Business Eras in North America

North American business history is divided into the following several distinct time periods:^[1]

1. The Colonial Period (prior to 1776). Colonial society featured rural and agricultural production.
2. The Early Trade and Craftsmanship era (1776-1850s). Localized trade and craftsmanship. Small-scale production dominated by artisans and merchants.
3. The Industrial Revolution (1850s-1920s). Instead of independent, skilled workers specializing in building products one by one, business moved to a factory system with mass production aided by machines. These advancements in technology increased demand for manufactured goods, leading to enormous entrepreneurial opportunities.
4. The Production era (1920s-1940s). Emphasis on producing more goods faster, leading to production innovations such as assembly lines.
5. The Sales era (1940s-1960s). Post-World War II economies led to increased competition as supply often exceeded demand. Businesses emphasized persuasion (door-to-door sales) and advertising (radio and print ads) to drive sales without prioritizing customer preferences.
6. The Marketing era (1960s-1980s). Consumer orientation, seeking to understand and satisfy the needs and preferences of customer groups. The rise of market research and consumer behaviour studies. The 4Ps of marketing were introduced: product, price, place, promotion.
7. The Relationship era (1980s-2000s). Growth in technology, CRM systems, allowed companies to engage with customers more personally. Benefits derived from deep, ongoing links with customers, employees, suppliers, and other businesses.
8. The Digital and Social era (2000s-Present). New ways for businesses and consumers to communicate and share information through the Internet and social media.
9. The Sustainability and ESG era (2010s-Present). Businesses prioritize ethical and sustainable practices, emphasizing green energy, ethical sourcing, and community impact. They aim to balance customer satisfaction, profitability, and societal well-being. Sustainability is integrated into core operations, addressing climate change, fair labour, and social responsibility.

The Role of Government in Canadian Business

Canada’s system of government is based on the British parliamentary model and is quite distinct from the presidential system operating in the United States. Canada’s legislative and executive jurisdiction is constitutionally divided between the federal government and the ten provincial governments. A business may be regulated at three levels: federal, provincial, and municipal. A business may also be affected by the policies and decisions of regulatory and administrative bodies and tribunals.

Government influences business activity through the roles it plays. Some of these include the following:

• Government becomes a regulator when it controls many aspects of business activity through administrative boards, tribunals, and commissions. Regulations promote competition between businesses, protect consumers, achieve social goals, and protect the environment. For example, the Canadian Food Inspection Agency regulates dairy, egg, fish, and other food products.
• Government becomes a provider of incentives when it offers programs that help stimulate economic development. For example, the government offers funding for waste diversion initiatives, rebates for solar heating installations, and in some provinces, tax credits for employers who hire university and college students enrolled in co-operative education programs.
• Government becomes a provider of essential services when it supplies services that create the stability that encourages business activity, such as law enforcement (police) and health care (hospitals).
• Government becomes a taxation agent when taxes are imposed and collected by the three levels of government.  For example, the federal government collects income tax through the Canada Revenue Agency (CRA), the provincial government collects sales tax and receives a share of income tax, and the municipal government collects property tax.
• Government becomes a customer when it buys from businesses. The Government of Canada buys many kinds of products and services, from aircrafts to paper clips, from training services to scientific research.^[2]
• Government becomes a competitor when it competes with businesses through its Crown corporations, such as Canada Post, The Canadian Broadcasting Corporation (CBC), SaskTel, SaskEnergy, BC Hydro, and the Liquor Control Board of Ontario (LCBO).

Economic Benefits When Businesses Earn Profits

For-Profit Organizations

Take a moment to think about the many different types of businesses you come into contact with on a typical day. As you drive to class, you may stop at a gas station that is part of a major national oil company and grab lunch from a fast food chain such as Taco Bell, McDonald’s, or the neighbourhood pizza place. Need more cash? You can do your banking on a smartphone or another device via mobile apps. You don’t even have to visit the store anymore: online shopping brings the stores to you, offering everything from clothes to food, furniture, and concert tickets.

A business is an organization that strives for a profit by providing goods and services desired by its customers. Businesses meet the needs of consumers by providing medical care, automobiles, and countless other goods and services. Goods are tangible items manufactured by businesses, such as laptops. Services are intangible offerings of businesses that can’t be held, touched, or stored. Physicians, lawyers, hairstylists, car washes, and airlines all provide services. Businesses also serve other organizations, such as hospitals, retailers, and governments, by providing machinery, goods for resale, computers, and thousands of other items.

Revenue is the money a company receives by providing services or selling goods to customers. Costs are expenses including rent, salaries, supplies, transportation, and many other expenses a company incurs from creating and selling goods and services. For example, some of the costs Microsoft incurred by developing its software include salaries, facilities, and advertising. If Microsoft has money left over after it pays all costs, it has a profit. A company with costs greater than revenues incurs a loss. When a company such as Microsoft uses its resources intelligently, it can often increase sales, hold costs down, and earn a profit. Not all companies earn profits, but that is the risk of being in business. Risk is the potential to lose time and money or otherwise not be able to accomplish an organization’s goals. For example, the Canadian Red Cross faces the risk of not meeting the demand for victims of disaster (patients who need blood) if there are not enough blood donors. Businesses such as Microsoft face the risk of falling short of their revenue and profit goals. In Canadian business today, there is generally a direct relationship between risks and profit: the greater the risks, the greater the potential for profit (or loss).

The owner or shareholders of a business are not the only people who benefit from the business’s earned profits. A successful business provides employment opportunities, goods and services people need and want, tax payments to the government, and spends money buying resources which stimulates the economy.  Socially responsible firms contribute even more by adopting policies that promote the well-being of society and the environment while lessening the negative impacts on them.

