Business Now: Change Is the Only Constant PDF

1 LEARNING Objectives After studying this chapter, you will be able to......

1 LEARNING Objectives After studying this chapter, you will be able to... 1-1 Define business and discuss the role of business in the economy 1-2 Explain the evolution of modern business Business Now: 1-3 Discuss the role of not-for-profit organizations in the economy 1-4 Outline the core factors of production and Change Is the Only how they influence the economy 1-5 Describe today’s business environment and Constant discuss each key dimension 1-6 Explain how current business trends may influence your career choices After you finish this chapter, go to page 15 for STUDY TOOLS Time magazine recently identified “10 Ideas That Are Chang- 1-1 Business Now: Moving ing Your Life.” A few highlights: at Breakneck Speed Your Head Is in the Cloud. Swamped every day by a startling surge of data (each day, the average person Day by day, the business world spins faster. Industries rise— spends about 12 hours consuming information), we and sometimes fall—in the course of a few short months. are increasingly offloading the task of remembering Technologies forge instant connections around the globe. that information to search engines and smartphones. Powerful new trends surface and submerge, sometimes This process of “outsourcing our memory” is changing within less than a year. In this fast-paced, fluid environment, our cognitive habits; in fact, research shows that when change is the only constant. According to Charles Darwin, it we don’t know the answer to a question, we now think is not the strongest of the species that survive, nor the most about where we can find the nearest Web connection, intelligent, but the ones most responsive to change. And so rather than the subject of the question itself.1 it is with business. Food That Lasts Forever. No one wants to think about Successful firms lean forward and embrace the change. eating a sandwich that’s five years old, but with our They seek the opportunities and avoid the pitfalls. They global population growing so rapidly, long-term food carefully evaluate risks. They completely understand their preservation may be essential to our very survival. In market, and they adhere to ethical practices. Their core some developing countries today, food loss through rot goal: to generate long-term profits by delivering unsur- and decay is as high as 70 percent. As of today, Twinkies passed value to their customers. (contrary to popular belief ) are not even close to Over the past few years, in today’s dynamic busi- immortal—they have a shelf life of less than a month— ness environment, the explosive but a well-sealed can of Spam can last more than a value The relationship between growth in social media has been decade. Vacuum-packed tuna tastes fresh for about 30 the price of a good or a service having a crucial impact on busi- months, while Thermos-stabilized pork chops apparently and the benefits it offers its nesses and consumers alike. Dig- remain edible for about seven years. It will be hard to get customers. ging deeper into current culture, past the yuck factor unless survival is at stake.2 2 NEL Copyright 2017 Nelson Education Ltd. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Nelson Education reserves the right to remove additional content at any time if subsequent rights restrictions require it.  Business is like riding a bicycle. Either you keep moving or you fall down. Frank Lloyd Wright (1867–1959), architect, writer, and educator Herb MacKenzie High Status Stress. As people move up the ladder topping 7 billion and still growing, a new approach to of affluence, you might expect the stress of having a nature is crucial.5 lower income to fade away. In fact, research suggests Niche Aging. Back in the day, retirement dreams that the opposite may be true: “life stress increases so typically featured plenty of sunshine, sandy beaches, dramatically that its toxic effects essentially cancel out and lively bingo games. But while many Canadians do many positive aspects of succeeding.” One reason may go south to retire, or at least for the winters, retirees be that the driven perfectionists who often make it today are likely to seek more specialized options, to the top feel enormous pressure to be on call 24/7 where they can grow old alongside others who share via text, e-mail, and phone in order to simply survive a specific interest such as country music or university- professionally.3 level learning. One expert in the field points out: “You’re Privacy in Public. In Canada—except in Quebec— talking about the generation that created 12 different there is no expectation of privacy in public. However, versions of Coca-Cola. They’re not going to settle for concern and uncertainty are common, and there one kind of retirement community.”6 are minor variations depending on city and province. Assuming no other laws are being broken, anyone may photograph anything that is visible to them, and pub- 1-1a Business Basics: Some Key Definitions lish where they wish. This includes photographs taken While you can certainly recognize on public property, unless the photographer has been a business when you see one, business Any activity that asked to cease. Any pictures taken prior to such notifica- more formal definitions may help provides goods and services in tion, however, remain the property of the photographer, as you read through this book. A an effort to earn a profit. who may not be forced to delete or surrender it, and business is any activity that pro- profit The money a business who owns copyright to it.4 vides goods and services in an earns in sales (or revenue) minus Nature Is Over. Nearly 20 percent of vertebrate effort to earn a profit. Profit is the expenses, such as the cost of goods species are threatened, and that number seems sure financial reward that comes from and the cost of salaries (Revenue – Expenses = Profit [or Loss]). to increase. And with the world population now starting and running a business. NEL Chapter 1 Business Now: Change Is the Only Constant 3 Copyright 2017 Nelson Education Ltd. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Nelson Education reserves the right to remove additional content at any time if subsequent rights restrictions require it.  