Business Management | The Canadian Encyclopedia


Business Management

In addition to their problem-solving abilities and skills, business managers must have knowledge and expertise in the seven functional areas of business: production, marketing, finance, accounting, human resources, management information systems, and product research and development.

In addition to their problem-solving abilities and skills, business managers must have knowledge and expertise in the seven functional areas of business: production, marketing, finance, accounting, human resources, management information systems, and product research and development. Moreover, top management must be able to co-ordinate these activities within the business so as to maximize the value of the business to its shareholders and its other stakeholders, such as employees, suppliers, customers and the surrounding community.

Areas of Business Management

Production managers purchase and take inventory of raw materials and semifinished inputs, manage the use of these inputs in the production process, and control final goods inventory and the shipping, transportation and distribution of final products.

Marketing managers conduct of market research to determine which products, at which prices and quantities and with which characteristics, will create value for consumers. They also manage the advertising, promotion and sales of the firm's products.

Finance managers raise capital for the firm from external sources, such as the stock market (see Stock and Bond Markets), banks (see Banking), individuals and the public debt market, and manage the internal allocation of funds within the firm. They also evaluate capital expenditures for plant and equipment and for research and development.

Management accountants collect and evaluate cost data on the wages and salaries of a firm's employees, equipment and materials inputs, and its various sources of capital. They combine these data with revenue data to determine the firm's profits, its assets and liabilities, fund-flow needs and tax liabilities (See Accounting).

Human resource managers help make hiring decisions, conduct training, co-ordinate the evaluation and reward systems within the firm, and chart and manage the careers of the firm's employees.

Research and development managers develop new process technologies to increase production efficiency and new product technologies to expand the range, quality and performance of the firm's products (See Industrial Research and Development; Scientific Research and Development).

Information systems managers manage information flows within the firm and between the firm and its suppliers and customers. Increasingly, they also provide access to the wealth of data available via the Internet.

The firm's overall business strategy and how it is implemented are crucial to its success. Top managers assess the strengths and weaknesses of the firm in relation to other firms in its industry (or industries) both at home and abroad; set the firm's objectives and goals; formulate and implement the firm's strategy; assess the success of the firm in creating value for its various stakeholders relative to its competitors; and, if necessary, over time revise its basic competitive strategies.

One of the most important aspects of business management is to ensure that all employees possess the information, skills, attitudes and motivation to use their full potential to achieve the firm's strategic goals. Top management influences the corporate management style, the corporate culture of interpersonal relationships and values within the firm. Top management, sometimes with the assistance of the firm's government and community relations departments, is also responsible for the management of the firm's relations with the various levels of government and the general public.

Importance of Business Management to the Canadian Economy

Business management is vitally important to the Canadian economy. In the mid-1990s, 80% of the Canadian work force of 15.5 million were employed in the private sector: private business accounted for almost 80% of nonresidential gross fixed capital formation; and over 90% of exports and imports. Good business management is also important for the efficient and effective operations of government-owned enterprises, such as Canada Post, the hydro companies (BC Hydro, Ontario Hydro, Hydro-Québec), the CBC and Air Canada.

Unless Canada's business sector is efficient and competitive on a global basis, Canada's economy will stagnate and its standard of living will fall. The past successes and failures of business management in Canada are reflected in Canada's rank in terms of GDP per capita (adjusted for purchasing power parity) of eighth in the world in the mid-1990s (down from fourth a decade before); its evaluation by the United Nations as the country with the highest quality of life in the world; its rank of eighth among world exporters; and its relatively poor performance in increasing its productivity over time and in developing new products and processes through research and development (R&D). In the coming decades, Canadian businesses and Canadian managers will come under increasing pressure from businesses in the US, Europe, South America and on the Pacific Rim.

Although each aspect of business management is important, the relative emphasis on each within a firm depends on the firm's competitive strategy and the industry and country in which it operates. Business management differs among banks, retail stores (see Retail Trade) and manufacturing firms, as well as among firms from Canada, the US, Japan and China. Business management in Canada has developed several unique characteristics because of Canada's geography, economy, its political, social and cultural systems, and its history.