Not-for-Profit Organizations

Not every organization that generates revenue and pays expenses is considered a for-profit business. Not all organizations strive to make a profit. A not-for-profit organization is an organization that exists to achieve some goal other than the usual business goal of profit at all costs. Often these organizations serve communities through social, educational, or political means. Organizations such as universities and colleges, hospitals, environmental groups, and charities are not-for-profit organizations. Charities such as Habitat for Humanity, the United Way, the Canadian Cancer Society, and the World Wildlife Fund are not-for-profit organizations, as are most hospitals, zoos, arts organizations, civic groups, and religious organizations.^[3] Over the last 20 years, the number of not-for-profit organizations—and the employees and volunteers who work for them—has increased considerably. Government is our largest and most pervasive not-for-profit group.

Like their for-profit counterparts, these groups set goals and require resources to meet those goals. However, their goals are not focused solely on profits. For example, a not-for-profit organization’s goal might be feeding the poor, preserving the environment, increasing attendance at the ballet, or preventing drunk driving. Not-for-profit organizations do not compete directly with one another in the same manner as, for example, Ford and Honda, but they do compete for talented employees, people’s limited volunteer time, and donations.

The boundaries that formerly separated not-for-profit and for-profit organizations have blurred, leading to a greater exchange of ideas between the sectors as for-profit businesses are now addressing social issues. Successful not-for-profits apply business principles to operate more effectively. Not-for-profit managers are concerned with the same concepts as their colleagues in for-profit companies: developing strategy, budgeting carefully, measuring performance, encouraging innovation, improving productivity, demonstrating accountability, and fostering an ethical workplace environment.

In addition to pursuing a museum’s artistic goals, for example, top executives manage the administrative and business side of the organization: human resources, finance, and legal concerns. Ticket revenues cover a fraction of the museum’s operating costs, so the director spends a great deal of time seeking major donations and memberships. Today’s museum boards of directors include both art patrons and business executives who want to see sound fiscal decision-making in a not-for-profit setting. Therefore, a museum director must walk a fine line between the institution’s artistic mission and financial policies.

Standard of Living

Successful businesses help to raise a country’s standard of living because they create the goods and services that are the basis of our standard of living. The standard of living of any country is measured by the output of goods and services people can buy with the money they have. It’s the ease with which people living in a time or place are able to satisfy their needs and wants. It is generally measured by standards such as income per person and poverty rate. Other measures are also used, such as access to and quality of health care, income-growth inequity, availability of employment, environmental quality, and educational standards. One measure of the standard of living is the Human Development Index (HDI), which was developed by the United Nations. Canada was ranked #18 out of 193 countries and territories worldwide on the 2023/2024 HDI report  (Refer to Table 2.1).^[4]

Quality of Life

Businesses play a key role in determining our quality of life by providing jobs, goods, and services to society. Quality of life refers to the general level of human happiness based on factors including life expectancy, educational standards, health, sanitation, and leisure time. It takes into account not only the material standard of living, but also more intangible aspects that make up human life. Building a high quality of life is a combined effort between businesses, government, and not-for-profit organizations. In a Mercer Insights report for 2023, Vienna, Austria, ranked highest in quality of life, followed by Zurich, Switzerland; Auckland, New Zealand; and Copenhagen, Denmark. It may come as a surprise that not one of the world’s top cities is in the United States: seven of the top 10 locations are in western Europe, two are in Australia/New Zealand, and one is in Canada (#8 on the list). At the other end of the scale, Baghdad, Iraq, is the city scoring the lowest on the annual survey.^[5]

Business Trends

Businesses must observe trends in business as many trends stem from consumer demands and preferences. Companies must keep up with their competitors, observe changes in the business environment, and meet consumer demands if they wish to stay in business.

Some of the current business and consumer trends include the following:

• Artificial Intelligence. We will start to see organizations move beyond the hype and start integrating generative AI into business strategy. During the previous wave of AI transformation, we saw businesses like Google, Amazon and Netflix rethink their strategy from the ground up to center around deep learning. By doing this they transformed existing business models such as online advertising, retail and media streaming. Rather than existing products and services with a chatbot bolted on, think of generative tools and applications that enable entirely new possibilities across healthcare, manufacturing, education and many other industries.^[6]
• Young Consumers Spending. By 2030, 75 percent of consumers in emerging markets will be between the ages of 15 and 34. Among this group, young consumers aged 18 to 24 in Asian and Middle Eastern nations, such as India and Saudi Arabia, will be particularly important to consumer businesses, given their pent-up demand and willingness to spend.^[7]
• Retirement Spending. Despite the financial constraints that may accompany retirement, aging consumers across all income levels are willing to spend on discretionary items. In experiential categories such as travel, older consumers’ intent to splurge is even higher than that of millennials, who have historically been big travel spenders. High-income baby boomer and Silent Generation consumers (those whose household incomes exceed $100,000) are a sizable cohort in the United States, making up 30 percent of the market—and they’re more likely to spend on discretionary purchases, such as home improvement and gardening, compared with lower-income consumers their age.^[8]
• Customer Experience is King. Customer experience (CX) will increasingly be seen as the key differentiator between competing providers of goods and services. As markets mature and buyers become more discerning, businesses that excel in delivering friction-free, hyper-personalized, and memorable experiences will find they are well-positioned to rise above the competition.^[9]
• Sustainable Business and Circular Economies. Driven by both regulatory pressure and consumer demand, the move towards more environmentally friendly and sustainable business practices is certain to be a key driver of change. The development of circular economies – where the focus is on reusing materials and recycling resources in a “closed loop” system in order to reduce waste and minimize environmental footprint is a core focus.^[10]
• Brand Exploration. Weakening of brand loyalty is not limited to a specific age group. In the past, older consumers remained consistently loyal to their preferred brands, but today, they’re just as likely to embrace new brands and retailers. In Europe and the United States, Gen Zers and millennials are only slightly more likely than older consumers to trade down to lower-priced brands and retailers. One beneficiary of this rampant downtrading is private labels. Thirty-six percent of consumers plan to purchase private-label products more frequently, and 60 percent believe private brands offer equal or better quality.^[11]
• Wellness. The global wellness market is worth approximately $1.8 trillion and is growing 5 to 10 percent annually. In advanced economies, health and wellness products and services have been in high demand over the past several years. Today, these categories are also growing quickly in emerging markets, and in some cases, growth in intent to spend on health and wellness products in emerging markets is outpacing growth in advanced markets.^[12]
• Quality of Life. In both advanced and emerging markets, people are moving to seek out new opportunities and a better quality of life. In advanced markets like the United States, consumers are moving away from larger cities in the Pacific Northwest and the Northeast to “secondary cities,” or those with populations between 50,000 and 500,000 people. Two-thirds of the fastest-growing US cities are in the South and West. In these cities, the cost of living is lower than in larger cities, and remote work opportunities are plentiful. Millennials, Gen Xers, and boomers are propelling this trend.^[13]
• Social Commerce. For several years, China has led the world in the adoption of social commerce, in which consumers browse and buy directly through social media and content creation platforms. Today, social-commerce markets in both China and India continue to mature, while those in other emerging-market countries—such as Brazil, Saudi Arabia, and the United Arab Emirates—are close behind. Consumers in these countries consistently spend more on purchases made through social media platforms, compared with consumers in Europe and the United States.^[14]

