Summary With Your Own Words No Copy

The Context of Business Understanding the Canadian

Business Environment

Len Karakowsky York University

Natalie Guriel York University


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Library and Archives Canada Cataloguing in Publication

Karakowsky, Len, author The context of business: understanding the Canadian business environment/Len Karakowsky, York University, Natalie Guriel, York University.

Includes bibliographical references and index. ISBN 978-0-13-291300-3 (pbk.)

1. Canada–Economic conditions–21st century–Textbooks. 2. Canada–Economic policy–Textbooks. 3. Business enterprises– Canada–Textbooks. 4. International business enterprises– Textbooks. I. Guriel, Natalie, author II. Title.

HC115.K342 2013 338.971 C2013-907169-5


Brief Contents

Part 1 A Framework for Study 1 Chapter 1 EXPLORING CANADIAN BUSINESS

A CRITICAL APPROACH: What are the Major Challenges Facing Business? 1

Part 2 The Internal Challenges 40 Chapter 2 THE EMPLOYEE–EMPLOYER

RELATIONSHIP: What Responsibilities Do Bosses Have to Their Employees? 40

Chapter 3 MANAGING THE WORKFORCE: How Can Business Leaders Best Manage Their Employees? 77

Chapter 4 ESTABLISHING THE STRUCTURE OF A BUSINESS: What Does Organizational Design Have to Do with Business Success? 116

Chapter 5 BUSINESS STRATEGY: How Do Businesses Generate a Successful Strategy? 159

Part 3 The External Challenges 193 Chapter 6 ECONOMIC FORCES: Oh Canada,

What Is Your Economy Like? 193

Chapter 7 COMPETITIVE AND TECHNOLOGICAL FORCES: How Do Industries Evolve over Time? 234

Chapter 8 GLOBAL FORCES: How Is Canada Faring in the Global Village? 268

Chapter 9 POLITICAL FORCES: Where Would Canadian Business Be without Our Government? 309

Chapter 10 SOCIETAL FORCES: Can Corporations Be Socially Responsible to All Stakeholders? 353

Part 4 Adaptation and Change 404 Chapter 11 THE CHALLENGE OF SUSTAINABILITY:

Why Does Business Need to Focus on Sustainability? 404

Chapter 12 CONFRONTING CHANGE: How Do Businesses Address the Challenge of Change? 448




Preface xii

Acknowledgements xvii

About the Authors xviii

Part 1 A Framework for Study 1

1 Exploring Canadian Business: A Critical Approach What Are the Major Challenges Facing Business? 1

Learning Objectives 1


The Internal Context of Business 4 The Employment Relationship: Responsibilities Toward Labour 5 Leadership and Effectively Managing People 5 Developing a Suitable Organizational Structure 6

TALKING BUSINESS 1.1 Changing GM’s Organizational Structure 6

Generating a Winning Business Strategy 7

The External Context of Business 7 Specific or Task Environment 7 General Environment 8 Sustainability 11 The Challenge of Change 12

The Canadian Context: How’s Business in Canada, Eh? 12

Economic Forces in Canada 13 Competitive Forces in Canada 16 Technological Forces in Canada 18

TALKING BUSINESS 1.2 Growth in Provincial Labour Productivity: A Problem from Coast to Coast 20

Global Forces in Canada 22 Political Forces in Canada 25

TALKING BUSINESS 1.3 Jobs, Productivity, and Innovation: How Health Care Drives the Economy 25

Societal Forces in Canada 28


CHAPTER LEARNING TOOLS 35 Key Terms 35 Multiple-Choice Questions 35 Discussion Questions 36


Part 2 The Internal Challenges 40

2 The Employee–Employer Relationship What Responsibilities Do Bosses Have to Their Employees? 40

Learning Objectives 40


The Labour Environment and Canadian Society 43 Distinguishing Work and Employment 44

TALKING BUSINESS 2.1 Are Unpaid Interns “Employees”? 45

What Is an Employee? 46 From Standard to Nonstandard Employment Relationships 47 Perspectives on Work and Government Policy 48

The Labour Context in Canada: Where Are We Now? 52

TALKING BUSINESS 2.2 The State of Canadian Unions—Down but Not Out 53

TALKING BUSINESS 2.3 Are Unions Relevant in Canada Today? 55

Dismissing Employees 55 Common Law Rules Requiring Notice of Termination 56

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Statutory Minimum Notice of Termination 57 Unemployment Insurance Programs 58

Current Issues in the Workplace: Managing Workforce Diversity 58

Protecting Diversity and Guarding Against Discrimination in Canadian Law 58

TALKING BUSINESS 2.4 Organizations Seeing the Light about Faith at Work 61

TALKING BUSINESS 2.5 He Says, She Says: Gender Gap Persists in Attitudes Toward Women’s Advancement in the Workplace 63

TALKING BUSINESS 2.6 Aboriginal Workers: Integral to Canada’s Ongoing Competitiveness and Performance 65

TALKING BUSINESS 2.7 Ontario Employers Have a New Tool to Improve Accessibility for People with Disabilities 67

The Model of the Employment Equity Act 68 TALKING BUSINESS 2.8 Employment Equity Resources 70

TALKING BUSINESS 2.9 Immigrants Make Significant Contributions to Innovation 70


CHAPTER LEARNING TOOLS 72 Key Terms 72 Multiple-Choice Questions 72 Discussion Questions 73


3 Managing the Workforce How Can Business Leaders Best Manage their Employees? 77

Learning Objectives 77


Why Study Management Thought? 80 What Do Managers Do ? 81

The Roles Managers Play in Organizations 81

TALKING BUSINESS 3.1 The Visionary Leader: Steve Jobs 84

TALKING BUSINESS 3.2 Conflict Management: The Toxic Employee 85

Management Philosophies 88 Classical Approaches to Management 88

The Social Context 88 Scientific Management 89 Administrative Management 92 Bureaucratic Management 92

TALKING BUSINESS 3.3 Leading Teams in a New Direction 93

The Classical Approaches in Perspective 96 TALKING BUSINESS 3.4 Is Weber Alive and Well? 96

Behavioural Approaches to Management 98

TALKING BUSINESS 3.5 The High Costs of Workplace Harassment 99

The Human Relations Movement 100 Mary Parker Follett (1868–1933) 100 Chester Barnard (1886–1961) 101 Modern Behavioural Science and Motivation-Based Perspectives 102

The Best Management Philosophy? Contingency Approach 102

TALKING BUSINESS 3.6 The Myths and Realities of Motivation 103

The Critical Importance of Trust in the Workplace 106

TALKING BUSINESS 3.7 How One Canadian Company Earns Trust 107

Trust, Teamwork, and Citizenship 108 TALKING BUSINESS 3.8 How Teams Learn at Teleflex Canada 109


