal rights, which provide standard procedural rights in criminal proceedings  equality rights, which guarantee no discrimination by law on grounds of race,

ethnic

 origin, colour, religion, sex, age, or mental and physical ability

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 language rights

The Charter applies only to government action. Governments can act in two ways: as an employer and as lawmakers. Therefore, in the labour context, the Charter is applicable directly to governments as employers and to all laws passed by governments. Canadian Human Rights Act - The Canadian Human Rights Act, which applies to businesses governed by federal laws (about 10% of Canadian employees are governed by laws made in Ottawa), prohibits discrimination in employment on the following grounds:

 race  colour  national or ethnic origin  religion  age  sex (including pregnancy and childbearing)  marital status  family status  physical or mental disability (including dependence on alcohol or drugs)  pardoned criminal conviction  sexual orientation

The Canadian Human Rights Act and each of the provincial human rights codes govern human rights issues and provide detailed procedures for investigation and resolution. An employee who feels they employer has discriminated against them on a prohibited ground may file a complaint with the appropriate human rights tribunal and seek a remedy, including lost wages and reinstatement if they have been dismissed for discriminatory reasons. The prohibitions on discrimination in employment apply throughout the life of the employment relationship, including hiring, terms of employment, and dismissal. Provincial human rights legislation, which governs most Canadian businesses, include similar though not identical prohibited grounds. For example, in Manitoba it is unlawful for an employer to discriminate on the basis of political belief, but that prohibited ground is not included in either the Ontario Human Rights Code or the Canadian Human Rights Act. Recently, Ontario added the new ground of gender identity and gender expression to the list of prohibited grounds, making it the first province to do so. All Canadian human rights legislation prohibits employers from discriminating on the basis of physical and mental disability. When a disabled worker is unable to perform all of the essential duties of a job, these laws impose on employers a duty to accommodate the employee’s disability with the aim of enabling the worker to perform the job. This might mean providing the employee with special tools to help with lifting, to build ramps or elevators, or to change schedules to give disabled workers more frequent breaks, among other changes.

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Changes need to be made up to the point that they would cause undue hardship , which is an onerous standard for employers to meet. The duty to accommodate applies to other prohibited grounds too, including religion. For example, employers have been ordered to give employees time off work to observe religious holidays that fall on regular work days. Employment Equity Act - The Employment Equity Act (1986) was introduced to break down barriers for these four designated groups. The Employment Equity Act (EEA) was also designed as an ongoing planning process used by an employer to accomplish a number of objectives:

 eliminating employment barriers for the four designated groups identified in the Employment Equity Act—women, people with disabilities, Aboriginal people, and members of visible minorities

 redressing past discrimination in employment opportunities and preventing future barriers

 improving access for the designated groups and increasing their distribution throughout all occupations and at all levels

 fostering a climate of equity in the organization  implementing positive policies and practices to ensure the effects of systemic

barriers are eliminated. Note that the EEA only applies to private-sector employers under federal jurisdiction as well as almost all employees of the federal government. This means that it does not apply to the vast majority of private-sector businesses in Canada, which are governed by provincial laws.

7. What are the four designated groups that are protected in the Employment Equity Act?

 Women  Aboriginal peoples  People with disabilities  Members of visible minorities

8. What factors are affecting union density in Canada?

Perspective shift - A shift in the dominant perspectives away from industrial pluralism and toward the neoclassical and managerialist perspectives.

Revised labour laws - Revised labour laws have weakened unions and discouraged collective bargaining, arguing that collective bargaining discourages businesses from investing in Canada. There are also some laws that prohibit workers from going on strike. This turn against unions and collective bargaining is closely aligned with the neoclassical perspective and the belief that markets operate most efficiently without collective bargaining and with little employment regulation.

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9. Provide arguments both in favour of and against a strong and generous unemployment

insurance program.

For Against

 A measure of security for Canadians that lose their jobs.

 Less than 50% of unemployed people qualify for benefits due to strict qualifying criteria.

 Discourages people from working.

10. In what ways has economic globalization affected the labour market and debates over

how best to regulate globalization in Canada?

Greater mobility of capital & how to organize work - Economic globalization has also influenced the debate about how best to organize work in Canada. Greater mobility of capital and industry has contributed to a shift in the composition of the Canadian economy.

More outsourcing - Many manufacturing workplaces have moved to lower-wage countries, and many of the new jobs being created are in the service sector.

Reduction in laws and regulations over industries - Governments must wrestle with how to balance their desire to create a “business-friendly” climate while also ensuring that good jobs are created. This challenge has been rendered more difficult by the increased ability for businesses to move from one jurisdiction to another. The fear is that if labour costs rise too high, or laws make control of labour to rigid, businesses will avoid Canada or leave. In this way, globalization can be said to create downward pressure on employment-related laws and practices

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Conception Application

Case: Immigrants are sometimes unsure about their rights 1. What factors are identified as contributing to the low (and illegal) pay of the workers in this

story?

In this story, there are several factors contributing to low or illegal pay:

 Language barrier - Many immigrants do not speak English, so there is a language barrier.

 Lack of knowledge of labour laws - New immigrants sometimes are not familiar with Canadian labour laws and therefore, do not know their rights, such as the minimum wage, overtime pay, holiday pay and severance pay.

 Lack of knowledge of supports available - New immigrants often do not know the social infrastructure and supports available to them.

 Difficulty finding work - Another factor is that it is difficult to find full-time work in the mainstream market.

 Little oversight by the government – The government is not necessarily tracking new immigrants and their employment status, etc.

 Increase in precarious employment – Full-time work is shrinking, and part-time work is increasing. For example, over half of the greater Toronto and Hamilton area belong to part-time, temporary or contract employment.

2. How do you think this story would be explained through the lens of each of the four

perspectives discussed in this chapter?

Neoclassical Perspective

 Competitive markets allow fairest distribution of skills and wealth - The neoclassical perspective argues that competitive markets are the best means of organizing complex economies and societies. The forces of supply and demand, if left to operate freely with limited state interference, will ensure optimal assignment of skills and expertise throughout the economy as well as the fairest distribution of wealth. This is because people and businesses are motivated by self-interest.

 People freely make choices where to work -Therefore, they will make decisions that maximize their personal interests and avoid situations that do not. Provided people have adequate information to recognize what is in their best interests and are free to make

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choices, the invisible hand of the market will guide actors toward economic and social prosperity.

 Low wages are necessary in some jobs - To see why, consider the example of the minimum wage. Imagine that an employer offers an employee $4 per hour and that the employee is prepared to accept that wage rate. However, the government passes a minimum wage law prohibiting employers from paying less than the minimum wage. The Neoclassicist position is that this law will have negative effects on the economy that will ultimately harm low-wage workers. By artificially raising the wage rate above the “market rate” ($4 per hour in our example), the minimum wage law will cause employers to hire fewer workers, to replace workers with machinery, or to pack up and move the work to another location that does not have a minimum wage. If none of these options is available, the employer will pass on the additional costs to consumers in higher product prices, and if that is not possible the company may be forced into bankruptcy or close down altogether. In any case, the economy suffers, and the harm will be felt most by the low-wage workers who the minimum wage laws were intended to help. A business that offers less than the market wage rate will be unable to attract or retain qualified workers, and therefore will either have to raise their offer to attract workers or will be driven out of business. Since workers are assumed by neoclassicists to be knowledgeable about other job possibilities and to be free and mobile—able to move from job to job as better opportunities arise—market forces will ensure that wages and working conditions remain close to that point at which labour supply equals labour demand (the equilibrium market rate).

Managerial Perspective

 Low to no government intervention since business with look after workers - Government intervention in the governance of work and employment should be minimal.

 Employers and employees want business to be successful - Managerialists argue that employers and employees, businesses and workers, share a common interest: They both want the business to be successful. Managerialists argue that workers who are treated decently and with respect will be the most productive workers, and that the most successful businesses will be those that provide good wages, benefits, and good working conditions. Therefore, businesses will look out for employees’ concerns because it is in their economic interests to do so.

Industrial Pluralist Perspective

 Imbalance of power in favour of the employer - Pluralists emphasize the imbalance of power between workers and employers and the value to society and economies of striking a reasonable balance between the efficiency concerns of employers and the equity concerns of workers. For the pluralist, the relationship between a business/employer and a worker/employee involves the bearer of power on the one hand, and subordination on the other hand. In most cases, workers lack the necessary bargaining power to engage in

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meaningful bargaining about conditions of employment, with the result being that the business purchasing their labour can set the working terms unilaterally.

 Minimal employment standards required to protect workers - Pluralists support an activist government that intervenes in the work relationship to promote decent working conditions and worker “voice” in the determination of those conditions. Pluralists support minimum employment standards to ensure decent working conditions because they reject the neoclassical belief that market forces alone will produce a fair balance between equity and efficiency concerns.

 Collective bargaining and unionization required for employees to get their fair share - Pluralists believe that the most effective way to ensure worker voice and to promote a healthy distribution of wealth throughout the economy is to promote collective bargaining and unionization. Collective bargaining, including a legal right to withhold labour (a strike), empowers workers by putting them on a more equal footing as they bargain for the sale of their labour. This ensures that workers receive a reasonable share of the economic pie produced by their labour, a result that benefits the economy (by fuelling consumption) and society (by producing a decent standard of living). Therefore, pluralists support laws that protect the right of workers to join unions, to engage in collective bargaining, and to strike if necessary to apply pressure on their employers to agree to better working conditions

 Workers’ lack information - Pluralists argue that in the real world, workers usually lack information about new jobs, so they are ill equipped to assess the true value of their labour during the initial bargaining process. Workers also lack information about alternative job opportunities, contrary to the assumptions of the neoclassical model. Even if they have that information, in practice people do not move from job to job with the mobility and ease that the neoclassical model assumes. Workers will often remain at a workplace for years, even if there are better job opportunities elsewhere. Behavioural economists describe this effect as bounded rationality —the recognition that humans often do not make decisions that would maximize their personal utility because they either lack the necessary information to assess the various options or lack the capacity to assess the information they have.

Critical Perspective

 Managers and workers always in conflict - The Critical Perspective argues that the interests of labour (workers) and capital (the owners and managers of economic organizations) are irreconcilably in conflict. The objective of capital is to extract from labour maximum effort and control at minimal cost. Since workers depend on capital for their basic needs in a capitalist system, and there are almost always more workers than jobs, labour is inherently disadvantaged and subject to exploitation at the hands of the more powerful capitalists.

 Employment regulation and collective bargaining required to protect workers - The critical perspective posits that employment regulation and collective bargaining are at best only marginally useful in protecting workers from this exploitation. In fact, these

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measures can actually be harmful to worker interests insofar as they can blind workers to their exploitation and distract them from the more important objective of building class consciousness, which will be necessary to challenge the capitalist model and replace it with a more egalitarian model.

3. What, if anything, should be done to improve the working conditions for these workers?

Some possible improvements may include:

 increasing the minimum wage rate.  revising basic employment standards to address precarious employment such as part-

time, temporary, contract or on-call work.

 revising income security programs.  regular enforcement of laws.  revising public policy.

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CHAPTER 3

Managing the Workforce

CHAPTER SYNOPSIS

This chapter focuses on how managers should manager people and work. Clearly, the

philosophies of management are still relevant in today’s society and work environment. Which ones work the best? Certainly, a contingency of factors may determine this. Motivating the

workers and collaborating in teams will also be addressed.

LEARNING OBJECTIVES

1. Describe the types of roles managers play within organizations.

2. Identify the underlying philosophies of management within the classical school of

thought.

3. Discuss the underlying philosophies of the behavioural school of thought in relation to

management.

4. Consider the importance and role of trust in the workplace.

CHAPTER OUTLINE

CHAPTER 3

 How Can Business Leaders Best Manage their Employees? 77  Learning Objectives 77  The Business World: Learning How To Be An Effective Leader: Lessons From The

Executive Roundtable 78

WHY STUDY MANAGEMENT THOUGHT? 80

 What Do Managers Do? 81  The Roles Managers Play in Organizations 81  The Toxic Employee 85

MANAGEMENT PHILOSOPHIES 88

CLASSICAL APPROACHES TO MANAGEMENT 88

 The Social Context 88  Scientific Management 89  Administrative Management 92  Bureaucratic Management 92  The Classical Approaches in Perspective 96

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BEHAVIOURAL APPROACHES TO MANAGEMENT 98

 The Human Relations Movement 100  Mary Parker Follett (1868–1933) 100  Chester Barnard (1886–1961) 101  Modern Behavioural Science and Motivation-Based Perspectives 102

THE BEST MANAGEMENT PHILOSOPHY?

 CONTINGENCY APPROACH 102

OTHER MANAGEMENT ISSUES: MOTIVATION, TRUST AND TEAMWORK

 Realities of Motivation 103  The Critical Importance of Trust in the Workplace 106  Trust, Teamwork, and Citizenship 108

CHAPTER SUMMARY 111

CHAPTER LEARNING TOOLS 111

 Key Terms 111  Multiple-Choice Questions 111  Discussion Questions 112  Concept Application: Kicking Horse Coffee 112

BUSINESS WORLD EXERCISE

1. Refer to the Business World article “Learning How to Be an Effective Leader: Lessons from the Executive Roundtable (page 78).” Why has the Roundtable for Leaders Program been so successful?

The program has been successful since the program:

 involves high potential managers working in small groups to share and exchange ideas and advice.

 involves managers meeting regularly to discuss issues related to their jobs and careers and they provide each other with advice and feedback.

 is led by an expert facilitator who adds to the learning process by bringing additional skills and experience.

 combines peer mentoring with one-on-one coaching.  uses a coaching process to help managers establish and clarify their short- and

long-term goals through challenging questions and personal reflections.

 uses peer mentoring to help managers generate concrete ideas for dealing with specific work challenges, and exposes them to different ways of thinking, and

provides a sounding board as well as an opportunity for vicarious learning.

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TALKING BUSINESS EXERCISES

1. Refer to the Talking Business 3.1 - “The Visionary Leader: Steve Jobs” (page 84). According to the article, what were some of the pros and cons of Steve Job’s management and leadership style?

Pros Cons

 Focused on innovation.  Was a visionary (future-oriented).  Became known for passion and

creativity.

 Took an almost bankrupt company and turned it into a billion dollar

company.

 Bought the right companies and the right technologies (i.e. good decision-

making).

 Able to make employees passionate about their work; believe that they

could make groundbreaking products,

and that anything was possible.

 Difficult to work with (was initially removed from company).

 Ignored feelings of his employees.  Low employee morale; a 75%

turnover rate at Apple.

 Made the Fortune’s list of America’s Toughest Bosses.

 Cut projects and jobs frequently, creating fear amongst employees.

 Had over 100 employees reporting to him; an authoritarian model who

wanted to be involved in every step of

the product design.

2. Refer to the Talking Business 3.2, “Conflict Management: The Toxic Employee” (page 85).

a. What are toxic employees and their behaviours?

b. Why are companies having such a difficult time in dealing with toxic employees?

c. What can organizations do to reduce toxic behaviours?

a. According to the article, toxic employees are workers who exhibit bad behaviours and

can cause counterproductive work behaviours that can negatively impact individuals,

teams and even the organization as a whole. Three kinds of behaviours include

shaming, passive hostility, and team sabotage.

 Shaming involves reducing another’s self-worth through pot-shots, humiliation, sarcasm or mistake-pointing.

 Passive hostility involves using one’s anger inappropriately through passive aggressive behaviour.

 Team sabotage (also called meddling) involves making the team less productive or establishing a negative power base.

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b. There are several reasons why companies have difficulty in dealing with toxic

employees:

 Toxic employees may not meet the technical definition/threshold of a bully or harasser and thus make it difficult to address the behaviour through a formal,

disciplinary process.

 Only 1% to 6% of victims ever come forward and report a toxic employee.  A toxic personality can spread like a virus and cause other people to exhibit

similar bad behaviours.

 When toxic people act inappropriately and get away with it, other employees become “silent” and do not bring forth the issue; thus, the problem persists.

 Often strategies to fix the problem are ineffective such as taking work away from the toxic person, changing the environment or structure, or minimizing team

interactions.

 Often someone in the organization wants to keep the toxic employee because the/she is otherwise a productive employee or has special skills and expertise.

This leads to enabling the behaviour and creating a culture of incivility in the

team and in the organization.

c. In order to reduce toxic behaviours, organizations need to:

 understand what values exist and what values are being practiced.  instill a value of respect for all employees, communicated top-down throughout

the organization.

 incorporate values into a code of conduct.  establish a zero-tolerance policy for inappropriate conduct.  link interpersonal behaviour to performance metrics and appraisals.  reward good interpersonal behaviours and uphold values.

3. Refer to the Talking Business 3.3, “Leading Teams in a New Direction” (page 93). What are some measures that organizations can employ to bring different groups together to

work as a team?

Some measures include:

 promoting common goals.  promoting a common identity.  reducing negative feelings, attitudes and stereotypes; tolerating differences.  promoting allophilia (i.e. promoting positive feelings and attitudes); appreciating

and liking differences amongst each other.

4. Refer to Talking Business 3.4, “Is Weber Alive and Well.” (page 96) a. What is Weber’s management philosophy? b. What environment or type of business may it be suitable for?

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a. Weber’ management philosophy of Bureaucratic Management involves the following:

 Rules and procedures - Organizations require stable and documented rules.

 Hierarchy of authority - Organizations should have fixed positions that are ranked according to their level of power.

 Division of labour - Simplifying the job will achieve greater efficiencies.

 Impersonality - Rules and procedures, not personal agendas, govern behaviour; the individual and organization are professional, not personal.

 Selection and promotion - Hiring will be based on ability, not friendship or family ties; promotion will be based on job performance, not favouritism.

b. The environment Weber’s management style may be best suited is an environment that is stable. This means little changes to consumer preferences; technology is fixed

and other environmental forces such as competitive, political, and economic forces

are constant.

5. Refer to Talking Business 3.5, “The High Costs of Workplace Harassment.” (page 99) a. What is workplace harassment?

b. What are the costs for companies?

a. Workplace harassment may be defined as inappropriate comments, actions,

gestures or other conduct that negatively affects an employee’s dignity or psychological integrity.

b. Workplace harassment may cost companies in several ways:

 Low employee morale may turn into high employee turnover, increasing hiring and training costs.

 Bad publicity via the media can hurt the company’s reputation and cause a loss of customers and sales.

 There can also be a reduction in productivity as well as an increase in health costs associated with helping workers recover.

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6. Refer to Talking Business 3.6, “The Myths and Realities of Motivation.” (page 103) According to the article, what are companies doing ‘right’ and ‘wrong’ in motivating their workforce?

Right Wrong

 Companies need to offer their employees a decent salary and benefits

so basic needs are met.

 Sometimes motivation efforts are too simplistic: companies just try to reward

good behaviour and punish bad

behaviour.

 Companies tend to focus on results or achievements, rather than the process of

learning (eg. performance goals vs.

learning goals).

 Companies may believe by human nature employees are passive and inert

(therefore, requiring rewards) versus

humans being active and engaged.

 Companies too often emphasize routines, right answers and

standardization.

7. Refer to Talking Business 3.7, “How One Canadian Company Earns Trust.” (page 107) a. Why does The Dalton Company think trust is important to have in an

organization?

b. What does The Dalton Company do to promote trust?

c. What management philosophy would work well at Dalton and why?

a. Dalton believes trust is important for several reasons:

 trust in companies has been declining, such as in the construction industry, and needs to be restored.

 trust is important for an organization’s reputation and long-term sustainability.

b. Dalton promotes trust by:

 creating a culture of trust.  focusing on values that are incorporated into its systems.  ensuring clear standards are set and communicated, so employees are

accountable.

 understanding clients’ needs, purpose, vision, goals, limitations etc in a project and ensuring these needs are met in the building process by monitoring the

process on an ongoing basis.

 measuring performance on a project based on client feedback (eg. delivered well, on time, and on budget).

 focusing on resolving problems as a team instead of finger pointing.  rewarding trustworthy behaviour.

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 integrating trust into hiring practices and its bonus system.

c. Dalton may benefit from either the classical school or behavioural school approach.

Teaching Note: This is a question open to interpretation. Here are two sides:

Classical Behavioural

Scientific management theory

 Standardizing the work  Observation and measurement were

used to determine the most efficient

method (e.g.,time and motion studies)

 Belief that there is one best method for performing a job

 Jobs are compartmentalized (broken down into small, simple steps)

 Benefits: -easy and inexpensive to train workers

-cheap and readily available pool of

labour; clear rules in how to perform

the job; little to no room for individual

discretion; consistent job performance

Dalton Examples:

Dalton has clear standards to hold people

accountable.

 Dalton focuses on accountability and leadership.

 Dalton monitors building processes regularly and how customers’ needs being met.

Administrative management theory

Esprit de corps

 Team spirit and harmony should be encouraged amongst workers to

generate organizational cohesiveness

and unity

Dalton Examples:

 Dalton discourages finger-pointing and encourages people to work in teams to

resolve problems

 Trust is part of the company’s values to ensure harmony.

Behavioural school theory

Social systems

 Organizations are social systems requiring continuous communication

and cooperation among all members.

Dalton Examples:

 Dalton discourages finger-pointing and encourages people to work in teams to

resolve problems.

 Trust is a focus of the company’s values to ensure harmony.

Organizational objectives

 Managers must establish organizational objectives and ensure

employees are motivated to help attain

those objectives

Dalton Examples:

 Dalton has a culture of trust with values integrated into its systems.

 Dalton focuses on building trust with all its stakeholders including customers

and employees.

Authority of management

Authority over subordinates must be

earned, since workers will only follow

orders when

 they understand what is required  they see how their work relates to

organizational goals

 they believe they will gain some benefit from accomplishing these goals

Dalton Examples:

 Trust is integrated into hiring strategies and its bonus system.

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 Employees are rewarded based on trustworthy behaviour, not purely tasks

completed.

8. Refer to Talking Business 3.8, “How Teams Learn at Teleflex Canada.” (page 109) a. What kind of corporate culture does Teleflex have?

b. How do employees learn at Teleflex?

c. How has employee training and learning benefited the company?

a. Teleflex has a corporate culture that:

 promotes teamwork (i.e. working together) in finding the best solutions to resolving problems to real job challenges.

 promotes diverse cultural and age backgrounds.  values employees differences and the right mix of skills.  views organizational learning essential to maintaining its reputation as a world

leader and an innovator in hydraulic and thermal technology products.

b. Teleflex employees learn in a variety of ways according to:

 Outside classes and skills upgrading such as ESL classes; academic upgrading in the basic skills of reading, writing and math.

 On-the-job training - Team Time Training model which involves teams solving real work challenges; learning in regular production team meetings

(approximately 1 hour); better understanding how to meet customer needs and

add value.

c. Training has benefited the company in several ways including:

 Improved communication in its newsletter by explaining technical data in plain language.

 Improved on-time delivery from 65% to 90%.  Improved inventory turnover from 4 to more than 7 times.  Reduced parts shortages by better inventory management.  Improved adaptability to adopting new products or production processes.  Increased employee involvement in becoming change agents.  Improved easy of job transitions.  Improved employee skills such as communication skills and problem-solving

skills.

SAMPLE CLASS DISCUSSION QUESTIONS

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1. Ask the class a general question: would you rather work for a company that uses the

scientific management approach or the behavioural school management approach? And

why? Provide specific examples.

2. Why do you think trust is important in organizations amongst employees, managers,

customers and other stakeholders?

3. Do you think one management approach is essential in order for a company achieving a

competitive advantage? Why or why not?

Teaching note: Students can discuss these questions in groups or as a class to form a

debate about which approach may be better in certain organizations or environmental

situations.

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CHAPTER LEARNING TOOLS

Multiple Choice Answers (also available in the back of the textbook, page 487)

1.B 2.D 3.A 4.C 5.D 6.A 7.D 8.B 9.D 10.B 11.C 12.C 13.D 14.D 15.C

Discussion Questions

1. Define management and explain what it means to manage.

Management is the process of administering and coordinating resources effectively and

efficiently in an effort to achieve the organization’s goals. Efficiency means using the fewest inputs to produce a given level of output, whereas effectiveness means the pursuit

and achievement of goals that are appropriate for an organization

2. Discuss the four main functions of management?

The four main functions of management involve planning, organizing, controlling and

leading.

 Planning is assessing what the organization’s goals should be and generating strategies to achieve the organization’s goals

 Organizing involves determining: o how the work tasks will be grouped to make best use of resources

o how the tasks will be assigned, including the issue of staffing

o how authority will be allocated to carry out the work.

 Controlling involves assessing whether the organization is: o progressing toward its goals

o taking steps to ensure problems are dealt with

o establishing standards of performance

 Leading involves guiding and motivating all members toward the achievement of the organization’s goals, and communicating ideas and directions effectively

3. Compare three roles of management: interpersonal, informational, and decisional roles.

Interpersonal roles - Interpersonal roles include those managerial tasks that arise from

the manager’s formal authority base and involve relationships with either other organizational members or external parties. Figurehead roles are typically ceremonial or

symbolic in nature. For example, in the role of a figurehead, a supervisor might hand out

“employee of the month” awards at a company banquet. In the leader role, the manager may serve as a motivator, a communicator, and a coordinator of her subordinates’

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activities. This might include conducting performance appraisals, offering training to a

new recruit, and so on. A final role within the interpersonal grouping is that of liaison,

which includes those managerial activities that involve developing relationships with

members of the organization outside the manager’s area of authority. This could include anything from a sales manager’s relationship with the production department to a university dean’s networking relationship with the city council.

Informational Roles - Mintzberg’s second broad category of managerial roles, referred to as informational roles, reflects the importance of managers as communication

sources for the organization—whether this involves gathering or giving out important information to other organizational members or to parties outside the organization.

First, we can consider the manager as a monitor of sorts. That is, managers must

constantly monitor the internal and external environments of their organization to

gather information that is useful for organizational decision making. For example, the

marketing manager may be responsible for assessing consumer demand for a newly

proposed product.

Second, managers are also disseminators of information. That is, they may share or

distribute the information that they have gained in their role as monitors. Obviously,

managers must ensure that subordinates have all the information they require to perform

their job effectively. This might include offering clear information regarding company

expectations of performance standards and performance appraisal criteria.

Third, the manager may act as a spokesperson . Managers can also transmit information

to individuals outside their area of authority. For example, a marketing manager

might provide the engineering department with the latest report of consumer preferences

regarding product design. Or the company president may report to a government

regulatory board regarding the company’s environmental policy.

Decisional Roles - Mintzberg’s final category is referred to as decisional roles, and highlights the fact that managers must process information and act as decision makers.

There are four classes of roles described here.

First is the notion of the manager as entrepreneur. That is, the manager may, for

example, develop and initiate new projects. This might include the personnel manager

developing a new performance appraisal system, the marketing manager developing a

new product, and so on. Generating new projects and new ventures is a highly valued

trait among today’s managers. Perhaps one of the greatest entrepreneurial leaders in recent times was the late Apple leader, Steve Jobs.

Managers might also play the role of disturbance handler. Dealing with and attempting to

resolve conflict can include things such as resolving a dispute between two employees,

dealing with a difficult or uncooperative supplier, and so on. The ability to manage

conflict effectively can often be a critical role of a manager.

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A third role that managers can play is that of resource allocator, which involves

deciding how resources (money, equipment, personnel, time) will be allocated. For

example, a department head might decide how to allocate a limited financial budget

among the different areas. Deciding how much time the division should invest in a new

project is also a decision about resources.

The final decisional role identified by Mintzberg is the manager as negotiator. Indeed,

numerous research studies have underscored the degree to which managers are engaged

in some form of negotiation throughout their activities. Whether this involves negotiating

with customers, employees, or other departments, a manager often bargains over issues

that affect the operation of his or her department, unit, or organization. For example, the

production purchasing manager might negotiate with the supplier in an effort to speed up

the supply of raw materials for the company’s production department. A personnel manager might negotiate with a representative of the union to resolve a conflict.

4. Explain and discuss three classical management philosophies.

i) Scientific management

Taylor believed that the way to improve worker–manager relations was through scientific management, which involves at least three central features: compartmentalizing and

standardizing the work, supervising the workers, and motivating the workers.

Compartmentalizing and standardizing the work - Taylor’s belief that there is one best method for performing the job—and the job of management is to discover that method, train workers, and ensure that they use the method. This resulted in specializing, or

compartmentalizing, the job into its basic parts—that is, breaking the job down into its most fundamental steps and, where feasible, allowing workers to perform the most basic

tasks. This kept the job simple, made it easy and inexpensive to train workers, and

ensured a cheap and ready supply of labour to perform the job. Standardizing the work

meant that there were clear rules regarding how to perform it, which left little or no room

for individual discretion. There is no better way of ensuring consistent performance than

through the creation of strict guidelines. According to Taylor, then, the purpose of

managers is to help

Supervising the workers - Taylor believed that a manager can’t be an expert in everything. Taylor did was make clear the separation of the mental work of managers

from the physical labour of workers.