The Apple World of Business

Why is Apple so successful?

In 1976 Steve Jobs and Steve Wozniak created their first computer, the Apple I.^[15] They invested a mere $1,300 and set up business in Jobs’ garage. Three decades later, their business—Apple Inc.—has become one of the world’s most influential and successful companies. Jobs and Wozniak were successful entrepreneurs: those who take the risks and reap the rewards associated with starting a new business enterprise.

Did you ever wonder why Apple flourished while so many other young companies failed? How did it grow from a garage start-up to a company generating over $394 billion in sales in 2022? How was it able to transform itself from a nearly bankrupt firm to a multinational corporation with locations all around the world? You might conclude that it was the company’s products, such as the Apple I and II, the Macintosh, or more recently its wildly popular iPod, iPhone, and iPad. Alternatively, you could decide that it was its dedicated employees, management’s wiliness to take calculated risks, or just plain luck – that Apple simply was in the right place at the right time.

Before you draw any conclusions about what made Apple what it is today and what will propel it into a successful future, you might like to learn more about Steve Jobs, the company’s co-founder and former CEO. Jobs was instrumental in the original design of the Apple I and, after being ousted from his position with the company, returned to save the firm from destruction and lead it onto its current path. Growing up, Jobs had an interest in computers. He attended lectures at Hewlett-Packard after school and worked for the company during the summer months. He took a job at Atari after graduating from high school and saved his money to make a pilgrimage to India in search of spiritual enlightenment. Following his India trip, he attended Steve Wozniak’s “Homebrew Computer Club” meetings, where the idea for building a personal computer surfaced.^[16]

“Many colleagues describe Jobs as a brilliant man who could be a great motivator and positively charming. At the same time his drive for perfection was so strong that employees who did not meet his demands [were] faced with blistering verbal attacks.”^[17] Not everyone at Apple appreciated Jobs’ brilliance and ability to motivate. Nor did they all go along with his willingness to do whatever it took to produce an innovative, attractive, high-quality product. So, at age thirty, Jobs found himself ousted from Apple by John Sculley, whom Jobs himself had hired as president of the company several years earlier. It seems that Sculley wanted to cut costs and thought it would be easier to do so without Jobs around. Jobs sold $20 million of his stock and went on a two-month vacation to figure out what he would do for the rest of his life. His solution: start a new personal computer company called NextStep. In 1993, he was invited back to Apple (a good thing, because neither his new company nor Apple was doing well).

Steve Jobs was definitely not known for humility, but he was a visionary and had a right to be proud of his accomplishments. Some have commented that “Apple’s most successful days occurred with Steve Jobs at the helm.”^[18]

Jobs did what many successful CEOs and managers do: he learned, adjusted, and improvised. Perhaps the most important statement that can be made about him is this: he never gave up on the company that once turned its back on him. So now you have the facts.  What do you think Apple’s success is due to?  (a) its products, (b) its customers, (c) luck, (d) its willingness to take risks, (e) Steve Jobs, or (f) some combination of these options. What impact has Apple had on technological advances with its over 500 devices?

 

Business Sectors

Businesses are often categorized into specific groupings called sectors, which can be based on business activities, how profits are managed, or the industry in which the business operates.

The Public Business Sector

The public business sector includes goods and services produced, delivered, and allocated by the government and public sector organizations (publicly controlled government business enterprises). The government sector includes all federal, provincial, municipal, and territorial government ministries and departments. It also includes public school boards, public universities and colleges, and public health and social service institutions. Public sector organizations operate in the marketplace, often in competition with privately owned organizations. Government may have direct or indirect control over public sector organizations, which are also referred to as Crown corporations. The aim of the public sector is to provide services that benefit the public as a whole, either because it would be difficult to charge people for the goods and services concerned or because people may not be able to afford them. The government can provide these goods and services at a lower price than if they were provided by a for-profit company.  Examples include public utilities, such as water and sewage, electricity, and gas, as well as nationalized industries such as coal and steel.

