Chapter 1

The Changing Face of Business

Business: All profit-seeking activities and enterprises that provide goods and services necessary
to an economic system
Profits: Rewards for businesspeople who take the risks involved in offering goods and services
to the customers

 Business activity provides the means for improving a nation’s standard of living
 At the heart of every business there is exchange between the buyer and seller
o The buyer hopes to gain a good or service in exchange for money
o The seller hopes to gain a profit – a main indicator of business success
 Profits serve as incentives for entrepreneurs to conduct business activity
 Profits are also a primary source of funds needed to expand operations
 Profits are a central point of focus – without them business can’t survive or grow
Not for Profit Organization: An organization whose primary aims are public service, not return a
profit to their owners

 Not for profit organizations are business like associations which have primary goals
other than returning profits to their owners
 These organizations operate in both public and private sector, and need to raise money
to operate and to achieve their social goals
 Private sector Not-for-Profits include:
o Museums
o Libraries
o Trade Associations
 Public sector Not-for-Profits include:
o Government agencies
o Political parties
o Labour Unions
 Not-for Profits receive funding from both government sources and private sources,
including donations
 NFP’s raise more than $112 billion in revenues each year and employ more than 2
million people, and are commonly exempt from federal and provincial taxes
 Managers of NFP focus on goals other than making profits, but face many of same
challenges as for-profit businesses
 Without funding, organizations cannot do research, obtain raw materials or provide
services
 Some NFP’s sell merchandise or set up profit-making businesses to sell goods and
services that people are willing and able to pay for
  Merchandising programs and fundraising campaigns need managers who have effective
business skills and experience
Factors of Production: Four basic units for effective economic operation – natural resources,
capital, human resources (labour) and entrepreneurship
Natural Resources: All production inputs that are useful in their natural states, including
agricultural land, building sites and forests

 Natural resources are basic inputs required in any economic system and are the genesis
of wealth creation
Capital: Production inputs consisting of tools, technology, information and physical facilities

 Both managers and employees require effective, timely information to effectively

perform their assigned tasks
 Technology refers to machinery and equipment such as computers and inventions
designed to improve production
 To remain competitive, a firm needs to continually acquire, maintain and upgrade its
capital
 The funds to do so can come from:
o Owner’s investments
o Profits turned back into business
o Loans from other sources

Human Resources: Production inputs consisting of anyone who works, including both the
physical labour and the intellectual inputs contributed by workers

 Human resources include anyone who works, from a CEO of a company to a self-
employed editor
 Effective, well trained employees can provide firms with a significant competitive edge
 Competitive, effective human resources can be a company’s best asset
Entrepreneurship: The willingness to take risks to create and operate a business

 An entrepreneur is someone who sees an opportunity to make a profit and creates a

plan to achieve success
 Canadian businesses operate within a system called the Private Enterprise System
Private Enterprise System: An economic system that rewards firms for their ability to identify
and serve the needs and demands of customers

 All businesses operate within a large economic system of rules and constraints that
direct how goods are:
o Produced
 o Consumed
o Distributed
 PES minimizes government interference in business activity
 Businesses that are skillful at satisfying customers can gain access to necessary FOP’s
and earn profits
Capitalism: An economic system that rewards firms for their ability to perceive and serve the
needs and demands of consumers, also called the private enterprise system

 Adam Smith invented system of capitalism, he believed that ‘invisible hand’ of

competition is best for regulating the economy
 Smith thought that competition would lead to best possible products and prices for
consumers and drive out inefficient businesses
Competition: The battle among businesses for consumer acceptance