Motivating the workers - Taylor’s philosophy about motivating the workers was quite simple: Money motivates! Taylor believed that compensation must be closely tied to

performance. A paycheque for simply “walking through the door” is not motivating. It must be clear in workers’ minds that they only get a “good day’s pay” for a “good day’s work.” So a piece-rate system was desirable, whereby workers’ pay was directly tied to

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their output. If you produced at a standard level of production, you received a standard

rate of pay; if you produced above average, you were paid at a higher rate.

ii) Administrative Management

Administrative management focuses specifically on management and the functions that

managers should perform.

Division of work - Fayol supported the notion of division of work: By breaking work

down into its simplest components and assigning these separate elements to workers, the

work can be conducted more efficiently and productively.

Unity of command - Similarly, Fayol believed that a manager’s role is to give orders and to discipline employees. Fayol also advocated the notion of unity of command — each employee should report to only one boss to avoid confusion and conflicting instructions.

In addition, this authority should be concentrated at the upper levels of the organization.

Fayol believed that employees should subordinate their individual interests to the

common good or general interest of the organization. In other words, the goals of the

overall organization must take precedence over any individual interests of employees.

Esprit de corps - Finally, among Fayol’s stated principles was the concept of esprit de corps —that is, team spirit and harmony should be encouraged among workers to generate organizational cohesiveness and unity.

iii) Bureaucratic Management

Weber’s focus is on the nature of the organization as a whole. As was the case with Taylor and Fayol, Weber’s beliefs came from observations of his environment. Weber believed that an alternative organizational structure was required, and this structure

would improve the operations of the organization in a number of ways; this was the

origin of the notion of the bureaucratic organization.

Rules and procedures - Organizations require stable, comprehensive, and usually

documented rules for administration as well as for just about any organizational activity.

All employees are expected to strictly obey these rules and procedures.

Hierarchy of authority - To ensure accountability among organizational members, fixed

positions that are essentially ranked according to the level of power or authority held in

the position need to be created so that members with higher positions will supervise those

in lower positions. Typically, this means that the organizational chart looks like a

pyramid, with then masses of workers at the lower levels while the number of

organizational members in higher-level positions are fewer.

Division of labour - Like Taylor’s notion of specialization, Weber acknowledged the usefulness of simplifying the job to achieve greater efficiencies.

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Impersonality - Rules and procedures, not personal agendas, need to govern behaviour so

that relationships between organizational members or between the individual and the

organization are professional rather than personal. This attempts to avoid such

dysfunctional behaviour as favouritism.

Selection and promotion - Those hired to fill positions will have specialized training and

will be hired based on ability rather than on friendship or family ties. Similarly,

promotion will be based on job performance rather than on favouritism.

5. Compare the differences between Taylor’s and Fayol’s views on management.

Taylor Fayol

Scientific Management

Standardizing the work

 Observation and measurement were used to determine the most efficient method (e.g.,

time and motion studies)

 Belief that there is one best method for performing a job

 Jobs are compartmentalized (broken down into small, simple steps)

 Benefits: ∘ easy and inexpensive to train workers ∘ cheap and readily available pool of labour ∘ clear rules in how to perform the job ∘ little to no room for individual discretion ∘ consistent job performance

Supervising the workers

 Managers can only take charge of their area of expertise

 Managers’ mental work should be separated from labourers’ physical work

 Workers are not capable of managing themselves

Motivating the workers

 Money is the only factor in motivating workers

 Compensation must be closely tied to performance

 Piece-rate pay was desirable

Administrative Management

Division of work

 Breaking work down into its simplest components and assigning separate tasks to

workers

 Manager’s role is to give orders and discipline workers

Unity of command

 Each employee reports to only one boss to avoid confusion and conflicting

instructions

Esprit de corps

 Team spirit and harmony should be encouraged amongst workers to generate

organizational cohesiveness and unity

Goals of the company

 Company goals should take precedence over individual interests

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6. Explain and discuss three behavioural management philosophies.

Elton Mayo (The Human Relations Movement)

Elton Mayo (1880–1949) conducted studies at Western Electric, in Hawthorne, Illinois, around 1924 that drew great attention to the importance of the social dimension of work.

Among Mayo’s studies was an investigation of the effects of lighting on worker productivity. To test the effects of lighting, Mayo chose one group of workers to be the

experimental group—the “guinea pigs,” so to speak. A variety of lighting conditions were manipulated. A control group was also used where this group of workers worked under

constant lighting conditions. If better lighting improved productivity, then the group of

workers working under better lighting conditions should outperform the control group.

The results were puzzling, however: The productivity of both the control and the

experimental group increased. In fact, even when lighting was worsened for the

experimental group, their productivity nonetheless increased. How could these results be

explained? Mayo had inadvertently discovered what came to be known as the Hawthorne

effect. The experimental results (productivity increases) were not, in fact, caused by the

intended experimental manipulation (better lighting), but by other factors—here, by “human nature.” Specifically, Mayo uncovered that the true source of the productivity increase was the fact that the employees were receiving special attention. That is, all

subjects realized that they were the focus of attention for the study, and that in itself

increased their motivation to do a good job. Thus, social factors had a greater impact on

productivity than actual working conditions did.

The Hawthorne effect had a major impact on management thinking; in fact, it has been

viewed as marking the transition from scientific management to the human relations

movement . This approach focuses on organizations as social systems, not simply as

formal structures. It stresses the need for managers to recognize that managing involves

social interaction—that “employees are people, too!”

Mary Parker Follett

Mary Parker Follett was a social philosopher who made a number of significant

contributions to the field of management in the first decades of the 20th century. Based

on Follett’s observations of real-life managers, she identified a number of elements necessary for effective management. Among the factors she emphasized as critical were

coordination, self-management, and collaboration.

First, Follett argued that coordination was central to a manager’s function. That is, Follett suggested that the manager’s job of encouraging workers to maximize their productivity should come about not through force or coercion, but through involvement

in coordinating and harmonizing group efforts. This requires managers to be closely

involved with subordinates in the daily conduct of their work, rather than simply being

people who make and enforce rules.

Second, Follett stressed the importance of self-management and collaboration .

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Follett felt that decisions regarding how work is done can often be made by those

performing the work, rather than by managers who may not be as familiar with the task.

Consequently, subordinates should be involved in the decision-making process in matters

that affect their work and how they should perform their work. Moreover, she felt that

individuals would much prefer managing themselves than being led by a boss. Managers

and workers should view themselves as collaborators or partners.

Follett advocated her views at a time when Taylor was considered the leading

management scholar, so Follett’s views were largely ignored and have only gained acceptance in more recent times. Some observers suggest that the practice of

management for the past 100 years might have looked very different had Follett been

given more attention than Taylor.

Chester Barnard

Chester Barnard was a practitioner who served as president of New Jersey Bell

Telephone Company. Like Weber, he was interested in organizational structure; but

unlike Weber, with his impersonal idea of organizations, Barnard considered

organizations as social systems. Among Barnard’s contributions were his notions of communication and authority. He felt that the two most critical functions of managers

were as follows:

1. To establish and maintain a communication system with employees. Barnard felt that

organizations, as social systems, required continual communication and cooperation

among all members to be effective.

2. To clearly establish the organizational objectives and ensure that all employees are

motivated to help attain these objectives. In terms of the notion of authority, Barnard

contradicted the then-popular view of traditional authority , which reflected the notion

that those in power have an absolute right to receive compliance from those at lower

levels in the hierarchy. Barnard felt that authority of management over subordinates must

be earned—that is, workers will only follow orders to the extent that the following conditions are met:

 They understand what is required.  They see how their work relates to organizational goals.  They believe that they will gain some benefit from accomplishing these goals. Fundamentally, Barnard, like Follett, believed that a collaborative approach to

management would be most effective for organizations.

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7. Compare the differences between Follett’s and Barnard’s views in manager’s key functions.

Follet Barnard

Coordination

 Managers must coordinate and harmonize group efforts

 Managers must be closely involved with subordinates in the daily conduct of their

work

Self-management

 Workers should self-manage themselves by making decisions about how they perform

their work tasks

Collaboration

 Managers and workers should view themselves as collaborators or partners

Social systems

 Organizations are social systems requiring continuous communication and

cooperation among all members

Communication system

 Managers must establish and maintain a communication system with employees

Organizational objectives

 Managers must establish organizational objectives and ensure employees are

motivated to help attain those objectives

Authority of management

 Authority over subordinates must be earned, since workers will only follow

orders when:

o they understand what is required

o they see how their work relates to

organizational goals

o they believe they will gain some

benefit from accomplishing these

goals

8. Discuss the military model of management.

The military model conjures up words such as dictatorship, command and control, chain

of command, hierarchy, and regimentation, which are often words associated with the

manner in which the military runs its business. However, arguably, the military is the

ultimate model for achieving organizational effectiveness based on the importance of

trust.

While military leaders might disagree on how to lead, one theme is consistently

repeated in discussions with successful military leaders—the central value of trust. Trust is a major component of the successful military ethos or character. Likewise,

organizational trust is crucial. Organizations must focus on creating a culture of trust to

maximize effectiveness. Most important, trust can provide an organization with a

competitive advantage that cannot be easily duplicated. Trust is an integral aspect of the

psychological contract that exists between the employee and the employer.

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Trust refers to one’s perception of the integrity and openness of others, one’s comfort with the expected actions of others, one’s faith in how others will react, and one’s willingness to become vulnerable to the actions of others. Employees want to feel that

the organization has their best interests in mind. Although it is now rare to find a worker

who remains with one company for his or her entire career, companies are rediscovering

the value of loyalty. Organizations cannot build loyalty in the absence of trust.

9. Discuss the importance of the contingency approach to management.

Experts agree that there is simply no one best way to manage. Instead, what has been

advocated is referred to as the contingency approach to management. As the name

implies, this approach assumes that the best style of management depends on many

contingencies:

i. Organizational size: Large organizations with hundreds of employees cannot be

managed in the same manner as small organizations with few employees. The need for

control and the challenge to achieve it in massive organizations may tend to encourage an

approach that relies on elements of the classical school, such as the need for rules and

regulations and the importance of an administrative hierarchy to ensure control. On

the other hand, small, entrepreneurial organizations might function more effectively

with a minimal number of rules and regulations.

ii. Routineness of task technology: Some organizations may require employees to work in

an assembly-line fashion, while their work is governed by machinery. Other jobs may not

involve any significant level of technology: retail sales or being a bank teller are jobs that

do not necessarily require technological expertise. These jobs are more easily subjected

to routinization, as advocated by Taylor, and there should be strict rules on which such

workers can rely. On the other hand, jobs that must continually adapt to changing

technology require employees who are equally adaptive. High-tech organizations that

employ “knowledge workers” are keenly aware that it is difficult to standardize the jobs of these workers, given the high rate of change within the present technology

environment.

iii. Environmental uncertainty: An organization that exists within a volatile environment

must be prepared for continuous change. Change is the antithesis of the classical

approaches, which emphasize stability and order. Consequently, organizations

functioning in rapidly changing environments are less likely to find extensive application

of the classical school useful in managing their workforce.

iv. Individual differences: In any organization, employees differ with regard to their

ability and motivation. Some people function better when given clear guidance—rules and regulations regarding how their job should be performed. Others perform better when

the rules governing their performance are minimal. These differences suggest that a

blanket application of either the classical or behavioural schools may risk ignoring the

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fact that the labour force is not homogeneous in terms of responses to the nature of work

and management style.

10. Select a business or organization and explain what style of management you think would

work best at that organization and why.

Teaching Note – This would make for a good classroom discussion. The Instructor could pick a business and the students could then do some research and have a classroom

discussion and/or debate.

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Conception Application

Case: Kicking Horse Coffee

1. Discuss in detail which elements of the behavioural school are being applied at the Kicking

Horse Coffee Company?

Management Philosophy

Theory

Application:

Examples at Kicking Horse Coffee

Elton Mayo

(1880–1949) Human Relations Movement

“Hawthorne effect ”  Special attention paid to employees

increased productivity

 Social factors had a greater impact on productivity than actual working

conditions

 Managing involves social interaction

Social interaction

 People interact in an environment that is not bureaucratic and autocratic.

 “When you walk into the facilities at Kicking Horse, the way people interact

makes it evident that the place is

different from a company that is run

bureaucratically and autocratically”

Mary Parker Follet

(1868–1933) Coordination

 Managers must coordinate and harmonize group efforts

 Managers must be closely involved with subordinates in the daily conduct

of their work

Self-management

 Workers should self-manage themselves by making decisions about

how they perform their work tasks

Collaboration

 Managers and workers should view themselves as collaborators or partners

Harmonizing group efforts

 There is a commitment to staff well- being and community.

 Managers create a fun work environment that is as stress free as

possible.

 Fun days are held that can include kayaking, skiing, and holiday

celebrations.

Self-Management

 Kicking Horse Coffee turns over leadership roles to their employees (eg.

when owners are way)

 Employees have autonomy and shared goals with organization

Collaboration/partners

 Management a Kicking Horse considers their employees as key to

their success and treats them in a

manner that reflects that belief.

 Owners use an informal and accessible approach to managing.

 Management communicates with

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employees and gathers information

from those who work closest to the

product.

Chester Barnard

(1886–1961) Social systems

 Organizations are social systems requiring continuous communication

and cooperation among all members

Communication system

 Managers must establish and maintain a communication system with employees

Organizational objectives

 Managers must establish organizational objectives and ensure employees are

motivated to help attain those

objectives

Authority of management

 Authority over subordinates must be earned, since workers will only follow

orders when they understand what is

required; they see how their work

relates to organizational goals; they

believe they will gain some benefit

from accomplishing these goals

Communication

 A major focus is on timely and consistent communication with

employees. But these communication

efforts are not simply to disseminate

information from the top, but also to

gather information from those who

work closest with the product.

Modern Behavioural Science

and Motivation-Based

Perspectives

(1950s–present)  Management should be more about

motivating employees than controlling

them

 Developed from various disciplines such as sociology, psychology, and

anthropology

Motivation

 To attract the best people, the company offers an above-average benefit

package that includes competitive

wages compared to other coffee

retailers.

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2. How might the classical school of management also be applied effectively here?

Management Philosophy

Theory

Application:

Examples at Kicking Horse Coffee

Frederick Taylor

(1856–1915) Scientific Management

Standardizing the work

 Observation and measurement were used to determine the most efficient

method (e.g., time and motion studies)

 Belief that there is one best method for performing a job

 Jobs are compartmentalized (broken down into small, simple steps)

 Benefits: o easy and inexpensive to train

workers

o cheap and readily available pool

of labour

o clear rules in how to perform

the job

o little to no room for individual

discretion

o consistent job performance

Supervising the workers

 Managers can only take charge of their area of expertise

 Managers’ mental work should be separated from labourers’ physical work

 Workers are not capable of managing themselves

Motivating the workers

 Money is the only factor in motivating workers

 Compensation must be closely tied to performance

 Piece-rate pay was desirable

Standardizing the work

 Given the specialized nature of the roasting work, these employees

maintain a certain level of autonomy.

 The work is exacting and can be demanding given Kicking Horse’s high standards.

Motivating the workers

 To attract the best people, the company offers an above-average benefit

package that includes competitive

wages compared to other coffee

retailers.

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Henri Fayol

(1841–1925) Administrative

Management

 Division of work  Breaking work down into its simplest

components and assigning separate

tasks to workers

 Manager’s role is to give orders and discipline workers

Unity of command

 Each employee reports to only one boss to avoid confusion and conflicting

instructions

Esprit de corps

 Team spirit and harmony should be encouraged amongst workers to

generate organizational cohesiveness

and unity

Goals of the company

 Company goals should take precedence over individual interests

Esprit de corps/Team spirit and harmony

 Company has a fun atmosphere.  There is a commitment to staff well-

being and community.

Max Weber

(1864–1920) Bureaucratic

Management

Rules and procedures

 Organizations require stable and documented rules

Hierarchy of authority

 Organizations should have fixed positions that are ranked according to

their level of power

Division of labour

 Simplifying the job will achieve greater efficiencies

Impersonality

 Rules and procedures, not personal agendas, govern behaviour; the

individual and organization are

professional, not personal

Selection and promotion

 Hiring will be based on ability, not friendship or family ties; promotion

will be based on job performance, not

favouritism

Division of work

 The roasting work is specialized - Given the specialized nature of the

roasting work, these employees

maintain a certain level of autonomy.

Selection and promotion

 To attract the best people, the company offers an above-average benefit

package that includes competitive

wages compared to other coffee

retailers.

 To ensure consistent quality standards, the company monitors performance on

a regular basis.

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3. What contingencies might influence the suitability of the management style for Kicking Horse

Coffee?

i. Organizational size: Kicking Horse Coffee is a small organization with approximately

40 employees. As a small, entrepreneurial organization, a behavioural management style

may be more suitable with a minimal number of rules and regulations. With less

employees, there is more opportunity for decision-making at lower levels, new ideas, etc.

ii. Routineness of task technology: There is little technology at the coffee shop. Since the

job involves both selling a high quality product with good customer service, service is

focused on the customer. It is possible some tasks such as taking orders, or making the

coffee can be standardized. The roasting work is specialized - Given the specialized

nature of the roasting work, these employees maintain a certain level of autonomy

iii. Environmental uncertainty: The coffee industry is a highly competitive one. While

AC Nielson ranked Kicking Horse among the top ten brands across Canada, Kicking

Horse competes in Canada and the western United States with many global brands such

as Starbucks. The environment is uncertain as the industry is subjective to changes in

competitive forces, societal forces (eg. changes in consumer tastes), and so on. An

organization that exists within a volatile environment must be prepared for continuous

change. Consequently, organizations functioning in rapidly changing environments are

less likely to find extensive application of the classical school useful in managing their

workforce.

iv. Individual differences: At Kicking Horse Coffee, the employees are highly motivated,

and very productive. For example, since the roasting work is specialized, these

employees maintain a certain level of autonomy. The company has also created a fun

atmosphere to motivate its employees with flexible hours, catered monthly meetings, and

daily stretch breaks. The company even holds official fun days that involve kayaking,

skiing, and holiday celebrations.

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CHAPTER 4

Establishing the Structure of Business

CHAPTER SYNOPSIS

This chapter focuses on how managers should manager people and work. Clearly, the

philosophies of management are still relevant in today’s society and work environment. Which ones work the best? Certainly, a contingency of factors may determine this. Motivating the

workers and collaborating in teams will also be addressed.

LEARNING OBJECTIVES

1. Identify four broad trends in the changing nature of organizational design.

2. Discuss the relevance of metaphors used to describe organizations.

3. Identify the elements of organizational structure.

4. Explain the concept of reengineering.

5. Describe the notion of the virtual organization.

6. Discuss the phenomenon of downsizing and its rationale, methods, and objectives.

CHAPTER OUTLINE

CHAPTER 4

 Establishing the Structure of a Business  What Does Organizational Design Have to Do with Business Success? 116  Learning Objectives 116  The Business World: How Google Designed Itself For Success 117

THE CHANGING NATURE OF ORGANIZATIONS 119

 Flat Organizations 120  Fluid Organizations 120  Integrated Organizations 121  Global Organizations 123

THINKING ABOUT ORGANIZATIONS 123

 What Is an Organization? 123  Using Metaphors to Describe Organizations 124  The Anatomy of an Organization 127  What Constitutes an Organization’s Structure? 127

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WHAT DETERMINES ORGANIZATIONAL STRUCTURE?

 A Rational Perspective 131  Strategy 131  Organizational Size 132  Technology 132  Environment 132

REENGINEERING 136

 Toward a Virtual Organization 140  Outsourcing 140  Networking 143  Shedding Noncore Functions 143

DOWNSIZING 145

 Methods of Downsizing 147  Consequences of Downsizing 148  Why Has Downsizing Failed to Achieve Anticipated Results? 150  Downsizing as a Nonrational Approach to Organizational Structure 152

CHAPTER SUMMARY 155

CHAPTER LEARNING TOOLS 155

 Key Terms 155  Multiple-Choice Questions 155  Discussion Questions 156  CONCEPT APPLICATION: PIXAR: NO MICKEY MOUSE ORGANIZATION! 157

BUSINESS WORLD EXERCISE

1. Refer to the Business World article “How Google Designed Itself for Success (page 117).” Discuss Google’s organizational structure in terms of the four elements of organizational structure. Do you think Google’s organization is a mechanistic or an organic structure? Support you answer with examples.

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1. Google’s structure is organic:

Elements of

organizational

structure

Organic Application/Examples from Google

1. Division of

labour/work

specialization

Definition:

Division of labour

refers to the degree

to which

organizational

tasks are

subdivided into

separate jobs.

Wide

 Small teams that work on individual projects.

Team members rotate to take on the role of

Team Leaders

 These teams range from five to ten people depending on the project. The relative small

team size also gives the teams more flexibility

and speed for decision making

 Teams are diverse in the actual composition to nurture innovation, from neurosurgeons to

CEOs to marines.

2. Centralization

Definition:

In decentralized

decision-making,

authority is

spread to the lower

levels.

Decentralized

 Brainstorming and collaborating with other employees stimulates a wealth of diverse ideas

and information sharing. The ability of people

to communicate easily within a larger, diverse

group allows continual access to novel

information and potential collaborators.

 The role of the manager or team is to help build consensus among team members rather than to

“control” or “manage” them in traditional sense.  The decentralized manner of decision making is

also reflected across the organization in such

functions as hiring decisions, where at least four

Google collaborators co-decide on a new hire.

In addition to reinforcing the empowered

culture, such participative decision- making

helps to ensure that new recruits will “fit” within the organizational culture.

3. Span of control

Definition:

The number of

employees

reporting to a

supervisor.

Wide

 A very flay hierarchy whereby top level management s only one level up from lower

level employees

 The fewer the levels of hierarchy, the greater becomes the opportunity for employees to

interact freely, collaborate, and make their own

decisions

 The other benefit of creating this relatively flat structure is the ability of employees to readily

communicate with the operational leadership,

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which affords the company a tremendous

amount of flexibility.

 Consequently, it implemented a schedule of meetings between employees and the

company’s founders and chief executives where employees can “pitch” new ideas or projects directly to the top executives.

4. Formalization

Definition:

The degree to

which rules,

regulations,

procedures,

and so on govern

how work

is performed; the

degree of the

standardization of

jobs in the

organization. The

greater the

degree of

formalization, the

lower

the reliance on

individual

discretion

and the greater the

assurance

of consistent and

reliable

performance.

Low  The organizational structure is designed to offer employees extensive freedom in making

decisions and trying new ideas. This requires a

structure that is not managed by “command and control.” The aim is to de-emphasize job titles and power and instead focus on teamwork.

Employees need to know that they can take on

much decision authority and power over their

work.

 Employees are given the autonomy to make changes to a current project or to start their

own. Google employees follow something

called the 70/20/10 rule. This requires that each

employee devotes 70% of every work day to

whatever projects are assigned by management,

20% to new projects or ideas related to their

core projects, and 10% to any new ideas

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TALKING BUSINESS EXERCISES

1. Refer to the Talking Business 4.1 - “Atlantic Canada’s Overseas Playground” (page 122). According to the article, how can Atlantic Canada become more competitive in the

global marketplace?

Atlantic Canada can:

 align its strengths with the demands of the fastest growing developing markets, such as China, India and Brazil.

 look at other non-traditional markets such as in Asia, Latin America, the Middle East, Africa and Eastern Europe.

 consider selling services as well as goods such as communication, financial and educational services.

2. Refer to the Talking Business 4.2, “Canada’s Trade in a Digital World” (page 134). a. According to the article, what is the digital economy?

b. How can digital information barriers lead to trade barriers?

a. According to the article, the digital economy can include all economic activities

related to digitization such as the internet, media-related activities and various digital

technologies (eg. mobile devices).

b. Digital barriers such as a ban on Blackberry devices in some countires can cause a

barrier to trade since a ban on such a device can result in less access to cell phone

services, search engines and communication tools to conduct business in different

markets. A ban can lead to censorship, uncertainty and undermine global trade.

3. Refer to the Talking Business 4.3, “The Credit Agency” (page 137). According to the article, what was the key factor in addressing how to make processing credit card

applications more efficient?

The company focused on the ‘process’ of completing the credit card application as opposed to the traditional method of compartmentalizing and ‘specializing the tasks’ amongst various people and departments. It was determined that a variety of specialists

were not needed but just a few generalists.

4. Refer to Talking Business 4.4, “Former Outsourcer Describes How Jobs Destruction Works.” (page 139)

a. What is outsourcing?

b. Why did Royal Bank outsource work?

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a. Outsourcing (or contracting out) involves hiring external organizations to conduct

work in certain functions of the company.

b. Royal Bank outsourced work in order to save money on labour costs, such as

salaries, benefits, and other costs such as Canada Pension Plan premiums. Royal

Bank replaced ‘employees’ with a ‘firm’ (or supplier), and thus making it no longer subject to employment laws for that outsourced work.

5. Refer to Talking Business 4.5, “Out-of-Control Outsourcing Ruined Boeing’s Beautiful Dreamliner.” (page 142)

a. What work did Boeing outsource?

b. What was driving or motivating Boeing to outsource?

c. According to the article, how did outsourcing impact Boeing and its Dreamliner?

a. Boeing outsourced the design, engineering and manufacturer of its Dreamliner

plane.

b. The demand for cheap airfares by consumers.

c. Outsourcing impacted Being and its Dreamliner in several ways. Work was

outsourced to 50 different companies and made the process of managing the

supply chain difficult. For example, the wing sections came from 6 different

companies in 4 countries. And quality was negatively affected. For instance, the

Boeing 787 Dreamliner was grounded due to a battery fire on two flights.

6. Refer to Talking Business 4.6, “Loblaw Cuts 700 Head Office Jobs.” (page 146) a. What work did Loblaw outsource?

b. What is Loblaws hoping to achieve from the outsourcing?

a. Loblaws outsourced payroll work.

b. Loblaws was hoping to achieve a variety of benefits from outsourcing such as:

 achieving greater efficiencies  reducing 250 separate systems to something more manageable  eliminating duplication and focusing more on customer experience  increasing share value  being more competitive in the industry to against rivals such as Walmart,

Longos, etc.

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7. Refer to Talking Business 4.7, “What every leader should know about Survivor Syndrome.” (page 107)

a. As a student, do you know anyone (including yourself) that worked for a company

that laid off staff? Explain how employee motivation, engagement and

productivity was affected?

b. Did the company initiate some of the strategies mentioned in the article? If so, did

the strategies help with employee motivation, engagement and productivity? Why

or why not? If not, do you think it would have helped? Why or why not?

Teaching note: This question can be used for class or group discussion. Students can tie

their responses back to the article and apply the theory on pages 147-152.

SAMPLE CLASS DISCUSSION QUESTIONS

1. Do you think downsizing can ever be avoided? Why or why not?

2. Pick a company that has benefited or may benefit from becoming a virtual corporation.

How can it go virtual?

3. Research companies that have gone through reengineering. Discuss how they may or

may not have been successful in their approach and why?

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CHAPTER LEARNING TOOLS

Multiple Choice Answers (also available in the back of the textbook, page 487)

1.D 2.A 3.C 4.A 5.B 6.A 7.A 8.D 9.C 10.A 11.D 12.B 13.A 14.A 15.D

Discussion Questions

1. Explain the differences between a traditional bureaucracy and a modern organization.

The key differences between a traditional bureaucracy and a modern organization are the

following:

Traditional Bureaucracy Modern Organizations

• Tall/hierarchical • Rigid, rule-oriented • Buffered from the environment • Narrow market

• Flat • Fluid • Integrated • Global

2. Describe three broad categories of organizations.

Public/governmental organizations provide goods and services without necessarily

generating a profit.

Private/nongovernmental organizations including voluntary organizations offer goods or

services without necessarily generating a profit.

Private organizations produce goods or services with the intent of making a profit for the

benefit of their owners or shareholders.

3. Provide a definition of an organization and explain four characteristics of what an

organization is.

An organization can be large or small and includes four characteristics:

First, organizations are social entities. All organizations are made up of people. They are

entities that have been generated and are maintained by people. And they involve some

level of human interaction.

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Second, organizations interact with the environment. An organization obtains inputs from

its environment, whether in the form of people, raw materials, technology, or financial

capital. All these inputs are transformed by the organization and become outputs: the

goods, services, or knowledge that the organization generates.

Third, organizations are created to achieve goals: That is, they are goal-directed.

Whether it is a profit-making organization or a nonprofit organization, all organizations

have some kind of goal or objective that they were designed to achieve.

Four, organizations possess some sort of structure: All organizations need some kind of

structure to ensure the work is properly allocated and coordinated.

4. Compare and contrast mechanistic and organic organizations.

Mechanistic

Organic

1. Division of labour/work

specialization

Narrow

Wide

2. Centralization

Centralized

Decentralized

3. Span of control

Narrow

Wide

4. Formalization

High

Low

5. Compare and contrast open systems and closed systems.

Open system – An open system asserts that organizations are entities that are embedded in and dependent on exchanges with the environment they operate within. In addition,

organizations can be viewed as social systems, with people constituting the basic

elements.

