{"id":37,"date":"2020-11-02T13:34:59","date_gmt":"2020-11-02T18:34:59","guid":{"rendered":"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/chapter\/foundations-of-business\/"},"modified":"2024-12-07T00:45:54","modified_gmt":"2024-12-07T05:45:54","slug":"foundations-of-business","status":"publish","type":"chapter","link":"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/chapter\/foundations-of-business\/","title":{"raw":"Chapter 1 - Foundations of Business","rendered":"Chapter 1 – Foundations of Business"},"content":{"raw":"
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Learning Objectives<\/strong><\/h1>\r\n<\/header>\r\n
\r\n\r\nBy the end of the chapter, you should be able to:\r\n
    \r\n \t
  1. identify and describe the primary and secondary participants in a business;<\/li>\r\n \t
  2. describe the concept of stakeholders and identify the stakeholder groups relevant to an organization;<\/li>\r\n \t
  3. discuss and identify types of influences from the external environment on the business;<\/li>\r\n \t
  4. describe what takes place within each of the functional areas of business; and<\/li>\r\n \t
  5. explain [pb_glossary id=\"456\"]key terms[\/pb_glossary] highlighted in the chapter.<\/li>\r\n<\/ol>\r\n<\/div>\r\n<\/div>\r\n\"\"\r\n

    Show What You Know<\/h2>\r\n

    [h5p id=\"4\"]<\/p>\r\n \r\n

    Raven Reads: Promoting the Indigenous Economy<\/h1>\r\nRaven Reads is a growing British Columbia subscription box service that now has a global reach, and it all started with Nicole McLaren\u2019s desire to meaningfully engage in business and community.\r\n\r\n[caption id=\"attachment_1271\" align=\"alignright\" width=\"300\"]\"\" Figure 1.1 Raven Reads subscription boxes curate products that promote Indigenous Peoples and the Indigenous economy.[\/caption]\r\n\r\nIn particular, Nicole was compelled by a desire to educate others on the overwhelming impact of residential schools.[footnote]Dunne, D. (2022, May 30). Meet Nicole McLaren, Raven Reads<\/em>. BC Marketplace. https:\/\/marketplacebc.ca\/meet-nicole-mclaren-raven-reads\/[\/footnote] The residential schools scattered throughout Canada formally started in 1883 and lasted as late as the 1990s in some areas. At least 150,000 First Nations, M\u00e9tis, and Inuit students were subjected to a school system that targeted removing most, if not all, of the students\u2019 cultural identities. Generations of First Nations, M\u00e9tis, and Inuit students endured unhealthy and abusive environments.[footnote]Miller, J. R. (2012). Residential Schools in Canada<\/em>. The Canadian Encyclopedia. https:\/\/www.thecanadianencyclopedia.ca\/en\/article\/residential-schools[\/footnote] The Truth and Reconciliation Reports and Calls to Action[footnote]University of Manitoba. (2022). Reports<\/em>: National Centre for Truth and Reconciliation<\/em>. https:\/\/nctr.ca\/records\/reports\/[\/footnote] highlighted these and other atrocities and offered calls to action. After reading these reports, Nicole found herself asking \u201cwhat does reconciliation mean and what role can I play in this?\u201d[footnote]Raven Reads. (n.d.). About us.<\/em> https:\/\/ravenreads.org\/pages\/about-us[\/footnote]\r\n\r\nNicole focused on her desire to educate others on the overwhelming impact of residential schools[footnote]Dunne, D. (2022). Meet Nicole McLaren, Raven Reads<\/em>. BC Marketplace. https:\/\/marketplacebc.ca\/meet-nicole-mclaren-raven-reads\/[\/footnote] so she started a book club in 2016. That book club then turned into a small home business in which she curated Indigenous created content, books, and products and then delivered them to customers. The business struck a nerve and grew rapidly. Today, it is a thriving subscription box business and distribution center operating out of Kamloops, BC with customers worldwide.\r\n\r\nFrom its inception and at its core, Raven Reads is an impact-driven company that focuses on curating Indigenous content and products to support and help grow the Indigenous economy. Seventy percent of Raven Reads suppliers are impact ventures that support Indigenous communities, charities, and social impact initiatives.[footnote]Raven Reads. (n.d.). Press Kit<\/em>. https:\/\/ravenreads.org\/pages\/press-kit[\/footnote] Raven Reads is an exemplary business of today. It is rooted in an empowering compassion, supports the Indigenous economy, and gives back so others can do the same.\r\n
    \r\n

    What do you think?<\/strong><\/h2>\r\n<\/header>\r\n
    \r\n\r\n[h5p id=\"44\"]\r\n

    Discussion Questions<\/strong><\/h2>\r\n
      \r\n \t
    1. What are the primary reasons for the success of Raven Reads?<\/li>\r\n \t
    2. What are the greatest challenges facing Raven Reads today?<\/li>\r\n<\/ol>\r\n<\/div>\r\n<\/div>\r\n