CHAPTER LEARNING TOOLS 111 Key Terms 111 Multiple-Choice Questions 111 Discussion Questions 112


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4 Establishing the Structure of a Business What Does Organizational Design Have to Do with Business Success? 116

Learning Objectives 116


The Changing Nature of Organizations 119 Flat Organizations 120 Fluid Organizations 120 Integrated Organizations 121

TALKING BUSINESS 4.1 Atlantic Canada’s Overseas Playground? 122

Global Organizations 123 Thinking About Organizations 123

What Is an Organization? 123 Using Metaphors to Describe Organizations 124

The Anatomy of an Organization 127 What Constitutes an Organization’s Structure? 127

What Determines Organizational Structure? A Rational Perspective 131

Strategy 131 Organizational Size 132 Technology 132 Environment 132

TALKING BUSINESS 4.2 Canada’s Trade in a Digital World 134

Reengineering 136

TALKING BUSINESS 4.3 The Credit Agency 137

TALKING BUSINESS 4.4 Former Outsourcer Describes How Job Destruction Works 139

Toward a Virtual Organization 140 Outsourcing 140

TALKING BUSINESS 4.5 Out-of-Control Outsourcing Ruined Boeing’s Beautiful Dreamliner 142

Networking 143 Shedding Noncore Functions 143

Downsizing 145

TALKING BUSINESS 4.6 Loblaw Cuts 700 Head Office Jobs 146

Methods of Downsizing 147 Consequences of Downsizing 148

TALKING BUSINESS 4.7 What Every Leader Should Know About Survivor Syndrome 150

Why Has Downsizing Failed to Achieve Anticipated Results? 150 Downsizing as a Nonrational Approach to Organizational Structure 152


CHAPTER LEARNING TOOLS 155 Key Terms 155 Multiple-Choice Questions 155 Discussion Questions 156


5 Business Strategy How Do Businesses Generate a Successful Strategy? 159

Learning Objectives 159


What Is Strategic Management? 162 Analyzing the External Environment 163

The Five-Forces Model 163 TALKING BUSINESS 5.1 Changes in Global Food Sector Call for Canadian Food Strategy 165

TALKING BUSINESS 5.2 Foresight and Innovation: Today’s Science Fiction, Tomorrow’s Reality? 169

Analyzing the Internal Environment 169 The VRIO Model 170

TALKING BUSINESS 5.3 Groupon 171

SWOT Analysis 172 Different Levels of Strategies 173

Business-Level Strategy 173 TALKING BUSINESS 5.4 Dollarama Cashing in on Penny-Pinching Canadians 175

TALKING BUSINESS 5.5 FROGBOX: a sustainable franchising success 177

Corporate-Level Strategy 179 TALKING BUSINESS 5.6 American Airlines Merges with US Airways 180

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TALKING BUSINESS 5.7 Loblaw Gets into the Mobile Phone Market 183

TALKING BUSINESS 5.8 Starbucks Buys Its First Coffee Farm in Costa Rica 184

TALKING BUSINESS 5.9 Understanding the Deal: Shoppers Drug Mart and Loblaw 186


CHAPTER LEARNING TOOLS 188 Key Terms 188 Multiple-Choice Questions 188 Discussion Questions 189


Part 3 The External Challenges 193

6 Economic Forces Oh Canada, What Is Your Economy Like? 193

Learning Objectives 193


The Economic Environment 197 Individuals 197 Businesses 197

TALKING BUSINESS 6.1 Canada’s People Advantage 199

Government 200 Analyzing the Economy: Two Approaches 200

TALKING BUSINESS 6.2 Growing Gap of Truck Drivers Will Be Costly to Canadian Economy 201

Types of Economic Systems 201 Market Economy 202 Communism 202 Socialism 203 Mixed Economy 203

Competition and the Economy 204 Types of Competition in Free Markets 204

TALKING BUSINESS 6.3 Better Farm Management Separates the Wheat from the Chaff 205

TALKING BUSINESS 6.4 Don’t Blame Professional Athletes for High Ticket Prices 207

Goals of Canada’s Economic System 210

Economic Growth 210 TALKING BUSINESS 6.5 The US Subprime Mortgage Crisis and Recession 212

TALKING BUSINESS 6.6 Canada’s World-Class Economy 213

TALKING BUSINESS 6.7 Canada’s Productivity Challenge 216

TALKING BUSINESS 6.8 Canada’s Growing but “Invisible” Trade: Services 217

Economic Stability 223 Employment 226

TALKING BUSINESS 6.9 Today’s High Youth Unemployment: A Solution for Skill Shortages? 227


CHAPTER LEARNING TOOLS 229 Key Terms 229 Multiple-Choice Questions 229 Discussion Questions 230


7 Competitive and Technological Forces How Do Industries Evolve Over Time? 234

Learning Objectives 234


The Industry Life-Cycle Model 236 The Introduction Phase: Industry Emergence and Creation 238

TALKING BUSINESS 7.1 The Birth of Biotech 239

TALKING BUSINESS 7.2 The Early Years of the Automobile Industry 240

TALKING BUSINESS 7.3 The Anti-Aging Industry 242

TALKING BUSINESS 7.4 Gray Goo and the Promising Future of the Nanotechnology Industry 243

The Growth Phase: Dominant Designs and Shakeouts 245

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TALKING BUSINESS 7.5 The Smartphone Industry 246

The Maturity Phase: A Critical Transition 248

TALKING BUSINESS 7.6 The Aging Personal Computer Industry 250

The Decline Phase: Difficult Choices 251

TALKING BUSINESS 7.7 Are Mobile Devices Killing The Video Game Console Industry? 252

Innovation and Technology 254 Types of Innovation 254

TALKING BUSINESS 7.8 Is Canada on the Leading Edge? 255

TALKING BUSINESS 7.9 The Linked World: How ICT Is Transforming Societies, Cultures, and Economies 256

The Evolution of Technology 258

TALKING BUSINESS 7.10 Embracing Disruption: Lessons from Building the First Quantum Computer 258

Technological Forecasting 260 Technology and the Changing Workplace 261

TALKING BUSINESS 7.11 Will Technology Replace Middle-Class Jobs? 262


CHAPTER LEARNING TOOLS 263 Key Terms 263 Multiple-Choice Questions 264 Discussion Questions 264


8 Global Forces How Is Canada Faring in the Global Village? 268

Learning Objectives 268


What Is Globalization? 271 Sources Encouraging Global Business Activity 271

Pull Factors 272 Push Factors 272

TALKING BUSINESS 8.1 Canada’s Dairy Industry Under Pressure 273

Channels of Global Business Activity 274 Exporting and Importing 274

TALKING BUSINESS 8.2 Canada’s Exports to China: Still Hewers of Wood and Drawers of Water 277

