Bateman and Snell Chap 02
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Transcript of Bateman and Snell Chap 02
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Chapter
2 The ExternalEnvironment
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Learning ObjectivesLearning Objectives
After studying Chapter 2, you will know: how environmental forces influence organizations, as well as
how organizations can influence their environments how to make a distinction between the macroenvironment and
the competitive environment why organizations should attend to economic and social
developments in the environments how to analyze the competitive environment how organizations respond to environmental uncertainty
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The External EnvironmentThe External Environment
Organizations are open systems affected by, and in turn affect, their external environments
External environment all relevant forces outside a firm’s boundaries
relevant - factors to which managers must pay attention two elements comprise the external environment
competitive environment - immediate environment surrounding a firm
macroenvironment - fundamental factors that generally affect all organizations
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Laws andpolitics
Economy
Technology
DemographicsSocialvalues
MacroenvironmentCompetitiveEnvironment
OrganizationSuppliers
NewEntrants
SubstitutesRivals
Buyers
The External EnvironmentThe External Environment
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The MacroenvironmentThe Macroenvironment
The macroenvironment most general elements in the external environment that can
potentially influence strategic decisions all organizations are affected by the general components of the
macroenvironmentLaws and regulations
impose strategic constraints and provide opportunities regulators - specific government organizations in a firm’s
more immediate task environment have the power to investigate company practices and take legal
action to ensure compliance with the laws
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The Macroenvironment (cont.)The Macroenvironment (cont.)
The economy created by complex interconnections among economies of
different countries important elements include interest rates, inflation rates,
unemployment rates, and the stock market economic conditions change and are difficult to predict
Technology creates new products, advanced production techniques, and
improved methods of managing and communicating strategies that ignore or lag behind competitors in
considering technology lead to obsolescence and extinction
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The Macroenvironment (cont.)The Macroenvironment (cont.)
Demographics measures of various characteristics of the people comprising
groups or other social units age, gender, family size, income, education, occupation
workforce demographics must be considered in formulating human resources strategies population growth influences the size and composition of the
labor force immigration also is a significant factor
increasing diversity of the labor force has both advantages and disadvantages
must assure equal employment opportunity
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The Macroenvironment (cont.)The Macroenvironment (cont.)
Social issues and the natural environment management must be aware of how people think and behave
the role of women in the workplace providing benefits for domestic partners of employees protection of the natural environment
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Competitive EnvironmentCompetitive Environment
Competitive environment comprises the specific organizations with which the
organization interacts Michael Porter - defined the competitive environment
successful managers: react to the competitive environment; and act in ways that actually shape or change the competitive
environment
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Rival firms
Newentrants
Suppliers Customers
Substitutes
Competitive EnvironmentCompetitive Environment
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Competitive Environment (cont.)Competitive Environment (cont.)
Competitors competitors within an industry must deal with one another organizations must:
identify their competitors analyze how competitors compete react to and anticipate competitors’ actions
competition is most intense: where there are many competitors when industry growth is slow when the product or service cannot be differentiated
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Competitive Environment (cont.)Competitive Environment (cont.)
Threat of new entrants barriers to entry - influence the degree of threat
conditions that prevent new companies from entering an industry include government policy, capital requirements, and brand
identification, cost disadvantages, and distribution channels
Threat of substitutes technological advances and economic efficiencies may result
in substitutes for existing products substitutes can limit another industry’s revenue potential companies need to think about potentially viable substitutes
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Competitive Environment (cont.)Competitive Environment (cont.)
Suppliers provide the resources needed for production powerful suppliers can reduce an organization’s profits
international labor unions are noteworthy suppliers dependence on powerful suppliers is a competitive
disadvantage power of supplier determined by:
availability of other suppliers from whom to buy the number of customers for the supplier’s products
switching costs - fixed costs buyers face if they change suppliers close supplier relationship is the new model for organizations
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Competitive Environment (cont.)Competitive Environment (cont.)
Customers purchase the products or services the organization offers
final consumers - purchase products in their final form intermediate consumers - buy raw materials or wholesale
products before selling them to final consumers customer service - giving customers what they want, the way
they want it, the first time disadvantageous to depend too heavily on powerful
customers powerful customers make large purchases and/or have other
suppliers
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EnvironmentalScanning
BenchmarkingScenario
Development
Forecasting
Environmental AnalysisEnvironmental Analysis
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Environmental AnalysisEnvironmental Analysis
Environmental uncertainty lack of information needed to understand or predict the future uncertainty arises from two related factors
complexity - the number of issues to which a manager must attend as well as their interconnectedness
dynamism - the degree of discontinuous change that occurs within the industry
as uncertainty increases, techniques must be developed to collect, sort, and interpret information about the environment
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Environmental Analysis (cont.)Environmental Analysis (cont.)