More specifically, a profit is the money self-interest—and you can see how the that a business earns in sales (or revenue), The entrepreneur profit motive benefits almost everyone. minus expenses, such as the cost of goods Taking a broader perspective, busi- and the cost of salaries. Clearly, not every always searches ness drives up the standard of living business earns a profit all of the time. for change, for people worldwide, contributing to a When a business brings in less money than higher quality of life. Businesses provide it needs to cover expenses, it incurs a loss. responds to it, not only the products and services people If you launch a music label, for instance, and exploits it as enjoy but also the jobs they need. Beyond you’ll need to pay your artists, buy or lease the obvious, business contributes to soci- a studio, and purchase equipment, among an opportunity. ety through innovation—think cars, TVs, other expenses. If your label generates hits, Peter Drucker, management and tablet computers. Business also helps consultant, educator, author you’ll earn more than enough to cover all raise the standard of living through taxes, your expenses and make yourself rich. But which the government spends on projects a series of duds could leave you holding ranging from streetlights to environmen- the bag. tal cleanup. And socially responsible firms contribute even Just the possibility of earning a profit provides a more by advocating for the well-being of the society that power­ful incentive for people of all backgrounds to launch feeds their success. their own enterprises. For those considering doing so, now may be a challenging time, but things can change rapidly. At the start of 2016, the small business confidence index measured by the Canadian Federation of Independent 1-2 The History of Business: Business dropped to 54.3 (an index above 50 indicates that Putting It All in Context most business owners expect stronger performance in the You may be surprised to learn that—unlike today— coming year). The highest expectations were in Nova Scotia business hasn’t always been focused on what the cus- (69.0), and the lowest were in Alberta (28.8—a record low tomer wants. In fact, business in Canada and the United that was 26 points below its score the previous year). The States has changed rather dramatically over the past 200 highest scores were in the hospitality and professional to 300 years. Business historians typically divide our busi- services sectors; the lowest, in the construction and natural ness history into five distinct eras, which overlap during resources sectors.7 In Chapter 6 we will be discussing, in the periods of transition. more detail, entrepreneurship and entrepreneurs— people who are willing to risk their time, money, and other The Industrial Revolution. Technological advances resources to start and manage their own businesses. fuelled a period of rapid industrialization from the mid- Interestingly, as entrepreneurs create wealth for them- 1700s to the mid-1800s. As mass production took hold, selves, they produce a ripple effect that enriches everyone huge factories replaced skilled artisan workshops. The around them. For instance, if your new website becomes factories hired large numbers of semi-skilled workers, the next Facebook, who will benefit? Clearly, you will. And who specialized in a limited number of tasks. The result you’ll probably spend at least was unprecedented production efficiency, but also a some of that money enriching loss of individual ownership and personal pride in the loss When a business incurs expenses that are greater than your local clubs, clothing stores, production process. its revenue. and car dealerships. But others The Entrepreneurship Era. Building on the founda- entrepreneurs People who will benefit, too, including your tion of the Industrial Revolution, large-scale entrepre- risk their time, money, and other members, the advertisers on your neurs emerged in the second half of the 1800s, building resources to start and manage site, the staff who support them, business empires. These industrial titans created enor- businesses. the contractors who build your mous wealth, raising the overall standard of living across standard of living The facilities, and the government that the country. But many also dominated their markets, quality and quantity of goods collects your taxes. The impact of forcing out competitors, manipulating prices, exploiting and services available to a one successful entrepreneur can workers, and decimating the environment. Towards the population. extend to the far reaches of the end of the 1800s, governments stepped into the busi- quality of life The overall economy. Multiply the impact by ness realm, passing laws to regulate business and protect sense of well-being experienced thousands of entrepreneurs— consumers and workers, thus creating more balance in by either an individual or a group. each working in his or her own the economy. 4 Chapter 1 Business Now: Change Is the Only Constant NEL Copyright 2017 Nelson Education Ltd. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Nelson Education reserves the right to remove additional content at any time if subsequent rights restrictions require it.  The Production Era. In the early 1900s, major busi- can gather detailed information about their customers nesses focused on further refining the production pro- and use that information data to serve them better. cess and creating greater efficiencies. Jobs became even more specialized, increasing productivity and lowering costs and prices. In 1913, Henry Ford introduced the assembly line, which quickly became standard across 1-3 Not-for-Profit Organizations major manufacturing industries. With managers focused on efficiency, the customer was an afterthought. But and the Economy: The when customers tightened their belts during the Great Business of Doing Good Depression and the Second World War, businesses took Not-for-profit organizations also play a critical role in the notice. The “hard sell” emerged: aggressive persuasion economy, often working hand in hand with business to designed to separate consumers from their cash. improve the quality of life in our society. Focusing on areas The Marketing Era. After the Second World War, the such as health, human services, education, religion, and the balance of power shifted away from producers and arts, not-for-profit organizations are business-like enti- towards consumers, the producers flooded the market ties, but their primary goals do not include profit. Chuck with enticing choices. To differentiate themselves from Bean, executive director of the Nonprofit Roundtable, their competitors, businesses began to develop brands, explains: “By definition, non-profits are not in the business or distinctive identities, to help consumers understand of financial gain. We’re in the business of doing good. How- the differences among various products. The marketing ever, non-profits are still businesses in every other sense— concept emerged: a consumer focus that came to they employ people, they take in revenue, they produce permeate successful companies in every department, goods and services and contribute in significant ways to our at every level. This approach continues to influence region’s economic stability and growth.” Canada has around business decisions today as global competition heats 170,000 not-for-profit and charity organizations. They con- up to unprecedented levels. tribute more to the Canadian gross domestic product (GDP) The Relationship Era. Building on the marketing annually than the entire retail sector. Canada has the world’s