The Private Business Sector

The private business sector includes goods and services produced and delivered by private individuals or groups as a means of enterprise for profit. The sector is not controlled by government. These businesses can be small firms owned by just one person, or large multinational businesses that operate globally. Large businesses may have many owners. A public (or publicly traded) company within the private business sector is not part of the public sector (government-provided services and government owned organizations); it is a particular kind of private sector company that can offer its shares for sale to the general public (i.e., Microsoft, Apple, Proctor & Gamble).

The Non-Profit or Voluntary Sector

The non-profit or voluntary sector includes non-governmental, non-profit organizations that receive support from individual citizens, government, and businesses. Non-profit organizations (NPOs) are also referred to as private voluntary organizations (PVOs); not-for-profit organizations (NFPOs); or non-profit making, non-governmental organizations (NGOs). In the global business world, there is inconsistency in how these terms are defined. A non-profit organization could be a not-for-profit corporation or an unincorporated association. A not-for-profit corporation is usually created with a specific purpose in mind and could be a foundation or charity or other type of non-profit organization. A private voluntary association is a group of volunteers who enter an agreement to form an organized body to accomplish a purpose. For the purposes of this book, not-for-profit corporations, private voluntary organizations, and non-governmental organizations are classified in the non-profit and voluntary sector as non-profit organizations.

Non-profit organizations have the ability to respond to issues more quickly than government and are usually formed or expanded in reaction to a community need that is not being met by the government. The Canadian government recognizes the importance of the non-profit sector as a key partner in building a stronger Canada, and it supports the sector in a number of ways, such as partnering, streamlining funding practices and accountability, and developing knowledge on the non-profit sector.^[19]

Non-profit organizations operate in a variety of areas including sports, religion, arts, culture, fundraising, and housing. Various organizations include hospitals, universities and colleges, research organizations, business and professional associations, and unions. Non-profit organizations experience problems with planning for the future, recruiting the types of volunteers needed, and obtaining board members and funding. People who work in non-profit organizations may be paid employees or unpaid volunteers.

There can be confusion around which sector a business is in. Is a hospital in the public or private sector? Are all hospitals non-profit organizations? Is the private sector university a non-profit or a for-profit organization? This confusion exists because some types of organizations typically thought of as belonging to the non-profit sector can cross sectors. For example, in Ontario there are four types of hospitals, including public, private, federal and Cancer Care Ontario hospitals. Public sector hospitals are owned by the government and receive government funding. Private sector hospitals are privately owned, often by a for-profit company or a non-profit organization, and are funded through patient payments, insurers, grants, donations, and foreign embassies. Private hospitals and health care clinics are classified as being in either the private, for-profit or private, non-profit sectors and are quite common in the United States and Australia. Canada’s mix of public and private health care options leaves many people thinking that the hospitals in Canada belong to the public sector because hospital services are publicly delivered, funded, and governed, and hospitals are accountable to the public. In fact, hospital services in many provinces are delivered largely by private sector, non-profit organizations.^[20]

Similarly, Canada has private sector, for-profit and private sector, non-profit colleges and universities in addition to its many public, non-profit colleges and universities. Private colleges and universities are not operated by the government, although many have received public subsidies, and depending on the province they reside in, they may be subject to government regulations. Some of the world’s most renowned universities, such as Harvard University, Stanford University, and Massachusetts Institute of Technology (MIT), are private sector, non-profit universities.

Business Industries

Across the three sectors, businesses may be classified by industry, such as service-producing industries and goods-producing industries, using the North American Industry Classification System (NAICS).

Goods-Producing Industries

• Agriculture, forestry, fishing, and hunting
• Mining, oil and gas extraction
• Utilities
• Construction
• Manufacturing

Service-Producing Industries

• Wholesale trade
• Retail trade
• Transportation and warehousing
• Information and cultural industries
• Finance and insurance
• Real estate, rental and leasing
• Professional, scientific, and technical services
• Management of companies
• Administrative and support, waste management, and remediation services
• Educational services
• Health care and social assistance
• Arts, entertainment, and recreation
• Accommodation and food services
• Other services, except public administration
• Public administration

Business Participants, Stakeholders, and Functional Areas of Business

Participants

Business participants are the people who participate in conducting the work of the business. These always include the employees and managers, but often include suppliers, customers, and shareholders. Every business must have one or more owners whose primary role is to invest money in the business. When a business is being started, it is generally the owners who polish the business idea and bring together the resources (money and people) needed to turn the idea into a business. The owners also hire employees to work for the company and help it reach its goals. Owners and employees depend on a third group of participants— customers. Ultimately, the goal of any business is to satisfy the needs of its customers in order to generate a profit for the owners. Other participants can include suppliers and even competitors.

Stakeholders

Stakeholders are those affected by the business’s operations and its decisions. Examples of stakeholders include shareholders, investors, suppliers, the community, customers, employees, competitors, and governmental agencies. Consider your favorite restaurant. It may be an outlet or franchise of a national chain (more on franchises in a later chapter) or a local “mom and pop shop” without affiliation to a larger entity. Whether national or local, every business has stakeholders – those with a legitimate interest in the success or failure of the business and the policies it adopts. Stakeholders include customers, vendors, employees, suppliers, landlords, competitors, bankers, and others (see Figure 2.1). Other stakeholders include the general public, the environment and all the various government departments that impact the business. All have a keen interest in how the business operates, in most cases for obvious reasons. If the business fails, employees will need new jobs, vendors will need new customers, and banks may have to write off loans they made to the business. Stakeholders do not always see things the same way — their interests sometimes conflict with each other. For example, lenders are more likely to appreciate high profit margins that ensure the loans they made will be repaid, while customers would probably appreciate the lowest possible prices. Pleasing stakeholders can be a real balancing act for any company.