      Introducing the Business Context\r\n<\/span><\/h1>\r\nCanadian [pb_glossary id=\"454\"]businesses[\/pb_glossary] operate within a dynamic environment and multiple disciplines and interrelationships between various components that make up business. If we look at these components together we can gain a basic understanding of how businesses are making decisions within an ever-changing set of needs. To survive, business organizations have to respond to changing macro environmental factors. The [pb_glossary id=\"465\"]macro environment[\/pb_glossary] provides opportunities for businesses to adapt and innovate, and also represents threats to and limitations on an organization's ability to achieve its objectives.\r\n\r\nThe world is made up of inspiring and diverse businesses and a range of business opportunities. Businesses can be big or small, traditional brick and mortar or online, broad or niche, established or new, successful or unsuccessful, and local, domestic or global. Advances in technology are bringing rapid changes in the ways we produce and deliver goods and services. The Internet and other improvements in communication (such as smartphones, video conferencing, and social networking) now affect the way we do business. Companies are expanding international operations, and the workforce is more diverse than ever. Corporations are being held responsible for the behavior of their executives, and more people share the opinion that companies should be good corporate citizens. Because of the role they played in the worst financial crisis since the Great Depression, businesses today face increasing scrutiny and negative public sentiment.[footnote]Hilsenrath, J., Ng, S., & Paletta, D. (2008, September 18). Worst Crisis Since \u201930s, With No End Yet in Sight<\/em>. WSJ. https:\/\/www.wsj.com\/articles\/SB122169431617549947[\/footnote]\r\n

      As you go through the course with the aid of this textbook, you will explore the exciting world of business. We will introduce you to the various activities in which business people engage \u2014 accounting, finance, information technology, management, marketing, and operations. We will help you understand the roles that these activities play in an organization, and show you how they work together. We hope that by exposing you to the things that business people do, we will help you to decide whether business is right for you and, if so, what areas of business you would like to study further.<\/span><\/p>\r\n\r\n

      Decision Making within the External Environment<\/h1>\r\nWith respect to decision making within the external environment, there are two main perspectives to adopt.\r\n

      Figure 1.2 Comparing Two Views of Management<\/strong><\/p>\r\n

      Move the line left or right to compare the two common views of management.<\/p>\r\n

      [h5p id=\"45\"]<\/code><\/p>\r\nFigure 1.2 <\/strong>On one side of the image is the view, Managers \u201cKnow Best\u201d, where decision making is under the control of the managers and should rely on managers\u2019 capabilities. In the view of Managers \u201cKnow Best\u201d, managers have ultimate accountability; if the company is successful, the managers get the credit, and if the company is not successful, the managers get the blame. The other side of the image shows the view, The Environment Decides, where decision making is in response to the environment; however, it is limited as the business can only do what the environment sustains. In the view of The Environment Decides, a company\u2019s success comes from reacting well to the environment, and a company\u2019s failure is because of an unfavorable environment.\r\n\r\nOne perspective takes the boardroom approach, where everything is viewed from management's perspective; managers \"know best,\" meaning that managers have the skills and knowledge to make the best decisions for the company. Correspondingly, managers are held accountable for any missteps of the company. The top managers are responsible for either outcome.\r\n\r\nThe second perspective for making decisions stresses the need for critical analysis and evaluation of the external environment. The company must focus on the external environment, particularly on the perspectives of other stakeholders <\/span>including customers, employees, competitors, investors, lenders, government and the general public. In doing so, they will be able to respond to the environment's needs. The challenge with this perspective is that the decision makers can put so much emphasis on the influence of the external environment that they sometimes miss opportunities to take control of a situation. For example, during the early days of the COVID-19 pandemic, the external business environment shifted dramatically. Businesses that emphasized the control of the external environment did not adapt the ways they provided their products to people. Consequently, many of them did not survive. Businesses with this external influence perspective would have said that they closed because of the pandemic, not because they were not adaptable.\r\n\r\nAs the story of Raven Reads suggests, today is an interesting time to study business. More than ever, businesses have to pay attention to what is happening around them. The political, economic, legal, social\/cultural, technological, and natural environmental factors are constantly shifting. Being too dependent on managers' know-how or attributing too much control to the environment is problematic. Thus, most Canadian businesses have adopted a hybrid approach.\r\n

      Figure 1.3 Blending the Two Views - A Hybrid Approach<\/strong><\/p>\r\n\"\"\r\n\r\nFigure 1.3<\/strong>\u00a0When using the Hybrid Approach as managers, take action over the things you can control. Pay attention to the environment rather than over-relying on managers. When things go wrong, look at the managerial decisions and the environment for explanations.\r\n\r\nThe hybrid approach draws on the strength of both perspectives and limits the negatives of each perspective. Namely, it emphasizes that managers can have control, but that they are also limited by the environment. As a result, managers should pay close attention to what's happening around the business so that they can adapt to the changing trends.\r\n