concept, today’s leading-edge firms are looking beyond second largest not-for-profit sector, each immediate transaction with their customers with employing more than 2 million the goal of building long-term relationships. Satis- Canadians. Not-for-profit museums, not-for-profit organizations Business- fied customers can become advocates for a business, schools, theatres, and orchestras like establishments that spreading the word with more speed and credibility have become economic magnets employ people and produce than even the best promotional campaign. Also, for many communities, drawing goods and services with the cultivating current customers is more profitable than additional investment.8 Not-for- fundamental goal of contributing constantly seeking new ones. A key tool is technology. profit organizations are discussed to the community rather than generating financial gain. With the Web and other digital resources, businesses in greater detail in Chapter 5. Herb MacKenzie Herb MacKenzie This McKay seven-seat touring car, manufactured in Not-for-profits, such as Goodwill, employ about Nova Scotia in 1914, had a 40-horsepower engine. one in ten Canadian workers. NEL Chapter 1 Business Now: Change Is the Only Constant 5 Copyright 2017 Nelson Education Ltd. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Nelson Education reserves the right to remove additional content at any time if subsequent rights restrictions require it.  Oops! What were they thinking? Dumb, Dumb, or behind Google. On February 2, 2016, the shares of Alphabet (a holding virus-free? Get it infected here!” It was accepted by Google and Not So Dumb company formed in October 2015, displayed 259,723 times: 409 Web I n the wake of disastrous mistakes and Google’s parent) opened surfers actually clicked on the ad. and outrageous mismanagement, 3 percent higher, giving the Wasted time or well it might be tough to remember that company a market capitalization of worthwhile? To celebrate the some mistakes are actually pretty $547.1 billion, making it the world’s 30th anniversary of Pac-Man in 2010, amusing. Several examples might help most valuable company. engineers at Google turned the site’s to remind you.9 Accidental cybersnooping. home page into a fully functional As Google sent its “Street View” version of the game, wasting an If only they could have cars all over the world collecting estimated 4.8 million hours of the “Googled” the future... In panoramic images for uploading world’s time and more than US$120 1999, the founders of Google were to Google Maps, the firm “uninten- million in lost productivity. seeking to sell their search engine. tionally” collected and retained, They approached George Bell, CEO among other things, passwords and Sources: Ari Levy, “Google Parent Alphabet Passes Apple Market of Excite, which was one of the Cap at the Open,” cnbc.com, February 2, 2016; “Excite declines complete e-mail messages picked up buying Google”, Business Excellence website, October 10, 2010; hottest brands on the Internet in Marguerite Reardon, “Google: Oops, We Spied on Your Wi-Fi,” cnet from unsecured Wi-Fi networks..com, May 14, 2010; Mitch Wagner, “Google’s Pac-Man Cost $120M the 1990s, with an asking price of in Productivity,” pcworld.com, n.d.; “101 Dumbest Moments in $1 million. But Bell turned them Clicking without thinking. Business,” fortune.com, January 16, 2008. down, as did Yahoo!, both believing To test Google’s ability to block the acquisition would have been harmful advertising, Belgian IT too pricey. Excite went bankrupt security consultant Didier Stevens soon after, and Yahoo! now trails far posted an ad that read, “Is your PC Changing W hen in doubt, we usually and undermine brand image. Aad don’t! Most of us can Kiedboom, an economist who Don’t to Do probably think of a time worked for Schiphol International when we should have Airport in Amsterdam, tackled this taken some action, but instead we issue by etching the image of a black housefly onto the bowls of did nothing, because doing nothing the airport’s urinals, just to the left was easier. Enter the choice architects: of the drain. As a result, “spillage” behavioural scientists who claim that decreased by 80 percent. businesses, governments, and other Green footprints. Copenhagen institutions can engineer our options to has been ranked as one of the top six “nudge” us into making choices that are cleanest cities in Europe, but aspires (ideally) more socially desirable or (from to be first. An experiment conducted a business standpoint) more profitable at Roskilde University demonstrated than the choices we’d make on our own. how to “nudge” people in the right Consider these examples: direction. Students first handed out Better aim. A sign sometimes caramels to pedestrians and then took seen in men’s washrooms says: a benchmark reading of the number “We aim to please; you aim too, of wrappers discarded on the street. please.” But, as most women who Then they placed a series of green share toilets with men can attest, footprints that led to a nearby garbage even the best-intentioned men can and repeated the experiment. The don’t seem to aim very well. In result: 46 percent fewer wrappers were Herb MacKenzie busy washrooms, this is more discarded on the street. Clearly, when than just a gross annoyance; dirty people are thoughtlessly disrespectful, bathrooms increase cleaning costs a little nudge can be a great reminder.10 6 Chapter 1 Business Now: Change Is the Only Constant NEL Copyright 2017 Nelson Education Ltd. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Nelson Education reserves the right to remove additional content at any time if subsequent rights restrictions require it.  1-4 Factors of Production: entrepreneurs don’t thrive in an environment that doesn’t support them. The key ingredient is eco- The Basic Building Blocks nomic freedom: freedom of choice (whom to hire, for instance, or what to produce), freedom from excess Businesses and not-for-profit organizations both rely on regulation, and freedom from too much taxation. factors of production—four fundamental resources— Protection from corruption and unfair competition is to achieve their objectives. Some combination of these another entrepreneurial “must.” factors is crucial for an economic system to work and cre- Clearly, all of these factors must be in place for an ate wealth. As you read through the factors, keep in mind economy to thrive. But which factor is most important? that they don’t come free of charge. Human resources, for One way to answer that question is to examine current instance, require wages, while entrepreneurs need a profit economies around the world. Russia and China are both incentive. rich in natural resources and human resources. And both Natural Resources. This factor includes all inputs countries have a solid level of capital (growing in China that offer value in their natural state, such as land, and deteriorating in Russia). Yet neither country is