ADM - WEEK 3 CHAPTER 2

Internal factors

things inside the business that the can be controlled.

Internal Factors in Coffee Shop

Teamwork — workers help each other.
Time management — workers serve customers quickly and stay organized.
Welcoming environment — the shop feels friendly and clean.
Customer service — workers are polite and helpful.
Health and safety — the shop is clean and follows safety rules.
Efficiency — the business does not waste time, money, or supplies.
Resources — the shop has enough workers, money, equipment, and supplies.

Good internal factors help a business succeed, but

outside factors like the economy can still cause problems.

External factors

are things outside the business that managers cannot fully control.

Managers need to understand the external environment because it helps them:

• Adapt to changes

• Identify opportunities and threats

• Notice trends

• Make better decisions

• Reduce risks

• Meet customers’ wants and needs

• Stay competitive

What are the 3 key economic goals?

Economic growth, economic stability, and full employment.

What is economic growth?

When a country produces more goods and services over time.

Why is economic growth important?

It can lead to more jobs, higher incomes, and a better standard of living.

What is economic stability?

When the economy avoids major ups and downs, like high inflation or recessions.

Why is economic stability important?

It helps people and businesses plan, spend, save, and invest confidently.

What is full employment?

When most people who want to work can find a job.

Why is full employment important?

It means more people earn income, spend money, and support the economy.

The business cycle is

the repeated pattern of the economy going up and down over time.

business cycle includes

1. Expansion

2. Peak

3. Contraction

4. Recovery

Expansion happens when

the economy is growing.

During expansion

• Sales increase

• People spend more money

• More jobs are created

• Employment is strong

• Businesses may grow or expand

The peak

 is the highest point of economic growth before the economy starts to slow down.

During the peak:

• Business is doing well

• Inflation may increase

• Labour shortages may happen

• Interest rates may rise

• Managers may think growth will continue

Managers should be careful during the peak by ;

• Watching spending

• Monitoring debt

• Preparing backup plans

• Being cautious with expansion

Contraction happens when

the economy starts to slow down.

During contraction:

• Sales decline

• Businesses make less money

• Some workers may be laid off

• Customers spend less

During Contraction Managers should focus on:

• Protecting cash flow

• Reducing unnecessary spending

• Delaying expansion

Recovery happens when

the economy starts improving again.

During recovery:

• Employment rises

• Interest rates may lower

• People have more money to spend

• Businesses begin to grow again

Managers need to understand the business cycle so

 they know if the economy is growing or shrinking. This helps them make better decisions, reduce risk, and prepare for changes

Business Cycle

the typical pattern of short-term ups and downs in an economy (peak, recession, trough and recovery)

Economic Stability

condition when the amount of money available and the quantity of goods and services produced are growing at about the same rate

Threats of economic instability

• inflation

• deflation

• unemployment

Inflation

occurs when there are widespread price increases in an economic system

Consumer Price Index (CP I)

tool used to measure inflation (basket of goods in urban areas)

Deflation – good or bad?

• Evident when the amount of money injected into an economic system lags behind increases in actual input – a period of generally falling prices
• Prices may fall owing to increased productivity = good
• Prices may fall because consumers cant afford purchases = bad

Prices may fall owing to increased productivity (Deflation)

= good

Prices may fall because consumers cant afford purchases (Deflation)

= bad

Unemployment

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

Types of unemployment

1. frictional

2. seasonal

3. cyclical

4. structural

Inflation becomes bad when

prices rise too quickly.

If prices increase faster than people’s income, people may struggle to afford regular purchases.

Inflation can be good when

it is low and stable.

Usually, around 2% inflation is seen as stable.

This can show that the economy is still growing.

During stable inflation:

• Businesses can grow

• People continue spending

• The economy stays active

How to Measure Economic Stability

1. Rate of Inflation

2. Unemployment Rate

3. GDP

4. Interest Rates

How to Measure Economic Stability - Rate of Inflation

Inflation measures how fast prices are rising.

If inflation is too high, people may not be able to afford regular purchases.

How to Measure Economic Stability - Unemployment Rate

The unemployment rate measures how many Canadians want jobs but do not have jobs.

A high unemployment rate means many people are out of work, which can hurt the economy.

How to Measure Economic Stability - GDP

GDP stands for Gross Domestic Product.

It measures the total value of goods and services produced in a country.

If GDP is growing, the economy is usually doing well.

How to Measure Economic Stability - Interest Rates

Interest rates affect borrowing and spending.

When interest rates are high, loans become more expensive, so people and businesses may spend less.

Unemployment means

people who want jobs cannot find work.

Low unemployment means

there are not many workers available.

This can cause a labour shortage.

When there is a labour shortage:

• Businesses compete for workers

• They may raise salaries or hourly wages

• Labour costs increase

• Higher labour costs lower profits

• Businesses may raise prices to make up for it

• If prices get too high, consumers buy less

• If sales drop, businesses may lay off employees

High unemployment is

bad for the economy because people have less money to spend

If people are not earning money:

• They buy fewer goods and services

• Businesses make less money

• The economy slows down

• Government programs may receive less support through taxes

1. Frictional Unemployment

People are able to work, and jobs exist, but there is a delay between jobs.

Example: Someone quits one job and is looking for a new one.

