BUSINESS 7e CHAPTER 2

Understanding the
Environments of
Business

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 Chapter Outline
 Organizational Boundaries and
BUSINESS 7e
Environments
 The Economic Environment
 The Global Economy in the 21st Century
 The Technological Environment
 The Political-Legal Environment
 The Sociocultural Environment
 The Business Environment

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 Organizational Boundaries
BUSINESS 7e and Environments

All businesses—
regardless of their
size, location or
mission— operate
within a larger
external
environment.

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 What Is the External
BUSINESS 7e Environment?

Everything
outside an
organization’s
boundaries that
might affect it

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 What Is an Organizational
BUSINESS 7e Boundary?

That which
separates the
organization
from its
environment

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 Dimensions of the External
BUSINESS 7e Environment

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 What Is the Economic
BUSINESS 7e Environment?

Conditions of the
economic system in
which an
organization
operates

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 Key Goals of a Country’s
Economic System

 Economic Growth  Economic Stability

BUSINESS 7e
 Aggregate Output  Inflation
and Standard of  Measuring Inflation:
Living The CPI
 Gross Domestic
Product  Unemployment
 Real Growth Rate  Recessions and
 GDP per Capita Depressions
 Real GDP
 Purchasing Power
Parity
 Productivity
 Balance of Trade
 National Debt

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 Aggregate Output and Standard
BUSINESS 7e of Living

 Business cycle is a pattern of short-term

ups and downs (expansions and
contractions) in an economy
 Aggregate output is the total quantity of
goods and services produced by an
economic system during a given period
 Standard of living is the total quantity and
quality of goods and services that a
country’s citizens can purchase with the
currency used in their economic system

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 Gross Domestic Product
 GDP, or gross domestic product, is the
total value of all goods and services
BUSINESS 7e
produced within a given period by a
national economy through domestic
factors of production
 GNP, or gross national product, is the
total value of all goods and services
produced by a national economy within a
given period regardless of where the
factors of production are located

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 What Is Purchasing Power
Parity?

Principle that exchange

BUSINESS 7e
rates are set so that the
prices of similar
products in different
countries are about the
same

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 What Is Productivity?

Measure of economic
BUSINESS 7e
growth that compares
how much a system
produces with the
resources needed to
produce it

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BUSINESS 7e What Is Balance of Trade?

Economic value of all

the products that a
country exports minus
the economic value of
imported products

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BUSINESS 7e What Is National Debt?

Amount of money
that a government
owes its creditors

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 What Is Stability?

Condition in an economic
BUSINESS 7e
system in which the amount of
money available and the
quantity of goods and services
produced are growing at about
the same rate

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BUSINESS 7e What Is Inflation?

Occurrence of
widespread price
increases throughout
an economic system

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 When Did the Cost of a
BUSINESS 7e Hamburger Go Up?

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BUSINESS 7e Measuring Inflation: The CPI

Measure of the
prices of typical
products purchased
by consumers living
in urban areas

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BUSINESS 7e Selected CPI Values

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BUSINESS 7e What Is Unemployment?

Level of joblessness
among people
actively seeking
work in an
economic system

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 Recessions and Depressions
 Recession is a period during
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which aggregate output, as
measured by real GDP,
declines
 Depression is a particularly
severe and long-lasting
recession

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 Managing the Economy

 Fiscal policies determine how

BUSINESS 7e

the government collects and

spends its revenues

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 Managing the Economy

 Monetary
BUSINESS 7e

policies
determine the size
of a nation’s
monetary supply

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 Managing the Economy
 Stabilization policy
BUSINESS 7e
embraces both fiscal and
monetary policies—the
goal is to smooth out
fluctuations in output and
unemployment and to
stabilize prices

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 The Global Economy in the 21st
BUSINESS 7e Century

Major forces driving the economy:

 The information revolution will continue to
enhance productivity across all economic
sectors.
 New technological breakthroughs will create
entirely new industries.
 Increasing globalization will create much
larger markets while fostering tougher
competition among global businesses.

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 Internet Users per 1,000
BUSINESS 7e People

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 Information-Technology
BUSINESS 7e Spending

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BUSINESS 7e The Export Resurgence

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 What Is Technology?

All the ways by

BUSINESS 7e

which firms create

value for their
constituents

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 Product and Service
BUSINESS 7e Technologies

Technologies employed
for creating products—
both physical goods and
services—for customers

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 Business Process Technologies

Business process technologies are

BUSINESS 7e

used not so much to create products as

to improve a firm’s performance of
internal operations.
 Enterprise Resource Planning, or ERP,
is a large-scale information system for
organizing and managing a firm’s
processes across product lines,
departments and geographic locations

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BUSINESS 7e ERP Applications

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 What Is the Political-Legal
Environment?

Conditions
BUSINESS 7e
reflecting the
relationship
between
business and
government

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 What Is the Sociocultural
BUSINESS 7e Environment?

Conditions including the

customs, mores, values and
demographic characteristics
of the society in which an
organization functions

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 Customer Preferences and Tastes
 Customer preferences and tastes vary
BUSINESS 7e
both across and within national
boundaries.
 Consumer preferences can vary widely
within the same country.
 Consumer preferences and tastes
change over time.

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 The Business Environment
 Redrawing Corporate Boundaries
BUSINESS 7e
 Core competencies are the skills and
resources with which an organization
competes best and creates the most
value for owners
 Disruption management is a method by
which some organizations are responding
to crises in their environments

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 Emerging Challenges and Opportunities
in the Business Environment

 Outsourcing is the strategy of paying suppliers

BUSINESS 7e
and distributors to perform certain business
processes or to provide needed materials or
services
 Viral marketing is a strategy of using the Internet
and word-of-mouth marketing to spread product
information
 Business process management is an approach
by which firms move away from department-
oriented organization and toward process-oriented
team structures that cut across old departmental
boundaries

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 The Aftermath of 9/11
 Resilience of U.S. institutions
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 Flexibility and strength—and flaws–
inherent in the U.S. political and economic
systems
 Government as provider of homeland
security
 Issues of workplace security

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