wealthy; fresh water, wind, and mineral deposits. Most natural both rank relatively low in terms of gross national income resources must be extracted, purified, or harnessed; per person. The missing ingredient seems to be entrepre- people cannot actually create them. (Note that agricul- neurship, which is limited in Russia largely through cor- tural products, which people do create through plant- ruption and in China through government interference ing and tending, are not a natural resource.) The value and taxes. Contrast those examples with, say, Hong Kong. of all natural resources tends to rise with high demand, The population there is small and the natural resources low supply, or both. are severely limited, yet Hong Kong has consistently ranked among the richest regions in Asia. The reason? Capital. This factor includes machines, tools, buildings, Operating for many years under the British legal and information, and technology—the synthetic resources economic system, the government actively encouraged that a business needs to produce goods or services. entrepreneurship, which fuelled the creation of wealth. Computers and telecommunications capability have Recognizing the potential of entrepreneurship, China become pivotal elements of capital across a surprising has recently done more to relax regulations and support range of industries, from financial services to profes- free enterprise. The result has been tremendous growth, sional sports. You may be surprised to learn that in which may yet bring China into the ranks of the wealthier this context, capital does not include money, but nations.11 clearly, businesses use money to acquire, maintain, and upgrade their capital. 1-5 The Business Environment: Human Resources. This factor encompasses the physical, intellectual, and creative contributions of everyone who works within an economy. As technology replaces a growing number of manual The Context for Success labour jobs, education and motivation have become No business operates in a vac- factors of production increasingly important to human resource devel- uum. External factors play a vital Four fundamental elements— opment. Given the importance of knowledge to role in determining whether a natural resources, capital, human workforce effectiveness, some business experts, such given business succeeds or fails. resources, and entrepreneurship— as management guru Peter Drucker, have broken out Likewise, the broader business that businesses need to achieve knowledge as its own category, separate from their objectives. Some combination environment can make the crit­ human resources. of these factors is crucial for an ical difference in whether an economic system to create wealth. Entrepreneurship. Entrepreneurs are people who overall economy thrives or disinte- business environment take the risk of launching and operating their own grates. The five key dimensions of The setting in which business businesses, largely in response to the profit incentive. the business environment are the operates. The five key They tend to see opportunities where others don’t, economic environment, the com- components are economic and they use their own resources to capitalize on that petitive environment, the tech- environment, competitive potential. Entrepreneurial enterprises can kick-start nological environment, the social environment, technological an economy, creating a tidal wave of opportunity environment, and the global envi- environment, social environment, and global environment. by harnessing the other factors of production. But ronment, as shown in Exhibit 1.1. NEL Chapter 1 Business Now: Change Is the Only Constant 7 Copyright 2017 Nelson Education Ltd. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Nelson Education reserves the right to remove additional content at any time if subsequent rights restrictions require it.  screening business with 1,000 blank T-shirts at $4.00 each, Exhibit 1.1 that firm must comply or face legal consequences. The Each dimension of the business environment impacts firm can’t wait until a day before delivery and jack up the both individual businesses and the economy overall. price to $8.00 each, because you would almost certainly respond with a successful lawsuit. Many Canadian residents take enforceable contracts for granted, but in a number of developing countries—which offer some of today’s largest Ec iro En t business opportunities—contracts are often not enforce- en on nm ro al v nm vi ci om en able (at least not in day-to-day practice). En So ic t Corruption also plays a role in the economic envi- ronment. A low level of corruption and bribery dramati- cally reduces the risk of running a business. Fortunately, BUSINESS Canadian laws keep domestic corruption mostly—but not e completely—at bay. Other ethical lapses can also increase itiv G m pet ent Env lobal the cost of doing business for everyone involved. In the C o m iron iron men Env t wake of ethical meltdowns at major Canadian and US corporations such as Nortel, Enron, and WorldCom, the Technological Environment © Cengage Learning federal government has passed regulations to increase corporate accountability. If the legislation effectively curbs illegal and unethical practices, every business will have a fair chance at success. Although the Canadian economy is strong overall, it is threatened by underlying issues. Personal incomes have 1-5a The Economic Environment12 risen, but personal debt has risen more rapidly. By 2016, the Canada is a member of the G7—a group of industrialized ratio of debt to personal disposable income had reached nations that also includes France, Germany, Italy, Japan, the nearly 165 percent—in other words, the average household United Kingdom, and the United States. The finance minis- owed $1.65 in debt for each $1.00 of disposable income. If ters of these countries meet regularly to discuss economic there is an unforeseen economic shock, some households issues. Since 2008, the global financial crisis—still a concern may be forced to declare personal bankruptcy. The same in 2016, and promising to continue well into the future— may happen if interest rates rise too rapidly as the economy has been a major item on their agenda. The Canadian econ- recovers. Regardless, as Canadians are forced to spend more omy, while certainly affected by this crisis, has proven more to service debt, they will have less money to spend on new resilient than the economies of many countries. However, purchases, and this will slow economic recovery. Canada did experience a small economic recession in 2015. Meanwhile, government debt has been mushrooming Growth in 2016 is expected to lag US growth, and if oil prices as well. By 2016, combined federal and provincial debt will continue to decline, there is a chance of another recession. reach $1.3 trillion. Government debt has both short- and The Canadian economy remains relatively strong in long-term effects. In the short term, governments will spend part