Closed systems - Closed systems have been defined as fully self sufficient entities

requiring no interaction with the environment. This approach fails to recognize the role

that the external environment can have on the organization’s operations.

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6. What are four defining elements of organizational structure?

Four elements of an organizational structure are:

Work specialization - Work specialization refers to the degree an organization is going to

divide up the work that to achieve organizational goals.

Centralization - Centralization is the degree to which decision-making authority in an

organization is concentrated at the top level. On the other hand, decentralization is the

degree to which decision-making authority is spread to the lower levels.

Span of control - Span of control is the number of employees reporting to a supervisor.

Formalization - Formalization refers to the degree to which rules, regulations,

procedures, and the like govern how work is performed. A high level of formalization

means highly standardized work—that is, clear rules regarding how the work should be performed.

7. What characteristics determine organizational structure?

 Strategy  Organizational size  Technology  Environment

8. Why is contingency theory important in studying organizations?

Contingency theory recognizes that all organizations are open systems that can only

survive through continuous and successful interaction with their environment.

A central philosophy underlying contingency theory is that there is no one ideal way

to organize. That is, there are no universal principles of what constitutes the best form of

organization. Subsequently, the optimal organizational structure is dependent on (or

contingent on) the nature of its operating environment.

Contingency theory is based on the assumption that organizations are able to adapt to

changing environmental conditions. This also assumes that organizations behave as

rational entities that are able and willing to make internal structural changes to achieve

compatibility with their environment as a means for survival and success.

According to contingency theory, there are a number of specific contingency factors that

can influence organizational design. One of the most widely studied factors is the notion

of environmental uncertainty. Environmental uncertainty has been defined as the rate at

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which market conditions and production technologies change. For example, some

organizations and industries operate within relatively static environments. Other

organizations may exist in very dynamic environments, where there are constantly

new competitors, rapidly changing technology, new governmental regulations, and so on.

9. What are the benefits and challenges of having a virtual organization?

Benefits

1. The cost savings are significant: A virtual organization does not need to own its own

plants, nor employ its own research and development teams, nor hire its own sales staff.

This means the virtual organization also doesn’t need to hire the extra staff to support all these functions—such as personnel specialists, company lawyers, accountants, and so on. The virtual organization can outsource most of these functions and focus on what it does

best. So there is little if any administrative overhead, so to speak, because work activities

are largely contracted. Cost savings arise in areas such as training, purchasing of work-

related tools, benefits, downtime, and educational requirements. All these requirements

are typically obtained with the arrival of the external or “outsourced” experts.

2. The virtual organization is a great alternative for entrepreneurs: Individuals seeking

to start up a new business or venture may face huge startup costs. The network of

arrangements within a virtual organization can exploit the expertise of different

companies while not requiring the initiator of the business to buy everything and start a

business from scratch.

3. For a mature company, going virtual can be a fast way to develop and market new

products: Relying on the expertise of partners means that no huge investment is required

to enter a new product or service territory.

4. Virtual organizations are fast and flexible: For example, the flexible arrangements of

those parties involved can be of a temporary nature to produce a good or service;

resources can be quickly arranged and rearranged to meet changing demands and best

serve customers; management isn’t getting bogged down in peripheral functions, but is simply focusing on central functions.

Challenges

1. Giving up the notion of control: Control has traditionally been a key goal of any

organization. The structure of the bureaucratic organization is fundamentally based on the

notion of control—control through standardization of work, control through hierarchy of authority, control through rules and regulations, control through clear division of labour.

However, the virtual organization doesn’t provide such control. Think of it—how can you monitor all activity when it may not even be occurring within the walls of one

building? Among the fears of going virtual and outsourcing is that we are “hollowing

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out” the organization and making it extremely dependent on external sources. The employees are not all yours; outsourcing to independent contractors doesn’t carry with it the same level of control as staffing your own employees to do the work. Difficulties in

control can occur particularly when a variety of subcontractors are involved in the work.

This lack of control may also generate a lack of control over costs—once a company becomes dependent on a supplier, it may be unable to refuse an increase in the supplier’s prices.

2. Lack of employee loyalty: If your organization is largely composed of temporary

workers and subcontractors, who is really committed to perpetuating the goals of the

company? In fact, turnover in many virtual organizations tends to be high because

employees are committed only to the task for which they are hired. In addition,

employees may be working under temporary contractual arrangements and could be

dismissed in favour of another contractor.

3. Potential to sacrifice competitive learning opportunities: Outsourcing involves the

strategic decision to “let go” of some aspect of the organization—the decision could be to permit the manufacture of the footwear to occur elsewhere, as in the case of Nike, while

retaining the core competencies (such as the marketing function). The question is whether

there is a danger in “letting go” of functions that may currently appear peripheral, but could become important functions of the organization should the strategy change in the

future. Clearly, if a function is outsourced, the experience or learning of this function as a

skill is lost to the internal organization. Is there an inherent danger in such a situation?

That is, is there a danger in outsourcing, given the risk of losing key skills that could be

needed for future competitiveness?

10. Discuss the potential benefits and risks of downsizing.

Potential Benefits

1. Across-the-board

cuts

“Shares the pain,” spreading it across the organization—all levels are equally affected.

2. Early retirement

and

voluntary severance

Concentrates the terminations among those who are willing to leave.

May help achieve the reduced cost objective by encouraging the more

senior and more highly paid staff to leave

3. Delayering Because the organization is cut horizontally, all areas are equally

affected and the “pain” is shared across all departments. To the extent that decentralized decision making is desired, this

approach allows the shift of responsibility to the lower and perhaps

more-appropriate levels in the organization.

4. Contracting out Immediate costs savings.

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5. Dropping product

lines

Decide what areas may not be productive to continue to maintain.

A closer connection to long-term strategic planning compared to

other approaches.

Concentrates the disruption in one or a few business units as opposed

to the entire organization.

Potential Risks

1. Across-the-board

Cuts

Efficient parts of the organization are hurt. This form of downsizing

ignores how well or how poorly the units are managed.

Typically conducted when there is no strategic plan—it simply cuts staff throughout the organization.

2. Early retirement

and

voluntary severance

Not necessarily guided by a strategic plan.

Encourages voluntary exits from all parts of the organization.

“Loss of corporate memory”—that is, a company may lose highly experienced, valued members who have been an intrinsic part of what

the organization is all about.

3. Delayering

A loss of corporate memory with the removal of middle managers.

There may also be an overload of responsibility to top management,

who may now need to fill the role of some middle management as

well.

There may be significant costs attached to the transition from a taller

organization to a flatter one because lower-level employees must be

trained to take on additional roles and responsibilities.

4. Contracting out

Difficulties of dealing with the new suppliers and avoiding future cost

increases.

The general loss of control over these temporary workers.

5. Dropping product

lines

Pain is concentrated and not shared across the entire organization—a few people will carry the burden of this type of downsizing.

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Conception Application

Case: Pixar: No Mickey Mouse Organization

1. Do you think that Pixar most closely resembles an organic or a mechanistic structure?

Why?

Elements of

organizational

structure

Organic Application/Examples from Pixar

1. Division of

labour/work

specialization

Definition:

Division of labour

refers to the degree

to which

organizational tasks

are subdivided into

separate jobs.

Wide

While employees have specialized skills, Pixar

promotes collaboration rather job specialization.

Cartoon editing takes place simultaneously with

the storyboard process. As the script is mapped out

into scenes that are then drawn and animated, the

cartoons and individual scenes are fine tuned. For

example, Nemo, the loveable clownfish, may have

stripes added or removed from his scaly

orange skin. This collaborative editing is

comparable to the way programmers optimize

features in a piece of software. Differences

between live-action films and animated ones lie in

their procedural organization.

2. Centralization

Definition:

In decentralized

decision-making,

authority is

spread to the lower

levels.

Decentralized

Decision-making occurs at the lower levels.

Freedom is given to each group to work directly

with one another and avoid going through higher-

ups.

3. Span of control

Definition:

The number of

employees

reporting to a

supervisor.

Wide

Teams are promoted more so than direct line

relationships. The same team works together many

times on a movie and collaborates.

4. Formalization

Definition:

The degree to

which rules,

regulations,

procedures,

and so on govern

how work

Low Few rules exist. Flexibility is promoted to

encourage innovation.

Pixar has a small army of employees whose

jobs consist of ambitiously inventing and

innovating technology to improve the appeal and

increase efficiency throughout the company.

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is performed; the

degree of the

standardization of

jobs in the

organization. The

greater the

degree of

formalization, the

lower

the reliance on

individual

discretion

and the greater the

assurance

of consistent and

reliable

performance.

2. Describe the nature of Pixar’s “contingencies” and explain how they influence the suitability of Pixar’s structure?

Strategy – Part of Pixar’s goals is to be innovative and to create high-quality, computer-animated movies. Therefore, its structure should help achieve that goal. Few rules and decentralized

decision making encourage flexibility and adaptiveness to environmental demands and

encourage innovation.

Organizational Size - Pixar started off as a small company of ten people. While it is a much

larger company today, Pixar encourages people to collaborate and work in teams to ensure

people in lower-levels are able to share ideas with people at any level of the company.

Technology - Technology here is not routine or standardized but subject to constant change.

Today, Pixar has a small army of employees whose jobs consist of ambitiously inventing and

innovating technology to improve the appeal and increase efficiency throughout the company. In

its consistent efforts to develop, Pixar has created a motivational flow and balance between art

and technology, where creativity in art provokes advances in technology, and advances in

technology inspire the art.

Environment - While making movies is not a new industry, making computer-animated ones

occurs in a highly, dynamic industry subject to lots of change.

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3. How could Pixar be redesigned as a virtual organization?

Pixar could become involved with outsourcing, networking and shedding noncore functions.

Outsourcing - Outsourcing (or contracting out) involves hiring external organizations to conduct

work in certain functions of the company. For example, payroll, accounting, and legal work can

be assigned to outsourced staff. The organization typically will retain its core functions or

competencies—that is, those areas that it is in business to conduct. In Pixar’s case, its core business involves creating computer-animated movies. Pixar’s noncore functions may include accounting, legal or payroll work that are administrative in nature.

Networking – Pixar can engage in networking by having cooperative relationships with suppliers, distributors, or competitors. The aim is to improve their efficiency and flexibility in meeting new

consumer needs. For example, a close relationship with a distributor might offer the supplier

company more information about the changing needs of customers.

Shedding noncore functions – Pixar’s noncore functions may include accounting, legal or payroll work that are administrative in nature. By focusing on core functions, Pixar can have more time

to add better value to its products and strive for new innovative ideas.

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CHAPTER 5

Business Strategy

CHAPTER SYNOPSIS This chapter focuses on how businesses should generate a successful strategy. Before a strategy is implemented, various tools are used in analyzing the company and the industry. Indeed, different strategies are addressed in how companies can compete and achieve a competitive advantage.

LEARNING OBJECTIVES 1. Describe the nature of strategic management. 2. Identify key forces in determining an industry’s structure. 3. Describe how organizational resources and capabilities affect firm performance. 4. Describe three generic business strategies. 5. Explain the nature of corporate strategy.

CHAPTER OUTLINE CHAPTER 5  How Do Businesses Generate a Successful Strategy? 159  Learning Objectives 159  The Business World: Tim Hortons: Is Its Strategy “Always Fresh”? 160 WHAT IS STRATEGIC MANAGEMENT? 162  Analyzing the External Environment 163  The Five-Forces Model 163  Analyzing the Internal Environment 169  The VRIO Model 170  SWOT Analysis 172 DIFFERENT LEVELS OF STRATEGIES 173  Business-Level Strategy 173  Corporate-Level Strategy 179 CHAPTER SUMMARY 187

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CHAPTER LEARNING TOOLS 188  Key Terms 188  Multiple-Choice Questions 188  Discussion Questions 189  Concept Application: Lululemon: For the Love ff Yoga 189

BUSINESS WORLD EXERCISE

1. Refer to the Business World article “Tim Hortons: Is its Strategy Always Fresh (page 160).” Making any assumptions required, analyze the coffee industry using Michael Porter’s five forces model. Support you answer with examples.

Five Forces High Low

1.Threat of new entrants (new start ups or diversification of existing firms)

 Economies of Scale (spread production costs over number of units produced)

 Capital requirements (buildings, machinery, manufacturing plants, etc)

 Switching costs (monetary or psychological) from one supplier to another (to switch to another product or service)

 No manufacturing plant (i.e. production costs), but corporate head office costs can be spread over each new coffee shop set up

 Low capital requirements:

 No massive production of a product at a manufacturing plant; just selling coffee at coffee shops;

 Coffee shops likely “rented” (no building ownership) since many found in malls etc…

 However, some may be owned.

 depends on the customer on his/her coffee likes

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 Access of distribution channels

 Cost disadvantages independent of scale Example: govt policy, legal protection (patent, trademark) and proprietary products)

 Eg. Tim Hortons is low cost & convenient; whereas Starbucks is higher quality, higher cost, more atmosphere;

 Are any distribution channels controlled by a coffee company? Eg. distribution of coffee beans etc..

 There does not appear to be control over any distribution channels

 No patents or trademarks on any products; coffee made by coffee beans, but no special recipe to protect; no technology or process to patent

2.Bargaining Power of Suppliers (suppliers of raw materials, technologies, or skills that can exert power over prices or threatening to reduce quality)

 Who supplies the coffee beans to make the coffee? Countries such as Brazil, etc

 There does not appear to be one supplier; coffee can be bought from all over the world

 The suppliers do not appear to have a lot of power.

3.Bargaining Power of Buyers

 Switching costs

= High

 Low switching costs; the

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 Undifferentiated Products

 Importance of Incumbents’ Products to Buyers

 The number of Incumbents Relative to the Number of Buyers

customer or buyer can easily switch from drinking Starbucks, to Second Cup to Tim Hortons – there are lots of coffee shops to choose from

 depends on customer;

 how important is this product overall to the buyer?

 there are lots of coffee shops for buyers/customer s to choose from

 For example, Starbucks, Timothy’s, Second Cup, Tim Horton’s, Coffee Time, McDonalds, etc..

 Products are differentiated:

 Starbucks has higher quality, higher prices, more comfortable atmosphere;

 Tim Horton’s coffee is cheaper, more convenient

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4. Threat of Substitutes

= High

There are many substitute drinks: Tea, milk, juice, pop/colas, water, sports drinks, caffeinated power drinks

5. Rivalry among existing firms

 Lack of differentiation or switching costs

 Numerous or equally balanced competitors

 High exit barriers (economic, strategic and emotional factors that keep firms competing even if returns are low or negative) specialized assets, fixed costs, commitment of management and social pressures)

=High

1. There are numerous competitors

2. For example, Starbucks, Timothy’s, Second Cup, Coffee Time, McDonalds (McCafe) etc..

3. Some differentiation among coffee shops (eg. coffee flavours)

4. No noticeable exit barriers

TALKING BUSINESS EXERCISES

1. Refer to the Talking Business 5.1 - “Changes in Global Food Sector Call for Canadian

Food Strategy” (page 165).

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a. According to the article, what are some factors that affect the strategy of the food

sector in Canada?

b. How can Canada’s food industry be more competitive in the global marketplace?

a. Factors that affect food strategy in Canada include:

 globalization and food trade  demographic and population patterns  competition  innovation  specialization  economies of scale  increased consolidation in the food sector

b. Canada’s food industry can be more competitive in the global marketplace by:

 investing in global integration  focusing on growing markets such as China and Brazil  focusing on growing via exports  increasing efficiency

2. Refer to the Talking Business 5.2, “Foresight and Innovation: Today’s Science Fiction, Tomorrow’s Reality.” (p.169) What business-level strategy may be suitable for Intel and why? (eg. cost differentiation, product leadership or focus.)

A product differentiation business-level strategy may be suitable for Intel because the company focuses on inspiration and creativity, innovation and envisioning what future customers may need. In other words, focusing on creating some unique value for the customer. 3. Refer to the Talking Business 5.3, “Groupon.” (p.171) Perform a VRIO analysis of the

company Groupon using any assumptions required.

Value Can a firm’s resources and capabilities add value or enhance profitability through exploring emerging opportunities or neutralizing threats?

 The brand Groupon is a well-known brand in North America for its coupon deals, sometimes saving customers 50% or more off.

 Groupon has been expanding globally and gaining market share.

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Rareness Are resources and capabilities’ unique?

 At the beginning the business was rare, since it was a new business model, selling coupons on goods and services at around half price. However, the business model is no longer rare as there are hundreds of competitors.

Imitability Can a firm’s valuable and rare resources and capabilities be easily imitated?

 Since it is a web site (without any patents, etc), the business mode can be replicated by anyone. There are hundreds of copycat websites in Canada, the United States and around the world. A web site, a coupon or discount is easy to imitate.

Organization Does the firm’s organizational structure and design, compensation policies and culture make the firm efficient and exploit its resources and capabilities?

 The business already has over 142 million subscribers and is available in over 48 countries around the world.

 While it is still a lean company (ie. not a lot of staff) given its revenues, it likely can be efficient with resources and explore its capabilities.

4. Refer to the Talking Business 5.4, “Dollarama Cashing in on Penny-Pinching Canadians” (page 175). Complete a SWOT analysis of the company Dollarama and use any assumptions required.

Strengths

Weaknesses

 Canada’s largest dollar-store operator; 785 stores; good market share

 profitable; over $500 million in sales and $60 million net profit per quarter

 modern stores with point-of-sale scanners, UPC codes and debit payment options for customers

 stores are small; easy for customers to find cheap items fast

 (Other facts not in case/assumptions)  do not accept credit cards etc.  some stores located in mall basements;

may isolate customers who cannot use the stairs well (eg. mothers with strollers, seniors with walkers, etc)

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Opportunities

Threats

 more growth potential in downtown Toronto, Vancouver and Montreal; opened 81 new stores in the past year

 discount shopping is trendy (both luxury and economical consumers like shopping at dollar stores)

 competition from global discount retailers such as Walmart and Target; and Dollar Tree (4,350 stores)

 other political, economic, technological, societal, and global threats

5. Refer to Talking Business 5.5, “Frogbox: a sustainable franchising success.” (page 177) Describe what business-level strategy is Frogbox using? Explain your answers with

examples.

Product differentiation

Examples

Product features; perceived quality

 The product is a useable, moving rental bin that is more environmentally-friendly and sustainable than cardboard boxes.

 The product appeals to the environmental-conscious customer.

Location

 The company is expanding to over 150 North American cities; so accessibility to customers is increasing.

Links between product functions; Product mix and bundling; Links with other firms’ products

 The company provides customers with reusable totes and wardrobes, plus recycled packaging material.

 The company donates a proportion of sales to wildlife and frog conservation programs.

Customer service  The company has exceptional customer service (in order to get referrals and grow business).

 The company drops off bins and picks them up from your home, so convenient for customers.

 The company is changing the way people think about the moving industry.

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6. Refer to Talking Business 5.6, “American Airlines Merges with US Airways.” (page 180) Discuss how the airline merger can present both challenges and synergies for the

company. Incorporate theory from the textbook with examples from the article.

Challenges

 administrative issues (eg. IT systems need to be configured; negotiations with unions)

 blending two different firm cultures  increased employee turnover (eg. employees fear losing their jobs)

Synergies

 eliminates duplication, save costs and thus increases profit margins  allows companies to grow into new markets  reduces competition; enhances market power  allows quick access to new resources and capabilities (eg. technology, mgmt skill)

7. Refer to Talking Business 5.7, “Loblaw Gets into the Mobile Phone Market.” (page 183) a. What type of diversification strategy has Loblaw employed? b. What does Loblaw hope

to achieve?

a. Unrelated diversification – Loblaw’s main business is in the grocery business. b. Loblaws is hoping to:

 diversify to be more competitive  use existing customer base (14 million per week) to grow mobile business  use its corporate management knowledge in managing other non-grocery

businesses such as pharmacy, Joe Fresh clothing, kitchen products and the photo lab to compete against larger competitors such as Walmart, Target, etc.

8. Refer to Talking Business 5.8, “Starbucks Buys its First Coffee Farm in Costa Rica.” (page 184) a. What type of diversification strategy is Starbucks using? b. What is

Starbucks hoping to achieve?

a. Starbucks is using a vertical integration diversification strategy. More specifically, Starbucks is using backward integration since it is purchasing the raw materials (i.e. farms) as part of its supply chain.

b. Starbucks hopes to develop hybrid coffees and to make their crops more resilient to coffee rust, a disease caused by a fungus. While Starbucks has supported coffee

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farmers in the past, Starbucks would likely save on these costs related to its corporate social responsibility efforts.

9. Refer to Talking Business 5.9, “Understanding the Deal: Shoppers Drug Mart and Loblaw.” (page 186) a. Why is merging one of the most popular ways to diversify? b. What is Loblaw hoping to achieve?

a. Mergers are one of the most ways to diversify, since mergers:

 eliminate duplication, save costs and thus increases profit margins  allow companies to grow into new markets  reduce competition; enhance market power  allow quick access to new resources and capabilities (eg. technology, mgmt

skills)

b. Loblaw is hoping to achieve:

 further diversification into pharmacy and health  create synergies and new value (eg. focus on health)  distribution of President Choice products in Shoppers’ stores

SAMPLE CLASS DISCUSSION QUESTIONS

1. Pick a company that has used a diversification strategy. What type of diversification did

the company use and what was the company hoping to achieve?

2. Find a recent article about a company from the newspaper or news web site and perform

a SWOT analysis of the company.

3. Pick an industry and perform an industry analysis using Michael Porter’s five forces

model?

CHAPTER LEARNING TOOLS

Multiple Choice Answers (also available in the back of the textbook, page 487) 1. D 2. B 3. A 4. D 5. D 6. A 7. D 8. D 9. D 10. B 11. C 12. C 13. C 14. D 15. D

Discussion Questions

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1. Explain Michael Porter’s five-forces model. Michael Porter’s five forces model is an approach to analyze an industry and consists of the following five forces:

a. Threat of new entrants b. Bargaining power of suppliers c. Threats of substitutes d. Bargaining power of buyers e. Rivalry amongst existing firms

a. Threats of New Entrants

New entrants can take two basic forms: new startups and diversification of existing firms in other industries. Regardless, the entrants bring new capacities, desire to gain market share, and substantial resources and capabilities. Prices can be bid down or incumbents’ costs inflated as a result, reducing profitability. As such, the new entrants may impose significant threats to incumbents. Thus, incumbents need to consider how to create entry barriers to deter potential new entrants. There are five major sources of entry barriers from the potential new entrants’ point of view.

Economies of Scale - Economies of scale refer to spreading the costs of production over the number of units produced. The cost of a product per unit declines as the number of units per period increases. From the new entrants’ point of view, the entry barrier is increased (and the threat of new entrants is reduced) when incumbents enjoy the benefits of economies of scale. Economies of scale can provide the incumbents with cost advantages to compete with new entrants on the price, if necessary. Capital Requirements - For some industries, such as the airline and mining industries, the required capital to establish a new firm is significant. Accordingly, the level of required capital for entering certain industries creates barriers for potential new entrants. Thus, the threat of new entrants is reduced as the level of required capital increases. Switching Costs - Switching costs refer to the costs (monetary or psychological) associated with changing from one supplier to another from the buyer’s perspective. When the switching costs are minimal, customers can easily switch buying products from one firm to another. This creates an opportunity for potential new entrants because they can easily acquire customers from incumbents. Thus, the threat of new entrants increases (or the barrier to new entrants decreases) as the switching costs decrease.

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Access to Distribution - Channels Accessibility to distribution channels can be an entry barrier for potential new entrants. In the situation where incumbents control most of the distribution channels, potential entrants would find it difficult to distribute their products or services, which in turn defers new entry. Accordingly, the threat of new entrants decreases (or the barrier to new entrants increases) as accessibility to distribution channels decreases. Cost Disadvantages Independent of Scale - The prior four sources are primarily associated with economic factors. However, sometimes advantages that some incumbents hold over potential entrants are independent of economic factors. Such advantages include governmental policies, legal protection (patents and trademarks), and proprietary products. These advantages create barriers for potential new entrants, which defer their entries.

b. Bargaining Power of Suppliers

When considering the bargaining power of suppliers, our focus is on the firms, organizations, and individuals that provide raw materials, technologies, or skills to incumbents in an industry. Suppliers can exert bargaining power over incumbents by demanding better prices or threatening to reduce the quality of purchased goods or services. Therefore, the power suppliers hold directly impacts industry profitability as well as the incumbents’ performance. There are two major factors contributing to suppliers’ power in relation to incumbents in an industry. The first one is how critical the resources are to the incumbents that the supplier holds. Quite often, when the raw materials suppliers provide are critical to incumbents in an industry, the suppliers are in a good position to demand better prices. The second factor is the number of suppliers available relative to the number of incumbents in an industry. Specifically, when the number of suppliers relative to the number of incumbents is low, the incumbents compete against each other for the relatively small number of suppliers. As such, this gives suppliers power in that they have opportunities to negotiate better prices among incumbents. These two factors can independently contribute to supplier powers— and suppliers will have the highest power when these factors couple together. Looking at the personal computer manufacturing industry, for example, there are many incumbents, like Dell, Hewlett-Packard, IBM, and others. However, there are only two major firms, Intel and AMD, that supply the processor chips. Thus, the suppliers hold significant bargaining power over computer manufacturers because the processor chips are critical components of personal computers, and there are only two firms that supply this key component.

c. Bargaining Power of Buyers

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When we consider the bargaining power of buyers, our attention focuses on the power held by individuals or organizations that purchase incumbents’ products or services. Buyers can affect industry performance by demanding lower prices, demanding better quality or services, or playing incumbents against one another. These actions can erode industry profitability as well as firm performance. There are many factors contributing to buyer power in relation to incumbents in an industry, some of which are outlined here. Switching Costs - Similar to the role of switching costs in the threat of new entrants, the bargaining power of buyers increases as switching costs decrease. Specifically, when buyers can easily switch incumbents with little cost in terms of products or services, the incumbents would have little power over the buyers to enhance their performance. Undifferentiated Products - Relatedly, when incumbents provide similar products or services to buyers, they would not be in a good position to negotiate with the buyers. Undifferentiated products allow buyers to find alternatives from other incumbents. This situation can also provide an opportunity for buyers to play incumbents against each other to get a better price, quality, or service. Importance of Incumbents’ Products to Buyers - Similar to our discussion on bargaining power of suppliers, when products or services that incumbents offer are important or critical to buyers, the power of buyers would be diminished. The Number of Incumbents Relative to the Number of Buyers - The bargaining power of buyers could be diminished when there are relatively few incumbents offering the products or services that the buyers need, since the buyers do not have many alternatives to choose from.

d. Threats of Substitutes

All firms in an industry often compete with other firms in different industries, where the firms provide substitute products or services with similar purposes. For example, the traditional form of newspapers faces substitutes that include the Internet, radio stations, television stations, and so on. Such substitutes would gain newspaper subscribers and advertising revenues that might have belonged to the newspaper industry. As such, they threaten the profitability of the newspaper industry as a whole.

e. Rivalry among Existing Firms

The final force that affects industry structure is rivalry. The rivalry among incumbents in an industry can take many different forms. For example, Canadian insurance providers compete against each other by using different strategic actions, including cutting prices, providing new insurance products, improving operational efficiency, advertising, and through mergers and acquisitions. More broadly, rivalry can be intensified by several interacting factors.

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Lack of Differentiation or Switching Costs - When products are not significantly differentiated or switching costs are minimal, customer choices are often based on price and service. Under this situation, incumbents may experience pressure to launch more strategic actions in an attempt to attract more customers or keep existing customers by enhancing the company’s short-term performance. Accordingly, the rivalry among incumbents is intensified. Numerous or Equally Balanced Competitors – When there are many incumbents in an industry, the likelihood of mavericks is great. Some firms may believe that they can initiate strategic action without being noticed. As such, their strategic action intensifies the rivalry among incumbents. In addition, the rivalry between firms tends to be highest when the firms are similar in size and resources because they often target similar market niches and share similar resource requirements. High Exit Barriers - Exit barriers refer to economic, strategic, and emotional factors that keep firms competing even though they may be earning low or negative returns on their investments. Examples of exit barriers include visible fixed costs, specialized assets, escalating commitment of management, and government and social pressures.

2. What are the limitations of the five-forces model?

First, the model does not explicitly take the roles of technological change and governmental regulations and how these affect the power relationships between forces into consideration. Second, the focus of this model is primarily on the power relationships between each force at a given point in time. As such, it may have limited implications for future strategic decision making. Finally, the model assumes that all incumbents experience the same power relationship with each force. However, incumbents differ in terms of their resources and firm size, which can give them more or less power in influencing their suppliers or customers. Given the above limitations, to gain a precise assessment of an industry, managers need to use the model with great caution. Specifically, they need to anticipate the effects of technological change, governmental regulations, and industry trends on industry structure and their firm’s position in the industry.