TALKING BUSINESS 8.3 What are Canada’s New Export Strengths? 279

Outsourcing/Offshoring 280 Licensing and Franchising Arrangements 280 Direct Investment in Foreign Operations 281

TALKING BUSINESS 8.4 What Helps a Country Obtain Foreign Direct Investment? 282

Joint Ventures and Strategic Alliances 284 Mergers and Acquisitions 284

TALKING BUSINESS 8.5 Is Canada Being “Hollowed Out” by Foreign Takeovers? Putting Mergers and Acquisitions in Historical Perspective 285

Establishment of Subsidiaries 286 The Multinational Corporation 286

The Borderless Corporation 287

TALKING BUSINESS 8.6 What’s the Third World? 287

TALKING BUSINESS 8.7 Think Global, Act Local 288

International Trade 290 The Logic of Trade 290 Mercantilism 290 Trade Protectionism 291

TALKING BUSINESS 8.8 Made in Canada: How Globalization Has Hit the Canadian Apparel Industry 292

TALKING BUSINESS 8.9 The Futility of Protectionism 294

Promoting International Trade 294 Facilitating Global Business: Regional Economic Integration 295

European Union (EU) 296 Asian Trading Bloc 297 North American Trading Bloc and NAFTA 298 Where Is Canada Headed? 303

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CHAPTER LEARNING TOOLS 304 Key Terms 304 Multiple-Choice Questions 305 Discussion Questions 305


9 Political Forces Where Would Canadian Business Be Without Our Government? 309

Learning Objectives 309


The Canadian Business Enterprise System: Fundamental Features 312 Canadian Government Structure and Roles 313

Levels of Government 314 Federal Government Structure 316

Government as Guardian of Society 317 The Tax Collector Role 317

TALKING BUSINESS 9.1 Should Pop Drinkers Pay More? 319

The Business Owner Role: Crown Corporations 320

TALKING BUSINESS 9.2 Canada Post Faces Billion–Dollar Operating Loss by 2020 321

TALKING BUSINESS 9.3 Should the LCBO Be Privatized? 324

The Regulator Role 325 Government as Guardian of the Private Business Sector 328

Government Assistance to Private Business 328 TALKING BUSINESS 9.4 Auto Bailouts: Good or Bad Idea? 330

Government as Guardian of Business in the Global Context 332

Why Should Government Play the Role of Guardian of Business in the Global Context? 333

TALKING BUSINESS 9.5 More Cheese, Please 335

Why Government Should Not Play the Role of Guardian of Business 337

Should Government “Mind Its Own Business”? 339 Deregulation 339

TALKING BUSINESS 9.6 The Dangers of Deregulation 343

Privatization 344


CHAPTER LEARNING TOOLS 348 Key Terms 348 Multiple-Choice Questions 349 Discussion Questions 349


10 Societal Forces Can Corporations Be Socially Responsible to All Stakeholders? 353

Learning Objectives 353


Defining Business Ethics 356

TALKING BUSINESS 10.1 High-Level Barriers to Public Trust in Organizations 357

Ethical Behaviour as a Social Phenomenon 358 Business Ethics as Managing Stakeholder Interests 359

TALKING BUSINESS 10.2 Lac-Mégantic: Disaster in Quebec 359

Models for Judging the Ethics of Decisions 360 End-Point Ethics 361 Rule Ethics 363 Applying the Models: A Scenario 364

TALKING BUSINESS 10.3 The Business of Bribery 366

Do Organizations Make Us Unethical? 367 Unethical Behaviour as a Consequence of Corporate Culture 368 Unethical Behaviour as a Consequence of Decoupling 371 Unethical Behaviour as a Consequence of Work Routinization 372

TALKING BUSINESS 10.4 The Global Pharmaceutical Industry and Human Guinea Pigs 374

Unethical Behaviour as a Consequence of Organizational Identity 375

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Unethical Behaviour as a Consequence of Organizational Roles 377 Judging the Ethics of Organizations 378

Business and Society 380 Managing the Forces of Business and the Stakeholders of Business 381 Managing the Challenges of the Societal Force 383

Corporate Social Responsibility 383 The CSR Debate 385

TALKING BUSINESS 10.5 Dragons’ Den 386

TALKING BUSINESS 10.6 IBM and Nazi Germany 388

TALKING BUSINESS 10.7 Corporate Strategy and Long-Term Well Being: Crime Doesn’t Pay 392

TALKING BUSINESS 10.8 Should These Corporate Behaviours Be Mandated? 394

Is Corporate Social Responsibility on the Rise? 395

TALKING BUSINESS 10.9 Social Media Gives Power to Customers 395


CHAPTER LEARNING TOOLS 399 Key Terms 399 Multiple-Choice Questions 399 Discussion Questions 400


Part 4 Adaptation and Change 404

11 The Challenge of Sustainability Why Does Business Need to Focus on Sustainability? 404

Learning Objectives 404


What Is Sustainability? 408 Economic Factors 410

TALKING BUSINESS 11.1 Cree Village Eco lodge, a Sustainable Travel Destination 411

Social Factors 411 Environmental Factors 412

TALKING BUSINESS 11.2 How Sustainable Is Canada’s Water? 414

TALKING BUSINESS 11.3 Fracking Fracas: Pros and Cons of Controversial Gas Extraction Process 416

Benefits and Limitations of the Triple Bottom Line Framework 418

Benefits of the TBL Approach 418 Limitations of the TBL Approach 419

Measuring Sustainability 420 Living Planet Index 420 Ecological Footprint 422 Index of Sustainable Economic Welfare 424 Genuine Progress Indicator 425

The Business Case for Implementing Sustainable Practices 426

Reducing Costs 426 Reducing Risk 428 Improving Public Relations 429 Obstacles to Change 430

TALKING BUSINESS 11.4 Canada Isn’t Cleaning Up on Green Technology Exports 431

Implementing Sustainable Practices 433 Raw Materials 433 Manufacturing 434

TALKING BUSINESS 11.5 Leading Change in the Food Sector 435

Distribution 437 Retailing 437 Marketing 438

TALKING BUSINESS 11.6 Convenience versus Sustainability: The Plastic and Paper Bag Debate 439

Consumer Use/Consumption 440 End-of-Life/Disposal 441


CHAPTER LEARNING TOOLS 443 Key Terms 443 Multiple-Choice Questions 443 Discussion Questions 444


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12 Confronting Change How Do Businesses Address the Challenge of Change? 448