Environmental scanning searching for and sorting through information about the
environment competitive intelligence - information that helps managers
determine how to compete better competitive potential of environments differs
attractive environments - give firm a competitive advantage unattractive environments - put firm at a competitive
disadvantage
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Attractive and Unattractive EnvironmentsAttractive and Unattractive Environments
EnvironmentalFactor
Competitors
Threat of entry
Substitutes
Suppliers
Customers
Unattractive
Many; low industry growth;equal size; commodity
High threat; few entry barriers
Many
Few; high bargaining power
Few; high bargaining power
Few; high industry growth;unequal size; differentiated
Low threat; many barriers
Few
Many; low bargainingpower
Many; low bargainingpower
Attractive
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Environmental Analysis (cont.)Environmental Analysis (cont.)
Scenario development scenario - a narrative that describes a particular set of future
conditions best-case scenario - events occur that are favorable to the firm worst-case scenario - events occur that are all unfavorable
help managers develop contingency plansForecasting
method for predicting how variables will change in the future accuracy varies from application to application forecasts are most useful when they accurately predict a
changed future environment
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Environmental Analysis (cont.)Environmental Analysis (cont.)
Benchmarking process of comparing the organization’s practices and
technologies with those of other companies determine the best-in-class performance by a company in a given
area benchmarking team collects information on its own company’s
operations and those of benchmark companies to identify gaps gaps investigated to learn the underlying causes of performance
differences
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Responding To The EnvironmentResponding To The Environment
Adapting to the environment company adjusts its structures and work processes in uncertain environment caused by complexity, companies
tend to decentralize decision making empowerment - process of sharing power with employees
enhances their confidence in their ability to perform their jobs engenders beliefs that they are influential contributors to the firm
in uncertain environments caused by dynamism, companies tend to establish more flexible structures bureaucracy - suited for stable environments (low dynamism) organic - provides flexibility required for changing environments
(high dynamism)
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Complex
Simple
Stable Dynamic
DecentralizedBureaucratic(Standardized skills)
CentralizedBureaucratic(Standardized work processes)
DecentralizedOrganic(Mutual adjustment)
CentralizedOrganic(Direct supervision)
Four Approaches for Managing UncertaintyFour Approaches for Managing Uncertainty
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Responding To The Environment (cont.)Responding To The Environment (cont.)
Adapting to the environment (cont.) Adapting at the boundaries
buffering - creating supplies of excess resources in case of unpredictable needs
buffers created on both the input and output side of the business smoothing - leveling normal fluctuations at the boundaries of the
organization Adapting at the core
flexible processes - permit adaptation of the technical core mass customization -use of a network of independent operating
units that each performs a specific process different modules join forces to deliver the product or service as
specified by the customer
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Responding To The Environment (cont.)Responding To The Environment (cont.)
Influencing your environment proactive responses aimed at changing the environment
Independent action - strategies that an organization acting on its own uses to change some aspect of its current environment
Cooperative action - strategies used by two or more organizations working together to mange the external environment
at an organizational level, establish strategic alliances, partnerships, joint ventures, and mergers with competitors
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Strategy
Competitiveaggression
Competitivepacification
Public relations
Voluntary action
Legal action
Political action
Independent ActionIndependent Action
Definition
Exploiting a distinctive competence or improvinginternal efficiency for competitive advantage
Independent action to improve relations with competitors
Establishing and maintaining favorable images in theminds of those making up the environment
Voluntary commitment to various interest groups,causes, and social problems
Company engages in private legal battle with competition
Efforts to influence elected representatives to create amore favorable business environment
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Changing the environment you are in strategic maneuvering - conscious effort to change the
boundaries of the competitive environment prospectors - companies that continuously change the
boundaries of their task environments by: seeking new products and markets diversifying and merging acquiring new enterprises
defenders - companies that stay within a stable, more- limited product domain as a strategic maneuver
Responding To The Environment (cont.)Responding To The Environment (cont.)
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Strategy
Domainselection
Diversification
Merger andacquisition
Divestiture
Strategic ManeuveringStrategic Maneuvering
Definition
Entering industries or markets with limitedcompetition or regulation and ample suppliers andcustomers; entering high growth markets
Investing in different types of business, manufacturingdifferent types of products or geographic expansionto reduce dependence on single market or technology
Combining two or more firms into a single enterprise;gaining possession of an ongoing enterprise
Selling one or more businesses
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Change appropriate elements of the environment focus on elements that:
cause the company problems provide the company with opportunities allow the company to change successfully
Choose responses that focus on pertinent elements of the environment focus on competitive aggression and pacification
Choose responses that offer the most benefit at the lowest cost focus on both short- and long-term financial considerations
Choosing A Response ApproachChoosing A Response Approach