3. Identify four key elements of the VRIO model and explain their importance.

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Jay Barney suggests that managers need to look inside their firms for competitive advantage. That is, for a firm to achieve high performance, managers need to look at their resources and capabilities and examine four important questions: (1) the question of value (V); (2) the question of rareness (R); (3) the question of imitability (1); and (4) the question of organization (0). The Question of Value

Managers need to ask if their firm’s resources and capabilities add any value to the market that would allow them to capture market share or enhance profitability, either through exploiting emerging opportunities or neutralizing threats. Some firms do have such resources and capabilities. For example, Starbucks, a global coffee chain, attracts customers by providing high-quality coffee in a relaxing coffeehouse atmosphere. Its capability in customizing coffee to a customer’s specific tastes allows the firm to charge higher prices and to keep customers coming back. How much customization is there? For starters, Starbucks offers customers various types of milk: whole milk, 2%, and skim. There are caffeinated and decaffeinated coffees—and you can add a shot of vanilla to your coffee or top it off with whip cream, caramel, cocoa, or cinnamon. Whether you take your coffee “to go” or have it “to stay,” Starbucks prides itself on a consistent customer experience no matter which location you visit. The Question of Rareness

Although valuable resources and capabilities help firms survive, those resources and capabilities need to be rare. In other words, they will have to be controlled by only a small number of firms for the firms to obtain competitive advantage. Thus, managers need to assess if their valuable resources and capabilities are unique among their competitors. For example, for many years Walmart’s skills in developing and using point-of-purchase data collection to control inventory gave it a competitive advantage over its competitors, like Kmart, a firm that has not had access to this timely information technology. Thus, during those years, Walmart’s capability to control inventory gave the company its competitive edge over its major competitor, Kmart. The Question of Imitability

Valuable and rare resources and capabilities can provide firms with competitive advantage; however, how long the advantage lasts depends on how quickly imitation could occur. When imitation occurs, it diminishes the degree of rareness, which may further erode the value of the resources and capabilities. Thus, managers need to ask themselves if their resources and capabilities are difficult to imitate, and then determine how to create barriers for imitation. For example, a pharmaceutical company that invents a new drug can obtain a patent and create a temporary barrier to prevent other firms from imitating its product. In many other industries, this is not possible. The Question of Organization

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The last question managers have to consider is whether their firms can be organized in effective and efficient ways to exploit their valuable, rare, and difficult-to-imitate resources and capabilities to maximize their potentials. How a firm is organized is critical to firm success. Quite often, firms with valuable resources and capabilities experience a decline in performance because they do not have appropriate organizational structure and design, compensation policies, or organizational culture to exploit their resources and capabilities.

4. Describe the components of a SWOT analysis.

SWOT stands for Strengths, Weaknesses, Opportunities and Threats. This model incorporates both the VRIO model (for internal strengths and weaknesses) and the external forces and Michael Porter’s five forces (for external opportunities and threats). The logic behind SWOT analysis is that firms that strategically use their internal strengths to exploit environmental opportunities and neutralize environmental threats while avoiding internal weaknesses are more likely to increase market share, sales, and profitability than other firms. Specifically, managers could use the VRIO analysis to identify what kinds of resources and capabilities their firm currently has that provide sustainable competitive advantage and where the firm’s weaknesses are. Managers could also examine the trends of general environments and analyze industry structure (by using the five-forces model) to assess opportunities and threats in the external environment. As such, the conclusion from the SWOT analysis can provide insights for managers into strategy formulation for the future.

5. What is the difference between a business-level strategy and a corporate-level strategy?

A business-level strategy is a strategy a firm uses to compete in a given market. As such, which market a firm intends to operate in is a given. There are three business-level strategies: cost leadership, product differentiation, and focus. A Corporate-level strategy is about how a firm allocates its resources in different markets to create synergy to achieve its organizational goals.

6. Provide six ways a product can be differentiated.

 Product features  Links between functions

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 Location  Product mix and bundling  Links with other firms  Services

7. Identify and explain the two major motives for diversification.

Intrafirm dynamics - A motive for diversification that can include growth and managerial self-interests. Interfirm dynamics - A motive for diversification that can include market power enhancement, response to competition, and imitation. When a firm pursues diversification and related diversification, the firm can increase its market power within the industry it operates in. In this case, market power can come from increases in market share or revenue. As such, the firm can be in a better position to negotiate better prices or higher quality with its suppliers due to higher volume of purchases. The firm therefore has more leverage to compete against its competitors. 8. Compare and contrast three major types of diversification.

There are three major types of diversification: related, unrelated, and vertical integration. Related diversification - refers to situations where a firm expands its core businesses or markets into related businesses or markets. Such an expansion usually involves horizontal integration across different business or market domains. It enables a firm to benefit from economies of scope and enjoy greater revenues if these businesses attain higher levels of sales growth combined than either firm could attain independently. By diversifying into related markets, a firm can create synergies through sharing activities (for example, production facilities, distribution channels, sales representatives) and leverage its resources and capabilities. Related diversification also potentially gives a firm greater market power to compete against its competitors and greater bargaining power over its suppliers and customers. Unrelated diversification - The second type of diversification is unrelated diversification, where a firm diversifies into a new market that is not similar to its current market(s). This kind of diversification tends to provide little synergies for a firm, given that there are few opportunities for sharing activities or leveraging resources and capabilities. Firms pursuing this strategy tend to have the synergies created (or believe that the synergies will be created) through corporate office’s management skills. Loblaw is one example. Recently, the Canadian grocery chain diversified into the mobile phone business to penetrate a new market unrelated to its food business

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Vertical integration - The final type of diversification is vertical integration. Vertical integration refers to an extension or expansion of firm value chain activities by integrating preceding or successive productive processes. That is, the firm incorporates more processes toward the source of raw materials (backward integration) or toward the ultimate customers (forward integration).

9. Explain three ways a company can achieve diversification.

Internal development

Through internal development, firms have full control over the process of diversification and solely capture the potential revenue and profitability. That said, internal development has two major disadvantages. First, quite often diversifying into new markets requires significant resource commitment. If firms do not have slack resources, then they might find it difficult to pursue internal development for diversification. Furthermore, internal development also requires time to develop the capability unique to the new markets. When the time window for the new market opportunity is narrow, firms might miss the opportunity (after already developing the capability) to compete in the new market. The second disadvantage is the risk associated with diversification. While internal development allows firms to solely absorb the potential returns, it also implies that the firms have to bear all of the risk associated with diversification. The second way to achieve diversification is through mergers and acquisitions. In general, mergers refer to two firms coming together to create a new firm with a new identity. Acquisitions

Acquisitions refer to a firm acquiring the majority of shares in another firm. In some cases, the acquired firm will become a division of the acquiring firm. In other cases, the acquired firm still operates independently or retains their brand or firm identity. Mergers and acquisitions certainly provide firms with quick access to new resources and capabilities to compete in the new markets. They also allow the firms to increase market power or market share in a relatively short period of time. However, mergers and acquisitions share the same disadvantages as internal development—risk in the new market. Quite often, managers face significant challenges in bringing two firms together into one in terms of administrative issues and organizational culture. Failure in managing the processes of mergers and acquisitions can create significant employee turnover and can erode firm performance. Strategic alliances

The third way to achieve diversification is through strategic alliances. Strategic

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alliances refer to two or more firms or organizations working together to achieve certain common goals. Strategic alliances can take various forms and serve various purposes. The three major forms of strategic alliances are nonequity alliances, equity alliances, and joint ventures. Nonequity alliances refer to the participating firms working together based on contractual agreements. Equity alliances refer to one firm having partial ownership in the other firm and the two firms working together to pursue common goals. Finally, joint ventures refer to two or more firms contributing certain resources to form an independent entity. The purposes of strategic alliances can range from marketing activities, to manufacturing production, to distribution arrangements, to research and development. Generally, strategic alliances provide firms with quick access to new resources and capabilities contributed by alliance partners. As such, strategic alliances can be less costly and less of a resource commitment. Firms also share risks associated with diversification with alliance partners. On the other hand, firms will have to share potential revenue or profits with alliance partners. Furthermore, there are some specific risks associated with strategic alliances, especially surrounding partner selection. Since alliance partners play a key role in the success of strategic alliances, firms need to carefully select the partners to achieve their purposes in pursuit of diversification. Quite often, firms choose the wrong partners because of the following: (1) the firms misperceive the partners’ resources and capabilities; (2) the partners misrepresent their resources and capabilities; and (3) the partners behave solely based on their own interests. Altogether, these could significantly impair the strategic alliance, which ultimately fails to achieve the common purposes.

10. Explain the difference between economies of scale and economies of scope.

Economies of scale – The spreading the costs of production over the number of units produced, which can provide incumbent firms with cost advantages that create a barrier to entry for new entrants. Economies of scope - The situation where the total costs for serving two markets or producing products for two markets are less than the costs for serving them or producing them alone.

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Conception Application

Case: Lululemon: For the Love of Yoga 1. Analyze the yoga clothing industry using Michael Porter’s five-forces model. Threat of new entrants

 The threat of new entrants is high. The yoga clothing industry is made up of small and large sports retailers. The clothing industry competes in monopolistic competition.

 There are little entry barriers to entering the industry. However, economies of scale may be one entry barrier as it is difficult to compete equally with a billion dollar company that has financial and people resources.

Bargaining power of suppliers

 Suppliers of clothing fabric would likely have little power. There are lots of suppliers of clothing around the globe.

Bargaining power of the buyer

 The bargaining power of the customer is medium to high. Yoga pants is not an essential life product, so the consumer can be choosy.

 There are low switching costs. The customer can easily switch to another company. For the niche yoga enthusiasts however, you may ask how important is this yoga fabric to them? Cleary, since the company is also selling a lifestyle (eg. taking care of yourself and healthier living), there could be psychological switching costs.

Threat of substitutes

 The threat of substitutes is high. Old Navy and the Gap sell similar products for under $30. Certainly, other non-yoga could be worn to perform yoga exercises such as jogging pants, shorts etc.

Rivalry

 There are lots of current rivals or competitors such as Nike, Old Navy, the Gap and a wide range of sports retailers. Under Armour, Victoria Secret and American Eagle have sold yoga wear too.

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2. Conduct a VRIO analysis of Lululemon.

Value - Value is created by the product and customer service the company offers. The product is high quality yoga clothing for yoga enthusiasts designed for the fabric, stretch and age of people who like yoga. Lululemon has been referred to as the “Nike for Women.” The company has a reputation for quality and authenticity. The company also has superior customer service. Its sales staff are referred to as “educators.” Rareness - You could argue that it is somewhat rare to find a specialty yoga retailer in itself. It might be even harder to find a global yoga retailer that is a billion dollar-company. The company uses a “scarcity model” keeping inventory supplies low. Imitability - It might be difficult to imitate a billion dollar yoga retailer. But certainly many other sports retailers can sell high quality yoga clothing too. Clothing is easy to copy. Organization - Lululemon is a billion-dollar company, so it has the financial and people resources to organize in effective and efficient ways. 3. Discuss which of the three kinds of business-level strategies you think Lululemon is employing

or should employ.

Focus strategy with product differentiation. The product is high quality yoga clothing for yoga enthusiasts (90% women) designed for the fabric, stretch and age of people who like yoga. More recently, the company has also diversified into running, swim and surf clothing for both men and women.

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CHAPTER 6

Economic Forces

CHAPTER SYNOPSIS This chapter focuses on the economic environment in which businesses operate. Several topics will be discussed such as the five Factors of Production, the four types of economic systems, the four types of competition and various economic goals. Various forms of unemployment will also be addressed.

LEARNING OBJECTIVES 1. Define the elements of an economic environment. 2. Describe four types of economic systems. 3. Compare four types of competition. 4. Discuss how economic elements can affect business. 5. Explain the different types of unemployment.

CHAPTER OUTLINE CHAPTER 6  Oh Canada, What Is Your Economy Like? 193  Learning Objectives 193  The Business World: Canadians On The Move 194 THE ECONOMIC ENVIRONMENT 197  Individuals 197  Businesses 197  Government 200 ANALYZING THE ECONOMY: TWO APPROACHES 200 TYPES OF ECONOMIC SYSTEMS 201  Market Economy 202  Communism 202  Socialism 203  Mixed Economy 203 COMPETITION AND THE ECONOMY 204  Types of Competition in Free Markets 204

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GOALS OF CANADA’S ECONOMIC SYSTEM 210  Economic Growth 210  Economic Stability 223  Employment 226 CHAPTER SUMMARY 229 CHAPTER LEARNING TOOLS 229  Key Terms 229  Multiple-Choice Questions 229  Discussion Questions 230  Concept Application: Saskatoon: Canada’s Fastest-Growing Economy 231

BUSINESS WORLD EXERCISE

1. Refer to the Business World article “Canadians on the move.” a. What is structural unemployment and why does it exist?

b. Explain what are some factors contributing to structural unemployment in Canada?

c. What are the implications of structural unemployment for the economy?

a. Structural unemployment occurs for two reasons:

 The available jobs do not correspond to the skills of the labour force.  Unemployed individuals do not live in a region where jobs are available.

b. Some factors contributing to structural unemployment are:

 Lack of the right skills – For example, new graduates may not have the skill-set required for available jobs.

 Unwillingness to change provinces - People are often unwilling to move or find it difficult to change provinces due to family responsibilities (eg. aging parents) or just find it difficult to leave family or friends behind. For example, only about 20% of Canadians are willing to move.

 Labour barriers - Some occupations are regulated (eg. teachers) and skills or certifications are not automatically recognized in other provinces.

c. The impact of structural unemployment on the economy is:

 skills and labour shortages.  inefficient labour markets and lower overall economic performance.  increased demand on government services (eg. unemployment insurance), and lower

tax revenues.

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TALKING BUSINESS EXERCISES

1. Refer to the Talking Business 6.1 - “Canada’s People Advantage” (page 199). Explain

what strengths Canada contributes to the “knowledge” Factor of Production?

Strengths that add to “knowledge” in Canada include:  86.6 % of Canadians have completed a high school diploma.  23.7% of Canadians have completed a college diploma.  24.6% of working-age Canadians have competed a university degree.  Canada ranks second out of 133 countries for its management schools.  Canada is a top country in having qualified engineers.  Canada is a diverse, multicultural country with multiple languages and cultures,

allowing it a breadth of talented workers.

2. Refer to the Talking Business 6.2, “Growing Gap of Truck Drivers Will Be Costly to Canadian Economy.” (p.201)

a. What are some of the issues impacting the trucking industry?

b. How does the trucking industry impact the Canadian economy?

a. Some issues impacting the trucking industry include:

 Many truck drivers are approaching retirement and few young people are entering the industry due to job demands of long hours with unpredictable schedules.

 There is a high demand for truck drivers and little supply, which could increase labour costs.

b. The trucking industry impacts the economy in several ways:

 90 per cent per cent of all food and consumer products in Canada are moved by trucks.

 The trucking industry contributes 33 per cent to the gross domestic product (GDP) in the transportation sector.

 Truck drivers consist of 1.5% of the labour force in Canada.

3. Refer to the Talking Business 6.3, “Better Farm Management Separates the Wheat from

the Chaff” (p.205) How can Canadian farmers be more profitable and competitive under pure competition?

 Manage capital, people, marketing and business relationships well  Rent land instead of purchasing land.  Avoid debt.  Invest in technology to improve productivity.

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 Improve marketing.  Sell directly to consumers, retailers, processes, restaurants and foreign buyers.  Engage in business partnerships, cost-sharing, agricultural cooperatives and joint

ventures.

 Improve business skills.

4. Refer to the Talking Business 6.4, “Don’t Blame Professional Athletes for High Ticket Prices” (page 207). a. What form of competition does the NHL hockey league compete in?

b. Why are ticket prices so high?

a. The form of competition is a monopoly, since there are no other professional hockey competitors.

b. People are willing to pay higher prices, due to high demand for hockey game

tickets.

5. Refer to Talking Business 6.5, “The US Subprime Mortgage Crisis and Recession.” (page 212)

a. Explain what factors contributed to the 2008 recession?

b. Do you think the recession could have been prevented? Why or why not?

a. Some factors that led to the 2008 recession are:

 government policies (eg. accommodative monetary policy).  low-interest rates, which caused a demand in home-buying.  lenient mortgage lending practices (eg. zero down payment and long

amortization periods).

 lack of government regulation (eg. unregulated lenders used unscrupulous practices, such as not requiring proof of employment or proof of assets).

 low household savings and high household debt.  little to no credit became available.  firms stopped investing and consumer confidence dropped.  mortgage-backed securities (MBS) started to default.  major financial institutions began to collapse due to bad debt such as Bear

Sterns, Lehman Brothers, AIG, Fannie Mae, Freddie Mac, etc. b. The recession could not have been prevented due the number of inter-related

factors (above).

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6. Refer to Talking Business 6.6, “Canada’s World-Class Economy.” (page 213) Explain what are some factors contributing to Canada’s economic success?

a. stable and predictable

 the best country in G7 to do business.  good resources, banking and tax environments.  good GDP growth in G7 countries.  Canada has the 10th largest economy globally.  a diversified economy.  2nd largest proven oil reserves.  3rd largest natural gas producer.  strong and safe banking system.  over 100 projects related to mining, metals, oil and gas valued at $1

billion each.

 large and stable commercial relationship with the U.S.  sailing times between Atlantic and Pacific ports are 2 days shorter than

other ports in North America.

b. innovative

 one of the global leaders in mobile software development.  research institutions are involved with developing wood-based jet fuel,

paper phones, electric vehicles, simulation technologies and other products.

 government openness to high-skill immigration.  government R&D tax credits to support eligible companies.  investment in R&D by the private sector.

c. cost efficient and profitable

 competitive business costs.  low corporate tax rate.  innovation clusters of business.  efficient transportation infrastructure.  sound government public policy (eg. debt-reduction initiatives and

surpluses)

 Canada had lowest net debt-to-GDP ratio in the G7.  one of the best G7 countries to do business with.  access to fast and reliable North American and world markets.

7. Refer to Talking Business 6.7, “Canada’s Productivity Challenge.” (page 216)

a. Explain what are some factors contributing to Canada’s productivity challenge? b. How can it be improved?

a. Factors contributing to Canada’s productivity challenge:

 outdated technology.  risk-adverse culture.

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 low research and development investment.  lack of commitment to training and technology.

b. Improvements to productivity can be made by:

 automating work.  investing in infrastructure, technology, training and development.  reducing routine tasks and concentrating on value-added work.  improving job and organizational design.  redeploying or downsizing employees.  exploring change management.

8. Refer to Talking Business 6.8, “Canada’s growing but invisible trade services.” (page 217)

a. What are some services Canada is able to export?

b. Why are these services important to Canada’s economy?

a. Canada is able to export a variety of services:

 financial services  computer and information services  communication services  other business services  insurance services

b. These service exports are important to Canada’s economy because:  they represent 10% of Canada’s official trade, but 40% of Canada’s global

trade when supply chains are considered.

9. Refer to Talking Business 6.9, “Today’s High Youth Unemployment: A Solution for Skill Shortages” (page 227) a. Discuss the consequences of youth unemployment for youth and the economy.

b. How can youth unemployment be improved?

a. Consequences of youth unemployment for youth and the economy are:

For youth:

 forgone income  lost work experience

For the economy:

 reduces youth spending power  reduces income tax revenue

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b. Improvements could occur by:

 increased training  further education  greater communication between employers and educational institutions to

match skills with needs

 increased co-op and internship opportunities  increased apprenticeship opportunities

SAMPLE CLASS DISCUSSION QUESTIONS

1. What do you think are the greatest challenges for the Canadian economy and why?

2. What do you think would help improve the Canadian economy?

3. How do you think Canada can become more competitive in the global marketplace?

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CHAPTER LEARNING TOOLS

Multiple Choice Answers (also available in the back of the textbook, page 487) 1. B 2. C 3. D 4. C 5. D 6. D 7. A 8. C 9. D 10. B 11. A 12. D 13. C 14. A 15. B

Discussion Questions 1. What is an economic environment?

An economic environment refers to the economic conditions in which an organization operates. An economic condition or variable can include job growth, consumer confidence, interest rates, and much more. Individuals, businesses, and the government are three key groups that make up an economic environment.

2. Compare and contrast microeconomics and macroeconomics.

The performance of an economic environment can be analyzed on a micro or a macro level. Microeconomics is the study of smaller components of the economy, such as individuals and businesses. For example, microeconomists analyze consumer demand and existing supply. On the other hand, macroeconomics is the study of larger economic issues involving the economy as a whole. Macroeconomics is arguably more complex, since it considers data for large groups of people and firms. Examples of macroeconomic issues include unemployment, consumption, inflation, gross domestic product, and price levels.

3. Identify and explain four types of economic systems.

Four types of economic systems are a market system, a communist system, a socialist system, and a mixed system. Market Economy

A market economy, also referred to as a capitalist economy or a private enterprise system, is a free market system in which individuals can decide to be employees or owners of their own business. Individuals who establish businesses are “entrepreneurs” and can freely choose which products to produce, distribute, and sell; where to sell them; and what prices to set. In so doing, businesses compete with others in a marketplace where supply and demand determine which goods and services will be produced and consumed. Market economies offer entrepreneurs certain rights —for example, the right to own

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private property, the right to compete, the right to make their own choices, and the right to make a profit. The right to make a profit is probably the most significant incentive for individuals to take the risks involved in establishing a business. Competition is one of the most important features of a market economy. Different individuals and groups are able to compete freely for profit. Competition is beneficial for both consumers and for the overall economy, because it allows different products and services to be produced at different prices. When there is more than one seller of a given product, producers are compelled to create a better product or to find a way of lowering costs to satisfy customers. This rivalry leads to more varied products, lower prices, and more efficient production. There is a trend today for countries to move toward market economies, but the transition is not always simple nor is it quickly realized. The availability of money, capital, and adequate distribution systems can impact the ability of individuals to establish businesses and to market their products to those who want them. Communism

Communism is the economic system that once existed under the Soviet Union. Instead of individuals freely deciding which products to produce, the government owned essentially all of the country’s resources, and economic decisions were made centrally. The government decided which goods and services were produced and in what quantities. Communism tended to limit an individual’s choices, such as the ability to change jobs or to relocate. Although in theory communism was designed to create economic equality by allocating resources equally to all, the system had many shortcomings. First, the communist government had to guess which goods to produce, since prices were not set by the market. The government also had to estimate supply and demand. When estimates were inaccurate, the result was either a surplus or a shortage of goods. A second shortcoming of communism was that it offered little incentive for people to work hard, to improve goods, or to invent new products. As a result, creativity and innovation, in terms of business, were nonexistent. The third problem with communism was that the government mainly benefited from the earnings. Individuals had little incentive to build a business, since the government took most of the profits. Little business growth meant little to no economic growth. Today, there are few pure communist economies in the world whereby governments make all of the economic decisions. Cuba and North Korea are two remaining examples of communist systems. Countries such as China and Vietnam are slowly moving toward market economies and are engaging in ongoing trade with the rest of the world. Socialism

Socialism is an economic system whereby the government has large ownership in or control over major industries essential to the country’s economy. Coal mines, transportation, steel mills, health care, banking, and utilities are a few examples.

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In Europe, for example, the French government has some ownership of the telecom industry. With significant ownership, the state can influence business goals, types of goods produced, prices, and even workers’ rights. How much government ownership is required for a country to be considered socialist? There is no universal agreement. However, most socialist nations are otherwise similar to other countries. Socialist systems, for example, often have democratic governments that protect the rights of citizens. Although most businesses are privately owned, individuals are heavily taxed so that the government can redistribute profits among its people. In 2013, Sweden’s personal income tax rate was 59%, the second highest in the world. Denmark ranked second at 55%. This is high compared to Canada’s top personal tax rate of 50%. High taxation is certainly one disadvantage of socialism. High taxation levels can also be attributed to the high level of services offered by socialist systems, such as health care, education, child care, and unemployment benefits. One advantage socialists believe their system offers is a higher standard of living and more economic stability than other systems. While this could be true, taxes and unemployment are usually higher and levels of innovation lower. Some examples of socialist countries include France, Denmark, and Sweden. Mixed Economy

Canada’s economy is considered a mixed economy since it uses more than one economic system. While most industries are the work of private enterprise, the Canadian government may be considered partly socialist in its control of certain industries such as Canada Post, utilities (for example, water), and some public lands. In Canada, for example, the provincial governments control and regulate the health care system. Similarly, the Ontario government owns and operates the Liquor Control Board of Ontario (LCBO), which controls the sale of certain types of alcohol. The government is also involved in taxation and in the allocation of resources for special purposes, such as the assistance of retired individuals on a fixed income. The Canada Pension Plan (CPP), for example, is administered by the government and provides pension income for individuals age 65 and older. Today, most economies are considered mixed systems since governments usually play some role in managing the economy. In recent years there has been a trend to privatize government-run agencies with the aim of creating competition in the private sector.

4. Identify and explain four types of competition.

Competition among providers of goods and services can fall under one of four main categories: perfect competition, a monopoly, an oligopoly, and monopolistic.

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Perfect (or Pure) competition

Perfect or pure competition is, in theory, the ideal form of competition. It is characterized by four traits. First, a large number of buyers and sellers act independently. Second, the product or service is undifferentiated. In other words, the good or service is similar to or the same as other products and services available in the market. In this case, because there is nothing unique or value-added about the product, the lowest price becomes the key decision-making factor for the consumer. Third, with undifferentiated goods, the market determines the price, not the company. The seller is therefore a price taker. And fourth, in perfect competition there are no barriers to entry. Barriers to entry are obstacles that may prevent another company from entering a given market. Barriers of entry could include high capital costs (eg. cost of buildings and equipment), government regulations, customer brand loyalties, intellectual properties (eg. patents and trademarks), and high switching costs (eg. contract cancellation penalties). Barriers to entry usually exist under other forms of competition, too. When these four conditions are present, no one firm can become large enough to set prices, control the market, and significantly affect the free market system. What industries are purely competitive? Many agricultural products such as potatoes, apples, and corn are perfectly competitive. Today, however, there are few other products that exist within the conditions of pure competition since most products are slightly differentiated. Monopoly

A monopoly represents the opposite extreme to perfect competition. A monopoly occurs when only one company produces a particular product or service in a given market and, as a result, there are no competitors. As the sole producer, a company is a price setter—it is able to determine the selling price of its products or services. Significant barriers to entry that prevent other firms from competing in the market must be present for a monopoly to exist. In Canada, three examples of monopolies are Canada Post, the LCBO in Ontario, and Rogers Communications Inc. Daily mail delivery to businesses and households for bills, flyers, and greeting cards is provided only by Canada Post. While courier services do exist, the higher costs do not provide consumers with a practical alternative for their everyday mail needs. The LCBO is also considered a monopoly. For both consumers and businesses, the LCBO is the only place where certain types of liquor are sold, such as whisky, rum, vodka, and gin. Cable television is another type of monopoly. In certain jurisdictions, Rogers Communications Inc. is the only provider of “cable” television service (although there are alternatives, such as satellite television). The United States also has its share of monopolies. Microsoft’s operating system,

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Windows, has been called a quasi monopoly. While it is not the sole operating system in existence, Microsoft Windows accounts for approximately 90% to 95% of the overall market. As the standard for home and business computer applications, the consumer has little choice. For example, if you buy a new personal computer, chances are that the computer comes with Microsoft Windows. Buying an Apple computer may be your only other alternative for a different operating system. SiriusXM is another monopoly, because it is the sole provider of satellite radio in Canada and the United States. Many professional sports teams are also considered monopolies because there are no other competitors. There are other types of monopolies as well. A natural monopoly, for example, occurs when economic and technical conditions only allow for one efficient producer. Water supplied by a municipality is considered a natural monopoly. Another kind of monopoly is a limited monopoly, which may exist to a company that has a patent. A patent is a form of intellectual property rights whereby a country can grant exclusive rights to an inventor to protect his or her product or idea for a limited period of time in exchange for public disclosure in the future. For instance, when a pharmaceutical company develops a new drug, the company can patent it and then sell it exclusively. Once the time on the patent runs out, any company can access information on the drug, develop it, and sell it as a competitor. Subsequently, the monopoly no longer exists. Oligopoly

When only a few competitors dominate an industry, an oligopoly exists. Commercial aircraft producers such as Boeing and Airbus are two examples of companies in an oligopoly. Oligopolies are also characterized by high barriers to entry such as capital costs. For instance, to establish a plane-manufacturing business, one would require millions if not billions in investment dollars. Oligopolies are price setters and are also characterized by fierce competition. Prices are usually close between companies. With so few firms within an industry, a change in price by one company will likely cause the price to be matched by others in the industry. Automotive, oil, gas, tobacco, and cereal companies are some examples of oligopolies. Canadian banks also meet the definition, as do the big four accounting firms—Deloitte, Ernst & Young, KPMG, and PricewaterhouseCoopers. They are the only four accounting firms that provide accounting, tax, and audit services globally. The majority of North American multinational corporations use one of these firms to audit their international businesses. Monopolistic Competition Most other products and services in free market economies fall under a type of competition known as monopolistic competition . In monopolistic competition, a large number of companies compete with one another, offering products and services that are differentiated at least in a minor way. Differentiation strategies include branding, style or

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design, and advertising. Coffee, shampoo, furniture, and fast-food burger restaurants are a few examples. Let’s consider the coffee industry. Who sells coffee in Canada? Tim Hortons, Starbucks, Second Cup, Timothy’s, McDonald’s, and Coffee Time are some of the bigger competitors. With more time, you could probably think of many other examples. Each of these coffee sellers are differentiated in some way. There are diverse flavours (mild, medium, or dark roast), brand names (Timothy’s versus Second Cup), and advertising. Some coffees are advertised as convenient and low cost (Tim Hortons), while other coffees are promoted as premium brands with higher-quality coffee beans (Starbucks).