Learning Objectives 448


Change and the Environment of Business 451 Forces for Change 451

TALKING BUSINESS 12.1 Making Skills Work in Ontario 453

TALKING BUSINESS 12.2 Yes, There Is a Future for Manufacturing in Canada 454

TALKING BUSINESS 12.3 Digital Health: More Than Just Health and Technology 456

TALKING BUSINESS 12.4 Pro Sports and Globalization 457

TALKING BUSINESS 12.5 How Canada Welcomed Bangladeshi Clothing Imports 459

TALKING BUSINESS 12.6 Slow-Motion Demographic Tsunami About to Hit Canada’s Economy 460

Types of Change 461 Developmental Change 461 Transitional Change 462 Transformational Change 462

TALKING BUSINESS 12.7 Transformational Change: Starbucks Risks Core Business for New Unknown Ventures 463

Methods of Change: Theory E and Theory O Change 464

The Process of Transformational Change: An Illustration 467

Understanding the Forces for Change 467 The Change Vision and Implementation 467

Creating a Learning Organization 471

TALKING BUSINESS 12.8 The Learning Manager 473

Double-Loop Learning and Shifting Paradigms 474 Do Organizations Encourage or Discourage Learning and Change? 475

TALKING BUSINESS 12.9 Facebook’s Culture Promotes Learning and Change 476

Implementing Change Through Tipping Point Leadership 479

What Is the Tipping Point? 479 Three Rules of the Tipping Point 479 Applying the Tipping Point to Organizational Change 481


CHAPTER LEARNING TOOLS 483 Key Terms 483 Multiple-Choice Questions 483 Discussion Questions 484


Appendix: Answers to Multiple-Choice Questions 487

Glossary 488

Index 503



There is much to be proud of with regard to the Canadian business sector. According to many observers, Canada is poised to earn a distinguished reputation on the world scene. In fact, Canada has been consistently cited in the media as “one of the best countries to do business in.” Recently Forbes ranked Canada fifth overall in the world for business, based on such factors as low corporate tax rates and one of the most stable banking systems.

Beyond its economic stability, Canada is also reputed for its world-class university system, which is much more affordable than most privately funded colleges in the United States. In turn, Canada is known for its ability to attract and retain a highly educated workforce. Our strong business reputation is also based on having among the highest investment rates in education as a percentage of its GDP. Its enviable status is also based on comparatively low poverty and crime rates.

The positive climate for business has also made this country a popular location for entrepreneurs. Based on a study conducted by management consulting firm Ernst & Young, Canada was ranked among the top five places in the world to start a business, given its strong entrepreneurial culture. The Ernst & Young report considered such factors as small business tax burden, access to financing, and intangibles such as the value placed on research and innovation as well as attitudes toward entrepreneurs in the business community.

There is no doubt that Canada is fast becoming a major player on the global scene. However, at the same time significant challenges exist. The past two decades have witnessed tremendous change and turmoil across our organizational landscape—from numerous bankruptcies of once-great Canadian companies to massive reductions in the workforce of many others to the growth in foreign ownership across corporate Canada. Is all this cause for concern or just the natural evolution of business? Are we headed for the best of times or the worst of times?

Indeed, what lies ahead for Canadian business? To address that question, we need to systematically examine the context of business and the factors that shape our business environment. To do so we must look both “inside” and “outside” of the corporate walls. That is, we need to consider key challenges and opportunities that exist within the bound- aries of the organization, as well in the organization’s external environment.

The aim of this book is to help facilitate the following learning goals for students:

1. To examine the context within which all businesses operate. Specifi cally, we consider the internal context and the external context of business and the range of unique challenges and opportunities each possesses.

2. To obtain a deeper understanding of the nature of the Canadian business environment. What differentiates Canada from other business environments? What are the major strengths and weaknesses of Canada as a place to do business? What does the future hold for Canadian business?

3. To encourage critical thinking regarding the nature of business and its environment. This text presents a range of ideas, perspectives, and conceptual frameworks for identifying and analyzing key issues in the business environment.

xiiiP r e f a c e

4. To gain exposure to major voices and leading thinkers in the fi eld of business and organizational studies. This book draws upon many ideas from a wide range of business scholars, experts, and practitioners.

The study of business is really about the study of society. It is an obvious fact that we are a society of organizations—from our hospitals to our schools to our multinational organizations, it is hard to imagine life without organizations. And, for better or worse, those very institutions and organizations that we have grown up with are continuing to undergo dramatic change. We need to understand where change is coming from and how organization’s can best respond to the changing business context.

The Context of Business takes the reader on a journey that explores the environment within which business operates—both within the Canadian context and within the global context. The reader will be introduced to a variety of perspectives, theories, and concepts that shed light on real business issues. While this text does introduce the reader to many fundamentally important business terms and concepts, our emphasis is on helping students develop analytical thinking skills. Our aim is to present ideas, frameworks for discussion, and concepts that students can use as tools to help analyze “what is going on out there” in the “real” business world.

We hope that The Context of Business takes you on an enriching journey into the environment of business. There is much to learn about Canadian business and, as you will see, there is also much to be proud of. As a current or prospective member of the Canadian workforce, you have every reason to be interested in what the future holds for Canadian business. We hope this book helps you think more critically and thoughtfully about what lies ahead.

Enjoy the journey!

Len Karakowsky

Natalie Guriel

STRENGTHS AND FEATURES OF THIS TEXT This text differs in a number of significant ways from the typical introductory business textbook. There are at least three key areas of emphasis that distinguish this text, as outlined below.

1. Emphasis on Critical Thinking Skills The Context of Business will be the foundation for an introductory course in business that first introduces students to the business environment—both internal and external. The aim of this text is to provide a critical examination of the nature of business organizations and the fundamental challenges that they face within the Canadian context. The central objective is to provide insight into the business environment in Canada while encouraging students to think critically about how organizations are managed and how business leaders confront current challenges. This emphasis on critical thinking skills may be what largely differentiates this book from many other introductory business textbooks.

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Consequently, while we clearly set out descriptions necessary to understand the “mechanics” of business issues, ranging from the economic context to the political con- text, our aim is to engage students in a way that will stimulate them to think critically about these contexts. Students will be inspired to ask questions about how business operates and how the environment impacts business. We ask questions central to under- standing what is “going on out there” in the Canadian business world, including: What kind of competition exists in Canada in different industries? How has the number of telecommunications companies impacted the consumer? Do government subsidies to business impact competitiveness in Canada? What did the tragedy at Lac-Mégantic teach us about corporate social responsibility? These kinds of questions demand more than simply memorizing business jargon.

We believe that our approach in this text will help students better understand and appreciate the purpose behind their further studies in specific functional areas of business while also nurturing the skills they need to succeed in later courses.

2. Emphasis on Concept Application Each chapter sets out clearly the learning objectives for that chapter. We believe that we have set challenging but achievable learning objectives for each chapter, and we have ensured our chapters provide all the information students require to engage in a thought- ful and informed analysis of each of the topics. Our fundamental aim is to get students to take business ideas, concepts, and frameworks and use them to make sense of business events and challenges.