 Idea of invisible hand is a basic principle of the private enterprise system

 To compete successfully, each firm must find a basis for its competitive differentiation
 Firms in PES must adjust to changing marketplace conditions,
 Firms that fail to adjust to shifts in consumer preferences and firms that ignore
competitors risk failure
Competitive Differentiation: The unique combination of organizational abilities, products and
approaches that sets one company apart from its competitors in the minds of customers
Basic Rights in the Private Enterprise System
- Private Property
o Right to private property is the most basic freedom in PES
o Every participant has right to own, use, buy and sell land, buildings, machinery
and various intangible properties
- Profits
o PES guarantees business owners right to all after-tax profits earned through their
activities
o A business is not assured of earning a profit, its owner is legally and ethically
entitled to any income it makes (that exceeds its costs)
- Freedom of Choice
o A PES relies on citizens to choose their own employment, purchases and
investments
o PES maximizes individual wealth by providing options, whilst other economic
systems often limit FOC to accomplish government goals
- Competition
 o PES allows for fair competition by allowing public to set rules for competitive
activity
o Canadian government has passed laws to prohibit excessively aggressive
competitive practices designed to remove competition
o Canadian government has established ground rules that make the following
illegal:
 Price Discrimination
 Fraud in financial markets
 Deceptive advertising and packaging
Entrepreneur: A person who seeks a profitable opportunity and takes the necessary risks to set
up and operate a business

 People who can see marketplace opportunities are able to use their capital, time and
talents to pursue these opportunities for profits
 Willingness of people to start new ventures leads to economic growth and keeps
pressure on companies to satisfy consumer needs
 Of all new businesses created in Canada, 99 percent are small businesses, and
thousands of new businesses start every year
 Entrepreneurships leads to:
o Job Creation
o Innovation
o Selling products
 Small companies are more flexible than large companies, so can change products and
processes quicker than large corporations
 This means small firms often innovate more than large firms
 Large companies are hoping to encourage entrepreneurial thinking amongst employees
to gain
o Enhanced flexibility,
o Improved innovation
o New market opportunities

Seven Eras in the History of Business

- Colonial Period
o Colonial society featured rural and agricultural production
o Small towns functioned as marketplaces for farmers and craftspeople
o Success or failure of crops influenced every aspect of the economy
- Industrial Revolution
o Involved businesses moving to a factory system for mass producing items by
using numerous semi skilled workers
 o Focus changed from utilizing independent, skilled workers who specialized in
building products one by one
o Factories made profit through large scale production savings and increased
usage of machinery
o Production was improved by specialization of labour e.g. through limiting each
worker to a few specific tasks in production process
- Industrial Entrepreneurs
o IR created opportunities, and these increased opportunities for
entrepreneurship in Canada
o Inventors created new production methods and a virtual endless number of
commercially useful products e.g. Telephone
- Production Era
o Involved work becoming more specialized, and introduction of huge, labour
intensive factories
o Increased demand for consumer goods led to increased business attention on
activities needed to produce these goods
o Henry Ford introduced assembly lines, which became commonplace in major
industries
o Business focus was on interior process rather than externals, marketing was rare
and only used to distribute products
- Marketing Era
o Managers began to pay more attention to markets for goods and services due to
Great Depression, and sales and advertising became more important
o During this period, selling often meant same as marketing
o Due to increasing competition, managers focused on consumer orientation. And
analyze consumer desires before beginning production
Consumer Orientation: A business philosophy that focuses first on consumers’ unmet wants
and needs, and then designs products to meet those needs
Branding: Process of creating in consumers’ minds an identity for a good, service, or company; a
major marketing tool in contemporary business
Brand: A name, term, sign, symbol, design or some combination that identifies the products of
one firm and shows how they differ from competitors’ offerings
- Relationship Era
o Since IR, companies have concentrated on building products and promoting
products in hope for consumption and increased profits
o In Relationship Era, businesses are taking a longer-term approach to how they
relate to consumers
 o Firms now look for ways to promote consumer loyalty by carefully managing
each interaction
o Company that keeps its customers over long term reduces its advertising and
sales costs
o Business owners gain several advantages when they develop ongoing
relationships with consumers
 Less costly than trying to attract new customers
 Improved understanding of what customers want
Transaction Management: Building and promoting products in hope that enough customers will
buy them to cover costs and earn profits
Relationship Era: The business era where firms seek to actively promote customer loyalty by
carefully managing every interaction