Business Management in Canada

Because Canada covers a large geographic area, but has a small, dispersed population, government has been involved extensively in infrastructure development: roads, railways, airlines (see Transport) and electric power - and in industrial development. In Canada, government influence is more pervasive in business, industry and the economy than in the US. The decisions of business managers in Canada are more circumscribed by government regulations, but Canadian business managers are also more likely to seek government assistance than are their American counterparts.

Canada's relatively small, dispersed, but, until recently, highly protected markets and its proximity to the large, high-income US market explain several features of Canadian business management. In general, Canadian managers are more averse to risk than are managers in the US. There is a high level of foreign direct investment in Canadian industries (see Foreign Investment).

Some critics of the high level of foreign ownership in Canada have charged that it has reduced the scope, independence, authority and flexibility of Canadian business managers in foreign-owned subsidiaries over key decisions for their firm. They also attribute the relatively low level of R&D in these Canadian subsidiaries to the centralization of R&D activities in the home countries of the multinational enterprises (MNEs) that own them. The subsidiaries of MNEs may also be perceived by Canadian entrepreneurs as threatening due to their technological and marketing expertise, their size and global reach, and their deep financial pockets. (See Multinational Corporation.)

Compared with US firms, Canadian firms have a lower percentage of managers with university educations and with formal training in business and commerce at the undergraduate and master's levels. In the past, in Canadian-owned firms, promotion to the top ranks of business management tended to be more based on years of experience with the firm and family background than on educational achievement, performance and initiative (see Business Elites).

This situation has been changing over recent decades. Yet, by the mid-1990s, Canada still had a disproportionately small number of bachelor's, master's and PhD graduates in commerce and business administration compared to the US (see Business Education).

Industrial relations is another distinctive feature of business management in Canada. Canadian business has a generally poor record of days lost to strikes. A relatively high percentage of workers, especially in the public sector (see Public-Service Unions), are unionized in Canada, and unions tend to be more militant in Canada than in the US. Canadian management tends to be more formal, rigid and confrontational and less progressive in its relations with workers than management in the US, Europe (except the UK) and Japan. This situation has led not only to a higher level of strikes, but also to a greater rigidity of work rules, overmanning and lower productivity, and to high wage costs in some industries (see Labour Relations; Working-Class History).

Future of Business Management

Canada is a trading nation with about 30% of GDP exported. Over the past decade, there have been three major changes in Canada's international trade environment. First, the Canada-US free trade Agreement was signed; second, the North American Free Trade Agreement was signed, and third, the World Trade Organization (WTO), which incorporates the General Agreement on Tariffs and Trade (GATT) and extends its scope and powers, was created. All three of these events have already reduced trade protection in Canada and in many of its major trading partners and will continue to reduce it in the future. As well, firms around the world have moved increasingly toward global competition.

These events have presented extreme challenges for Canadian firms and business management in Canada. Usually, business managers can undertake only one major initiative at a time. But, in order to survive and prosper, over the past decade and into the future, Canadian managers will have to undertake initiatives on three fronts: to increase efficiency and reduce costs, often by expanding to attain scale efficiency and to rationalize production among fewer products; to develop new products and processes that will enable them to compete on international markets; and to penetrate international markets in manufactured products and services.

In response to these challenges, Canadian firms and their managers have forged strategic alliances with firms abroad and joined strategic alliance groups. They have restructured Canadian firms and whole industries so as to compete in a global economy. Subsidiaries of foreign MNEs have had to integrate themselves into the parent firm's global operations rather than act as free-standing units oriented solely toward the Canadian economy.

In general the ultimate success of these initiatives cannot be assessed. As of 1997, Canadian unemployment rates were above those in the US, but below those in Europe. The growth of the Canadian economy has lagged behind expectations and its past performance during the 1970s and 1980s. Canadian exports of goods and services, however, have boomed, and, for the first time in many years, Canada ran a surplus on its current account in 1996. Not only have exports expanded rapidly, the product diversity of Canada's exports has increased dramatically (the export concentration fell by 50% from the 1980s to the 1990s) and the percentage of manufactured products in Canada's exports increased by 40% from 1980 to 1996. This trade performance represent a remarkable achievement for Canadian firms and Canadian managers.

Now that some of the pain of integration into the world economy is over for Canada, forecasts by the Organization for Economic Co-operation and Development project that the Canadian economy will expand at a relatively rapid rate as Canadian business management becomes increasingly proficient in increasing firm value in the new world economy.

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