In writing this book, we endeavoured to make fundamental business concepts “come alive” through the application of these concepts to important, real-world situations. This text includes a wealth of current business cases drawn from the popular press to help clarify ideas presented within each chapter. Specifically, each chapter begins with The Business World case, which reports on important, current, real-life business issues and themes that are explored within the chapter. The chapters are also filled with real-life business illustra- tions summarized within the Talking Business boxes. Interspersed throughout the text, these features often present current business news or situations that further explore the concepts discussed in the chapter in a real, applied way. These are ideal for class discussion and also offer media accounts that may differ from the authors’ perspectives of business happenings. Instructors may wish to use some of these as mini-cases for class discussion on a daily basis when a lengthier, end-of-chapter case is not assigned.

Each chapter also contains an end-of-chapter Case Application with questions . These cases are also drawn from the Canadian popular press and are intended to give stu- dents an opportunity to apply chapter concepts to real business contexts. We have used these kinds of cases in our own classes with much success. The cases are of relatively short length. While the cases are intended to focus on the material in the accompanying chap- ter, many of the cases in this book carry ramifications that spill over into several areas. However, we have found that the ability to integrate different concepts from different chapters takes time. Consequently, our focus was on building this skill by keeping the cases relatively focused, though certainly many of these cases could be revisited from dif- ferent chapter perspectives. The Instructor’s Resource Manual provides suggestions and possible discussions relating to each of these cases.

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3. Emphasis on “Real” Canadian Business Context In addition to offering frameworks and principles central to an understanding of the con- text of business in general, we have endeavoured to provide an interesting and up-to-date presentation of relevant business events and business cases. We have made every effort to infuse this text with “real-life” illustrations. References are made to major business stories from across the globe. However, we are particularly interested in the Canadian context. Consequently, we focus on Canadian stories and give ample attention to current Canadian business policies and practices for the topics covered throughout this book. The end-of- chapter cases are drawn from both Canadian and global contexts. And this text was authored by Canadian scholars—it is not a Canadian adaptation of a US text.

While this text relates ideas and theories drawn from the work of management scholars and management research, we are also concerned with relating ideas and issues voiced by practitioners and communicated through such popular press sources as Canadian Business , Globe and Mail, Fortune , Report on Business, and the Huffington Post .

End-of-Chapter Pedagogical Features We have included discussion questions at the end of every chapter, ranging from short answer to essay-type responses. These questions provide various levels of challenge and will ensure students have understood the issues presented in the chapter. In addition, we have included multiple-choice questions. The Instructor’s Resource Manual provides suggestions and discussions for taking up all of these end-of-chapter questions.

Supplements The following supplements are available for instructors:

Instructor’s Resource Manual. The Instructor’s Resource Manual includes chapter learning objectives, chapter outlines and summaries, discussion questions and answers for in-text features, as well as answers for the discussion and review questions.

Pearson MyTest. MyTest helps instructors easily create and print quizzes and exams with hundreds of questions, including multiple-choice, true/false, short answer, and essay ques- tions. For each question we have provided the correct answer, a reference to the relevant section of the text, a diffi culty rating, and a classifi cation (recall/applied). MyTest software enables instructors to view and edit the existing questions, add questions, generate tests, and distribute tests in a variety of formats. Powerful search and sort functions make it easy to locate questions and arrange them in any order desired. Questions and tests can be authored online, allowing instructors ultimate fl exibility and the ability to effi ciently manage assessments anytime, anywhere, visit

PowerPoint Lecture Slides. Prepared by the authors, the PowerPoint presentations are colourful and varied, designed to hold students’ interest and reinforce each chapter’s main points.

peerScholar. Firmly grounded in published research, peerScholar is a powerful online ped- agogical tool that helps develop students’ critical and creative thinking skills. peerScholar facilitates this through the process of creation, evaluation, and refl ection. Working in stages, students begin by submitting written assignments. peerScholar then circulates their work for others to review, a process that can be anonymous or not, depending on your preference. Students receive peer feedback and evaluations immediately,

xvi P r e f a c e

their learning and driving the development of higher-order thinking skills. Students can then resubmit revised work, again depending on your preference. Contact your Pearson Canada representative to learn more about peerScholar and the research behind it.

Innovative Solutions Team. Pearson’s Innovative Solutions Team works with faculty and campus course designers to ensure that Pearson products, assessment tools, and online course materials are tailored to meet your specifi c needs. This highly qualifi ed team is dedicated to helping schools take full advantage of a wide range of educational technology by assisting in the integration of a variety of instructional materials and media formats.

Pearson Custom Library. For enrollments of 25 students or more, you can create your own textbook by choosing the chapters that best suit your own course needs. To begin building your custom text, visit .

CourseSmart for Instructors. CourseSmart goes beyond traditional expectations— providing instant, online access to textbooks and course materials at a lower cost for students. And even as students save money, you can save time and hassle with a digital eTextbook that allows you to search for the most relevant content at the very moment you need it. Whether it’s evaluating textbooks or creating lecture notes to help students with diffi cult concepts, CourseSmart can make life a little easier. Find out how when you visit .

The following supplements are available for students:

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There are many people to acknowledge for their contributions to and support of this book. First, we would like to express gratitude to those individuals at Pearson Canada who were responsible for making this book a reality. Our gratitude goes to the expertise provided by Deana Sigut, Acquisitions Editor; Suzanne Simpson Millar, Developmental Editor; Leanne Rancourt, Copyeditor; Rachel Thompson, Project Manager; and Rashmi Tickyani, Production Editor. Suzanne merits our deep gratitude for her dedicated attention to and rigorous work on this text.

Thanks also go to those who reviewed our proposals and earlier drafts of this text:

Julius Bankole University of Northern British Columbia Edith Callaghan Acadia University Cuiping Chen University of Ontario Institute of Technology Shawna DePlonty Sault College Susan Graham University of Prince Edward Island Brent Groen Trinity Western University Eytan Lasry York University Anthony Mallette Southern Alberta Institute of Technology Angelo Papadatos Dawson College Raymond Paquin Concordia University Jennifer Percival University of Ontario Institute of Technology Robert Soroka Dawson College Trent Tucker University of Guelph Michael Wade Seneca College Kent Walker University of Windsor Bill Waterman Mount Allison University

We would also like to express gratitude to our colleagues, Professors David Doorey, You-Ta Chuang, and Eytan Lasry for authoring Chapters 2 , 5 , and 7 , respectively. We are grateful as well to our students, who have provided comments on a regular basis.