Functional Areas of Business

Functional areas in a business refer to different departments or sections that perform specific tasks, such as human resources, operations, accounting, and finance. Each functional area has a unique role in achieving the overall business objectives, and they need to work in cooperation to ensure that the company operates smoothly and effectively. Depending on who you ask, you may receive different answers about how many functional areas there are in a business.  It really depends on how the business is structured (more on this later).  Some people will say there are four functional areas, some say five, some say six or even seven. Examples of functional areas include human resources, operations, marketing, accounting, finance, information technology, strategy, leadership, team, marketing and sales, production and operations, research and development, employment and human resources, insurance and risk management, and so on .

Let us briefly explore each of the six functional areas listed below (Shown in Figure 2.2). When we look at the functional area of business, we are organizing the work in terms of the type of work. In small businesses, the owner may do the finance, accounting, and human resource functions along with overseeing the operations. In large businesses, these functions are often broken down into departments that have large groups of people working within each function.

Human Resources

The Human Resources (HR) functional area is an organizational function that is about searching for, selecting, training, and maintaining workers. HR managers are responsible for ensuring that the organization has all of the skills and capabilities necessary to run the business. HR managers develop staffing plans, recruit and select new employees, monitor the performance management process, and develop succession plans for advancement and replacement. They develop standards for compensation and benefits and assist managers with staff issues.

Operations

Operations is the organizational function that is focused on producing the goods and/or services of the business. Operations involve managing the processes and resources that create goods and services in a business. It is responsible for ensuring efficiency, quality, and cost-effectiveness in production, distribution, and delivery to meet customer demand and achieve organizational objectives. All companies must convert resources (labour, materials, money, information, and so forth) into goods or services. Some companies, such as Apple, convert resources into tangible products — iPads, iPhones, etc. Others, such as hospitals, convert resources into intangible products, e.g., health care. The person who designs and oversees the transformation of resources into goods or services is called an operations manager. This individual is also responsible for ensuring that products are of high quality. In many organizations, operations management includes managing the supply chain which controls the delivery of raw materials and the distribution of finished goods.

Marketing

Marketing plays a crucial role in a business by helping to identify, create, and satisfy customer needs and wants through the promotion of products or services. Effective marketing strategies can help businesses differentiate themselves from competitors, build brand awareness and loyalty, increase sales and revenue, and ultimately, achieve their business goals. Marketing consists of everything that a company does to identify customers’ needs (i.e., market research and consumer analysis) and ensure that products are designed to meet those needs. Marketers develop the benefits and features of products, including price and quality. They also decide on the best method of delivering products and the best means of promoting them to attract and keep customers. They manage relationships with customers and make customers aware of the organization’s desire and ability to satisfy their needs.

Accounting

Accounting is the organizational function that is focused on recording, keeping, analyzing and communicating financial information. Managers need accurate, relevant and timely financial information, which is provided by accountants. Accountants measure, summarize, and communicate financial and managerial information and advise other managers on financial matters. There are two fields of accounting. Financial accountants prepare financial statements to help users, both inside and outside the organization, assess the financial strength of the company. Managerial accountants prepare information, such as reports on the cost of materials used in the production process, for internal use only.

Finance

The financial functional area of a business is responsible for managing the company’s financial resources, including budgeting, accounting, financial reporting, cash flow management, and investment decisions. Its role is to ensure the financial stability and growth of the organization by optimizing financial performance and minimizing risks. Finance involves planning for, obtaining, and managing a company’s funds while maintaining the financial health of the business.

Financial managers address such questions as:

• How much money does the company need?
• How and where will it get the necessary money?
• How and when will it pay the money back?
• What investments should be made in the company’s plant and equipment?
• How much should be spent on research and development?
• Good financial management is particularly important when a company is first formed because new business owners usually need to borrow money to get started.

Information Technology

Information technology is the organizational function that aims to understand the information and data needs of the company in terms of obtaining, analyzing, and protecting information. Information is one of the critical assets of most businesses. Businesses such as Facebook are entirely information-based businesses. Information technology (IT) managers are concerned with building computer and network infrastructure, implementing security and privacy protocols, and developing user interfaces and apps for customers. Usually, there is a high level of integration between the business’s website or application and other departments within the business, such as finance, marketing and operations. Often, businesses must develop interfaces to send and receive information from other companies, including suppliers, and logistics and shipping providers. The global pandemic has also made it necessary for businesses to establish and improve their virtual presences. As the use of technology increases so do the number of threats and vulnerabilities. The number of potential risks involved in using information technology is rising, creating a security gap between the expectations of users and the ability of technology suppliers to meet those expectations. Data privacy concerns, protection and security now play an important role. Cybersecurity is changing the way things are done today more than ever before.

Factors of Production: The Building Blocks of Business

To provide goods and services, regardless of whether they operate in the for-profit or not-for-profit sector, organizations require inputs in the form of resources called factors of production. Four traditional factors of production are common to all productive activity: natural resources, labour (human resources), capital, and entrepreneurship. Many experts now include knowledge a fifth factor, acknowledging its key role in business success (Shown in Figure 2.3). By using the factors of production efficiently, a company can produce more goods and services with the same resources.

Natural Resources

Commodities that are useful inputs in their natural state are known as natural resources and these can be either renewable or non-renewable. Renewable natural resources are those that can grow again or can never run out and these include trees, water, air, and sources of power like solar and wind energy. Non-renewable natural resources are found in the ground and there are limitations to their availability as they cannot be replaced or renewed. These include land,  mineral and oil deposits. Sometimes natural resources are simply called land, although the term means more than just land. Companies use natural resources in different ways. International Paper Company uses wood pulp to make paper, and Pacific Gas & Electric Company may use water, oil, or coal to produce electricity. Today urban sprawl, pollution, and limited resources have raised questions about resource use. Conservationists, environmentalists, and government bodies are proposing laws to require land-use planning and resource conservation.