2. Seasonal Unemployment

People are unemployed because their job only happens during certain times of the year.

Example: Ski resort workers may lose work after winter.

3. Cyclical Unemployment

Unemployment caused by weak economic conditions and low demand.

This is more concerning because people are buying fewer products and services.

Example: During a recession, businesses lay off workers because sales are low.

4. Structural Unemployment

Jobs exist, but workers do not have the right skills, education, or training.

Example: A company needs computer programmers, but available workers do not have coding skills.

Unemployment affects the economy because

 people need jobs to earn money, spend money, and keep the economy moving.

Why Unemployment Matters to Managers

Managers need to understand unemployment because it affects hiring, wages, and business decisions.

1. Availability of labour
2. Wage pressure
3. Labour shortages

4. Skill shortages

5. Training costs

6. Business cycle awareness

Why Unemployment Matters to Managers - Availability of labour

 Managers need to know if there are enough workers available to hire.

Why Unemployment Matters to Managers - Wage pressure

If unemployment is low, businesses may have to pay higher wages to attract workers.

Why Unemployment Matters to Managers - Labour shortages

Low unemployment can create a shortage of workers, making it harder to hire.

Government intervention

means the government takes action to help control or support the economy.

Fiscal policy is

when the government changes taxes and spending to affect the economy.

It is done by the government and finance minister.

Fiscal policy =

taxes and government spending

Monetary policy is when

the Bank of Canada affects the money supply.

They do this mainly by changing interest rates.

Monetary policy =

money supply and interest rates

Higher interest rates make

borrowing more expensive

Higher Interest Rates causes people and businesses to:

• Borrow less

• Spend less

• Slow down growth

• Help reduce inflation

Lower interest rates make

borrowing cheaper.

Lower Interest Rates - can help:

• Increase spending

• Encourage investment

• Help businesses grow

• Support the economy

Governments use fiscal policy and monetary policy

to help manage the economy.

Fiscal policy = taxes and spending
Monetary policy = interest rates and money supply

Technology

all the ways a company creates value for its customers

• knowledge, work methods, physical equipment, electronics, processing systems

Technology helps businesses:

• Work faster

• Improve products or services

• Serve customers better

• Stay competitive

• Create more value

The Political-Legal Environment

Reflects the relationship between business and government (e.g., regulations – tax on specific products)
• pro- or anti-business sentiment (think industry specific)
• political stability (international – think 6 years ago if you would rather do business with the USA or a European country)
• international relations

Pro-business means

 the government supports businesses.

Anti-business means

the government creates stricter rules or limits for businesses

Political stability

is important because businesses want to invest in safe places.

Good relationships can lead to:

• Trade agreements

• Lower tariffs

• More international business

Poor relationships can lead to:

• Higher tariffs

• Sanctions

• Trade restrictions

• Harder business operations

The political-legal environment affects

businesses because government decisions, laws, taxes, stability, and international relationships can either help businesses grow or create risks.

The Socio-Cultural Environment

• Customs, values, attitudes and demographic characteristics of the society in which an organization
functions

• Customer preferences and tastes (bikes, garments, cricket flour)

• vary across and within national boundaries

The sociocultural environment means

the customs, values, attitudes, lifestyles, and demographics of society.

Porter’s Five Forces is

a model used to analyze competition in an industry.

Porter’s Five Forces helps businesses understand

• How competitive an industry is

• How hard it is to make profit

• What risks exist in the industry

Competitive rivalry means

the amount of competition between businesses in the same industry.

If rivalry is high:

• Businesses compete for the same customers

• Companies may lower prices

• Businesses must defend their market share

• Profits may decrease

What is the threat of new entrants?

How easy it is for new businesses to enter an industry.

What happens when the threat of new entrants is high?

Profits may go down because new competitors can enter quickly.

What are substitutes?

Customers can easily switch, so profits may go down

What is bargaining power of buyers?

How much power customers have to demand lower prices or better quality.

What is an example of a substitute?

Streaming services are a substitute for cable TV.

When do buyers have strong power?

When they buy a lot, have many options, or can switch easily.

What is bargaining power of suppliers?

How much power suppliers have to raise prices or control supply.

When do suppliers have strong power?

When they are unique, hard to replace, few in number, or very important to the business.

What happens when suppliers have strong power?

Costs increase and profits decrease

What is the main rule to remember about Porter’s Five Forces?

The stronger the forces are, the harder it is for businesses to make high profits.

Managers need to understand Porter’s Five Forces because

it helps them decide if an industry is a good place to compete.

Porters theory helps managers understand:

• Whether they should enter an industry

• How risky the industry is

• How strong the competition is

• How to compete effectively

• Where profits may be highest

• What problems or threats they may face

What are successful firms doing to become more competitive?

They are getting leaner and focusing on their core competencies.

What does “getting leaner” mean

Cutting unnecessary costs or activities and focusing on what the business does best.

What are core competencies?

The skills and resources a company uses best to compete and create value.

Why are core competencies important?

They help a company stand out, compete better, and create more value for owners.

What should a business focus on to be more competitive?

The activities it does best and that create the most value.

Core competencies =

what a business does best.

Tim Hortons’ core competency = making coffee, baked goods, and quick service that customers recognize and trust.

Outsourcing

paying suppliers and distributors to perform certain business processes