We wish to thank our colleagues for their insights and suggestions, including Paulette Burgher, Keith Lehrer, Peter Modir, Peter Tsasis, Indira Somwaru, and Vita Lobo. Our thanks also go to textbook contributors Joseph Adubofuor, Amy Bitton, Anya Cyznielewski, Ziv Deutsch, Melanie Gammon, Jason Guriel, Gillian Gurney, Shu-Hui Huang, Imran Kanga, Ezra Karakowsky, Miri Katz, Chris Kirkpatrick, Orlando Lopez, Karen Rabideau, Akiva Stern, Paul Thomson, and Janu Yasotharan. Your input and assistance were much appreciated!

Finally, we wish to express appreciation to our family members for their patience, understanding, and support. We dedicate this book to you.

Len Karakowsky

Natalie Guriel


About the Authors

Len Karakowsky is a professor of management at York University. He earned his Ph.D. from the Joseph L. Rotman School of Management at the University of Toronto, his MBA from the Schulich School of Business at York University, and his Bachelor of Commerce from the University of Toronto. He has served on the faculty of York University since 1997.

Professor Karakowsky is an award-winning instruc- tor who has been teaching business management courses for almost 20 years. In 2004, he helped launch Canada’s first executive master’s degree program in the School of Human Resource Management at York University.

Several years later he assisted in the establishment of the doctoral program in human resource management at York University.

Professor Karakowsky’s research and consulting interests include the areas of leadership development, organizational change, demographic diversity, and corporate social responsi- bility. His research has been published extensively in such journals as Leadership Quarterly, Journal of Applied Psychology, Administration and Society, Journal of Management Studies, Group and Organization Management, Journal of Management Development, Small Group Research, Journal of Management Systems, International Business Review, and many others. He has authored award-winning papers and co-authored the text Business and Society: Ethics and Stakeholder Management (Canadian Edition) for Thomson Nelson publishers.

Natalie Guriel is a faculty member in the School of Administrative Studies at York University. She holds a mas- ter’s degree in management and professional accounting from the Joseph L. Rotman School of Management, University of Toronto, and an honours bachelor of arts degree in political science from the University of Toronto. Her professional designations were earned from the Canadian Institute of Management and include Chartered Manager, Certified in Management, and Professional Manager .

Professor Guriel has enjoyed teaching business man- agement courses at York University for over 10 years. She has also taught undergraduate and graduate business courses at several other universities across Canada. Her teaching

interests are varied and range from business management to financial accounting, manage- ment accounting, and taxation. She has received recognition for her teaching excellence and for her contributions to curriculum development.

Professor Guriel began her career as a taxation and accounting specialist for Deloitte. She later worked in a variety of management-related roles in the software, retail, and service industries. She is a member of the Canadian Institute of Management as well as the Academy of Management in the United States.

Chapter 1 Exploring Canadian Business: A Critical Approach What Are the Major Challenges Facing Business?


Is Canadian business headed for a dismal future, or one that is bright? How does one make sense of the current state of Canadian business? Assessing the prospects of organizations requires a careful examination of the con- texts within which they operate. This chapter introduces the framework for this book— a critical examination of the internal and external forces that can significantly impact the functioning and fate of business.

Learning Objectives

After studying this chapter, you should be able to 1. Identify the key internal forces that shape any business.

2. Identify the forces that compose the specific and general environments of organizations.

3. Discuss the nature of the external forces confronting organizations.

4. Explain the importance of each of the external forces within the Canadian business context.


© Age Fotostock

THE BUSINESS WORLD Can Canadian Tire Flourish in a Rapidly Changing Business Context?

Canadian Tire has certainly become part of the fabric of Canadian society. It’s been around since 1922 and has established itself as a solid Canadian retailer. Like the proverbial “underdog” Canadian hockey team, this Canadian retailer has managed quite well against a growing list of formidable US opponents. Over its 90-plus years, it has established approximately 500 stores across Canada, and with revenues close to $13 billion in 2012, this is no retail slouch.

However, as the expression goes, the times they are a changin’. And the question is, “Can Canadian Tire continue to flourish in these changing times amidst the onslaught of US retailers to Canada?”

US retailers have been invading our retail sector for many years now. It’s an invasion welcomed by most Canadian consumers, but certainly not by Canadian retailers. Home Depot, Walmart, and Target are just a few of Canadian Tire’s adversaries. And the compe- tition continues to heat up. 1

So what’s a good ol’ Canadian business to do? This is the question Canadian Tire is attempting to address. While the company clearly must have done something right to survive this long, some observers are puzzled by its success. In a recent Maclean’s article, writer Chris Sorensen had this to say:

Newer stores, located in towns and cities across the country, are brighter and more airy, but largely house the same eclectic inventory—none of it particularly cheap and none of it terribly aspirational either. Customer service, meanwhile, varies wildly from store to store, the result of the company’s independent—and bureaucratic—dealer owner- ship model. It all seems like a recipe for retail disaster, particularly as an army of well- oiled U.S. big box chains—Wal-Mart, Home Depot and soon Target—continue their relentless march north of the border. Yet somehow, Canadian Tire remains standing, earning profits of $453 million on $10.3 billion in retail sales last year, which was up three percent from a year earlier (Canadian Tire Corporation Ltd. also makes money through a banking operation, Canadian Tire Financial Services). 2

How has Canadian Tire managed to retain its place among the top 20 Canadian brands over the past several years?

Experts believe that a big part of Canadian Tire’s appeal is a combination of familiar- ity and convenience. But that doesn’t tell the whole story. Obviously, Canadian Tire has succeeded by understanding its environment and responding to changing business con- texts. The entrance of Target to the Canadian retail landscape has certainly made com- panies like Canadian Tire more vigilant and aware of the need to constantly evolve to best meet market demands. After feeling increased pressure from competitors, Canadian Tire has recently been revisiting its strategy. While not a direct competitor, Canadian

2 P a r t 1 A F r a m e w o r k f o r S t u d y

1 Hulsman, N. (2013, March 7). Canadian Tire going small in fight against Target, Yahoo Finance. Retrieved from

2 Sorenson, C. (2011, October 11). Canadian Tire’s baffling strategy to sell you everything. Maclean’s. Retrieved from . Reprinted with permission of MacLean’s Magazine.

Tire competes with Target on a number of product lines, including small appliances, and Canadian Tire’s subsidiary Mark’s Work Wearhouse competes for clothing sales.