5. Discuss three key goals of Canada’s economic system.

a. Economic Growth

 The business cycle  Productivity  Balance of trade  Exchange rates  National debt

b. Economic Stability

 Inflation  Deflation  Interest rates

c. Employment

 Employment rates and measures

6. Explain the stages of the business cycle.

The business cycle refers to the rise and fall of economic activity over time. Although the economy will grow over the long term, economic growth is usually unstable. Business cycles or economic fluctuations vary in length and severity. Some periods of fluctuation are difficult and long; others are short and mild. Generally, the economy in the long run has an upward slope with ups and downs of varying degrees. The five stages of the business cycle are expansionary, peak, contraction, trough, and recovery. a. The expansionary phase is a period when economic activity is rising. Goods are being produced and sold, the workforce is expanding (that is, jobs are being created), demand for goods is increasing, and the price of goods is rising. Typically, this is a positive period for business. Profits are rising, cash flow is steady, and there is an opportunity for some risk taking. The expansionary period can experience a sudden

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economic boom or slow and steady growth. Once the economy has reached its highest point, it can be said to have peaked. b. A peak marks the end of the expansionary phase and the beginning of the contraction phase. c. A contraction phase is characterized by declining economic activity and falling profits. During this phase, managers usually reduce costs, lay off workers, and halt any plans to invest in the company. A recession is realized when there are two or more consecutive quarter periods of negative or falling economic activity. The most recent recession occurred in 2008. A depression is an extreme recession that is characterized by longer economic periods of declining economic activity, high unemployment, and high levels of personal and commercial bankruptcies. d. A trough is the opposite of a peak. A trough is a very low level of economic activity. e. The recovery phase begins after the trough. Here, economic activity slowly begins to rise and the demand for goods and services increases. Firm profits also begin to increase again. So, how is the economy doing in Canada?

7. Identify and discuss different measures of economic growth.

Measuring economic growth accurately is an important function of the government to ensure that the economy is on track. There are two main measures of economic growth: GDP and GNP. The gross domestic product (GDP) is the value of all final goods and services produced within a country’s borders. In Canada, this includes all goods and services produced by both Canadian and foreign companies physically located in Canada. For example, the value of cars produced by the US Ford Motor Company in Oakville, Ontario, would be included in Canada’s GDP. The gross national product (GNP) is the value of all final goods and services produced by a national economy inside and outside of the country’s borders. In other words, Canadian GNP measures income received in Canada whether earned in Canada or abroad. What is the difference between GDP and GNP? Let’s take a look at the operations of Magellan Aerospace, a Canadian manufacturer with operations in Canada, the United States, and Great Britain. In calculating Canada’s GDP , one would only include Magellan’s Canadian profits that are physically earned in Canada. However, when calculating Canada’s GNP , one would include profits earned from all Magellan’s operations, both in Canada and abroad. When calculating the US GDP , one would include only profits from Magellan’s US operations. Profits earned in Canada and Great

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Britain would be outside of the US borders and would not be included in US GDP. As you can see, the calculations can become quite complex. GDP can also be calculated in different ways. There is real GDP, nominal GDP, and GDP per capita. Real GD P is GDP adjusted to reflect the effects of inflation. In other words, real GDP takes out the effect of rising prices. Nominal GDP , on the other hand , is not adjusted for inflation and is measured in current dollars. That is, the current price or the price right now. Let’s say the average cost of one automobile tire in Year 1 is $50 and the average cost of one tire in Year 2 is $55. In addition, 100,000 tires were sold in Year 1 and 100,000 tires were sold in Year 2. Although sales have increased, were there any more tires produced and sold in Year 2? No: There has been no economic growth in the production of tires. Let’s calculate this in terms of nominal and real GDP. In Year 1, nominal GDP was $5,000,000 and real GDP was the same at $5,000,000. In Year 2, however, nominal GDP was $5,500,000 ($55 × 100,000) and real GDP was only $5,000,000 ($50 × 100,000). The difference is due to inflation, the rising price level. GDP per capita is the GDP per person in a country. GDP per capita is calculated by dividing the total GDP by the total population of a country. This figure assists economists and policymakers in assessing the economic well-being of the average person.

8. Why is debt bad for an economic environment?

First, a country’s credit rating can be lowered, leading to higher borrowing costs and causing a further increase in the debt load, which occurred in the United States. In August 2011, Standard & Poor’s, a global credit-rating agency, lowered the United States’s credit rating from AAA to AA+ because of a lack of confidence in the government’s plan to reduce its debt. While other credit-rating companies did not lower the government’s rating, global stock markets took a tumble the following day. Many European countries also face a debt crisis. Greece, Ireland, and Portugal have required significant financial assistance and bailouts from their European neighbours. In July 2011, Standard & Poor’s reduced Greece’s credit rating from B to CCC, the lowest-rated country in the world in S&P’s rankings. A second reason why debt is bad for the economy is that government austerity programs are required to reduce the debt. The combination of higher taxes to generate revenue and lower government spending to reduce costs lowers overall demand and, therefore, slows the economy. A third reason is that government will have to spend more time addressing the debt issue than other important issues to the country. The result is a less-efficient use of its resources. Instead of a focus on trade, innovation, or some other value-added activity, a focus on debt reduction means the government has less time and money to spend on more important endeavours. And finally, according to the doctrine of Ricardian equivalence, increasing government

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deficits may lead consumers and businesses to believe their taxes will be raised in the future to pay off the growing debt. To prepare for this, consumers and businesses end up saving their money instead of spending it, leading to a worsening of the economic problem.

9. Describe five types of inflation.

The rise in the price level of goods and services is called inflation. Five types of inflation are:

 expected  unanticipated  anticipated  demand-pull  cost-push Expected inflation is the rate at which people believe the price level will rise, whereas unanticipated inflation is inflation that people do not expect.

Anticipated inflation is inflation that has been correctly forecasted.

Inflation is a concern for individuals and businesses since it reduces the purchasing power of money; that is, the value of what money can buy. If, for example, a person earns a salary of $30,000 and his rent increases by $100 per month, his purchasing power has decreased by $1,200 even though his salary remains unchanged. Since his expenses have increased, he has less money to spend. Similarly, price increases affect businesses, too. Inflation means input costs such as labour, materials, and overhead are more expensive and therefore company profits are reduced. Other types of inflation are demand-pull inflation and cost-push inflation. Demand-pull inflation occurs when the demand for goods and services exceeds the supply, which tends to “pull” prices up. When producers can realize higher prices, they produce more goods until demand and supply reach an equilibrium.

Cost-push inflation results from increases in production costs for businesses such as raw materials and labour expenses. These input costs “push” up the final price of goods and services, thus increasing the price for consumers. Wage increases are the most significant factor in cost-push inflation, since labour is often a business’s highest cost.

10. Identify and explain the different types of unemployment.

Frictional unemployment is caused by normal labour market turnover, not a downturn in the economy. New college graduates, mothers looking for work, or anyone looking for his or her first job are a few examples. Employed workers who are laid off also fall under

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this category. Frictional unemployment is unlikely to disappear, since people are constantly entering and exiting the labour force. The baby boom of the 1950s brought a large number of people into the workforce, creating higher frictional unemployment for a period of time. Similarly, when businesses suffer bankruptcy or move to a new location, job losses contribute to frictional unemployment. Cyclical unemployment, on the other hand, is related to the pace of the economy, or the “business cycle.” When the economy slows down or is in a recession, cyclical unemployment is high. Alternatively, when the economy is growing and expanding, cyclical unemployment is low. For instance, auto workers who are laid off during a recession and then hired back months later are individuals who experience cyclical unemployment.

Structural unemployment occurs for two reasons: either the available jobs do not correspond to the skills of the labour force or unemployed individuals do not live in a region where jobs are available. Structural unemployment has also been prevalent where there has been a technological change and old jobs have been discontinued and new jobs created. In the 1980s, typewriters were replaced by personal computers. Those whose job it was to repair typewriters became obsolete and computer administrator jobs were created, requiring a different skill set. Today, with the rise in technological advances, traditional industries such as auto and steel are shrinking and newer industries such as electronics and bioengineering are expanding and creating new jobs. Seasonal unemployment is unemployment caused by the seasonal nature of the job. For example, a garden centre may hire workers for the spring and lay them off in the fall. Similarly, a construction company may hire contract workers in the summer and not in the winter. Since Christmas is one of the busiest times of the year for retailers, retail stores are also noted for hiring temporary workers. As you can see, a seasonal job can be created due to special holidays or changes to seasonal weather. The natural rate of unemployment is the total amount of frictional and structural unemployment combined. In other words, it is the unemployment that exists when there is no cyclical unemployment. Full employment occurs when only frictional unemployment exists and no structural or cyclical unemployment is present. In this case, the quantity of labour demanded equals the quantity of labour supplied. There will likely always be a certain level of frictional unemployment, since people will always be entering and exiting the workforce.

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Conception Application

Case: Saskatoon: Canada’s Fastest Growing Economy 1. What economic elements are contributing to Saskatchewan’s growing economy?

Economic Element Case Examples

(Karakowsky and Guriel, 2015)

Low unemployment  “The expanding job market is attracting both domestic and foreign applicants which are growing the housing, retail, and other sectors of the economy.”

 “Saskatchewan maintains one of the lowest unemployment rates.”

 “the August 2011 unemployment rate was 4.5 per cent, the lowest in the country” (compared to the country rate of 7.3%)

Increasing gross domestic product (GDP)  “This year Saskatoon’s gross domestic product is expected to grow by 3.7 per cent which is significantly higher than the estimated national average.”

Exports

 “supplies 5% of the world’s exported wheat”

 “the manufacturing industry…[makes] machinery, wood products, transportation equipment, plastics and food and beverages….this in turn has led 85%of firms to be able to export their goods outside the province, impacting the transportation and distribution industry favourably.”

Investment

 “About $10 billion in mine development and expansion has already been invested in the province.”

Growing sectors

 Resource sector  “Saskatoon is benefiting from strong resource development.”

 “SREDA recognizes that Saskatoon’s economy is experiencing significant

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growth mainly due to the mining industry.”

 Agriculture sector

 “The agriculture sector is a natural strength. Saskatchewan has six different soil zones and has over 40% of Canada’s arable land….the industry produces feed and forage, cereal crops, oilseeds, pulse crops and some speciality crops.”

 “produces the majority of Canada’s wild rice…and over 70% of Canada’s flax and over 80% of Canada’s mustard.”

 Automotive sector

 “there is a 12.2 per cent increase in new car and truck sales in the province.”

 Housing sector

 “Home construction is also growing fast. In the first six months of 2011, new housing increased by 38%.”

 Industrial and commercial construction sector

 “Vacancy rates for the commercial real estate market are at record lows including industrial, office and retail space. Similarly, new office tower construction is on the increase from business expansion.”

 Other sectors  “We have to give credit to other sectors of the economy…including manufacturing, agriculture, transportation and communication.”

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2. What noneconomic or other related factors are contributing to Saskatchewan’s growing economy?

Noneconomic or other factors

Case Example

Population growth  “Healthy population growth is bolstering the housing market”

 “Ranks as the fastest growing city.”  “Saskatoon’s population grew by 3 per

cent or 7,200 residents between 2009 and 2010. Its population is estimated to be 265,300.

Immigration growth  “International immigration into the province is a leading factor for its growth. Over 50 per cent of its population increase is due to new families immigrating to Canada. These families are also making Saskatoon one of Canada’s youngest cities.”

Young working demographic

 “Saskatoon’s median age is currently 35.4 years compared to the national median of 39.7 years. This means the majority of its population is of working age.”

Growing number of entrepreneurs

 “approximately 1,000 licenses are issued to new small businesses.”

3. What do you think are the most important factors in order for Saskatchewan to sustain

long-term economic growth?

 Bringing global business to Saskatoon.  Encouraging entrepreneurship and growing small business.  Partnerships to support new business (eg. Ideals Inc.); help businesses achieve an 87%

success rate.

 Investment in research and development and expand in knowledge-based industries.  Skilled labour shortages need to be addressed.  Keeping taxes low to remain competitive.  Bringing in companies near the university to do research to develop new technologies.

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CHAPTER 7

Competitive and Technological Forces

CHAPTER SYNOPSIS This chapter focuses on the competitive nature of business and how industries evolve over time. A technical look at different types of innovations will be discussed, as well as the relationship between technology evolution and industry evolution. Finally, the role of technology in the workplace will be examined.

LEARNING OBJECTIVES 1. Describe the different stages of the industry life-cycle model, including how competitive forces change and the various success factors for firms in each stage of the life cycle. 2. Identify different types of innovations. 3. Understand the relationship between technological evolution and industry evolution and describe the key features of technology life-cycle models. 4. Describe how technology is changing the workplace.

CHAPTER OUTLINE CHAPTER 7 COMPETITIVE AND TECHNOLOGICAL FORCES  How Do Industries Evolve Over Time? 234  Learning Objectives 234  The Business World: From Personal Computers To Newspapers: Technology and

Creative Destruction 235 THE INDUSTRY LIFE-CYCLE MODEL 236  The Introduction Phase: Industry Emergence and Creation 238  The Growth Phase: Dominant Designs and Shakeouts 245  The Maturity Phase: A Critical Transition 248  The Decline Phase: Difficult Choices 251

INNOVATION AND TECHNOLOGY 254  Types of Innovation 254  The Linked Worlds: How ICT Is Transforming Societies, Cultures, and Economies

256  The Evolution of Technology 258

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 Technological Forecasting 260  Technology and the Changing Workplace 261

CHAPTER SUMMARY 263 CHAPTER LEARNING TOOLS 263

 Key Terms 263  Multiple-Choice Questions 264  Discussion Questions 264  Concept Application: Has Soda Lost its Fizz? 265

BUSINESS WORLD EXERCISE

1. Refer to the Business World article “From Personal Computers to Newspapers: Technology and Creative Destruction (page 235).” a. Explain the concept of creative destruction.

b. How has creative destruction begun for the newspaper industry?

a. Creative destruction is a term to explain how innovations can sweep away old technologies, skills, products, ideas, and industries and replace them with new ones. b. Creative destruction has begun for the newspaper industry in two ways. First, free and convenient online news sites on the internet have replaced the daily newspaper. People can get daily news from their t.v., or their computer (eg. tablet). Second, ads now often go to online sites such as CraigsList.com or other free sites, taking away key revenues that use to go to newspapers. While online subscriptions to newspapers exist, digital revenues are not performing as well as traditional newspaper subscriptions in the past.

TALKING BUSINESS EXERCISES

1. Refer to the TALKING BUSINESS 7.1, The Birth of Biotech. According to the article,

what new industry was created and why?

A new industry was formed called “commercial biotechnology” since it was discovered DNA could be spliced from one organism into the genome of another.

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2. Refer to the Talking Business 7.2, “The Early Years of the Automobile Industry.” (p.240) Explain with theory and examples the characteristics of the car industry in the

introduction and growth stages.

Stage Theory Case Examples

Introduction stage

The first phase in the industry life-cycle model, where many entrepreneurial firms enter the industry, hoping to emerge as a market leader. New industries tend to be highly fragmented (that is, with many small competitors) and characterized by experimentation with novel technologies and business models.

 Between 1899 and 1923, over 3,000 market entrants.

 About 68% of firms exited the industry within two years.

 Uncertainty existed as to the success of the industry.

 The first cars were very expensive and could only be afforded by the rich.

Growth stages

The second phase in the industry life-cycle model that occurs after the industry coalesces around a particular approach and a dominant model. This leads to a shakeout where many firms exit the industry.

 Around 1920, a dominant design of the automobile had emerged.

 Car manufacturers went from 350 in 1915 to fewer then 20 by 1940. (ie. many exited the market)

3. Refer to the Talking Business 7.3, “The Anti-Aging Industry.” (p.242) According to the

facts of the article, discuss what stage of the industry lifecycle model is the anti-aging

industry in.

For this question, you could potentially make two different arguments. First, the anti- aging industry could be argued that it is in the growth stage as the anti-aging industry is “growing at a very rapid rate.” On the other hand, the anti-aging industry can be argued to be in the mature stage. The mature phase is the third phase in the industry life-cycle model, where the market stabilizes and sales grow more slowly. Firms must become more efficient during this stage. Characteristics that the anti-aging industry is in the mature stage is the products are very mainstream (like Botox) and even available in shopping malls and the beauty industry spends billions of dollars on advertising.

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4. Refer to the Talking Business 7.4, “Gray Goo and the Promising Future of

nanotechnology Industry” (page 243). According to the facts of the article, discuss what stage of the industry lifecycle model is the nanotechnology industry in?

The nanotechnology industry is still in the introduction stage as there is still a lot of research being performed. In addition, there is a high degree of uncertainty and controversy. It appears that institutional support and legitimacy are also still trying to be achieved.

5. Refer to Talking Business 7.5, “The Smartphone Industry.” (page 247) Explain what characteristics exist in the smartphone industry today and what stage of the industry

lifecycle model the industry is in?

The smartphone industry can be argued to be in the growth phase of the industry lifecycle model for the following reasons:

 different operating systems still exist (suggesting there may not be one dominant design).

 new competitors are still entering the market.  growth has significantly occurred in more economically-priced smart phones, as

prices are slowly dropping.

 there has been a peak in innovation

6. Refer to Talking Business 7.6, “The Aging Personal Computer Industry.” (page 250) Explain what stage of the industry lifecycle model is the personal computer industry in?

The personal computer industry is in the decline stage of the industry lifecycle model for several reasons: Industry sales are down worldwide. For example, one analyst found that PC shipments to Western Europe were down by a surprising 19%. Acer, for example, was badly hit, losing over one third of its sales in comparison to last year. There is also technical substitution and changing consumer tastes. People are preferring tablets and smartphones to read, browse the internet and play video games.

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7. Refer to Talking Business 7.7, “Are Mobile Devices Killing the Video Game Console Industry? Do you think the video game console industry is in the decline stage, why or

why not? Use examples from the article to support your answer.

Yes, Video game console industry in decline stage

No, Video game console industry not in decline stage

 The industry has taken a downturn in the last five years.

 There is a technological substitution with mobile technology (eg. smartphones and tablets) that has become more affordable.

 Games available elsewhere to play. Facebook provides games at a lower price. Free games are also available on most smartphones.

 More powerful tablets come out every year, whereas new consoles only emerge around every 7 years.

 Global game consoles industry is estimated to reach $16.9 billion by 2018.

 Video games played by adults too, not just kids. The average age is 34. And around two-fifths of players are female.

 Video games played on large screens still have a better gaming experience.

8. Refer to Talking Business 7.8, “Is Canada on the Leading Edge?” (page 255) What is one of Canada’s strengths and weaknesses according to the article?

Strength: education Weakness: global competitiveness

9. Refer to Talking Business 7.9, “The Linked World: How ICT is Transforming Societies, Cultures and Economies” (page 256)? What are the challenges to society from fast- changing technologies?

Fast-changing technology can:

 outpace processes, laws, methods and organizational structures’ ability to adapt  affect personal information becoming available in the public (raising privacy

concerns)

 affect how we learn in school and at work  affect how we work (eg. contribute to job replacement and outsourcing)  affect how we heal (eg. electronic records, new medical technology advancements)  affect how we interact socially (eg. social networking)

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10. Refer to Talking Business 7.10, “Embracing Disruption: Lessons from Building the First Quantum Computer” (page 258). How can quantum computing be disruptive?

Quantum computing can allow exponential increases in computing speed. As a result, it could have a disruptive impact in various fields such as the internet, machine intelligence, data security and so on.

11. Refer to Talking Business 7.11, “Will Technology Replace Middle-Class Jobs” (page 262. How is technology replacing some jobs? Explain.

 Computer programs are reviewing case law, replacing some law clerks.  Pattern-recognition software is being used for some medical issues and tasks,

replacing some medical jobs.

SAMPLE CLASS DISCUSSION QUESTIONS

1. Provide an example of an industry for each stage of the industry lifecycle model that is

that is not mentioned in the chapter.

2. How has technology changed the way you learn at school?

3. How has technology impacted you at work?

CHAPTER LEARNING TOOLS

Multiple Choice Answers (also available in the back of the textbook, page 487) 1.B 2.D 3.A 4.D 5.B 6.A 7.D 8.B 9.B 10. B 11.C 12.C 13.D 14 D 15.B

Discussion Questions

1. Identify and explain the four phases of the industry lifecycle model.

Introduction

 New industry emerges.  Highly fragmented.  Many, small competitors.

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 Characterized by experimentation with novel technologies and business models.  Many entrepreneurial firms enter the industry hoping to emerge as the market

leader.

 Lots of R&D.  Customers willing to pay a premium for a product in this stage – owning a product

before anyone else.

Growth

 Dominant design - a standard design, model or approach is adopted by customers.  Standardization allows cost savings, pushes prices lower and thus, products can

appeal to mass market.

 Sales increase substantially.  High growth and reduced uncertainty attract many new entrants to the industry.  Shakeout – a large number of weaker firms exit the market and the stronger ones

remain.

Maturity

 Markets start to become saturated.  Few new adopters.  Market stability for remaining firms.  Sales grow more slowly.  Firms must become more efficient producers to lower costs and to compensate for

lower revenues.

 Mergers and acquisitions occur (higher).  Higher degree of industry concentration; less firms exist.  Competition is fierce (some firms enter into damaging price wars).  Firms spend large amounts of money on advertising.  Patents may have expired.  Firms focus on incremental improvements to products eg. “new and improve

versions”.

Decline

 Sales decline (often due to change in demographics, shifting consumer tastes and needs, technological substitution).

 Rivalry heats up.  More mergers occur.  Inefficient firms exit the industry.

2. Explain the difference between sociopolitical legitimacy and cognitive legitimacy.

Sociopolitical legitimacy is the endorsement of an industry, activity, or organizational form by key stakeholders and institutions such as the state and government officials, opinion leaders, or the general public.

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Cognitive legitimacy is the level of public knowledge about a new industry and its conformity to established norms and methods reflected in the extent to which it is taken for granted as a desirable and appropriate activity.

3. Compare and contrast a de jure standard with a de facto standard.

A de jure standard is a standard that is legally mandated and enforced by a government or standards organization. For example, the gauge of a railroad track, a light bulb socket, and an electrical outlet are all based on standards that have been explicitly specified by a standards organization—usually to ensure compatibility. A company wanting to produce light bulbs must make them to the correct specifications or they will be useless to consumers. A de facto standard is a standard that arises by virtue of common usage and is not officially sanctioned by any authority. It is a standard “in fact” or “in practice,” rather than in law. Microsoft Windows is the de facto standard for personal computer operating systems because over 90% of the market uses Windows. Software developers must therefore write programs that are compatible with Windows if they want to reach the majority of the market.

4. Identify one industry in the introductory phase and support your answer with

theoretical references.

One industry in the introduction stage is “self-driving cars.” This industry is still in the research and experimentation stage. It has not yet been accepted as a legitimate industry. Clearly, there are no self-driving cars allowed on the roads as yet. Customers would likely have to pay a premium for this product.

5. Identify three industries that are in the growth phase and support your answer with

theoretical references.

Three industries in the growth stage are:

 The tablet industry  The 3D TV industry  The online-coupon industry

Characteristics of this phase are:

 A dominant design has been achieved. That is, a standard design, model or approach is adopted by customers.

 Standardization has been achieved which allows cost savings, pushes prices lower and thus, products can appeal to mass market.

 Sales continue to increase substantially.

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 High growth and reduced uncertainty attract many new entrants to the industry.  Shakeout – a large number of weaker firms exit the market and the stronger ones

remain.

6. Identify three industries that are in the mature phase and support your answer with

theoretical references.

Three industries in the mature phase are:

 The laundry detergent industry.  The banking industry.  The automobile industy.

Characteristics of this phase are:

 Markets start to become saturated.  Few new adopters.  Market stability for remaining firms.  Sales grow more slowly.  Firms must become more efficient producers to lower costs and to compensate for

lower revenues.

 Mergers and acquisitions occur (higher).  Higher degree of industry concentration; less firms exist.  Competition is fierce (some firms enter into damaging price wars).  Firms spend large amounts of money on advertising.  Patents may have expired.  Firms focus on incremental improvements to products eg. “new and improve

versions”.

7. Identify three industries that are in the decline phase and support your answer with

theoretical references.

Three industries in the decline phase are:

 The personal computer industry.  The tobacco industry.  The VHS industry.

Characteristics of this phase are:

 Sales decline (often due to change in demographics, shifting consumer tastes and needs, technological substitution).

 Rivalry heats up.  More mergers occur.  Inefficient firms exit the industry.

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8. A decline in sales can be triggered by three causes. What are these causes?

 Change in technological substitutes.  Changing consumers tastes and preferences.  Changing demographics.

9. Explain the five options available to organizations to deal with declining sales.

Maintain a leadership stance

 continue to market and produce soft drinks.  invest in marketing, support and product development in order

to produce an outstanding product while giving consumers an incentive to buy it.

Pursue a niche strategy  target a specific niche market, so the industry will not decline as fast.

Harvest profits  try to gain any remaining profits left in the industry by reducing costs dramatically, and not investing in the company any further (eg. no new R&D, no new assets etc).

 This strategy can be followed by exiting the industry.

Exit early  exit the industry altogether and sell its assets while they are still worth something to its competitors.

 Therefore, some investments from its capital assets can be recouped.

Consolidate  can buy/merge with another company/competitor and become an even larger company, and possibly a market leader.

 By merging, some costs can be saved, synergies (eg. knowledge sharing; efficiencies achieved).

 (Costs saved would be mainly labour costs; since each company has an HR dept, an accounting department, a legal department, etc.., one set of these departments could be eliminated upon a merger of two companies.)

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10. What phase of the industry life-cycle model do you think the “sports-card collecting” industry fits into and why?

The sports-card collecting industry is likely in the decline stage. There has been changing consumer tastes. It is not as popular a hobby as it once was years ago. As a result, changing demographics is also contributing to the lower sales in this industry, as the younger generation is more focused on technology such as smartphones, tablets, etc.

Conception Application

Case: Has soda lost its fizz? 1. What stage in the lifecycle is the soft drink industry in? Please explain and justify.

Stage

Evidence/Examples

Introduction

 New industry  Highly fragmented  Many, small competitors  Characterized by experimentation with

novel technologies and business models

 Many entrepreneurial firms enter the industry hoping to emerge as the market leader

 lots of R&D  Customers willing to pay a premium for a

product in this stage – owning a product before anyone else

Not applicable.

Growth

 Dominant design - a standard design, model or approach is adopted by customers

 Standardization allows cost savings, pushes prices lower and thus, products can appeal to mass market

 Sales increase  High growth and reduced uncertainty

Not applicable.

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attract many new entrants to the industry

 Shakeout – a large number of weaker firms exit the market and the stronger ones remain

Maturity

 Markets start to become saturated  Few new adopters  Market stability for remaining firms  Sales grow more slowly  Firms must become more efficient

producers to lower costs and to compensate for lower revenues

 Mergers and acquisitions occur (higher)  Higher degree of industry concentration;

less firms exist

 Competition is fierce (some firms enter into damaging price wars)

 Firms spend large amounts of money on advertising

 Patents may have expired  Firms focus on incremental

improvements to products eg. “new and improve versions”

 IMPROVEMENTS - “Coke decided to improve calorie labelling and offer smaller portion sizes”

 ADVERTISING - “Coke partnered with school breakfast programs and ParticipACTION, an active-living organization to promote a healthier company image”.

 “Last year, Pepsi invested millions of dollars in advertising.”

 MERGER/ACQUISITIONS – “In 2010, Coke and Pepsi spent about $20 billion to acquire their bottling companies in an effort to cut costs and reduce shrinking profit margins.”

 “acquisitions are growing in number too…last year, Coke acquired control of coconut water brand Zico and dipped its toes in U.S. dairy”

 LOWER COSTS - In 2010, Coke and Pepsi spent about $20 billion to acquire their bottling companies in an effort to cut costs and reduce shrinking profit margins.”