Human Resources

Labor, or human resources, refers to the economic contributions of people working with their minds and muscles. This input includes the talents of everyone—from a restaurant cook to a nuclear physicist—who performs the many tasks of manufacturing and selling goods and services.

Capital

The tools, machinery, equipment, and buildings used to produce goods and services and get them to the consumer are known as capital. Sometimes the term capital is also used to mean the money that buys machinery, factories, and other production and distribution facilities. However, because money itself produces nothing, it is not one of the basic inputs. Instead, it is a means of acquiring the inputs. Therefore, in this context, capital does not include money.

Entrepreneurs

Entrepreneurs are the people who combine the inputs of natural resources, labor, and capital to produce goods or services with the intention of making a profit or accomplishing a not-for-profit goal. These people make the decisions that set the course for their businesses; they create products and production processes or develop services. Because they are not guaranteed a profit in return for their time and effort, they must be risk-takers. Of course, if their companies succeed, the rewards may be great. Today, many individuals want to start their own businesses. They are attracted by the opportunity to be their own boss and reap the financial rewards of a successful firm. Many start their first business from their dorm rooms, such as Mark Zuckerberg of Facebook, or while living at home, so their cost is almost zero. Entrepreneurs include people such as Microsoft cofounder Bill Gates, who was named the richest person in the world in 2017, as well as Google founders Sergey Brin and Larry Page.^[21] Many thousands of individuals have started companies that, while remaining small, make a major contribution to the U.S. economy.

Knowledge

A number of outstanding managers and noted academics are beginning to emphasize a fifth factor of production—knowledge. Knowledge refers to the combined talents and skills of the workforce and has become a primary driver of economic growth. Today’s competitive environment places a premium on knowledge and learning over physical resources.

The Internal and External Business Environments

Internal Environment

The internal business environment in business refers to the elements within the organization that influence its operations and decision-making. It encompasses factors like the company’s culture, management practices, employees, and work processes. A manager should strive to create a well-managed or positive work environment within the organization. A well-managed internal environment has a significant role in influencing the organization’s operations and ensuring successful goal achievement. Some of the most important parts of the internal environment include communicating purpose to stakeholders through creating a mission statement (who we are, what we value), a vision statement (who we want to become), a strategy to achieve the company mission and vision and setting goals and objectives to gauge the company’s degree of success (refer to Figure 2.2).

These are the areas management has control over and can make changes to in response to strategic goals and changes that occur which impact the organization.

1. Management
2. Materials
3. Machinery
4. Money
5. Employees

An internal business analysis is a business analysis conducted by management or by consultants to evaluate the company’s strengths and weaknesses. Such analyses are often closely associated with the SWOT analysis which helps businesses identify the company’s strengths, weaknesses, opportunities, and threats. An internal business analysis is generally more concerned with the strengths and weaknesses of a business, while its opportunities and vulnerabilities fall more under the external business analysis.  When studying strengths and weaknesses, it is important to analyze them in light of their impact on customers, since the customer’s view of the company is ultimately the one that matters most. A SWOT analysis can be done on products, processes, companies, people, and just about anything you are trying to improve.

An internal analysis enables a firm to determine what it can do to improve internal capability to support the overall success of the business. There are other internal analysis managers can do to gauge how the company is performing, some of these include process mapping (to identify issues in processes), NOISE. SOAR, or SCORE analysis as alternatives to SWOT analysis; skills inventory tracking to determine what skills are missing or needed within the organization; succession planning to ensure employees are able to move into positions where someone else has retired; Gap Analysis, Core Competencies Analysis, OCAT, VRIO Analysis, Strategy Evaluation, McKinsey 7S Framework, etc.^[22] You will learn more about how managers analyze the business environments when you review the chapter on management.

Once complete, the organization should have a clear idea of where it’s excelling, where it’s doing okay, and where its current deficits and gaps are. The analysis gives management the knowledge to leverage the company’s strengths, expertise, and opportunities. It also enables management to develop strategies that mitigate threats and compensate for identified weaknesses and disadvantages.^[23]

External Environment

Micro-external environment

The micro-environment may be defined as including groups and organizations that have a direct relationship with the business. For example, suppliers, distributors, competitors, and external customers deal with the firm regularly and have a direct interest in the activities of the company because they are clearly affected by its actions (refer to Figure 2.4). It is important for any organization to monitor and analyze all elements of the micro-environment.  The Porter’s Five Forces model is used for a thorough analysis of the competitive environment. A commonly used method for assessing suppliers is the Kraljic Matrix. A method often used when conducting consumer analysis is Ferrell’s 6W model. You will learn more about how managers analyze the business environments when you review the chapter on management.