because the government takes active steps to reduce more to service debt and have less to spend on programs the risks of starting and running a business. As a result, free where it could be better spent. Research suggests that in the enterprise and fair competition flourish. The federal gov- long term, growing government debt dampens economic ernment, largely through Industry Canada, promotes a growth. The federal government, for example, expects to number of agencies and initiatives to encourage economic spend $25.9 billion to service its debt in 2016, more than development across the country. Meanwhile, provincial it spent the previous year on national defence. Provincially, governments compete for business development by pro- Ontario spends more to service its debt than it spends on viding investment and tax incentives for new businesses or its entire welfare system. Going forward, it looks as if most by making the tax environment more attractive for existing if not all governments in Canada will go much more deeply businesses, which can then keep more of their profits to into debt. Many economists do support governments reinvest for growth and job creation. taking on debt during poor economic times, to create jobs Another key element of the Canadian economic envi- and spur growth. While it is very unlikely we will see a bal- ronment is legislation that supports enforceable contracts. anced federal budget by 2019–20, as the governing Liberals For instance, if you contract a company to supply your silk have promised, it is still possible that our debt-to-GDP ratio 8 Chapter 1 Business Now: Change Is the Only Constant NEL Copyright 2017 Nelson Education Ltd. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Nelson Education reserves the right to remove additional content at any time if subsequent rights restrictions require it.  (another important economic indicator) can be lowered. The Bank of Canada has stated that the economic situation Exhibit 1.2  Global Brand in Canada in early 2016 could put the government on track for an additional $90 billion in debt over the next four years. Champions and Later chapters on economics and ethics will address Their Value these economic challenges and their significance in more depth. But, bottom line, we have reason for cautious (some Brand value in would say very cautious) optimism. Our economy has not Most valuable $ billions (change in brands brand value in %) been battered as badly as the US economy, but it is unlikely to recover as quickly as that of our neighour. The United 1. Apple 170.3 (+43) States began increasing interest rates in 2015 in antici- 2. Google 120.3 (+12) pation of economic growth. Since Canada is very much 3. Coca-Cola 78.4 (–4) affected by economic conditions there, at least some sec- 4. Microsoft 67.7 (+11) tors of our economy will strengthen in 2016 as a result. 5. IBM 65.1 (–10) 6. Toyota 49.0 (+16) 1-5b The Competitive Environment 7. Samsung 45.3 (0) As global competition intensifies yet further, leading-edge companies have focused on customer satisfaction as never 8. GE 42.3 (–7) before. The goal: to develop long-term, mutually beneficial 9. McDonald’s 39.8 (–6) relationships with customers. Getting current customers 10. Amazon 37.9 (+29) to buy more of your product is a lot less expensive than Source: Interbrand Releases 2015 Best Global Brands Report, Interbrand, October 4, 2015, http://interbrand convincing potential customers to try your product for.com/?newsroom=interbrand-releases-2015-best-global-brands-report, accessed February 9, 2016. the first time. And if you transform your current custom- ers into loyal advocates—vocal promoters of your prod- into actual products—can be another key source of com- uct or service—they’ll get those new customers for you petitive advantage. The pace of change just keeps get- more effectively than any advertising or discount program. ting faster. In this tumultuous setting, companies that stay Companies such as Amazon, Coca-Cola, and Apple lead ahead of the pack often enjoy a distinct advantage. But their industries in customer satisfaction, which translates keep in mind that there’s a difference between the leading into higher profits even when the competition is tough.13 edge and the bleeding edge. Bleeding-edge firms launch Customer satisfaction comes in large part from deliver- products that fail because they’re too far ahead of the ing unsurpassed value. The best measure of value is the size market. In the late 1990s, for instance, during the dot.com of the gap between product benefits and price. A product boom, Montreal-based Peachtree Network sold its services has value when its benefits to the customer are equal to or to many grocers across North America as it helped them greater than the price the customer pays. Keep in mind that sell to their customers online. But the firm went bankrupt the cheapest product doesn’t necessarily represent the best in 2001, partly because customers weren’t yet ready to value. If a $1 toy from Dollarama breaks in a day, customers dump traditional grocery stores in favour of cybershop- may be willing to pay several dollars more for a similar toy ping. Leading-edge firms, by contrast, offer products just from somewhere else. But if that $1 toy lasts all year, cus- as the market becomes ready to embrace them.15 tomers will be delighted by the value and will likely encour- Apple provides an excellent example of leading edge. age their friends and family to shop at Dollarama. The key You may be surprised to learn that Apple—which owns to value is quality, and virtually all successful firms offer top- about 70 percent of the digital music player market—did quality products relative to their direct competitors. not offer the first MP3 player. Instead, it surveyed the existing A 2015 ranking of the best 100 global brands by the Inter- market to help develop a new product, the iPod, which was brand consulting firm places 8 of the 10 top brands by brand far superior in terms of design and ease of use. But Apple value in the United States. Also included are Toyota (Japan) didn’t stop with one successful MP3 player. Racing to stay and Samsung (South Korea). The top Canadian brand, Thom- ahead, it soon introduced the colourful, more affordable iPod son Reuters, ranked number 63.14 Exhibit 1.2 shows the win- Mini. And before sales reached their ners and their brand value as they race to capture the hearts, peak, it launched the iPod Nano, speed-to-market The minds, and dollars of consumers around the world. which essentially pulled the rug out rate at which a new product Leading Edge Versus Bleeding Edge Speed- from under the blockbuster iPod moves from conception to commercialization. to-market—the rate at which a firm transforms concepts Mini just a few short months before NEL Chapter 1 Business Now: Change Is the Only Constant 9 Copyright 2017 Nelson Education Ltd. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Nelson Education reserves the right to remove additional content at any time if subsequent rights restrictions require it.  