ORGANIZATIONAL BOUNDARIES AND ENVIRONMENTS:THE ECONOMIC ENVIRONMENT

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Introduction to Business MGT 211

Lesson 02

ORGANIZATIONAL BOUNDARIES AND ENVIRONMENTS

All businesses, regardless of their size, location, or mission, operate within a larger

external

environment.

External environment--everything outside an organization's boundaries that

might affect it.

Organizational Boundaries--that which separates the organization

from its environment. Today boundaries are becoming increasingly

complicated and hard to pin down.

Multiple Environments include economic conditions, technology,

political-legal considerations, social issues, the global environment,

issues of ethical and social responsibility, the business environment

itself, and numerous other emerging challenges and opportunities.

1. THE ECONOMIC ENVIRONMENT

Economic environment--Conditions of the economic system in which an organization

operates

Economic Growth

Aggregate Output and Standard of Living

1. Business cycle--Pattern of short-term ups and downs

(expansions and contractions) in an economy

2. Aggregate output--Total quantity of goods and services produced

by an economic system during a given period

3. Standard of living--Total quantity and quality of goods and

services that a country's citizens can purchase with the

currency used in their economic system

ii.

Gross domestic product (GDP)--Total value of all goods and services

produced within a given period by a national economy through

domestic factors of production

Gross national product (GNP)--Total value of all goods and

services produced by a national economy within a given period

regardless of where the factors of production are located

Real Growth Rate--the growth rate of GDP adjusted for inflation

and changes in the value of the country's currency

GDP per Capita--GDP per person and reflects the standard of

living.

Real GDP--GDP calculated to account for changes in currency

values and price changes versus Nominal GDP, GDP

measured in current dollars or with all components

valued at current prices.

Purchasing Power Parity--Principle that exchange rates are set

so that the prices of similar products in different countries

are about the same.

iii.

Productivity--Measure of economic growth that compares how much a

system produces with the resources needed to produce it.

There are a number of factors which can inhibit the growth of an economic system including:

1. Balance of Trade--the economic value of all the products that a

country exports minus the economic value of imported

products.

Introduction to Business MGT 211

Trade Deficit--A positive balance of trade results when

a country exports (sells to other countries) more

than it imports (buys from other countries).

Trade Surplus--A negative balance of trade results

when a country imports more than it exports.

National Debt--Amount of money that a government owes its creditors.

b. Economic Stability

Condition in an economic system in which the amount of money available and

the quantity of goods and services produced are growing at about the same

rate.

Factors which threaten stability include:

i. Inflation--Occurrence of widespread price increases throughout an

economic system

Measuring Inflation: The CPI--Measure of the prices of typical products purchased by

consumers living in urban areas

ii. Unemployment--Level of joblessness among people actively seeking

work in an economic system. Unemployment may be a symptom of

economic downturns.

1. Recessions

and

Depressions

Recession--Period during which aggregate output, as measured

by real GDP, declines

2. Depression--Particularly severe and long-lasting recession

c. Managing the U.S. Economy

i. Fiscal policies--Government economic policies that determine how the

government collects and spends its revenues

ii. Monetary policies--Government economic policies that determine the

size of a nation's monetary supply

iii. Stabilization policy--Government policy, embracing both fiscal and

monetary policies, whose goal is to smooth out fluctuations in output

and unemployment and to stabilize prices

iv. Three Major Forces

1. The information revolution will continue to enhance productivity

across all sectors of the economy, most notably in such

information-dependent industries as finance, media, and wholesale

and retail trade.

2. New technological breakthroughs in areas such as biotechnology

will create entirely new industries.

3. Increasing globalization will create much larger markets while also

fostering tougher competition among global businesses; as a

result, companies will need to focus even more on innovation and

cost cutting.

v. Projected Trends and Patterns--There are a number of projections for

the near future. Sudden changes in environmental factors, such as war,

can alter these projections.

THE TECHNOLOGICAL ENVIRONMENT

Technology has a variety of meanings, but as applied to the environment of business, it

generally includes all the ways by which firms create value for their constituents.

a. Product and Service Technologies--the technologies employed for creating

products (both physical goods and services) for customers. Although many

Introduction to Business MGT 211

people associate technology with manufacturing, it is also a significant force in

the service sector.

b. Business Process Technologies--are used not so much to create products

as to improve a firm's performance of internal operations (such as accounting,

managing information flows, creating activity reports, and so forth). They also

help create better relationships with external constituents, such as suppliers

and customers.

i. Enterprise Resource Planning--Large-scale information system for

organizing and managing a firm's processes across product lines,

departments, and geographic locations

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