 CONCENTRATION – “Currently, the soda market in North America is dominated by Coke, Pepsi and Dr. Pepper. Coke with 42% of the market, Pepsi with 28% and Dr. Pepper with 17%. The remaining 13% is held by

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smaller companies including no-name and supermarket brands.”

Decline

 Sales decline (often due to change in demographics, shifting consumer tastes and needs, technological substitution)

 Rivalry heats up  More mergers occur  Inefficient firms exit the industry

 SALES DECLINE – “According to Beverage Digest, a beverage industry publication, the sales of soda declined for the eighth straight year in a row.”

 “In 2012, soda sales volume decreased by 1.2% to 9.17 billion cases.”

 “U.S. consumption of soda has been declining since 2005, and last year, it fell to its lowest level”

 SHIFTING CONSUMER TASTES – “Consumers are more educated about what they put into their bodies…there’s been a shift toward less sweet tastes.”

 “Between 2001 to 2011, bottled water consumption rose 56% to 26 gallons per person…During the same time, annual soda consumption fell by 16%.”

 DEMOGRAPHIC CHANGE – “Baby boomers (soda’s traditional target market) are now aging, and youth are turning to other beverages instead”

 MERGER/ACQUISITIONS – “In 2010, Coke and Pepsi spent about $20 billion to acquire their bottling companies in an effort to cut costs and reduce shrinking profit margins.”

 “acquisitions are growing in number too…last year, Coke acquired control of coconut water brand Zico and dipped its toes in U.S. dairy”

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2. What strategies are available to the soft drink industry for dealing with declining sales

and what do you recommend?

Maintain a leadership stance

 continue to market and produce soft drinks  invest in marketing, support and product development in order

to produce an outstanding product while giving consumers an incentive to buy it.

Pursue a niche strategy  target a specific niche market, so the industry will not decline as fast

Harvest profits  try to gain any remaining profits left in the industry by reducing costs dramatically, and not investing in the company any further (eg. no new R&D, no new assets etc)

 This may help reduce the cost of soft drinks and subsequently draw more customers

 This strategy can be followed by exiting the industry

Exit early  exit the industry altogether and sell its assets while they are still worth something to its competitors.

 Therefore, some investments from its capital assets can be recouped.

Consolidate  can buy/merge with another company/competitor and become an even larger company, and possibly a market leader

 By merging, some costs can be saved, synergies (eg. knowledge sharing; efficiencies achieved) and the soft drink company can become a larger player in the industry.

 (Costs saved would be mainly labour costs; since each company has an HR dept, an accounting department, a legal department, etc.., one set of these departments could be eliminated upon a merger of two companies.)

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3. Do you think the industry will die? Why or why not?

No, the soft drink industry will not die.

 “Despite lower sales, carbonated soft drinks still make-up the largest segment of non-alcoholic drinks in the beverage industry at 25%.

 Coke is one of the world’s most recognized brands.”  “The company continues to grow globally”.  “For many North American consumers, Coke is more than just a soda but a strong

part of their culture and history.”  Millions of consumers still like soda pop.

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CHAPTER 8

Global Forces

CHAPTER SYNOPSIS This chapter focuses on the global nature of business. Sources of global activity such as mergers and acquisitions, exporting and importing and other factors will be examined. Canada’s role in the global economy and its export strengths will also be discussed. And we will consider the effects of the North American Free Trade Agreement (NAFTA) on Canada in terms of its businesses, culture and competitiveness.

LEARNING OBJECTIVES 1. Identify factors that have encouraged the globalization of business. 2. Describe the central channels or forms of global business activity. 3. Discuss the importance and consequences of multinational and borderless corporations. 4. Explain the purpose of protectionism and its relationship with international trade. 5. Identify the types of regional economic integration. 6. Discuss the implications of NAFTA for Canada and the Canadian business environment.

CHAPTER OUTLINE CHAPTER 8 GLOBAL FORCES  How Is Canada Faring in the Global Village? 268  Learning Objectives 268  The Business World: Foreign Outsourcing And RBC 269

WHAT IS GLOBALIZATION? 271

 Sources Encouraging Global Business Activity 271  Pull Factors 272  Push Factors 272  Channels of Global Business Activity 274  Exporting and Importing 274  Outsourcing/Offshoring 280  Licensing and Franchising Arrangements 280  Direct Investment in Foreign Operations 281  Joint Ventures and Strategic Alliances 284

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 Mergers and Acquisitions 284  Putting Mergers and Acquisitions in Historical Perspective 285  Establishment of Subsidiaries 286

THE MULTINATIONAL CORPORATION 286  The Borderless Corporation 287

INTERNATIONAL TRADE 290  The Logic of Trade 290  Mercantilism 290  Trade Protectionism 291  Promoting International Trade 294  Facilitating Global Business: Regional Economic Integration 295  European Union (EU) 296  Asian Trading Bloc 297  North American Trading Bloc and NAFTA 298  Where Is Canada Headed? 303

CHAPTER SUMMARY 304 CHAPTER LEARNING TOOLS 304

 Key Terms 304  Multiple-Choice Questions 305  Discussion Questions 305  CONCEPT APPLICATION: BEIJING AND THE CALGARY OIL SANDS 306

BUSINESS WORLD EXERCISE

1. Refer to the Business World article “Foreign Outsourcing and RBC (page 269).” Why was the outsourcing by RBC controversial?

 Forty-five high-paying IT Canadian jobs were being offshored to an Indian company called iGate to reduce costs when RBC had made a record $7.5 billion in profit that year.

TALKING BUSINESS EXERCISES

1. Refer to the TALKING BUSINESS 8.1, “Canada’s Dairy Industry Under Pressure (page

273.” What is the challenge facing Canada’s dairy industry?

 The Canadian dairy industry has been heavily regulated and protected by the Canadian government in the past. However, other countries want to change this as many countries want greater access to Canada’s dairy market in exchange to trade

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with the EU market for goods and services. As a result, Canadian dairy farmers may face new global competition from a once protected industry.

2. Refer to the Talking Business 8.2, “Canada’s Exports to China: Still Hewers of Wood and Drawers of Water (p.277).” How significant is China trade with Canada? Consider both imports and exports.

The Canada-China trade relationship is growing when you consider the following:

 China is Canada’s second largest trading partner.  Canada runs a trade deficit with China of about $30 billion dollars, indicating we

import a lot more goods and services than we export.

 Canada exports about 3.3% of merchandise to China.  Canada’s top three exports to China in 2010 were pulp, canola oil and coal.

(makes up about 1/3 of goods exported to China).

 Three non-commodity exports include organic chemicals and resins, as well as navigational, measuring and control instruments. (makes up about 7% of goods exported to China).

 Wood products exported to China have also surged in the last two years.

3. Refer to the Talking Business 8.3, “What are Canada’s New Export Strengths

(p.279).”How has Canada’s key exports changed in recent years?

Exports in Prior Years

 auto and auto parts  pulp and paper  electronics  wood products

Exports Today

 oil and gas  mining and mineral products  chemicals  primary metals  food products  financial services  insurance

4. Refer to the Talking Business 8.4, “What helps a Country Obtain Foreign Direct Investment” (page 282). What can attract investment to a country?

 a highly educated workforce (skill effect)  a high level of spending on R&D (innovation effect)

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 penetration of new technologies (particularly information and communications technology)

 strong regional clusters (industry specialization effect)  infrastructure and accessibility (access effect)  a well-functioning investment promotion agency  regional economic strategies  FDI incentives.

5. Refer to Talking Business 8.5, “Is Canada Being Hollowed Out by Foreign Takeovers? Putting Mergers and Acquisitions in Historical Perspective. (page 285).” What is causing the increase in acquisitions in Canada?

 lower interest rates  potential increase in profits  globalization  China, India and Brazil (3 major exporters) need to expand to become more

efficient

6. Refer to Talking Business 8.6, “What’s the Third World (page 287)?” How has the use of the concept of “Third World” changed?

 The concept of “the Third World” generally use to refer to poor and undeveloped countries. However, many countries that were once referred to as being a Third World nation are actually developing quite rapidly such as Brazil, South Africa, etc.

7. Refer to Talking Business 8.7, “Think Global, Act Local. (page 288).” How is decision-

making changing?

 Multinationals are changing from centralized operations to decentralized operations, allowing decision-making locally to cater to local needs and preferences.

8. Refer to Talking Business 8.8, “Made in Canada: How Globalization Has Hit the Canadian Apparel Industry (page 292).”What impact has globalization had on Canadian clothing manufacturers?

 There have been many bankruptcies. Only three shirt factories are left in Canada.  The government changed its “duty remissions program.”  Canada removed tariffs from 49 developed countries.

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 Manufacturing jobs have moved to low-wage countries.

9. Refer to Talking Business 8.9, “The Futility of Protectionism (page 294).” How can protectionism be harmful to a country?

 A country with a protectionist policy can cause other countries to retaliate and impose tariffs on its exports. Thus, creating poor trade relations.

SAMPLE CLASS DISCUSSION QUESTIONS

1. Do you think globalization is a good thing or a bad thing for Canada? Explain.

2. Name some Canadian companies that are also multinationals.

3. Name some U.S. companies that operate in Canada that are multinationals.

CHAPTER LEARNING TOOLS

Multiple Choice Answers (also available in the back of the textbook, page 487) 1.D 2.D 3.A 4.A 5.D 6.D 7.D 8.A 9.D 10.B 11.C 12.C 13.C 14.D 15.A

Discussion Questions

1. Discuss globalization and compare its many definitions.

Globalization is really a very broad term with no one universal definition.

 It is a process involving the integration of world economies – facilitated by bodies such as NAFTA (the North American Free Trade Agreement), EU (European Union), APEC (the Asian-Pacific Economic Co-operation), and ASEAN (the Association of Southeast Asian Nations) etc.

 Globalization is the integration of world markets. That is the free movement of goods and services, capital and labour.

 It includes cross border transactions, FDI (foreign direct investment) & economic interdependence.

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 Another way of thinking about globalization, is countries freely trading between each other, without any trade barriers.

2. Describe the differences between pull and push factors.

Pull factors are the positive outcomes a business would gain from entering the international context. On the other hand, push factors are forces that act upon all businesses to create an environment where competing successfully means competing globally. Pull factors are influenced by:

 potential for sales growth and  obtaining needed Resources

Push factors are influenced by:

 the force of competition  shift toward democracy  reduction in trade barriers  improvements in technology

3. Identify and describe the seven channels of global business activity.

 Mergers and acquisitions  Joint ventures and strategic alliances  Direct Investment in Foreign Operations  Licensing and Franchising  Outsourcing  Exporting and Importing  Establishing Subsidiaries

4. What is a multinational corporation (MNC)?

 A multinational corporation is a business enterprise that controls assets, factories, and so on that are either operated as branch offices or as affiliates in two or more foreign countries. The MNC generates products or services through its affiliates in several countries and maintains control over their operation, managing from a global perspective.

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5. What are the potential benefits and risks of an MNC?

Potential Benefits

 Encourages economic development.  Offers management expertise.  Introduces new technologies.  Provides financial support to underdeveloped regions of the world.  Creates employment.  Encourages international trade through a company’s access to different markets; it is

relatively easy to produce goods in one country and distribute them in another country through a subsidiary or foreign affiliate.

 Brings different countries closer together.  Facilitates global cooperation and worldwide economic development.

Potential Threats

 MNCs do not have any particular allegiance or commitment to their host country.  Profits made by an MNC do not necessarily remain within the host country but may be

transferred out to other locations depending on where the MNC feels the funds are most needed.

 Decision making and other key functions of MNCs may be highly centralized in the home country, so that even though other operations are performed in the host country, they do not necessarily include things like research and development or strategic planning.

 There is difficulty in the ability to control and hold MNCs accountable, which can create serious ethical concerns for the host country.

6. Explain the meaning of a trade barrier and provide two examples.

 A trade barrier is a way to prevent foreign goods and services from entering a domestic country. A trade barrier is initiated by the domestic country’s government and could take many forms including tariffs and quotas.

7. Contrast the difference between a trade surplus and a trade deficit.

 A trade surplus occurs when a country’s exports exceed its imports, so that more money enters the country than leaves it. A trade surplus is also referred to as a positive balance of trade.

 A trade deficit occurs when a country imports more than it exports to the degree that the value of its imports exceeds the value of its exports. A trade deficit is also referred to as a negative balance of trade.

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8. Explain regional economic integration and provide four levels of intensity.

Regional economic integration brings different countries closer together by reducing or eliminating obstacles to the international movement of capital, labour, and products or services.

 The free trade area is the lowest degree of regional economic integration, where tariffs and nontariff trade barriers on international trade in goods and services among the member countries are removed.

 The customs union is the economic integration with the removal of trade barriers in goods and services among the member countries. A greater degree of integration than free trade areas, but with less member autonomy in how non-member countries are dealt with.

 The common market is economic integration that goes beyond free trade areas and customs unions and includes, for example, freer flow of labour and capital across members’ borders and a common trade policy regarding nonmembers.

 The economic union is a higher level of economic integration than a common market, with harmonization of fiscal, monetary, and tax policies and often a common currency. There is comparably very little member autonomy.

9. What is a trade agreement? Provide three examples.

A trade agreement is a political and economic agreement between two or more countries that reduce trade barriers to conduct greater trade activities between each other. Three examples of trade agreements include:

 Free Trade Agreement (FTA) 1989  North American Free Trade Agreement (NAFTA) 1994  Canada-Panama Free Trade Agreement 2013

See the Government of Canada web site for more examples:

http://www.international.gc.ca/trade-agreements-accords-commerciaux/agr-acc/fta- ale.aspx?lang=eng

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10. What are some arguments for and against the North American Free Trade Agreement

(NAFTA)?

Arguments “For” NAFTA Arguments “Against” NAFTA Employment and Business  Foreign competition forces

domestic businesses to improve their operations and improve their products and services.

 Protecting domestic business amounts to discouraging competitiveness and innovation and, ultimately, will lead to job losses, given the inability to remain competitive in world markets.

 Free trade encourages countries to abort inefficient operations and focus on the relatively stronger commodities or services in which they have a competitive or comparative advantage.

 Many Canadian manufacturers cannot compete with US imports and are forced out of business.

 Job losses arise from US companies deciding to shut down their Canadian subsidiaries and exporting their tariff-free goods to Canada.

 Many manufacturing jobs are lost to Mexico, given that country’s relatively cheaper labour and, hence, lower-priced goods.

Culture  The agreement is not signing away Canada’s cultural heritage any more than the European Union forced European nations to lose their individual cultures.

 According to Statistics Canada, Canadian cultural exports exceed $4.5 billion, and more royalty money for music is coming into Canada than is leaving.

 Free trade will encourage the destruction of a unique Canadian culture.

 Increasing foreign domination of the Canadian economy will transform Canada into a pure economic subsidiary of the United States.

 Publishing and broadcasting industries are threatened by American competitors and the increasing presence of American-based media.

 The presence of the United States in areas like the Canadian entertainment industry would pose a serious threat to the transmission of Canadian

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culture.

Canadian Competitiveness and the Canadian Consumer

 One of the central objectives of the FTA was to encourage Canadian businesses to become more competitive through exposure to greater competition from American business.

 Canadian consumers are given more choice and are exposed to competitive products with free trade. That is, they will have access to potentially less expensive goods or services—whether they come from the United States or from increasingly competitive Canadian businesses.

 Canadian companies that require inputs from US businesses can now obtain them more cheaply and pass these savings on to the consumer.

 Canada cannot afford to ignore the US market. If Canadian companies wish to become more competitive, they also need to serve a larger market—and the United States certainly offers a huge market for Canadian goods. Free trade gives Canada greater access to selling goods and services to this market through the reduction of trade barriers.

 NAFTA has not encouraged any increase in productivity. Canadians have been unable to match US productivity rates for the past 20 years, and have produced at rates that are equal to about 80% of the output of workers in the United States.

 NAFTA has not reduced the productivity gap between Canada and the United States.

 Our good record of exports has come about largely because the relatively low value of the Canadian dollar has made our goods cheaper in the past. In other words, it is not that we were producing cost-efficient goods, but rather it is an artificial reduction in the value of our dollar that has made them cheaper in foreign markets. Consequently, a higher Canadian dollar results in decreased export. What is needed, arguably, is real improvements in productivity coming from things like updating equipment, retraining workers, and building competitiveness.

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Conception Application

Case: Beijing and the Calgary Oil Sands 1. How does this case reflect themes of globalization?

Themes of Globalization

Examples

Establishing subsidiaries  CNOOC (China) acquired Nexen; so Nexen became a wholey-owned subsidiary

Exporting and importing  Canada exports oil to China, for example.

Outsourcing  N/A

Licensing and Franchising  N/A

Direct Investment in Foreign Operations (Foreign direct investment)

 FDI is the purchase of physical assets or an amount of ownership in a company from another country. Examples below:

 Glencore international PLC (Swiss) acquired Viterra Inc. (CDN)

 Vale (Brazilian) acquired Inco (CDN)  Rio Tinto (U.K.) acquired Alcan (CDN)  Xstrata (Swiss) acquired Falconbridge (CDN)  Steel Corp. (U.S.) acquired Stelco (CDN)  Advanced Micro Devices (U.S.) Acquired ATI

Technologies (CDN)

 Caterpillar Inc. acquired Electro-Motive  CNOOC (China) acquired Nexen

Joint Ventures and Strategic Alliances

 N/A

Mergers and Acquisitions  Examples of acquisitions:  Glencore international PLC (Swiss) acquired

Viterra Inc. (CDN)

 Vale (Brazilian) acquired Inco (CDN)  Rio Tinto (U.K.) acquired Alcan (CDN)  Xstrata (Swiss) acquired Falconbridge (CDN)  Steel Corp. (U.S.) acquired Stelco (CDN)  Advanced Micro Devices (U.S.) Acquired ATI

Technologies (CDN)

 Caterpillar Inc. acquired Electro-Motive  CNOOC (China) acquired Nexen

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2. How are the following parties potentially affected by this takeover? Discuss both the

potential benefits and negative consequences that each may experience as a result:

Parties Consequences of takeover

CNOOC (China National Offshore Company Oil Co.) -owned by China government

Pros

 Access to needed resources (eg. supply of oil for China; 2nd largest consumer of oil in the world and biggest energy consumer in the world)

Cons

 Assumption: somewhat volatile industry.

Nexen Inc. Pros

 Purchased for about $15 billion (shareholders get some money)  Long-term, stable market achieved.  CNOOC has the financial resources to accelerate development

of Nexen oil sands, which can boost investment and tax revenues in Canada.

 Calgary would serve as headquarters for North and Central America operations.

Cons

 Loss of Canadian control.  Loss of a profitable Canadian company, in a resource industry in

high global demand.

 A transfer of control of Canadian natural resources to foreign interests.

 China has poor human rights and environmental records.

Canadian employment Pros

 CNOOC agreed to retain all Nexen employees Cons

 Future jobs could be lost?

Canadian economy Pros

 Positively impact business relations with Beijing, China.  Strengthen exports with other countries such as China (one of

the world’s top economic powers), and be less dependent on the U.S. for export of Canadian products.

 Canadian government received a commitment from the Beijing government for better investment access for Canadian businesses in China.

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 CNOOC promised to acquire a listing on the Toronto Stock Exchange

 More Chinese investment in Canada and boosting oil sands production – both of which are economic benefits to Canada

Cons

 Assumption: Potential future loss of control of an important Canadian industry

Canadian competitors in the industry

Pros

 The Canadian government put in place regulation that would largely preclude future takeovers of Canadian energy firms by state-owned foreign companies.

 The deal between CNOOC and Nexen led to the updating of Canada’s Investment Act to preclude foreign state-owned enterprises from purchasing Canadian oil producers in all but “exceptional circumstances”

Cons

 The deal may trigger more takeovers in Canada.

Global competitors in the industry

Pros

 One less competitor in industry. Cons

 CNOCC is now larger and may have a strategic advantage.  The deal between CNOOC and Nexen led to the updating of

Canada’s Investment Act to preclude foreign state-owned enterprises from purchasing Canadian oil producers in all but “exceptional circumstances” (In other words, to the disadvantage of other global competitors)

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3. “The Canadian government should protect Canadian business from both foreign competition and take-overs.” Discuss the merits of this statement in the context of this case.

Yes, the Canadian government should protect Canadian businesses from foreign takeovers

No, the Canadian government should NOT protect Canadian businesses from foreign takeovers

Multinationals in Canada:

 MNCs do not have any particular allegiance or commitment to their host country.

 Profits made by an MNC do not necessarily remain within the host country but may be transferred out to other locations depending on where the MNC feels the funds are most needed.

 Decision making and other key functions of MNCs may be highly centralized in the home country, so that even though other operations are performed in the host country, they do not necessarily include things like research and development or strategic planning.

 There is difficulty in the ability to control and hold MNCs accountable, which can create serious ethical concerns for the host country.

Multinationals in Canada:

 Encourages economic development.  Offers management expertise.  Introduces new technologies.  Provides financial support to

underdeveloped regions of the world.

 Creates employment.  Encourages international trade through

a company’s access to different markets; it is relatively easy to produce goods in one country and distribute them in another country through a subsidiary or foreign affiliate.

 Brings different countries closer together (eg. Canada and China – Nexen purchase).

 Facilitates global cooperation and worldwide economic development.

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CHAPTER 9

Political Forces

CHAPTER SYNOPSIS

This chapter considers the role of the Canadian government in influencing business activities and

the overall economy. Three roles of government will be discussed. Should government be the

guardian and ‘protector’ of businesses? Arguments for and against government as the ‘protector’ of business are examined. And the chapter also reviews the benefits and risks of deregulation and

privatization for business, the consumer and the economy.

LEARNING OBJECTIVES

1. Describe the fundamental nature of the Canadian business enterprise system.

2. Describe how government in Canada is structured.

3. Discuss the government’s role as a guardian of society and how this impacts its relationship to business.

4. Identify the purpose of Crown corporations.

5. Explain the notion of government as guardian of the private business sector.

6. Discuss government’s role with regard to global business. 7. Describe the objectives and consequences of deregulation and privatization.

CHAPTER OUTLINE

CHAPTER 9

POLITICAL FORCES

 Where Would Canadian Business Be Without Our Government? 309  Learning Objectives 309  The Business World: Japan’s Toyota and Canada’s Subsidies 310

THE CANADIAN BUSINESS ENTERPRISE SYSTEM:

FUNDAMENTAL FEATURES 312

CANADIAN GOVERNMENT STRUCTURE AND ROLES 313

 Levels of Government 314  Federal Government Structure 316  Government as Guardian of Society 317  The Tax Collector Role 317

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 The Business Owner Role: Crown Corporations 320  The Regulator Role 325

GOVERNMENT AS GUARDIAN OF THE PRIVATE BUSINESS SECTOR 328

 Government Assistance to Private Business 328  Government as Guardian of Business in the Global Context 332  Why Should Government Play the Role of Guardian of Business in the Global

Context? 333

 Why Government Should Not Play the Role of Guardian of Business 337  Should Government “Mind Its Own Business”? 339  Deregulation 339  Privatization 344

CHAPTER SUMMARY 348

CHAPTER LEARNING TOOLS 348

 Key Terms 348  Multiple-Choice Questions 349  Discussion Questions 349  CONCEPT APPLICATION: THE WIRELESS SERVICE INDUSTRY IN

CANADA 350

BUSINESS WORLD EXERCISE

1. Refer to the Business World article “Japan’s Toyata and Canada’s Subsidies (p.309).” According to the article, what are some reasons why the Canadian government provides

subsidies and other forms of assistance to businesses?

 to support important industries that contribute to the gross domestic product  to create high-quality, well-paying jobs  to increase production  to encourage innovation  to encourage research  to help domestic companies compete internationally  to promote profitability  to attract business to this country

TALKING BUSINESS EXERCISES

1. Refer to the TALKING BUSINESS 9.1, “Should Pop Drinkers Pay More (page 319)?”

a. What is the purpose of the tax on pop?

b. What form of tax: sales tax or income tax is most advantageous to the economy?

Explain.

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a. The purpose of the tax on pop is to try to curb consumption of sugary pop which may

have negative health consequences in the long-term and therefore, contribute to

escalating health care costs for the government. The second reason is to raise tax

revenues to help cover some of these health-related costs.

b. Generally, sales taxes are less harmful to the overall economy than income taxes. Sales

taxes typically do not discourage savings, investment, and economic growth.

2. Refer to the Talking Business 9.2, “Canada Post Faces Billion-Dollar Operating Loss by 2020 (p.321).” What are some strategies to help Canada Post reduce losses?

 Freeze wages.  Reduce mail delivery to ever other day.  Convert door-to-door delivery to community mail boxes.  Replace corporate post offices with franchised ones.  Reduce the delivery speed.

3. Refer to the Talking Business 9.3, “Should the LCBO be privatized (p.324)?”What are some potential issues to consider in whether or not to privatize the LCBO?

 Will consumers receive lower prices?  Will customer service be improved?  Will competition lead to more jobs and efficiencies?  Will the government lose revenues from the sale of alcohol?  Can the government apply “sale funds” to help another part of government (e.g.

pay back debt, fund health or education, etc).

 Will new entrants comply with regulations and be socially responsible? (e.g. asking for ID of minors).

4. Refer to the Talking Business 9.4, “Auto Bailouts: Good or Bad Idea (page 330)?” What are some arguments for and against supporting helping the auto industry?

Arguments “for”:

Nurture Young Industries  This involves the government providing aid to young, “domestic” industries to help them mature, gain market leadership, etc in order to compete against larger, more

mature foreign competitors

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Encouraging Direct Foreign

Investment  This can create jobs and promote the exchange of

technology, experience and skills which can help the

domestic Canadian aerospace industry

 It can lead to long-term growth.

Maintaining a Favourable

Balance of Trade  The government can maintain a favourable balance of

trade – the right amount of imports and exports.

Protecting Domestic Business

from Unfair Competition  It is important to protect domestic industries from unfair

competition in the global marketplace.

Maintaining Adequate Levels

of Domestic Employment

 The government wants to maintain Canadian jobs.

Offering Subsidies to

Compete Globally  Generally, subsidies or aid to domestic industries is

controversial because it goes against the idea of free

trade (eg. obligations under the North American Free

Trade Agreement). However, other countries provide

some of their industries with government assistance, so

Canada has to do the same in order to compete.

 A subsidy can be a cash payment, tax breaks, low- interest loans or other forms of financial assistance

intended to help a domestic industry.

Arguments “against:

Benefits only a few  the handouts to corporations only go to a few companies and they may not be the most deserving

ones.

 government assistance is not benefiting the general public (tax dollars should be spent on roads, health and

education for example).

Creates dependency

 “corporate welfare” can encourage companies to

become less efficient and expect future free money.

Contrary to free and open

markets  investors should make market decisions, not

government.

 market should be driven by investment reward versus risk, not political goals.

 private capital markets should influence investment to best companies/products (eg. most profitable).

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Undermines public confidence

in politicians  are politicians helping out corporations that donate

money to their political campaign?

 how do taxpayers hold the government accountable when the government who loans funds to a company is

no longer in power when the loan becomes due?

Creates an uneven playing

field  government assistance is unfair.  some businesses and industries get help and others do

not.

Promotes a political agenda  political favouritism may threaten political democratic process.

5. Refer to Talking Business 9.5, “More Cheese Please (page 335).” What are some concerns about reducing tariffs on imported European cheese?

 more competition for Canadian farmers.  difficulty to sustain Canadian milk prices.  Canada’s long-standing dairy supply-management will be changed forever

leaving Canadian dairy farmers unprotected by foreign competition.

 the reduction of tariffs and other trade barriers may set a precedent and open up more competition in other traditional ‘protected’ areas.

6. Refer to Talking Business 9.6, “The Dangers of Deregulation (page 343)?” What are some risks of deregulation?

 The risk of deregulation is consumer exploitation—that is, a reduction in quality of the products or services being offered, increases in consumer fees, or price

increases as a result of the reduction in laws governing the industry’s operation.

SAMPLE CLASS DISCUSSION QUESTIONS

1. Do you think the government should privatize more government-owned entities, such as

the LCBO, CBC, etc? Why or why not. Explain.

2. What types of businesses and industries do you think the government should subsidize?

Explain why.

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3. Do you think government’s current role and influence on business is important? Why or why not? Or do you think government needs to step back and play less of an influence

over business activities? Why or why not?

CHAPTER LEARNING TOOLS

Multiple Choice Answers (also available in the back of the textbook, page 487)

1.A 2.D 3.D 4.A 5.D 6.C 7.A 8.D 9.A 10.A 11.B 12.D 13.C 14.D 15.C

Discussion Questions

1. Explain the similarities and differences between the three levels of government.

 Federal - The federal level of government is the highest level of government and applies to all Canadians. Generally, federal responsibilities are very wide. Some

roles include national defence, criminal law, bankruptcy law, postal service,

foreign policy, currency, First Nations, banking, and immigration. The federal

government is led by the prime minister of Canada, who is elected by Canadian

voters. There are many federal departments; however, two departments that all

businesses deal with are the Canada Revenue Agency and Canada Post. The

Canada Revenue Agency (CRA), for example, is the federal department that

administers income tax collection from corporations and individuals. Canada Post

Corporation, on the other hand, is a federal Crown corporation that provides mail

delivery service across Canada.