In an effort to streamline its decision making, Canadian Tire cut several senior manage- ment positions in 2012. It has taken a systematic approach to analyzing the industry and adopting strategies to keep ahead of the game. For example, among recent changes was Canadian Tire’s decision to spend less of its advertising budget on small, grassroots events and more on mainstream media. The aim is to build more brand awareness of Canadian Tire. The nature of advertising will also change, with a greater emphasis on the Canadian Tire image rather than on specific products. While some have suggested that Canadian Tire should play up its Canadian roots to appeal to loyal Canadians, others feel that a strategy based on national sentiment is a waste of time; they believe that other more tangible actions should be taken. As Susan Krashinsky of the Globe and Mail observed:

Canadian Tire has survived past incursions by U.S. retailers such as Home Depot Inc. and Wal-Mart Stores Inc. The entry of Wal-Mart particularly caused the company to rethink the layout of its stores, change pricing policies and in more recent years, appeal to female shoppers more directly. It’s efforts such as this, not Canadian roots, that proved most effective. 3

In 2013, Canadian Tire announced plans to significantly improve its digital technology practices, including a partnership with Communitech, a technology company based in Kitchener, Ontario. 4 The aim is to develop apps, content, and other digital innovations to improve the shopping experience of Canadian Tire customers, both online and in the store. Canadian Tire also recently relaunched its online store after executives aborted a previous attempt in 2009. Among the items sold online are tires and wheels, which have to be picked up at Canadian Tire stores where many will also be installed. This effort was in response to a growing trend of Canadians buying their tires online through US-based websites and having them shipped directly to local mechanics.

Among other changes has been a renewed focus on its automotive roots. In 2013, Canadian Tire opened a number of automotive concept stores that feature drive-in recep- tion areas, express oil and lube services, and auto detailing. Canadian Tire also owns 87 specialty automotive PartSource stores. This is part of its strategic emphasis on auto parts, tools, home supplies, and sporting goods to combat increased competition.

Another area of change is in the customer services offered by Canadian Tire. For example, it recently began offering home installation services for Canadian Tire garage door openers, followed by central vacuum installations and heating and cooling systems.

Canadian Tire has also ventured more deeply into the world of sports. 5 In 2013, it announced a host of deals with amateur sports organizations to strengthen its ties to a major market: up-and-coming athletes. Among the sponsorships is an eight-year agreement

3C h a p t e r 1 E x p l o r i n g C a n a d i a n B u s i n e s s : A C r i t i c a l A p p r o a c h

3 Krashinsky, S. (2012, September 13). Pumping up the “Canada” in Canadian Tire. Globe and Mail. Retrieved from canadian-tire/article4543680. 4 Boodoosingh, C. (2013, March 22). Canadian Tire steps up digital strategy, Digital Home. Retrieved from www. 5 McDiarmid, J. (2013, January 23). Canadian Tire digs deeper into amateur sport, Toronto Star . Retrieved from

with the Canadian Olympic Committee and new or expanded deals with other amateur organizations. These arrangements reflect Canadian Tire’s shift to a greater presence in amateur sport following its 2011 acquisition of sports retailer Forzani Group Ltd. for $771 million. This move entrenched Canadian Tire’s status in the sporting goods market as well as provided it with access to a younger demographic of Canadian consumers (who like to shop at malls). Forzani continues to serve as an independent unit, operating Sport Chek, Sport Mart, and Athletes World stores.

Some observers believe that a continuing challenge for Canadian Tire is to make it clear in consumers’ minds that it offers more than automotive parts, tools, or sporting goods. On the other hand, marketing experts believe that Canadian Tire must also be cautious to not deviate far from its core business—that is, offering Canadians “everyday” household items rather than upscale home décor. As the old adage goes, you can’t be all things to all people.

Sorensen sums it up nicely:

Canadian Tire will need to stay on its toes as its territory is further invaded by big U.S. retailers. But despite its sometimes ungainly appearance, there’s no reason to think the inverted orange triangle and green maple leaf will disappear from the Canadian land- scape anytime soon. It may never be a chic proposition. But neither is weatherproofing windows or fixing a clogged toilet. 6

In fact, in 2013 Canadian Tire announced that it would launch smaller stores in city cen- tres, admitting that it needed to adopt a new approach to dealing with existing competi- tors like Walmart as well as combating new entrants like Target. Canadian Tire attempted the small-store concept in previous years. However, when Walmart began opening Super- centres across Canada (each about seven times the size of the new Canadian Tire format), it reconsidered that approach. Given that Walmart has recently begun toying with the “small box” concept (opening smaller, express versions of its big box stores) and with the entrance of Target, Canadian Tire has been open to revisiting just about anything, includ- ing a focus on smaller stores in core city shopping areas and malls. The plan is for these new “express” stores to be about 10,000 square feet.

Big or small, Canadian Tire has a lot to be proud of. It has been an iconic figure in the Canadian marketplace for many years. It has understood well the environmental forces that it must confront and address to survive. And for those patriotic Canadian consumers, let’s hope this good ol’ Canadian retailer sticks around for many more years. Way to go Canadian Tire—may the force(s) be with you, eh!

4 P a r t 1 A F r a m e w o r k f o r S t u d y

6 Sorensen, 2011.

THE INTERNAL CONTEXT OF BUSINESS What goes on within the walls of an organization? That is, what comprises the internal context of organizations? In Part 2 of this book, we will consider more closely t he internal context of organizations, focusing on four fundamental concepts: the employ- ment relationship, leadership, organizational structure, and strategy. Looking inside organizations involves a consideration of how people within organizations are managed.

Objective 1 Identify the key internal forces that shape any business.

leadership How people are managed within an organization.

strategy The decisions made by business managers about how the company will address political, eco- nomic, global, societal, competitive, and technological forces.

5C h a p t e r 1 E x p l o r i n g C a n a d i a n B u s i n e s s : A C r i t i c a l A p p r o a c h

Chapter 2 explores the employment relationship; we will identify and examine the nature of responsibilities that employers have toward their workforce. Chapter 3 con- siders the notion of leadership and discusses perspectives on managing people, which is particularly important considering that organiza- tions’ fates are intrinsically bound to the quality of decisions that are generated inside the organi- zation. Chapter 4 looks at how organizations are designed and why they sometimes decide to undergo dramatic change. Chapter 5 introduces the notion of business strategy and its relevance to organizational success or failure.

Exhibit 1.1 illustrates the framework we adopt in this book and also identifies the internal envi- ronment of business, which we discuss next.

The Employment Relationship: Responsibilities Toward Labour The ability to attract qualified workers and to extract maximum effort from them can be crucial to business success. However, navigating the labour relationship can be difficult and is fraught with risks. The context in which the labour rela- tionship operates is a highly complex one. Work- ers are usually interested in maximizing the income they receive from the sale of their labour, whereas businesses usually desire to maximize profit. These two objectives can clash, creating conflicts that can have nega- tive effects on productivity and profits, as well as the economy and society more gener- ally. Chapter 2 considers the complexities associated with the legal context of managing labour. Societies and economies are influenced dramatically by how work is organized. We will discuss how d ebates about the best way to organize work are long-standing and influenced by perspectives on markets, power, and the role of the state in capitalist societies. The result is a complex web of rules and forces that businesses must learn and adapt to if they are to operate successfully . The next chapter considers some of these rules more closely , including rules and processes relating to unemployment and the loss of work, and rules that attempt to address Canada’s diverse labour force.