Apple S eems like it was long, long ago in listed in the top three at another. Apple a galaxy far, far away that Apple Maps software on the iPhone 5 was Tarnished, first introduced the iPad, but it so bad that it misplaced entire towns, was only in 2010 that everyone making it three times more likely to get Apple Polished was making jokes that iPad sounded you lost than Google Maps. Eventually, more like a feminine hygiene product Apple replaced Apple Maps with Google than a tablet computer. In the first three Maps and issued a rare official apology. years after its introduction, Apple built The iPhone 5 clearly tarnished Apple. iPad into such a blockbuster that analysts In a technology market moving quickly for Fortune claim that if it were its own towards greater dependence on mobile, business, separate from Apple, it would another product failure and more rank 98 on the Fortune 500 list, higher negative reviews for the iPhone could than both McDonald’s and Nike. But the have hurt Apple at its core, despite the iPhone 5 has not done nearly as well. overwhelming success of the iPad and In fact, Consumer Reports has given the the iPad mini. iPhone 5 mediocre scores, calling it “the Fortunately, a fix polished Apple: Herb MacKenzie worst of the top smartphones.” It scored iPhone 6 and iPhone 6 Plus. In their at the bottom of the top three at two first three days after launch, Apple sold major phone carriers and wasn’t even 10 million units.16 the holiday selling season. Why? If Apple didn’t do it, a com- 500 largest North American companies anticipate losing petitor might well have done it instead. And Apple is almost about half their senior managers over the next five to six maniacally focused on maintaining its competitive lead.17 years. Replacing them will be tough, for baby boomers will be succeeded by a much smaller cohort of workers. But the impact will be muted as long as the economy remains 1-5c The Workforce Advantage poor: A recent survey of more than 3,000 employees by the Employees can contribute another key dimension to a Canadian Payroll Association found that more than one in firm’s competitive edge. Recent research suggests that five respondents expected to work at least four years lon- investing in worker satisfaction yields tangible bottom- ger than they originally planned. Firms that cultivate human line results. The researchers compared the stock prices of resources now will find themselves better able to compete Fortune magazine’s annual list of the “100 Best Companies as the market for top talent tightens.19 to Work for in America” to the S&P 500, which reflects the overall market. The firms with the highest employee satis- faction provided a 10.3 percent annual return, compared 1-5d The Technological Environment to a 2.95 percent return for the firms in the S&P 500. In The broad definition of business technology includes fact, from 1997 through 2012, the returns from the “100 any tools that businesses can use to become more efficient Best” have quadrupled returns from the overall market. and effective. More specifically, in today’s world, business While the critical difference in performance most likely technology usually refers to computers, telecommunica- stemmed from employee satisfaction, other factors—such tions, and other digital tools. Over the past few decades, as excellent products and superb top management— digital technology has had a transformative impact on likely also played a role in both employee satisfaction and business. New industries have emerged; others have dis- strong stock performance.18 As you will see in Chapter appeared. And some fields—such as travel, banking, and 14, employee happiness provides music—have changed dramatically. Even in categories business technology Any many benefits for the organization. with relatively unchanged products, companies have lev- tools—especially computers, Finding and holding the best eraged technology to streamline production and create telecommunications, and other talent will likely become a crucial new efficiencies. Examples include new processes such as digital products—that businesses competitive issue over the next computerized billing, digital animation, and robotic manu- can use to become more efficient decade as the baby boom gen- facturing. For fast-moving firms, the technological environ- and effective. eration continues to retire. The ment represents a rich source of competitive advantage; it 10 Chapter 1 Business Now: Change Is the Only Constant NEL Copyright 2017 Nelson Education Ltd. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Nelson Education reserves the right to remove additional content at any time if subsequent rights restrictions require it.  demographics, or the measurable characteristics of a population. Demographic factors include population size and density as well as specific traits such as age, gender, race, education, and income. As one can expect, given all these influences, countries differ greatly from one another Simon Dawson/Bloomberg/Getty Images in terms of their social environments. Nations as diverse as Canada will have a number of different social environments. Instead of covering the full spectrum, this section focuses on the broad social trends that most strongly impact Cana- dian business. Understanding the various dimensions of the social environment is crucial for businesses, which must offer goods and services that respond to it if they are to succeed. Google continues to be a powerhouse of Diversity Canada today is one of the world’s most innovation, in terms of both product development ethnically diverse countries. More than 20 percent of and employee benefits. Canadians were born in another country (about 11 percent of Americans were born outside the United States). Further- can also be a major threat for companies that are slow to more, while US multicultural policy has tended towards adapt or to integrate new approaches. assimilation, Canada continues to encourage its citizens The World Wide Web has transformed not only busi- to retain and honour their cultural ness but also people’s lives. Anyone, anywhere, anytime, can heritage. Another major difference World Wide Web The use the Web to send and receive images and data (as long as between the United States and service that allows computer access is available). One result is the rise of e-commerce (i.e., users to easily access and share Canada is that the former has a few information on the Internet in the online sales), which allows businesses to tap into a world- ethnic groups that make up the form of text, graphics, video, and wide community of potential customers. In the wake of the great majority of non-Caucasians, animation. global economic crisis, e-commerce has slowed from the while Canada is now home to e-commerce Business breakneck 20 percent–plus growth rates of recent years, but many (but smaller) ethnic