 Provincial and Territorial - The provincial level of government is more regional in nature and only affects those citizens and residents who reside in a particular

province. Provincial responsibilities include highways, transportation, education,

and health care. Since each provincial government is a separate and unique

jurisdiction, provinces can have laws and regulations that differ from other

provinces. In Ontario, for example, the provincial government owns and controls

the sale of distilled spirits through the Liquor Control Board of Ontario (LCBO), a

provincial Crown corporation. In Alberta, however, the provincial government

does not own or control the sale of alcohol but only regulates it. The leader of the

provincial government is called the premier and is elected by citizens who reside

in that province. The territories are run differently than a province. A

commissioner, instead of a premier, is federally appointed to run a territory.

Therefore, Canadians do not vote to elect a territorial leader. The three Canadian

territories are the Northwest Territories, Yukon, and Nunavut.

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 Municipal - The municipal level of government is the lowest level of government. A municipal government can govern a city or a smaller community, such as a

town, village, or parish. In Canada, there are over 4,000 municipal governments.

A municipal government can be viewed as a subdivision of the province, since

provinces were granted the power over municipal institutions under section 92 of

the Constitution Act of 1867. The leader of a municipality has autonomy and

decentralized decision-making power to make laws over his or her jurisdiction;

however, in some cases laws can be subject to change by the province. Some

municipal responsibilities can include police services, fire protection, land

planning, sewage, public transportation, garbage collection, and library services.

The leader of a city is called a mayor. However, a leader of a rural area may be

called a reeve. While each level of government has unique responsibilities, certain

roles may be shared. The administration of justice is a good example. While

municipalities are responsible for police services, there is also provincial police

and of course the Royal Canadian Mounted Police (RCMP) at the federal level.

Taxation is another shared role. While property taxes are administered and

collected by municipalities, provincial and federal governments administer and

collect income and sales taxes. How does the government affect industry? If you

are a restaurant owner, you will likely be affected by the government in a number

of ways. You may need to apply for a liquor licence, to comply with food and

safety regulations, to understand garbage and recycling procedures, and to remit

taxes. You may even need to comply with trade regulations if you need to import

specialty food items. In other words, you can be impacted by all levels of

government. On the other hand, if you are a financial institution, you will likely

be most affected by banking regulations at the federal level.

2. Describe the three roles of government: tax collector role, business owner role, and

regulatory role.

 The Tax Collector Role - The government plays many roles in relation to business. The most obvious role, and perhaps the least popular one, is that of

government as tax collector, whether it is at the federal, provincial, or municipal

level. There are two broad forms of taxes: revenue taxes and regulatory or

restrictive taxes.

 The Business Owner Role - Crown corporation or public enterprise is an organization accountable to Parliament for its operations through a minister.

Crown corporations may be federal (for example, Canada Post, the Canadian

Broadcasting Corporation [CBC]) or provincial (for example, the Liquor Control

Board of Ontario [LCBO]).

 The Regulatory Role - Government economic regulation has been defined as “the imposition of constraints, backed by the authority of a government, that are

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intended to modify economic behaviour in the private sector significantly.” This includes creating and modifying laws and regulations.

3. Explain the difference between revenue taxes and restrictive taxes.

 Revenue taxes is money collected to help fund government services and programs and includes individual income taxes, corporate income tax, property tax, and

sales tax.

 Restrictive or regulatory taxes is a form of taxation that consists of two types: excise taxes and customs duties or tariffs. Restrictive taxes are primarily aimed at

controlling or curbing the use of specific products or services.

4. Explain the reasons why a Crown corporation may be formed.

 To implement public policy that includes protecting or safeguarding national interests.

 To protect industries deemed to be vital to the economy.  To provide special services that could not otherwise be made available by private

business.

 To nationalize industries that are considered to be “natural monopolies,” including the generation and distribution of electricity.

5. Compare and contrast the difference between perfect competition and imperfect competition.

 Perfect competition - A market system where many firms all produce an indistinguishable product or service so that no single producer has the power to

affect the price of that product or service.

 Imperfect competition - A fundamental shortcoming in the market system that necessitates government involvement. It occurs when fewer than the optimal

number of competitors exist to ensure fair pricing and distribution of goods and

services at the highest possible level of quality.

6. Why should government act as the “guardian of business”?

Nurture Young Industries  This involves the government providing aid to young, “domestic” industries to help them mature, gain market leadership, etc in order to compete against larger, more

mature foreign competitors

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Encouraging Direct Foreign

Investment  This can create jobs and promote the exchange of

technology, experience and skills which can help the

domestic Canadian aerospace industry

 It can lead to long-term growth.

Maintaining a Favourable

Balance of Trade  The government can maintain a favourable balance of

trade – the right amount of imports and exports.

Protecting Domestic Business

from Unfair Competition  It is important to protect domestic industries from unfair

competition in the global marketplace.

Maintaining Adequate Levels

of Domestic Employment

 The government wants to maintain Canadian jobs.

Offering Subsidies to

Compete Globally  Generally, subsidies or aid to domestic industries is

controversial because it goes against the idea of free

trade (eg. obligations under the North American Free

Trade Agreement). However, other countries provide

some of their industries with government assistance, so

Canada has to do the same in order to compete.

 A subsidy can be a cash payment, tax breaks, low- interest loans or other forms of financial assistance

intended to help a domestic industry.

7. Why should government not act as the “guardian of business”?

Benefits only a few  the handouts to corporations only go to a few companies and they may not be the most deserving

ones.

 government assistance is not benefiting the general public (tax dollars should be spent on roads, health and

education for example).

Creates dependency

 “corporate welfare” can encourage companies to

become less efficient and expect future free money.

Contrary to free and open

markets  investors should make market decisions, not

government.

 market should be driven by investment reward versus risk, not political goals.

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 private capital markets should influence investment to best companies/products (eg. most profitable)

Undermines public confidence

in politicians  are politicians helping out corporations donating money

to their political campaign?

 how do taxpayers hold the government accountable when the government who loans funds to a company is

no longer in power when the loan becomes due?

Creates an uneven playing

field  government assistance is unfair.  some businesses and industries get help and others do

not.

Promotes a political agenda  political favouritism may threaten political democratic process.

8. What is the difference between a bailout and a subsidy?

 A bailout is a type of government support to business to prevent an organization or industry from financial collapse, often in the form of a loan or loan guarantee.

 A subsidy is a type of government assistance to businesses that are either in the form of cash payments, low-interest loans, or reduced taxes. In a global context, subsidies are

meant to assist domestic industry to compete against foreign businesses.

9. Explain the benefits and risks of deregulation.

Deregulation is the reduction in the number of laws or regulations affecting business activity.

 The benefit of deregulation for consumers is increased competition arising from the reduction of regulations that have formerly restricted the entry of new competitors.

 The risk of deregulation is consumer exploitation—that is, a reduction in quality of the products or services being offered, increases in consumer fees, or price increases as a

result of the reduction in laws governing the industry’s operation.

10. What is the meaning of privatization and what are its benefits?

 Privatization refers to the divesting of government involvement in the operation, management, and ownership of activities. Typically, privatization involves the

transfer of activities or functions from the government to the private sector.

Privatization might involve selling off a Crown corporation to the private sector. For

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example, Air Canada, formerly a Crown corporation, was sold to the private sector in

1988–1989. Also in 1988, the government sold Teleglobe Canada Inc., a handler of overseas satellite calls for the telephone and telecommunications companies, to

private business. Privatization might also involve contracting government jobs to

private companies. For example, in some provinces private businesses contracted to

manage hospitals and other health care institutions previously managed by

government employees. Other services that can be contracted out include garbage

collection and road construction. In addition, public institutions have also contracted

out services such as data processing and food and janitorial services to private-sector

corporations.

Benefits of privatization are:

 belief in the power of competition as a control mechanism.  belief that private business can operate more efficiently.  no longer need public involvement in some sectors.  financial benefits from selling government-owned assets.

Conception Application

Case: The Wireless Service Industry in Canada

1. Explain why Canada’s foreign-ownership restrictions in the telecommunications sector are a form of “trade protectionism” and how they conflict with the ideals of globalization.

By the Canadian government not allowing foreign companies to enter Canada to compete, it is

protecting the domestic wireless industry. It conflicts with the ideals of globalization since:

 the free movement of goods and services, capital and labour  cross border transactions, FDI (foreign direct investment) & economic interdependence  a process involving the integration of world economies – facilitated by bodies such as

NAFTA etc

2. By limiting foreign ownership and competition in the telecom industry, the Canadian

government is favouring Canadian firms relative to their global rivals. Explain why

the federal government should play the role of guardian of these Canadian telecom

firms. On the flip side, explain why the government should not protect the existing

players from more foreign competition.

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Nurture Young Industries  This involves the government providing aid to young, “domestic” industries to help them mature, gain market leadership, etc in order to compete against larger, more

mature foreign competitors

Encouraging Direct Foreign

Investment  This can create jobs and promote the exchange of

technology, experience and skills which can help the

domestic Canadian aerospace industry

 It can lead to long-term growth.

Maintaining a Favourable

Balance of Trade  The government can maintain a favourable balance of

trade – the right amount of imports and exports.

Protecting Domestic Business

from Unfair Competition  It is important to protect domestic industries from unfair

competition in the global marketplace.

Maintaining Adequate Levels

of Domestic Employment  The government wants to maintain Canadian jobs

Offering Subsidies to

Compete Globally  Generally, subsidies or aid to domestic industries is

controversial because it goes against the idea of free

trade (eg. obligations under the North American Free

Trade Agreement). However, other countries provide

some of their industries with government assistance, so

Canada has to do the same in order to compete.

 A subsidy can be a cash payment, tax breaks, low- interest loans or other forms of financial assistance

intended to help a domestic industry.

Reasons the government “should NOT” play the role as guardian of business:

Benefits only a few  the handouts to corporations only go to a few companies and they may not be the most deserving

ones.

 government assistance is not benefiting the general public (tax dollars should be spent on roads, health and

education for example).

Creates dependency

 “corporate welfare” can encourage companies to

become less efficient and expect future free money.

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Contrary to free and open

markets  investors should make market decisions, not

government

 market should be driven by investment reward versus risk, not political goals

 private capital markets should influence investment to best companies/products (eg. most profitable)

Undermines public confidence

in politicians  are politicians helping out corporations donating money

to their political campaign?

 how do taxpayers hold the government accountable when the government who loans funds to a company is

no longer in power when the loan becomes due?

Creates an uneven playing

field  government assistance is unfair.  some businesses and industries get help and others do

not.

Promotes a political agenda  political favouritism may threaten political democratic process.

3. What are three potential benefits and three potential threats to Canada of more multinational

wireless carrier companies coming here?

Benefits Threats

 Economic development  e.g. creates employment, provides

financial support and global economic

development

 No allegiance to host country.

 Brings management expertise.  Mobile profits (back to parent company).

 Introduces new technology & relevant training.

 Power held in home country e.g. R & D investments ( decision-making

centralized).

 Encourages international trade.  Difficult to control and gold accountable.

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 Unites cultures & nations; brings countries closer together; fosters global

cooperation.

Chapter 10 – Social Forces

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CHAPTER 10

Social Forces

CHAPTER SYNOPSIS

This chapter considers the question of ethics and whether corporations should be socially

responsible to all their stakeholders. Rule ethics and end-point ethics are compared. And

arguments for and against corporate social responsibility are examined. Certainly, balancing the

needs of different stakeholders and their interests is a challenge for businesses to satisfy. This too

will be examined.

LEARNING OBJECTIVES

1. Understand the challenges of defining business ethics.

2. Explain the models for judging the ethics of a decision.

3. Discuss how organizations may contribute to unethical behaviour at work.

4. Define stakeholders and explain why they are important for business to manage.

5. Analyze the debate for and against the relevance of corporate social responsibility.

CHAPTER OUTLINE

CHAPTER 10

SOCIETAL FORCES

 Can Corporations Be Socially Responsible to All Stakeholders? 353  Learning Objectives 353  The business world: the new blood diamond: cellphones 354

DEFINING BUSINESS ETHICS 356

 Ethical Behaviour as a Social Phenomenon 358  Business Ethics as Managing Stakeholder Interests 359  Models for Judging the Ethics of Decisions 360  End-Point Ethics 361  Rule Ethics 363  Applying the Models: A Scenario 364

DO ORGANIZATIONS MAKE US UNETHICAL? 367

 Unethical Behaviour as a Consequence of Corporate Culture 368  Unethical Behaviour as a Consequence of Decoupling 371

Chapter 10 – Social Forces

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 Unethical Behaviour as a Consequence of Work Routinization 372  Unethical Behaviour as a Consequence of Organizational Identity 375  Unethical Behaviour as a Consequence of Organizational Roles 377  Judging the Ethics of Organizations 378

BUSINESS AND SOCIETY 380

 Managing the Forces of Business and the Stakeholders of Business 381  Managing the Challenges of the Societal Force 383  Corporate Social Responsibility 383  The CSR Debate 385  Is Corporate Social Responsibility on the Rise? 395

CHAPTER SUMMARY 399

CHAPTER LEARNING TOOLS 399

 Key Terms 399  Multiple-Choice Questions 399  Discussion Questions 400  Concept Application: Joe Fresh and the Bangladesh Tragedy 400

BUSINESS WORLD EXERCISE

1. Refer to the Business World article “The New Blood Diamond: Cellphones (page 354).” Identify stakeholder groups affected by Coltan mining practices and explain how they are

affected?

Stakeholder

Impact

 Cell phone users

 want to use cell phones, but don’t know about coltan.

 want low to reasonable prices.  Cell phone companies

 know about coltan mining practices, but don’t know how to trace it, and have no laws

requiring them to do so.

 Congo workers

 workers receive little money, have no rights; children also

mine, and work in dangerous

conditions.

 Congo’s community

 the region has been affected by severe conflicts.

 approx 7 million people have died.

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 communities have been displaced.

 Congo military

 terrorizes the community.  displaces communities.

 The environment/the gorillas

 significant land clearing has occurred.

 the gorilla population has declined by 90%.

 The United Nations

 tries to monitor the situation.

 The Organization for Economic Cooperation and Development

(OECD)

 published recommendations for companies to ensure they

exercise due diligence so coltan

purchased are not related to

conflicts.

 Government of Congo  coltan accounts for 70% of the Congo’s revenue.

 Governments of Rwanda, Uganda, Burundi

 profit from sale of coltan.  know about the conditions of

congo mining.

 Governments of Canada and the United States

 know about the conditions of congo mining.

 receive some pressure from human rights group but not

enough to require companies to

ensure their coltan is not from

areas of conflict.

 they have some power to impact the situation, by passing a law

requiring companies to prove

where they are getting/sourcing

their coltan.

 The Tantalum-Niobium International Study Centre

(T.I.C.)

 deplores illegal activities but does not have any power to

regulate.

TALKING BUSINESS EXERCISES

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1. Refer to the Talking Business 10.1, “High-level Barriers to Public Trust in Organizations

(page 357).” What factors have impacted trust in organizations?

 changes in the employee-employer relationship o automation

o computerization

o streamlining

o leaner manufacturing processes

o outsourcing

o offshoring

o shareholder return demands

o difficult economic periods

 the information technology revolution o internet allows mainstream media plus bloggers to expose political or

corporate wrongdoings

2. Refer to the Talking Business 10.2, “Lac-Mégantic: Disaster in Quebec (p.359).” What was the cause of the Lac-Mégantic: Disaster in Quebec?

 a lack of sufficient safety standards and quality controls  a focus on increasing profits and reducing costs  a lack of corporate social responsibility

3. Refer to the Talking Business 10.3, “The Business of Bribery (p.366).” What do you think is encouraging bribery to occur?

 a company’s goal to obtain profits  a lack of enforceable laws and regulations  growing competition

4. Refer to the Talking Business 10.4, “The Global Pharmaceutical Industry and Human Guinea Pigs (page 374).” Is testing drugs on humans in poor countries ethical? Consider both sides of the debate.

Yes

 Participants know it involves medical testing and are willing to participate.  Medical treatment may temporarily help their illnesses.  This may be the only way to find out what treatment works, as people in poor

countries cannot afford most medications and treatments.

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No

 Participants unlikely understand all the risks (including the risk of death).  Drug companies do not provide free drugs or treatment after the testing is over.  Drug companies’ actions are solely profit-motivated and to circumvent stricter

testing regulations in the West.

5. Refer to Talking Business 10.5, “Dragon’s Den (page 386).” What are some of the most important factors investors here consider before making an investment?

 good sales  good profit and margins

6. Refer to Talking Business 10.6, “IBM and Nazi Germany (page 388).” What was IBM’s role during the Holocaust?

 IBM manufactured and provided the Hollerith machines for profit to Nazi Germany, knowing its intended use.

7. Refer to Talking Business 10.7, “Corporate Strategy and Long-term Well Being: Crime Doesn’t Pay (page 392)?” What have been some factors that contributed to the corporate scandals?

 lack of accounting and auditing standards  lack of good governance  lack of proper internal controls (e.g. no proper authorizations)  lack of board independence

8. Refer to Talking Business 10.9, “Should These Corporate Behaviours Be Mandated (page 394).”

[Teaching note: Ask students to pick a company and find out what it does to try to be

socially responsible.]

9. Refer to Talking Business 10.9, “Social Media Gives Power to Customers (page 395).” How has social media influenced businesses?

 businesses had to respond faster to customer complaints.  businesses had to monitor web sites for potential bloggers that may damage

their reputation.

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SAMPLE CLASS DISCUSSION QUESTIONS

1. What makes a person ethical?

2. Provide examples of how someone may be unethical in the workplace?

3. Why is corporate social responsibility more prevalent today than 25 years ago?

CHAPTER LEARNING TOOLS

Multiple Choice Answers (also available in the back of the textbook, page 487)

1.D 2.D 3.B 4.A 5.D 6.A 7.C 8.D 9.D 10.B 11.D 12.D 13.D 14.D 15.D

Discussion Questions

1. What is the difference between end-point ethics and rule ethics?

 End-point ethics involves assessing the rightness or wrongness of an action by its outcomes. Its modern counterparts are cost-benefit and risk-benefit

analysis. End-point ethics is also a way to determine if an action is right or

wrong by assessing the likely consequences of the action, including tangible

economic outcomes or intangible outcomes.

 Rule ethics involves judging actions to be right or wrong according to absolute rules regardless of the consequences. Such rules may be based on

religious beliefs, family values, education, experience, and so on.

2. What are five organizational factors that can lead employees to engage in unethical

behaviour?

 Corporate Culture  Decoupling  Job Routinization  Organizational Identity  Work Roles

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3. What is the meaning of a stakeholder?

 A stakeholder is an individual or group with whom a business interacts and who has a “stake,” or vested interest, in the business.

4. Give some examples of internal stakeholders.

 shareowners  managers  employees

5. Give some examples of external stakeholders.

 government  creditors  special interest groups  customers  unions  accountants  auditors  suppliers

6. What is the meaning of corporate social responsibility (CSR)? Describe Caroll’s four levels of CSR.

 The term corporate social responsibility (CSR) refers to those obligations or responsibilities of an organization that involve going beyond the production of goods

or services at a profit and the requirements of competition, legal regulations, or

customs. Social responsibility involves an obligation to create policies, make

decisions, and engage in actions that are desirable in terms of society’s values and objectives.

Four (4) levels of CSR are:

 Economic Responsibilities - The economic responsibility is based upon that society requires that companies be profitable. In other words, companies

should generate profits and minimize costs.

 Legal Responsibilities - Society also requires companies to be legally responsible. That is, complying with all laws and regulations. For example,

employment laws, human rights laws, business law, contract law, copyright

law, environmental law and so on.

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 Ethical Responsibilities - Society also expects companies to be ethically responsible. That is, what society considers fair, just and acceptable.

 Philanthropic Responsibilities - Society desires companies to meet their philanthropic responsibilities. These are duties that help with the betterment

of society, such as donating money, volunteering etc.

7. Provide arguments for businesses engaging in CSR.

Business should conform to societal expectations…  Business was created to serve public needs.  It is society who also purchases the company’s products, so businesses should act in

a way that is acceptable to society.

Being socially responsible pays

 By being socially responsible it avoids public scrutiny.  It may also avoid the creation of government laws and regulations governing an

industry, which may increase the business’s compliance costs.  Being socially responsible in some ways is like a public relations campaign, which

helps business-consumer relationships.

Responsibilities to other stakeholders

 Business is set up and operated in communities where other stakeholders (other than its owners) are also affected by their actions.

 If certain stakeholders do not like what business is doing, they can exercise their buying power and decide not to purchase the company’s products and services.

CSR provides long term benefits

 CSR is an ongoing commitment by a company with a direct initiative towards social goals.

 It has many long-term benefits for the company itself, such as creating good will, customer loyalty, a strong brand name and a positive public image.

The company could use its power positively

 Many companies have the people resources (that is, its talent) and financial resources to give something back to the communities they operate in and make a

difference in people’s lives.

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8. Provide arguments against businesses engaging in CSR.

 Milton Friedman said that the sole responsibility of business is to make a profit that is why a business was created.

 The company has an economic responsibility to its shareholders, nothing more.

Business is a game with different rules

 Businesses cannot have the same ethical standards as individuals. For example, businesses may advertise unhealthy food to children with high sugar and high salt

content.

Business shouldn’t dictate morality  Managers are simply not skilled in the area of social policy;  Managers are not trained in CSR;  This should be left to government (a democratic institution) where the will of the

people will be served.

Who will be accountable?

 A business is made of many different individuals. There are its owners, executives and employees. But if there is a CSR program, who should be responsible for the

actions that corporations take?

Costs of CSR would be passed on to consumers & limit national competitiveness

 There is a cost to CSR, which adds to the overall cost of the business.  How can a company stay in business, if its costs become higher than its

competitors?

9. Explain what factors may influence businesses to be socially responsible.

 social media  corporate disclosure legislation  CSR rankings

10. Can companies be both economically responsible and socially responsible? Explain.

 In theory, yes, a company can “do the right thing” and be socially responsible and still make profits. In many cases, it may depend. Certainly, a company facing bankruptcy will

not have the resources to continue donations or volunteer activities as the survival of the

company is at stake.

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Conception Application

Case: Joe Fresh and the Bangladesh Tragedy

1. How is corporate social responsibility (CSR) an issue in this case? In your answer,

consider the four levels of CSR.

Responsibility Analysis

 Economic Responsibilities - The economic responsibility

is based upon that society

requires that companies be

profitable. In other words,

companies should generate

profits and minimize costs.

 Joe Fresh is a profitable company with over 300

locations in Canada and

with expansion into the

U.S..

 Joe Fresh has met its economic responsibility.

 Legal Responsibilities - Society also requires

companies to be legally

responsible. That is,

complying with all laws and

regulations. For example,

employment laws, human

rights laws, business law,

contract law, copyright law,

environmental law and so

on.

 Joe Fresh abides by all laws in Canada. Since the

Bangladesh garment

company is a supplier, not

owned by Joe Fresh, Joe

Fresh meets its legal

responsibility.

 Ethical Responsibilities - Society also expects

companies to be ethically

responsible. That is, what

society considers fair, just

and acceptable.

 Joe Fresh could have done some due diligence to see if

its suppliers have reasonable

working conditions for its

workers, even if they are not

the same standards as in

Canada. This includes

health, safety and fair wages

and hours. Therefore, Joe

Fresh did not meet its

ethical responsibilities.

 Philanthropic Responsibilities - Society

desires companies to meet

their philanthropic

responsibilities. These are

 Loblaws does make an effort to donate money and

volunteer time for the good

of the community. However,

it did not consider the

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duties that help with the

betterment of society, such

as donating money,

volunteering etc.

conditions of its suppliers

workers and therefore, does

not meet its philanthropic

responsibilities.

2. Why should Joe Fresh be expected to act in accordance with societal expectations?

 Business should conform to societal expectations - Business was created to serve public needs. It is society who also purchases the company’s products, so businesses should act in a way that is acceptable to society

 Being socially responsible pays - By being socially responsible it avoids public scrutiny. It may also avoid the creation of government laws and regulations governing an industry,

which may increase the business’s compliance costs. Being socially responsible in some ways is like a public relations campaign, which helps business-consumer relationships.

 Responsibilities to other stakeholders - Business is set up and operated in communities where other stakeholders (other than its owners) are also affected by their actions . If

certain stakeholders do not like what business is doing, they can exercise their buying

power and decide not to purchase the company’s products and services.

 CSR provides long term benefits - CSR is an ongoing commitment by a company with a direct initiative towards social goals. It has many long-term benefits for the company

itself, such as creating good will, customer loyalty, a strong brand name and a positive

public image.

 The company could use its power positively. Many companies have the people resources (that is, its talent) and financial resources to give something back to the communities they

operate in and make a difference in people’s lives

3. What kinds of obligations should companies like Joe Fresh have toward the people in other

countries who make its products?

 health and safety standards in the workplace  fair labour standards (e.g. hours, pay, etc.)

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CHAPTER 11

The Challenge of Sustainability

CHAPTER SYNOPSIS

Have you heard of the term sustainability? It is becoming more and more familiar to many

businesses in Canada and across the globe. How does sustainability impact business and other

organizations? Environmental issues continue to influence businesses in every industry. This

chapter examines the importance of sustainability and the benefits and challenges it presents to

business. Clearly, for businesses to survive in the long term, sustainable practices are necessary

and require managers to understand their economic, social, and environmental components.

LEARNING OBJECTIVES

1. Define sustainable development.

2. Explain the three components of the triple bottom line (TBL) approach.

3. Discuss the benefits and limitations of using the TBL as a performance tool.

4. Identify and explain four sustainability measures.

5. Explain the business case for implementing sustainable practices.

6. Discuss seven areas in which sustainable practices can be assessed during the product’s life.

CHAPTER OUTLINE

CHAPTER 11

THE CHALLENGE OF SUSTAINABILITY

 Why Does Business Need to Focus on Sustainability? 404  Learning Objectives 404  The Business World: Can Canadian Businesses Afford to Ignore Climate Change?

405

WHAT IS SUSTAINABILITY? 408

 Economic Factors 410  Social Factors 411  Environmental Factors 412  Benefits and Limitations of the Triple Bottom Line Framework 418  Benefits of the TBL Approach 418  Limitations of the TBL Approach 419

MEASURING SUSTAINABILITY 420

 Living Planet Index 420

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 Ecological Footprint 422  Index of Sustainable Economic Welfare 424  Genuine Progress Indicator 425

THE BUSINESS CASE FOR IMPLEMENTING SUSTAINABLE PRACTICES 426

 Reducing Costs 426  Reducing Risk 428  Improving Public Relations 429

OBSTACLES TO CHANGE 430

IMPLEMENTING SUSTAINABLE PRACTICES 433

 Raw Materials 433  Manufacturing 434  Distribution 437  Retailing 437  Marketing 438  Consumer Use/Consumption 440  End-of-Life/Disposal 441

CHAPTER SUMMARY 443

CHAPTER LEARNING TOOLS 443

 Key Terms 443  Multiple-Choice Questions 443  Discussion Questions 444  CONCEPT APPLICATION: IS LOCAL FOOD SUSTAINABLE? 444

BUSINESS WORLD EXERCISE

1. Refer to the Business World article “Can Canadian Business Afford to Ignore Climate Change (page 405).” What can be some of the economic impacts of climate change?

 expensive clean-up costs for government  production delays for business  lost income for individuals

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TALKING BUSINESS EXERCISES

1. Refer to the Talking Business 11.1, “Cree Village Eco Lodge, a Sustainable Travel

Destination (page 411).” What are some examples of sustainable efforts made by this business?

 no air conditioning system in the building.  instead, there are low-noise, high efficiency ceiling fans that circulate the air.  windows and doors face north to take advantage of natural wind conditions and

are triple-glazed with low-e argon.

 the facility was built using sustainable materials.  walls are made from natural cedar and painted with low emissions paints.  biodegradable hand soaps and shampoos in dispensers every room.

2. Refer to the Talking Business 11.2, “How Sustainable is Canada’s Water (p.414).” What is the greatest source of pollution to Canada’s water?

 municipal waste-water discharges

3. Refer to the Talking Business 11.3, “Fracking Fracas: Pros and Cons of Controversial Gas Extraction Process (p.416).”What are some environmental risks and issues with fracking?

 groundwater contamination.  a pipeline leak.  the use of millions of gallons of water.  use of chemicals.  methane, a strong greenhouse gas, is released into the atmosphere during

extraction process.

 disposal of fracking waste can cause earthquakes.  the infrastructure such as processing equipment, compressor stations, and trucks

can also bring risks

4. Refer to the Talking Business 11.4, “Canada Isn’t Cleaning up on Green Technology Exports (page 431).” Why should Canada get more involved in green technologies?

 it’s a major economic opportunity.  there is increasing global demand for green technologies due to increased energy

and water costs.

 there are many environmental problems.  it’s the right choice to move to a low-carbon future.