      What Is Business?\r\n<\/span><\/h1>\r\n

      Before we move on to a deeper discussion of business, it is important to clearly define business. A business is any activity that provides goods or services to consumers for the purpose of making a profit. Be careful not to confuse the terms revenue <\/span>and profit. <\/span>Revenue<\/span>\u00a0represents the funds an enterprise receives in exchange for its goods or services. Profit<\/span>\u00a0is what\u2019s left (hopefully) after all the bills are paid.<\/p>\r\n

      Many businesses provides products or services<\/span><\/span>. Your bank is a service company, as is your internet provider. Hotels, airlines, law firms, movie theaters, and hospitals are also service companies. Many companies provide both goods and services. For example, your local car dealership sells goods (cars) and also provides services (automobile repairs). Second, some organizations are not set up to make profits for individual stakeholders. Many are established to provide social or educational services for the entire public. Such non-profit organizations include the United Way, Habitat for Humanity, the Boys and Girls Clubs, the Canadian Red Cross, and many colleges and universities.<\/span> Most of these organizations, however, function in much the same way as a business. They establish goals and work to meet them in an effective, efficient manner. Thus, most of the business principles introduced in this text also apply to non-profits.<\/span><\/p>\r\n\r\n

      Business Participants, Stakeholders, and Functional Areas of Business\r\n<\/span><\/h1>\r\n

      We will begin our discussion of business by identifying the main\u00a0[pb_glossary id=\"559\"]participants[\/pb_glossary] of business, the [pb_glossary id=\"549\"]stakeholders[\/pb_glossary]<\/span> of business, and the [pb_glossary id=\"554\"]functions[\/pb_glossary] <\/span>that most businesses perform. We will finish this section by discussing the external factors that influence a business\u2019s activities.<\/span><\/p>\r\n\r\n

      Participants<\/span><\/h2>\r\n

      Every business must have one or more owners<\/span>\u00a0<\/span>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<\/span>\u00a0<\/span>to work for the company and help it reach its goals. Owners and employees depend on a third group of participants\u2014 [pb_glossary id=\"513\"]customers[\/pb_glossary]<\/span>. 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 [pb_glossary id=\"517\"]competitors[\/pb_glossary].\r\n<\/span><\/p>\r\n\r\n

      Stakeholders\u00a0<\/span><\/h2>\r\n

      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 \u201cmom and pop shop\u201d without affiliation to a larger entity. Whether national or local, every business has [pb_glossary id=\"549\"]stakeholders[\/pb_glossary]<\/span> \u2013 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 1.3). 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 \u2014 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.<\/span><\/p>\r\n

      Figure 1.4 Common Business Stakeholders<\/strong>\"Various<\/p>\r\nFigure 1.4<\/strong>\u00a0Common Business Stakeholders include: the environment, service users, policy makers, the public, managers, customers, the government, shareholders, funders, employees, suppliers, and owners.\r\n

      Functional Areas of Business<\/span><\/h2>\r\n

      The activities needed to operate a business can be divided into a number of functional<\/span>\u00a0<\/span>areas<\/span>. <\/span>Examples include: [pb_glossary id=\"561\"]human resources,[\/pb_glossary] [pb_glossary id=\"505\"]operations[\/pb_glossary], [pb_glossary id=\"500\"]marketing[\/pb_glossary], [pb_glossary id=\"502\"]accounting[\/pb_glossary], [pb_glossary id=\"507\"]finance[\/pb_glossary] and [pb_glossary id=\"511\"]information technology[\/pb_glossary]. Let us briefly explore each of these areas.<\/p>\r\n\r\n

      Human Resources<\/h3>\r\n

      HR managers\u00a0are 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.<\/p>\r\n\r\n

      Operations<\/span><\/h3>\r\n

      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 <\/span>products \u2014 iPads, iPhones, etc<\/span>. Others, such as hospitals, convert resources into intangible <\/span>products, e.g., health care. The person who designs and oversees the transformation of resources into goods or services is called an operations manager<\/span>. This individual is also responsible for ensuring that products are of high quality.\u00a0In many organizations, operations management includes managing the supply chain which controls the delivery of raw materials and the distribution of finished goods.<\/p>\r\n\r\n

      Marketing<\/span><\/h3>\r\n

      Marketing<\/span> consists of everything that a company does to identify customers\u2019 needs (i.e., market research) 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\u2019s desire and ability to satisfy their needs.<\/span><\/p>\r\n\r\n

      Accounting<\/h3>\r\n

      Managers need accurate, relevant and timely financial information, which is provided by accountants. Accountants<\/span>\u00a0measure, summarize, and communicate financial and managerial information and advise other managers on financial matters. There are two fields of accounting. Financial accountants <\/span>prepare financial statements to help users, both inside and outside the organization, assess the financial strength of the company. Managerial accountants <\/span>prepare information, such as reports on the cost of materials used in the production process, for internal use only.<\/span><\/p>\r\n\r\n

      Finance<\/span><\/h3>\r\n

      Finance<\/span> involves planning for, obtaining, and managing a company\u2019s funds. Financial managers address such questions as: <\/span><\/p>\r\n\r\n