groups. transactions conducted online, even so, analysts predict that solid single-digit growth will Exhibit 1.3 shows Canada’s top four typically via the Internet. continue. Business-to-business selling comprises the vast visible-minority groups and the demographics The majority of total e-commerce sales (and an even larger share numbers of each expected by 2017. measurable characteristics of a of the profits). Also, a growing number of businesses have However, the national statis­tics population. Demographic factors connected their digital networks with suppliers and distribu- are somewhat misleading because include population size and tors to create a more seamless flow of goods and services.20 ethnic groups tend to cluster density and specific traits such as age, gender, and race. Alternative selling strategies thrive on the Internet, together. Canada’s 15 largest cities giving rise to more individualized buying experiences. If you’ve browsed seller reviews on eBay or received shop- ping recommendations from Amazon, you have a sense of how personal Web marketing can feel. Online technol- Changes in Major Exhibit 1.3 ogy also allows leading-edge firms to offer customized Canadian Visible Minorities, products at prices comparable to those of standardized 2001–1721 products. On the NikeID website, for instance, customers 2000 can “custom build” Nike shoes, clothing, and gear, all while 1800 2001 sitting at home in their pyjamas. 1600 2017 As technology continues to evolve at breakneck speed, 1400 the scope of change—in both everyday life and business 1200 operations—will be almost unimaginable. In this environ- 1000 800 ment, companies that welcome change and manage it 600 well will clearly be the winners. 400 200 1-5e T he Social Environment 0 Chinese South Asian Black Filipino The social environment encom­passes the values, attitudes, Source: Statistics Canada, “Population Projections of Visible Minority Groups, Canada, Provinces, and Regions: 2001-2017”, Catalogue no 91-541-XIE, based on the reference scenario. customs, and beliefs shared by groups of people. It also covers NEL Chapter 1 Business Now: Change Is the Only Constant 11 Copyright 2017 Nelson Education Ltd. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Nelson Education reserves the right to remove additional content at any time if subsequent rights restrictions require it. are home to 90 percent of Canadians who were born Fast Food? abroad. Around half of the populations of Toronto and Vancouver are expected to comprise visible-minority Sometimes. Fast groups by 2017, as will approximately one-quarter of the Computer? Awesome! populations of Calgary, Ottawa, and Windsor.22 What does this mean for business? Growing ethnic Fast Fashion? Huh? I populations offer robust profit potential for firms that pur- n most industries, faster is better, and those of you who have sue them. TD Canada Trust, for example, has 43 percent of surfed the Web on a newer, faster device can certainly relate. the South Asian Canadian market and 29 percent of the And when you’re hungry, it’s great to get a pizza delivered in Chinese Canadian market. It employs ethnic, bilingual, or less than thirty minutes. But fashion has gotten faster, too, and multilingual staff to better serve Canada’s ethnic markets, in this case, faster may not be better. Mass market powerhouses, and it ensures that it has promotional material in all of its such as H&M, Forever 21, and Zara, can take a product quite branches to meet their needs. More than 60 languages are literally from the drawing boards to store shelves around the world spoken in TD branches, and more than 200 languages are in about two weeks. And with rock-bottom prices, many consumers available by phone. For other businesses in Canada, reach- are able to buy more than ever before. In fact, Canadian consumers ing ethnic markets is becoming increasingly easier. Rogers purchase billions of garments each year—about 64 items per Communications has been actively targeting ethnic con- person—and no matter how much they give away, this excess can sumers and now has over 100 multicultural channels, which lead to waste. According to Elizabeth Cline, author of OverDressed, broadcast in more than 20 languages.23 “charities long ago passed the point of being able to sell all of our wearable used clothes.” In part because of this surplus, every year Growing diversity also impacts the workforce. A billions of pounds of apparel end up in landfills. So it may be better diverse staff—one that reflects an increasingly diverse for everyone involved—and for our planet—if it took a little longer marketplace—can yield a powerful competitive advan- for affordable versions of this year’s fashions to make it from the tage, for these employees are better able to serve a diverse pages of Vogue magazine to the hangers in your closet.28 customer base. There is considerable research that dem- onstrates a strong link between diversity and innovation. Sources: Julian Sancton, “Book Review: ‘Overdressed,’ by Elizabeth L. Cline,” bloomberg.com, June 21, 2012; Eliana Dockterman, “How U.S. Clothing Brands Are Getting Greener,” August 20, 2012. Decision-making and problem-solving skills are enhanced. From global behemoths such as Procter & Gamble to local corner stores, companies have taken proactive steps to hire and nurture people from a broad range of back- The rapidly aging population brings opportunities and grounds. True diversity includes differences in gender, threats for business. Companies in fields that cater to the race, age, religion, and nationality, among others. Leading- elderly—such as health care, pharmaceuticals, travel, rec- edge firms that take a proactive approach to effective reation, and financial management—will clearly boom. integration achieve greater employee performance and Creative companies in other fields will capitalize on this higher employee retention.24 trend by reimagining their current products to serve older Effectively managing diversity should become easier clients. Possibilities include books and movies—and as time goes by. Multiple studies demonstrate that young perhaps even video games—with mature characters, low- Canadian adults are the most tolerant age group, and impact fitness programs such as water aerobics, and smart- they are moving in a more tolerant direction than earlier phones and tablets with more readable screens. Again, the generations regarding racial differences, immigration, potential payoff of age diversity is clear: companies with and LGBTQ issues. As this generation gathers influence older employees are more likely to find innovative ways to and experience in the workforce, they are likely to lever- reach the aging consumer market. age diversity in their organizations to hone their edge in a But at the same time, surging retirement rates pose sig- fiercely competitive marketplace.25 nificant threats to overall business success. Because of the Aging Population As lifespans increase and birth smaller labour pool, companies will need to compete even rates decrease, the Canadian population is rapidly aging. In harder for top talent, and this will drive up recruitment 2015, the estimated median ages in Canada were 40.6 for and payroll costs. As governments at all levels stretch to men and 43.1 for women, and they’re increasing monthly.26 serve the aging population, taxes may increase, placing an By mid-century the global population of people aged 60 additional burden on business. And as mid-career workers and over is expected to double, and 60 percent of that spend more on eldercare, they may find themselves with growth will be in Asia. The global population of older people less to spend on other goods and services, shrinking the is expected to reach 2.3 billion by 2100, triple what it is now.27 size of the consumer market. 