Macro-external environment

The macro-environment refers to the broader condition of an economy as opposed to specific markets. The macro-environment can be affected by GDP, fiscal policy, monetary policy, inflation, employment rates, and consumer spending. The state of the macro environment affects business decisions on things such as spending, borrowing, and investing. To what degree is a business vulnerable to macro-economic factors? It depends on the extent to which a company is dependent on the health of the economy and external factors for its success. If a company is relying more on the economic health of the country, then it will be more vulnerable to macro-economic changes. Banks, financial institutions, and credit card companies are a very good examples of such businesses that are heavily reliant on the macro-economic factors.^[24]

The macro-environment analysis involves brainstorming and a lot of research to initiate the process. It starts by creating a list of trends that would have positive and negative impacts on the business. The macro-environment can be analyzed by using the PEST, PESTLE or PESTEL analysis method (refer to Figure 2.3). This acronym represents external factors that affect the business including Political, Economic, Sociocultural, Technological, Environmental, and Legal (PESTEL). The business has little influence over the macro-environment, for example, if government enacts mandatory regulations on waste management, businesses must comply with these regulations to remain open. As consumers and employees, we see some of these laws and regulations in operation regarding safety conditions on products, foods, buildings, etc. Consumer trends and technological innovations also impact company operations. For example, consumers put pressure on fast food restaurants to offer healthier choices. Another example of external factors affecting business is when one company adopts new technology to serve customers faster and more conveniently, businesses must adapt in order to remain competitive. You will learn more about how managers analyze the business environments when you review the chapter on management.

Working in Teams

Types of Teams

Teams are a critical aspect of business. A team is a group of people with certain skills who share a common purpose, approach, and performance goals. All team members hold themselves responsible and accountable for reaching the team’s objectives. Teams are widely used in business and in many not-for-profit organizations, such as hospitals and government agencies. Teams are one of the most frequently discussed topics in employee training programs, because they require that people learn how to work well together. There are five common types of teams (Shown in Figure 2.5): Problem-solving teams, self-managed teams, cross-functional teams, virtual teams, and work teams.

7 Characteristics of Effective Teams

Effective teams share the following characteristics:^[25]

1. Clear Leadership. Successful teams usually have effective leadership, where one or several members act as team leaders. This helps unify the entire team to work toward the same goals. Effective leaders often provide guidance, motivation and focus.
2. Defined Goals. Before working on their tasks, an effective team may first establish their goals. The team might work together to identify common objectives that align with a company’s organizational goals.
3. Assigned Roles. When each team member has an assigned role, they can make effective contributions to their group and help ensure its success. A team’s roles might change throughout the lifetime of a project. Effective teams often reevaluate roles once the team is assembled to ensure each member can fulfill the expectations of their roles.
4. Open Communication. A team with open communication allows members to discuss their ideas and feel that their input matters. Successful teams often welcome diverse thoughts and opinions that help them solve problems and complete tasks in creative ways. Effective communication also involves active listening, where members make a conscious effort to hear their teammates’ ideas and reflect before responding to them.
5. Collaboration. Team members may collaborate continuously throughout a project’s lifetime to ensure they’re working on the right tasks and contributing to the planned outcomes. Collaborative work helps encourage innovation through the exchange of ideas and the collective expertise of a team.
6. Trust. Trust contributes to open communication, problem solving and collaboration. A successful team might rely on team-building exercises to increase trust between its members.
7. Conflict Resolution. Successful teams usually have effective methods for resolving any conflicts that may arise. During a disagreement, members may speak to one another calmly, respect each other’s ideas and focus on finding a compromise. Effective teams often view disputes as a way to improve their decision-making and problem-solving strategies.

Group Cohesiveness

Team cohesion is the strength and extent of interpersonal connection existing among the members of a group. It is this interpersonal bond that causes members to participate readily and remain motivated to accomplish the set goals. Cohesive teams have an attitude of “we-ness.”^[26]

Numerous factors may contribute to team cohesiveness, but in this section, we will focus on five of the most important ones:

• Size. The bigger the team, the less satisfied members tend to be. When teams get too large, members find it harder to interact closely with other members; a few members tend to dominate team activities, and conflict becomes more likely.
• Similarity. People usually get along better with people like themselves, and teams are generally more cohesive when members perceive fellow members as people who share their own attitudes and experience.
• Success. When teams are successful, members are satisfied, and other people are more likely to be attracted to their teams.
• Exclusiveness. The harder it is to get into a group, the happier the people who are already in it. Team status also increases members’ satisfaction.
• Time. The more time a group spends together, the stronger the bond between them will be. By interacting more often, members learn about each other’s strengths, weaknesses, and skills.
• Competition. Membership is valued more highly when there is motivation to achieve common goals and outperform other teams.
  Equitable and inclusive practices. Members value and celebrate each person’s authenticity, identity, and the unique perspectives that come with those; as well, the team members work to create inclusive and equitable practices in their day-to-day teamwork.

Maintaining team focus on broad organizational goals is crucial. If members get too wrapped up in immediate team goals, the whole team may lose sight of the larger organizational goals toward which it is supposed to be working. Let us look at some factors that can erode team performance.

Skills for Effective Teamwork

Sometimes we hear about a sports team made up of mostly average players who win a championship because of coaching genius, flawless teamwork, and superhuman determination. But not terribly often. In fact, we usually hear about such teams simply because they are newsworthy — exceptions to the rule. Typically, a team performs well because its members possess some level of talent. Members’ talents must also be managed in a collective effort to achieve a common goal.

In the final analysis, a team can succeed only if its members provide the skills that need managing. In particular, every team requires some mixture of four sets of skills:

• Communication Skills. The ways in which members communicate can positively and negatively affect relationships within the team and outside the team with managers, customers, vendors, etc.
• Technical skills. Teams must perform certain tasks, therefore they need people with the skills to perform them. For example, if your project calls for a lot of math work, it is good to have someone with the necessary quantitative skills.
• Decision-making and problem-solving skills. Because every task is subject to problems, and because handling every problem means deciding on the best solution, it is good to have members who are skilled in identifying problems, evaluating alternative solutions, and deciding on the best options.
• Interpersonal skills. Because teams need direction and motivation and depend on communication, every group benefits from members who know how to listen, provide feedback, and resolve conflict. Some members must also be good at communicating the team’s goals and needs to outsiders.