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5. Refer to Talking Business 11.5, “Leading the Change in the Food Sector (page 435).” What sustainability efforts has Loblaws been making?

 sustainable seafood policy.  reduction of plastic bag use.  helping customers understand nutritional values and promoting a healthy lifestyle.

6. Refer to Talking Business 11.6, “Convenience Versus Sustainability: The Plastic and Paper Bag Debate? What are the pros and cons?

Paper

Plastic

Pros  comes from a renewable resource.

 can be composted and recycled.

 less expensive than paper bags.

Cons  more expensive than plastic bags.

 does not biodegrade much faster than plastic.

 the production process emits 70% more air

pollution than plastic bags.

 the production process emits 50 times more

pollutants than plastic

bags.

 water is consumed three times more in producing a

paper bag over a plastic

one.

 it takes 91% more energy to recycle a pound of paper

than a pound of plastic.

 can take 1,000 years to biodegrade.

 very lightweight, so can be blown around by wind and accumulate in

our oceans.

 93% of migratory birds had plastic in their stomachs.

 made from petroleum, so fossil fuels are burned in order to make

it.

SAMPLE CLASS DISCUSSION QUESTIONS

1. Research an organization and find out what sustainability efforts it is making. How could

the organization improve?

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2. What do you think are the main obstacles in achieving sustainability?

3. What do you think are the most important issues that need to be addressed in order to

achieve sustainability?

CHAPTER LEARNING TOOLS

Multiple Choice Answers (also available in the back of the textbook, page 487)

1.D 2.D 3.D 4.B 5.A 6.B 7.B 8.B 9.C 10.A 11.D 12.A 13.C 14.D 15.C

Discussion Questions

1. Define sustainable development.

Sustainable development is development that meets the needs of the present without

compromising the ability of future generations to meet their own needs.

2. Discuss the three categories of the triple bottom line approach.

Economic

The economic category refers to businesses’ need to make a profit. Traditional reporting typically focused on a company’s financial statements: calculating income, expenses, assets, and liabilities. TBL reporting, however, has a broader approach. It goes beyond the financial

statements and can include other indicators to show how a business is performing. Changes to

the number of employees, for example, can indicate either job growth or company downsizing.

The size of a business, revenue by sector, and research and development costs can also provide

other information affecting the company’s bottom line and cash flow. The amount of taxes paid is another economic indicator companies can use to show a company’s growth or decline.

Social equity

In general terms, fair and equitable business practices toward employees and the community. It

involves such things as fair salaries, a safe workplace, reasonable working hours, adherence to

employment laws, and respect for diversity and human rights.

Environment

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The environment (or the planet) is the category that refers to the need for sustainable practices

that protect our water, land, and air. The environment is what needs to be preserved for future

generations to enjoy and for the economy to prosper. What currently threatens the planet? Two

key concerns are the depletion of natural resources by overconsumption and the ongoing release

of greenhouse gas emissions.

3. Explain the benefits and limitations of TBL reporting.

Benefits of the TBL Approach:

Improves transparency - In addition to financial statement reporting, the TBL allows an

organization to voluntarily report its impact on society and the environment. This can improve

accountability as the organization provides information on its nonfinancial activities and exposes

itself to both public criticism and praise.

Allows flexibility - The TBL is also a framework any organization can use. Whether you are a

corporation, the government, or a nonprofit organization, the framework is general enough for

most organizations to easily adopt. An organization of any size or any industry can use the TBL

method. It can also be used broadly to assess an organization’s overall performance or be applied to an individual project, policy, or geographic area. On an annual basis, organizations can use the

framework to assess performance, identify necessary changes, and assist in future decision

making.

Aims to satisfy more stakeholders - The approach also recognizes the impact of the

organization’s actions on all its stakeholders. Stakeholders can include shareowners, employees, the community, and even the environment. As a result, this methodology uses a long-term

perspective to improve the impact of an organization’s activities on all the people and groups being affected by it.

Limitations of the TBL Approach

No measurement standards - Unlike generally accepted accounting principles (GAAP) used in

accounting, there are no widely accepted standards or rules for measuring, verifying, or auditing

TBL data. The mixture of both quantitative and qualitative data means that there is no common

unit of measure that can allow all three categories to be added together to arrive at a net figure.

Each component—economic, social, and environmental—is unique. While the economic category can use a dollar-based measure, it can also use additional measures to track other

indicators other than profits. For example, job growth and employee turnover are two variables.

Similarly, the social and environmental categories have other unique indicators that cannot

simply be added together.

Too subjective - Another limitation of this qualitative method is its subjectivity. The social

category, for instance, is subjective and requires more personal judgment than the economic

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category. For example, what is a positive social action that a company can take to improve the

well-being of its employees, the community, and other stakeholders?

Is it a monetary donation to a charitable organization, or will a company allowing its employee’s to volunteer their time to a worthy cause also suffice? What meets the needs of employees and

the community may depend on a variety of factors: The region, the culture, the values, and the

expectations of its stakeholders are just a few.

Lack of comparability - Since the TBL approach is not legally required, not all organizations

voluntarily use this approach. For organizations that do use it, each organization has the

flexibility to choose what data to collect, measure, and include for reporting purposes. For

instance, companies can decide to exclude negative activities and only include positive ones.

Cost and time constraints may also create obstacles for some organizations in tracking data.

There are no consequences if there is missing data or a lack of information, and there is no legal

requirement to have a third-party audit. Other factors such as the size of the organization or the

type of industry can affect what indicators organizations decide to use. A construction company,

for instance, may use a lot of environmental indicators to track waste and other environmental

impacts, whereas a nonprofit health group may have more social indicators aimed at helping

people.

4. Identify three social indicators that could be used in TBL reporting.

 Fair value of donations  Number of volunteer hours  Number of diverse workers employed

5. What are greenhouse gas emissions and why should organizations try to reduce them?

Greenhouse gas emissions are gas emissions that result from burning fossil fuels to carry out

many of our daily functions in industrialized society, such as to make electricity, to heat homes

and buildings, to process industrial and commercial activities, to power transportation, and to

allow agricultural and other miscellaneous processes.

Organizations should try to reduce fossil fuels since fossil fuels are nonrenewable resources that

take millions of years to form. The burning of fossil fuels causes carbon dioxide (CO 2) to be

released into the atmosphere and causes the earth’s average surface temperature to rise. Examples of energy derived from fossil fuels include coal, petroleum (oil or gasoline), and

natural gas. An estimated 3.2 billion metric tonnes of carbon is added to the earth’s atmosphere annually.

6. Identify and compare four ways to measure sustainability.

Living Planet Index (LPI) - Created by the World Wildlife Fund, this index aims to measure

changes to the world’s biological diversity.

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Ecological Footprint (EP) - The amount of biologically productive land and sea area that is

required to meet the demands of human consumption for a particular population or country.

Index of Sustainable Economic Welfare (ISEW) - An index that attempts to measure both

positive and negative activities that affect a society’s well-being.

Genuine Progress Indicator (GPI) - A tool used to measure a country or region’s economic growth and social well-being. It includes all variables calculated under the GDP, but subtracts

the negative effects of economic growth that cause social harm to a community.

7. Describe the business case for sustainability.

 Reduces costs (e.g. reducing packaging, lowering energy use, reducing waste)  Reduces risk  Improves public relations

8. Explain three obstacles for organizations implementing sustainable initiatives.

Time

Running a business in itself is challenging. In order to save on costs, companies usually hire a

minimal amount of workers to complete daily tasks. Focusing on core business activities is

essential to ensuring quality and satisfying customer demands. In some cases, businesses are

unable to spend time on traditional activities such as marketing and training.

Money

Implementing sustainable practices may also require businesses to commit to initial upfront costs

that may not be feasible for many. In the example of geothermal energy, it is clear that there are

long-term cost benefits, but not all businesses may be able to afford it. Similarly, solar panels

and special LED lighting require initial upfront costs that require businesses to either have

available cash or available financing. According to one observer, “Solar power is a clean, renewable energy source, yet it makes up less than 1 percent of the power used in the United

States. Part of the reason more people aren’t using solar energy . . . is the cost.”

Lack of knowledge

Since every industry has its own unique energy and waste issues, implementing sustainable

practices cannot always be easily replicated from one business to another. For instance, a food

manufacturer will likely have different waste issues than a construction company. In fact,

achieving cost-effective sustainable practices requires a cross-disciplinary effort from

environmentalists, engineers, and others in assessing and evaluating all business processes,

products, and services. Some managers may not even understand the long-term value of

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sustainable practices. Like corporate social responsibility, sustainability issues are not normally

part of a manager’s education, skills, or job training. Nonetheless, many businesses and countries continue to profit from new green technologies.

9. Identify and describe the areas of a product’s life cycle whereby sustainable practices should be assessed.

Raw Materials

What business or industry are you in and what type of raw materials do you need? How

can raw materials be sustained, and what sustainable practices are available? The type of

raw materials needed by a business will likely impact what sustainable method can be

used. For example, are your raw materials from renewable or nonrenewable resources?

Manufacturing

Processing raw materials also requires a consideration of potential harms to the environment

and the impact to society at large. What is sustainable manufacturing? Sustainable

manufacturing, as defined by the US Department of Commerce, is “the creation of manufactured products that use processes that are nonpolluting, conserve energy and natural resources,

and are economically sound and safe for employees, communities, and consumers.”

Distribution

Distribution involves shipping a product to a potential buyer. Sustainable distribution involves

any form of transportation of goods between the seller and the buyer that causes the least harm to

the environment and the community. The transportation process can include packaging, shipping

from storage, order processing, delivery to the buyer, and returning containers and packaging.

Retailing

Like manufacturers, retailers can also reduce, reuse, and recycle. While retailers can work with

manufacturers or suppliers to reduce waste or limit environmental harm, retailers can also make

purchase choices to buy green products that contain recycled components and reduced

packaging.

Marketing

What is sustainable marketing? According to the American Marketing Association,

sustainable marketing or green marketing is

1. (retailing definition) The marketing of products that are presumed to be environmentally safe.

2. (social marketing definition) The development and marketing of products designed to

minimize negative effects on the physical environment or to improve its quality.

3. (environment definition) The efforts by organizations to produce, promote, package, and

reclaim products in a manner that is sensitive or responsive to ecological concerns.

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Consumer Use/Consumption

Clearly, businesses need to do their part, but consumers also need to change their mindset

to determine their needs versus their wants and purchase more sustainable products. After

all, consumerism and sustainability are two conflicting behaviours. While consumerism

embraces purchasing more consumer goods, sustainability discourages consumption and

promotes reducing, reusing, and recycling. The Canadian government defines sustainable

purchasing as follows: acquisition of goods and services in a way that gives preference to

suppliers that generate positive social and environmental outcomes. It might even involve

considering whether a purchase needs to be made at all.

End-of-Life/Disposal

When is the end of a product’s life? The answer, of course, is that it depends. Typically, if a product can be reused, it can be donated to a charitable organization or sold for profit. The

product’s life therefore continues. However, when a product is broken or becomes obsolete because of technological change, there are usually two choices businesses and individuals have:

Recycle a product’s parts or dispose of them.

10. Identify three business departments and explain three examples of sustainable practices they

could introduce.

Human Resources

 Use an online database to accept résumés instead of mail-based applications to reduce paper

 Implement telework and shared workspace options to reduce building space and heating/utility requirements

 Promote benefits that include healthy food options and exercise facilities  Train employees on sustainable practices  Hire sustainability consultants to implement green initiatives

Marketing

 Use recyclable materials in packaging  Use electronic media for promotions  Provide discounts or other incentives for purchasing in bulk Information

Technology

 Develop policies to dispose of electronics safely  Convert to a paperless office by scanning documents, using online storage, etc.  Implement electronic management systems to reduce paper storage  Promote videoconferencing and teleconferencing technologies to reduce travel

requirements

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Research and Development

 Invest in products and services that promote sustainable practices  Use reusable or recycled products  Reduce materials, water, and energy in the manufacture of goods

Operations and Logistics

 Reduce packaging and waste  Reduce transportation  Reduce overall emissions

Facilities

 Build or rent green facilities that minimize energy and water usage  Implement a green waste management program  Ensure green cleaning and landscaping practices are used

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Conception Application

Case: Is Local Food Sustainable?

1. Provide arguments for and against purchasing locally grown food. In your answer, refer to the

social, economic, and environmental factors of sustainability.

For Local

Against Local

Economic

 Improved local economies

- Purchasing local food

means more than just

supporting local farmers, it

means supporting small

business, entrepreneurship,

and domestic job growth.

Certainly, small towns

benefit when local farmers

do well, since farmers

spend money on goods and

services that contribute to

the surrounding economy.

Indeed, local farmers can

keep more of the profits

when there are few, if any,

middlemen involved,

unlike with corporate

agribusiness.

 Large multinationals are involved in international trade and have had

the resources to specialize, create

economies of scale, and make

food safer and cheaper. This

includes technological

advancements such as genetically

modified seeds, safer pesticides,

more automated farming

equipment, and safer food

practices.

Social

 Fresher tastes better - If

you have picked a tomato

from your own backyard,

you know that fresher

tastes better. Clearly, this is

one advantage of locally

grown food. It does not

have to be flown in,

shipped in, or trucked very

far. The food has to go

through fewer processes

that may affect its quality

and flavour. With food

shipped from overseas,

vegetables are often picked

green and then ripened

artificially upon arrival.

 Much of the advances in food security and standards of living

have been a result of corporate

agribusiness.

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Eating locally therefore

means eating fresher and

eating seasonally.

 More variety - Large businesses heavily focus on

profit rather than

sustainability, which often

results in large quantities

of uniform cash crops that

are replanted year after

year on the same land. Due

to economies of scale, this

strategy can force smaller

farmers, who may offer a

wider variety of fruits or

vegetables, into

bankruptcy. For example,

local farmers can sell

brandywines, early girls,

and lemon boys instead of

just “tomatoes.” Mono- cropping also degrades soil

and can result in less

nutritious produce over

time.

Environmental

 Less pollution - Since local

food has less distance to

travel, it uses less gasoline,

packaging, storage, and

refrigeration. This in turn

means less fossil fuels are

burned that contribute to

harmful greenhouse gas

emissions. According to

OM Organics, the global

food trade has quadrupled

since 1961, with thousands

of tonnes of food shipped

annually. In fact, on

average, corporate crops

can travel between 1,500 to

2,500 miles before they

arrive at your local

neighbourhood grocery

 Food miles only represent 4% of total food-related emissions. For

instance, what about the energy

used to produce food or the energy

consumed to drive to the store to

buy it? Air transportation only

accounts for 1% of food miles. In

addition, most food is transported

by ship, which is the most fuel-

efficient way to ship food.

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store.

 Food from local farmers involves less

transportation. Less

transportation means less

gasoline is burned, which

means less greenhouse

gases are released into the

air causing climate change.

 Less chemicals - As large agribusiness takes over

more farmland, there are

less farmers growing food

and managing the land. In

fact, less than 1% of the

population provides food

for the remaining 99%. To

manage larger spaces,

more fertilizer and

pesticides are required. In

the United States over 800

million tonnes of pesticides

and 160 million tonnes of

fertilizer go into the soil,

depleting it of its natural

fertility and contaminating

the water supply.

2. Identify which type of farming (local or agribusiness) you believe to be more sustainable.

Why?

[Teaching note: Students would need to answer question one, and then provide their arguments].

3. What are “food miles”? What are the pros and cons of using food miles to determine the environmental impact of food?

“Food miles” are the miles driven from from the farm to your plate. Food miles are only one measure of how food contributes to global warming. However, some local food growers produce

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certain crops that use energy that is equally or more damaging to the environment. For example,

a research report conducted in the United Kingdom compared local (UK) tomatoes with those

imported from Spain. The results indicated that UK tomatoes, which had to be grown in heated

greenhouses, “emitted nearly 2,400 kg of carbon dioxide per ton, compared to 640 kg for the Spanish tomatoes, which could grow in unheated greenhouses.”

Chapter 12 – Confronting Change

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CHAPTER 12

Confronting Change

CHAPTER SYNOPSIS

To succeed in today’s business environment requires the ability to quickly adapt to changing market conditions. Consequently, it is fitting that we devote specific attention to a discussion of

the nature of change. What does change entail? What are the forces for change? In this chapter,

we will examine the methods adopted to facilitate change. Within this discussion, the concept of

the “learning organization” will be explored. In addition, we will consider how organizations may facilitate or impede change. The chapter ends with a discussion of the issue of the tipping

point for organizational change.

LEARNING OBJECTIVES

1. Describe the forces encouraging change in organizations.

2. Define developmental change, transitional change and transformational change.

3. Understand the value of Theory E and Theory O change.

4. Describe the process of transformational change.

5. Explain the relationship of learning with organizational change.

6. Explain the role of “the tipping point” and its impact on change.

CHAPTER OUTLINE

CHAPTER 12

CONFRONTING CHANGE

 How Do Businesses Address the Challenge of Change? 448  Learning Objectives 448  The Business World: Indigo: Writing the Next Chapter in Canada’s Book Industry

449

CHANGE AND THE ENVIRONMENT OF BUSINESS 451

 Forces for Change 451  Types of Change 461  Developmental Change 461  Transitional Change 462  Transformational Change 462

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METHODS OF CHANGE: THEORY E AND THEORY O CHANGE 464

 The Process of Transformational Change: An Illustration 467  Understanding the Forces for Change 467  The Change Vision and Implementation 467

CREATING A LEARNING ORGANIZATION 471

 Double-Loop Learning and Shifting Paradigms 474  Do Organizations Encourage or Discourage Learning and Change? 475

IMPLEMENTING CHANGE THROUGH TIPPING POINT LEADERSHIP 479

 What Is the Tipping Point? 479  Three Rules of the Tipping Point 479  Applying the Tipping Point to Organizational Change 481

CHAPTER SUMMARY 482

CHAPTER LEARNING TOOLS 483

 Key Terms 483  Multiple-Choice Questions 483  Discussion Questions 484  CONCEPT APPLICATION: WHEN GOOD COMPANIES GO BAD: THE CASE

OF KODAK 484

BUSINESS WORLD EXERCISE

1. Refer to the Business World article “Indigo: Writing the Next Chapter in Canada’s Book Industry (page 449)?” How has Indigo changed?

The book company has:

 changed from a traditional book company to a book-lifestyle and cultural department store.

 introduced toys, gifts and home décor to attract customers.  introduced Soapbox, a message board for customers to provide ideas and suggestions.  changed its rewards program.  sold its E-reader Kobo.

TALKING BUSINESS EXERCISES

1. Refer to the Talking Business 12.1, “Making Skills Work in Ontario (page 453).” How

have changes to the economy affected needed skills in the labour force?

 more highly-skilled and creative jobs are available..

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 more technical proficiencies are needed.  other essential skills are needed such as critical thinking, teamwork and

communication skills.

 creativity, risk-taking and relationship building are other essential skills.

2. Refer to the Talking Business 12.2, “Yes, There is a Future for Manufacturing in Canada (p.454).” What do Canadian manufacturers need to do to continue to be successful?

 increase engagement with emerging markets.  link products and services together.  improve client relations.  provide better prices.

3. Refer to the Talking Business 12.3, “Digital Health: More than Just Health and Technology (p.456).” What is digital health?

 “Digital health is more than the mere combination of health and technology; it is a collaborative effort between health specialists, technology experts and patients to

create health solutions for everyone.”

4. Refer to the Talking Business 12.4, “Pro Sports and Globalization (page 457).” How many countries are represented in pro sports internationally?

 More than 30 countries.

5. Refer to Talking Business 12.5, “How Canada Welcomed Bangladeshi Clothing Imports (page 459).” How have Bangladeshi imports to Canada impacted Bangladesh?

Imports from Bangladesh to Canada have:

 helped reduce poverty.  allowed better paying jobs to exist over the agricultural sector.  allowed many women to have an independent income.  promoted development in Bangladesh.  encouraged sexual equality.  encouraged overall economic stability.  created a value-added component over the agricultural sector.  created entrepreneurial opportunities.  increased managerial jobs for the middle class.

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6. Refer to Talking Business 12.6, “Slow-Motion Demographic Tsunami about to Hit Canada’s Economy (page 460).” What are some options available to address the changes in demographics and the increasing aging population?

 raise the annual level of immigration.  provide incentives to keep older individuals working longer past the age of 65.  create opportunities for under-represented groups such as Aboriginal peoples and

those with disabilities.

 invest in the education system to ensure our population is as productive as possible.

 foster positive work environments that engage all types of workers.

7. Refer to Talking Business 12.7, “Transformational Change: Starbucks Risks Core Business for New Unknown Ventures (page 463)?” Why do you think Starbuck’s actions would fall under transformational change?

 Starbucks is transforming the future state from the current state dramatically.  Outcomes are unknown, unpredictable, and uncertain. Starbucks doesn’t know if

these new product lines as a strategy to grow the business will be successful or

not.

 Starbucks appears to be using some “trial and error.” Starbucks has already had to make negotiations with Green Mountain because Starbucks will now be

competing directly with its partner.

 Employees and their mindsets, behaviour, and culture must change to successfully implement this type of change.

8. Refer to Talking Business 12.8, “The Learning Manager (page 473).” According to this article, how do managers learn?

 According to the article, managers learn by “doing”. That is, carrying out their management activities, rather than the result of setting a goal to learn.

9. Refer to Talking Business 12.9, “Facebook’s Culture Promotes Learning and Change (page 476).” What elements help make Facebook a learning organization?

 Just do it. New workers are allowed to make a change to the product that becomes visible to millions of users. Engineers are expected to tackle

problems and fix them on their own.

 Flat - The organization is flat. Only three layers of management are allowed.  Egalitarian – There is a lack of hierarchical titles

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 Hackathons - Facebook has employee training called a Bootcamp class. But it also has Hackathons where engineers stay up all night trying out new software

ideas that sometimes get turned into real products.

SAMPLE CLASS DISCUSSION QUESTIONS

1. What type of change do you think may be most influential on Facebook and why?

2. Think of a company that you have worked for. Did your company initiate any changes

while you were there? What were the changes and what type of change would you

classify it as being? For example, developmental change, transitional change or

transformational change?

3. Do you think the company you work for is a learning organization? Why or why not?

CHAPTER LEARNING TOOLS

Multiple Choice Answers (also available in the back of the textbook, page 487)

1.D 2.B 3.A 4.D 5.D 6.A 7.C 8.B 9.D 10.B 11.C 12.D 13.D 14.D 15.C

Discussion Questions

1. Identify and discuss the forces of change.

 Political/legal changes – changes to laws, regulations and government policies.

 Economic changes – changes in the economic environment such as interest rates, inflation rate, GDP, and unemployment.

 Technological change – changes to technological advances, new inventions and so forth.

 Societal change – changes in demographics or consumer tastes and preferences including trends.

 Competitive change – new entrants to the market or others diversifying or a new way of doing business.

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 Global change – changes to any of the above forces of change in the external environment but in a global context, such as global competition.

2. Compare and contrast developmental, transitional, and transformational change.

Developmental change

 Improves existing skills, processes, methods, performance standards

Transitional

 Replaces what already exists with something completely new  Requires the organization to depart from old methods

Transformational change

 Transforms the future state from the current state dramatically  Outcomes are unknown, unpredictable, and uncertain  Achieved through trial and error  Employees and their mindsets, behaviour, and culture must change to successfully

implement this type of change

3. Explain the difference between Theory E and Theory O change.

 Theory E change – A theory of change that has as its purpose the creation of economic value, often expressed as shareholder value. Its focus is on formal structure and systems.

 Theory O change - A theory of change that has as its purpose the development of the organization’s human capability to implement strategy and to learn from actions taken about the effectiveness of changes made.

4. Discuss what type of change is required for long-term change.

 Both Theory E and Theory O combined are required for long-term change.

5. What are the differences between single-loop and double-loop learning?

Single-Loop Learning

 Addresses the current problem.  Maintains organizational status quo.  Error detection and correction.  Deals with the “symptoms”.  Does not consider underlying causes.

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Double-Loop Learning

 Considers the underlying system.  Goes to the source of the problem.  Deals with the root causes of the problem.  Aims to change the status quo.  Promotes innovation.  Modifies underlying policies.

6. What is the meaning of a paradigm shift?

 A paradigm shift involves changing our mental framework for understanding how the world operates. This includes our theories, assumptions, sets of beliefs, and customs.

Overcoming resistance to change means recognizing the current paradigms that govern

our behaviour and shifting to a new paradigm.

7. Explain the three rules of the tipping point theory.

 Law of the few - One of the three rules of Malcolm Gladwell’s tipping point theory that states there are exceptional people (Connectors, Mavens, and Salesmen) who possess

social connections, personality, energy, and enthusiasm to be able to spread the word in

epidemic proportions.

 Stickiness factor - One of the three rules of Malcolm Gladwell’s tipping point theory that states there are specific ways to make a message memorable in terms of presenting and

structuring information to influence the impact it will have.

 Power of context - One of the three rules of Malcolm Gladwell’s tipping point theory that consists of two parts: (1) Word-of-mouth epidemics are sensitive to the environment in

which they occur; and (2) groups play a significant role in spreading word-of-mouth

epidemics.

8. Discuss the law of the few and the three categories of people who control the power of the

word of mouth.

 Law of the few - One of the three rules of Malcolm Gladwell’s tipping point theory that states there are exceptional people (Connectors, Mavens, and Salesmen) who possess

social connections, personality, energy, and enthusiasm to be able to spread the word in

epidemic proportions. The three categories of people are:;

 Connectors - Individuals who know a lot of people, are wellconnected socially, and therefore are critical to the instigation of a word-of-mouth epidemic.

 Mavens - People who are knowledgeable and have a lot of information on products, prices, and places. They often start word-of mouth epidemics because

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they have knowledge the rest of us don’t, and many people rely on them to make informed decisions.

 Salesmen - Individuals who are unusually charismatic and have the skills to persuade even those who are unconvinced by Connectors or Mavens.

9. What is adult learning development?

 There is not one all-encompassing definition of adult learning or development. Among the streams of thought in adult learning and development theory is the notion that

development grows out of the interaction of both internal/psychological events and

external/social events. Adult development is based on change rather than stability, and

this change or growth occurs at a predictable rate and sequence. Individuals can learn

from their experience if they can effectively see what changes are involved and how they

can be accomplished.

10. What is the meaning of institutionalization?

 Institutionalization –The processes by which shared beliefs take on a rule-like status. A social process through which individuals create a shared definition of what is appropriate

or meaningful behaviour. May generate “accepted practices” that continue even when they are no longer functional.

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Conception Application

Case: When Good Companies Go Bad: The Case of Kodak

1. What were the forces of change acting on this industry?

 Technological change – The digital revolution buried the film business that was once Kodak’s mainstay. Essentially Kodak neglected to fully acknowledge the threat that digital technology posed to its business until it was too late. Ironically, Kodak invented

the digital camera in 1975, but did not pursue this invention and Kodak missed an

important opportunity.

 Societal change - There was a change in consumer tastes and preferences with the youth market. Youth preferred digital cameras over film-based ones.

 Competitive change - From about the mid- to late 1990s, digital camera sales start to significantly increase. While competitors pursued methods of enhancing the digital future

of the camera, Kodak largely remained inactive. Film was slowly becoming outdated.

2. Why was it so difficult for Kodak to adapt to change?

 Kodak was adept at nurturing “sustaining” innovations (innovation that enhanced their position in established markets). However, Kodak was incapable at dealing with

innovations that entirely disrupted those markets.

 In other words, Kodak saw itself as a film company. It had a near monopoly on the market, and Kodak did not want to risk that market by taking a risk on a new and

unproven technology.

 In addition, the product would have reduced the company’s profit margins.

3. Discuss the notion of a paradigm and double- and single-loop learning and their role in the

case of Kodak.

 Kodak tried to make some changes to the company that still “fit” into its image as a film company. Kodak attempted to profit from other markets like drugs and chemicals, but

with largely mixed results. In 2003, Kodak launched its Easyshare printer dock 6000,

focusing on printing quality photos. This would have been consistent with single-loop

learning. These efforts aimed at addressing the current problem. They dealt with the

symptoms (e.g. falling sales) but otherwise, Kodak’s efforts maintained the status quo and did not deal with the company’s underlying problem.

 Double-Loop Learning would have considered the underlying problem and tried to have changed the status quo.

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 What Kodak needed was a paradigm shift that involved it changing its mental framework for understanding how its business should operate. Kodak had become resistance to

change and therefore could not shift to a new paradigm.

  • Understanding the Canadian Business Environment