12 Chapter 1 Business Now: Change Is the Only Constant NEL Copyright 2017 Nelson Education Ltd. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Nelson Education reserves the right to remove additional content at any time if subsequent rights restrictions require it.  Sorting Through Shades of Green G reen is everywhere. Firm after firm—including that promote energy efficiency without documentation to Loblaws, Canadian Tire, and Toyota, among many support this claim. others—have staked their future on green marketing, Sin of Vagueness. Green claims that are so broad or poorly trumpeting claims that range from “locally grown” to defined that consumers are likely to misunderstand their “fully recyclable.” If you can’t figure out which to believe and real meaning. Example: Anything labelled “All Natural.” which to blow off, you have plenty of company. Only about Natural substances—such as arsenic—can be toxic, too. half of consumers believe green claims. Fortunately, there are Sin of Irrelevance. Environmental claims that may be a number of labels to help Canadians make better choices. One truthful but just don’t matter. Example: Anything labelled such label, EcoLogo—also known as Environmental Choice— “Chlorofuorocarbon (CFC) Free” is a bit silly because CFCs identifies products that have been independently certified to have been banned in Canada for several decades. No be green throughout their entire life cycle, from production, product should claim not to have them. to consumption, to disposal. Standards are sufficiently high Sin of Lesser of Two Evils. Green claims that may be true but that only the top 20 percent of products on the market can distract consumers from the greater negative environmental achieve this accreditation. More than 7,000 products, including impacts of the category as a whole. Example: Organic draperies, lithium batteries, and toys, now carry this logo. cigarettes. Enough said. To provide additional help to confused consumers, Sin of Fibbing. Green claims that are out-and-out lies. TerraChoice, an environmental marketing agency, has laid out Example: Some dishwashing detergents claim to be “Energy The Six Sins of Greenwashing. (Greenwashing is defined as false Star” registered, even though the official Energy Star website or misleading green claims.) excludes them. Sin of the Hidden Trade-Off. Green claims based on a single Finding products that meet the rigorous TerraChoice environmental attribute, without attention to more standards can be almost impossible, but you can still be a important issues. Example: A paper company that promotes reasonably green consumer. First, recognize that green comes recycled products but doesn’t mention how it impacts global in many shades. A somewhat green product certainly beats a warming. product that isn’t green at all. And you can always encourage Sin of No Proof. Environmental claims without evidence or the companies you buy from to be honest and clear about how reliable certification. Example: Light bulb manufacturers green they actually are.29 Rising Worker Expectations Workers of all ages transparent financial management and more accountability continue to seek flexibility from their employers. Moreover, from senior executives. Recognizing their key role in busi- following massive corporate layoffs of the early 2000s, ness success, more and more consumers and workers have employees are much less likely to be loyal to their firms. begun to insist that companies play a proactive role in mak- According to Shannon Young, HR manager with Randstad ing their communities—and often the world community— Canada, more workers today, regardless of age, view them- better places. Sustainability—doing business today with- selves as “free agents” responsible for managing their own out harming the ability of future generations to meet their careers: “They work on maintaining cutting-edge skills and needs—has become a core issue in the marketplace, driving often don’t feel any remorse about jumping ship if another business policies, investment decisions, and consumer pur- job offers better pay or more growth opportunity.”30 Smart chases at unprecedented levels.32 firms are responding to the change in worker expectations by forging a new partnership with their employees. The goal is greater mutual respect through open communica- 1-5f The Global Environment tion, information sharing, and training. The not-so-hidden The Canadian economy operates in the context of the agenda, of course, is stronger long-term performance.31 global environment, interacting continually with other Ethics and Social Responsibility With high- economies. Over the past two decades, technology profile ethical meltdowns dominating the headlines over and free trade have blurred the lines between individual the past few years, workers, consumers, and governments economies around the world. Technology has forged have begun to hold businesses—and the people who unprecedented links among countries, making it cost- run them—to a higher standard. The laws that have been effective—even efficient—to establish computer help cen- passed in the wake of recent accounting scandals demand tres in Mumbai to service customers in Toronto, or to hire NEL Chapter 1 Business Now: Change Is the Only Constant 13 Copyright 2017 Nelson Education Ltd. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Nelson Education reserves the right to remove additional content at any time if subsequent rights restrictions require it.  countries—took bold steps to lower tariffs (taxes on imports) and to reduce trade restrictions worldwide. As a result, goods are moving more freely across international boundaries. Indi- vidual groups of countries have gone even further, creating blocs of nations with virtually unrestricted trade. Mexico, Canada, and the United States have laid the groundwork for a free trade mega-market through the North American Free Trade Agreement (NAFTA). The European Union (EU) is a 28-nation politico-economic bloc, but it has been weakened in recent years, for its members are divided regarding how to manage its external borders in the wake of refugee immi-