Leadership and Effectively Managing People Chapter 3 considers the nature of the members who comprise an organization and how they manage and are managed. It does not matter whether we are talking about a nonprofit organization,

change A shift in how an organi- zation operates.

labour One of the five factors of production. Includes all workers in an organization who contribute their talents and strengths to cre- ate goods and services.






Political Forces

Global Forces

Economic Forces

Technological Forces

Competitive Forces

Societal Forces

Labour Leadership Structure Strategy

Exhibit 1.1 Inside and Outside Organizations: The Framework for This Book

Philip Date/Shutterstock

6 P a r t 1 A F r a m e w o r k f o r S t u d y

a small business, or a giant multinational corporation; any type of organization must be managed. Organizations are made up of people and, consequently, this factor is clearly one that we must carefully examine. How do we manage people within the organi- zation? Regardless of your role in organizations, no doubt at some point in your career you will be required to apply some sort of management or leadership skills in the conduct of your job. Simply working in organizations is a reason to be familiar with how organizational life operates and to understand what exactly is involved in the art and science of management. Given the importance of this issue, we will take a closer look at it in more detail in Chapter 3 .

Developing a Suitable Organizational Structure Chapter 4 considers the internal context of the organization with regard to how it is designed and the implications of organizational design and redesign . Organizational structure is a deliberately planned network or pattern of relationships that exists among individuals in various roles or positions. This includes the formal hierarchy of authority, the distribution or grouping of work (for example, into departments) and the rules or procedures that control and coordinate behaviour in the organization.

The structure of many organizations has been radically redesigned in recent years. Organizations in just about every industrialized nation have been undergoing change. (See Talking Business 1.1 .) While some companies have reduced their levels of hierarchy or


Changing GM’s Organizational Structure GM Global Design . . . announced a revised organizational structure and executive appointments that align it more closely with the company’s brands across its network of 10 Design Centers around the world.

“This new structure provides a foundation to build and grow the design language for each of our brands moving forward,” said Ed Welburn, GM vice-president for Global Design. “It gives our design teams a greater opportunity to create products and brands that have an emotional connection with our customers and that continue to move our company forward.”

The benefits of a more brand-focused design organiza- tion include:

• Drive stronger—and common—messaging across a brand’s portfolio

• Allow designers to better understand—and design for—customers when they live the brand on a day-to- day basis

• Provide for greater parts sharing across brands

• Foster more creativity and provide a clear, single pur- pose for each design team member.

The revised structure also increases the role of GM’s Advanced Design Centers, which are strategically located in the United States, Germany, Korea, China and Australia.

“Strengthening our Advanced Design organization will allow us to help the company develop innovative new tech- nologies and strategies to meet the future transportation needs of the global marketplace,” Welburn said. “One thing is clear: Success will require a variety of mobility solutions that are striking both in their execution and their efficiency.”

Source: Excerpted from GM press release. (2012, June 18). GM Design announces changes to its global organization and leader- ship team; moves strengthen brand focus and advanced design capabilities. Available at general-motors-design-ranks-get-big-overhaul. Reprinted with permission from General Motors Corporation

structure A deliberately planned network or pattern of relationships that exists among individuals within an organization. It deter- mines such things as division of labour, span of control, level of for- malization, and how centralized decision making is.

© ohmega1982/

7C h a p t e r 1 E x p l o r i n g C a n a d i a n B u s i n e s s : A C r i t i c a l A p p r o a c h

laid off employees at all levels, others have undergone a concurrent change in their whole business process, while others have simply closed down. To understand what is happening, and more importantly why it is happening, we need to understand more about the design or structure of organizations. This is the aim of Chapter 4 —to offer insight into the anat- omy of organizations and, ultimately, to explain why organizations are being redesigned.

Generating a Winning Business Strategy Deciding what strategies the organization should pursue is a key task of managers. Man- agers are continually faced with making decisions, both minor and major, on a daily basis. The aim of Chapter 5 is to describe the nature and purpose of strategic manage- ment. The chapter examines issues that are of critical importance to strategic manage- ment. What are the key forces in determining an industry’s structure, and what are the strategic implications? We will consider the roles of organizational resources and capa- bilities in firm performance. Our exploration will also include a discussion of corporate strategy and an identification of three generic strategies as well as how organizations go about implementing strategy. This examination reflects a central internal force that all organizations must contend with—the ability to generate a game plan to succeed.

THE EXTERNAL CONTEXT OF BUSINESS We can refer to the external context of organizations as its environment . Management schol- ars have typically defined the environment of an organization along two dimensions: the organization’s specific or task environment and the organization’s general environment . Each factor in an organization’s external environment can be considered as existing in two spheres: a specific sphere or environment within which the organization directly operates, and a general sphere or environment that would encompass the external environments of all organizations in a society. The specific sphere has been referred to as the environmental domain of the organization. For example, changes in the international environment may be a common factor for all organizations with, say, trade agreements affecting Canadian indus- try in general. However, some industries may be differentially affected by changes in the international environment via trade agreements. Not all organizations within an industry or within different industries are equally affected by changes in the environment. There are changes that affect all or some industries, and there are changes or factors that influence the direct sphere or environment of specific organizations.

Specific or Task Environment Any organization is surrounded by external stakeholders . These are parties or groups that have direct influence on the organization’s ability to obtain resources and generate out- puts. Stakeholders have some kind of stake or interest in the organization and could include such parties as the organization’s customers or suppliers, the labour pool from within which the organization obtains employees, competitors, unions, distributors, credi- tors, the local public, and the government (see Exhibit 1.2 ). While not all of these stake- holders may exist or exert influence on every organization, they are the types of factors that potentially constitute the specific environment of an organization.

Objective 2 Identify the forces that compose the specific and general environments of organizations.

specific or task environment The environment within which a particular organiza- tion operates, which is ultimately shaped by the general environment and includes stakeholders, customers, competitors, suppliers, and so on.

general environment The envi- ronment shared by all organiza- tions in a society, such as the economic and political environ- ments, and technological, societal, competitive and global forces.

external stakeholders Individ- uals or groups who bear some kind of risk, whether financial, physical, or other, as a result of a corpora- tion’s actions. They include such parties as suppliers, the govern- ment, and society in general. There are ethical as well as practical reasons to attend to all of their interests, even when they conflict.

8 P a r t 1 A F r a m e w o r k f o r S t u d y

General Environment The sphere surrounding the organization’s specific environment is typically referred to as the general environment . The forces that make up the general environment ultimately shape the specific environment of the orga- nization. Consequently, the general environ- ment will also influence the organization’s ability to obtain resources. General environ- mental factors typically include econ