The key is ultimately to have the right mix of these skills. Remember, too, that no team needs to possess all these skills — never mind the right balance of them — from day one. In many cases, a team gains certain skills only when members volunteer for certain tasks and perfect their skills in the process of performing them. For the same reason, effective teamwork develops over time as team members learn how to handle various team-based tasks. In a sense, teamwork is always a work in progress.

Factors that Erode Team Performance

Just as there are factors and behaviours that contribute to teams working well together, there are some common factors that keep teams from working well together.

• Groupthink. It is easy for leaders to direct members toward team goals when members are all on the same page, i.e., when there is a basic willingness to conform to the team’s rules. When there is too much conformity, however, the group can become ineffective; it may resist fresh ideas and, what’s worse, end up adopting its own dysfunctional tendencies as its way of doing things. Such tendencies may also encourage a phenomenon known as groupthink, or the tendency to conform to group pressure in making decisions, while failing to think critically or consider outside influences.
• Lack of Motivation and Frustration. Remember that teams are composed of people, and regardless of whatever roles they happen to be playing at a given time, people are subject to psychological ups and downs. As members of workplace teams, they need motivation, and when motivation is low, so are effectiveness and productivity. The difficulty of maintaining a high level of motivation is the chief cause of frustration among members of teams. As such, it is also a chief cause of ineffective teamwork, and that is one reason why more employers now look for the ability to develop and sustain motivation when they are hiring new managers.
• Unwillingness to cooperate. Failure to cooperate can occur when members do not or would not commit to a common goal or set of activities. What if, for example, half the members of a product development team want to create a brand-new product and half want to improve an existing product? The entire team may get stuck on this point of contention for weeks or even months. Lack of cooperation between teams can also be problematic for an organization.
• Lack of managerial support. Every team requires organizational resources to achieve its goals, and if management is not willing to commit the needed resources, e.g., funding or key personnel, a team will probably fall short of those goals.
• Failure of managers to delegate authority. Team leaders are often chosen from the ranks of successful supervisors; first-line managers who give instructions on a day-to-day basis and expect to have them carried out. This approach to workplace activities may not work very well in leading a team, the success of which depends on building consensus and letting people make their own decisions.

Team Stages

Play the YouTube video below, “Forming, Storming, Norming, and Performing: Bruce Tuckman’s Team Stages Model Explained” to learn the stages a team goes through when starting a new project.^[27]  Transcript for “Forming, Storming, Norming, and Performing: Bruce Tuckman’s Team Stages Model Explained” Video [PDF–New Tab].  Closed captioning is available on YouTube.

Team Roles

Team roles can be divided into two categories, task-facilitating roles and relationship-building roles (Summarized in Figure 2.6).

Task-Facilitating Roles

Task-facilitating roles help the team accomplish goals. These roles include not only providing information when someone else needs it but also asking for it when you need it. In addition, it includes monitoring (checking on progress) and enforcing (making sure that team decisions are carried out). Task facilitators are especially valuable when assignments aren’t clear or when progress is too slow.

Relationship-Building Roles

Relationship-building roles help team members understand their roles, support them in their roles, and maintain or improve group cohesiveness. These types of roles includes activities that improve team “chemistry,” from empathizing to confronting. Bear in mind three points about this model: (1) Teams are most effective when there’s a good balance between task facilitation and relationship-building; (2) it’s hard for any given member to perform both types of roles, as some people are better at focusing on tasks and others on relationships; and (3) overplaying any facet of any role can easily become counterproductive. For example, elaborating on something may not be the best strategy when the team needs to make a quick decision; and consensus building may cause the team to overlook an important difference of opinion.

Class Team Projects

Throughout your studies you will be exposed to teams and teamwork concepts, and be required to complete projects by collaborating with your peers in teams. You will want to consider how to make your class team-based projects as successful as possible. To get insider advice on how to succeed on team projects in college, let’s look at some suggestions offered by students who have gone through this experience.^[28]

• Draw up a team charter. At the beginning of the project, draw up a team charter that includes: the goals of the group; ways to ensure that each team member’s ideas are considered; timing and frequency of meeting. A more informal way to arrive at a team charter is to simply set some ground rules to which everyone agrees. Your instructor may also require you to sign an existing team contract or charter similar to the one below.
• Contribute your ideas. Share your ideas with your group. The worst that could happen is that they won’t be used (which is what would happen if you kept quiet).
• Never miss a meeting or deadline. Pick a weekly meeting time and write it into your schedule as if it were a class. Never skip it.
• Be considerate of each other. Be patient, listen to everyone, involve everyone in decision making, avoid infighting, build trust.
• Create a process for resolving conflict. Do so before conflict arises. Set up rules to help the group decide how conflict will be handled.
• Use the strengths of each team member. All students bring different strengths. Utilize the unique value of each person.
• Don’t do all the work yourself. Work with your team to get the work done. The project output is often less important than the experience.

Resolving Team Conflict

Team conflict is the breakdown of interpersonal relationships between members of a team. Common reasons for team conflict include the following:

• Misunderstandings or poor communication skills
• Differing opinions, viewpoints, or personalities
• Biases and stereotypes
• Variations in learning and processing styles
• Perceptions of unfairness

Play the YouTube video below, “How to Deal with Conflict” to gain a few tips on how to work through a conflict with a team member.^[29]  Transcript for “How to Resolve Conflict in the Workplace” Video [PDF–New Tab].  Closed captioning is available on YouTube.

Attributions

The contents of this chapter is a compilation sourced from various OER resources, please refer to the Book Information for details.

References

(Note: This reference list was produced using the auto-footnote and media citation features of Pressbooks)