Chapter 3, Hitt Black Potter

8/8/2019 Chapter 3, Hitt Black Potter

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PowerPoint slides by

R. Dennis Middlemist

Colorado State University

Chapter 3Chapter 3

AssessingAssessing

ExternalExternal

EnvironmentsEnvironments


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2 2005 Prentice Hall

Learning Objectives

Learning Objectives

Articulate the role of the externalenvironment in management decisions andeffectiveness.

Explain the five major dimensions of an

organizations general environment. Describe the critical forces in the

organizations task environment.

After studying this chapter, you should beable to:


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Learning Objectives

Learning Objectives

Describe the key elements of anorganizations global environment.

Describe the key considerations in

conducting effective environmental

scanning.

After studying this chapter, you should beable to:


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The Business Environment

The Business Environment

External environment: a set of forces and conditions

outside the organization that can influence its

performance

Task environment: forces that have a high potential of

affecting the organization on a immediate basis

General environment: forces that typically influence the

organizations external task environment and through them,

the organization itself

Internal environment: key factors and forces inside

the organization affecting its operation


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Organization EnvironmentOrganization Environment

External Environment

General Environment

Adapted from Exhibit 3.1: Organization Environment

General

Environment

Political-Legal


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General

Environment



General Environment

Task

Environment

Political-Legal

Competitors

Strategic Partners

Task Environment



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General Environment

Task

Environment

Political-Legal

Competitors

Strategic Partners

Internal

Environment

Owners

Board of Directors

Management

Employees

Culture

Task Environment

Internal Environment



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General Environment

General Environment

Sociocultural forces Demographics

Values Technology forces

Product technological changes

Process technological changes

Economic forces Current economic conditions

Economic cycles

Structural changes

General

Environment

Political-Legal


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Good

economic

conditions

Poor

economicconditions

Time

Economic CyclesEconomic Cycles

Adapted from Exhibit 3.2: Overall Economic Cycles and Industry Cycles


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General Environment

General Environment

Political and legal forces

Laws and regulations

Government spending

Global forces

Impact on and interaction with the otherforces

Institutional forces

Physical forces

General

Environment

Political-Legal


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Sociocultural

General Environment ofGeneral Environment of

CocaCoca--ColaCola

Adapted from Exhibit 3.3: Description of the General Environment of Coca-Cola

Environmental Factor

Baby boomers drinking less soft drinks as

they age

US population growth is slowing and much

of the growth comes from immigrants who

generally drink less soft drinks

Description

Demographics

Values Baby boomers drinking less soft drinks as

they age US population growth is slowing and much

of the growth comes from immigrants who

generally drink less soft drinks


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Technological

General Environment ofGeneral Environment of

CocaCoca--ColaColaEnvironmental Factor

New canning technology makes using

recycled aluminum easier and cheaper

Internet opens up a new means of running

promotion contests and activities

Description

Economic Slow economy reduces per person

consumption due to fewer social occasions

at which soft drinks might be served

Like end of economic downturn andprospects of economic recovery

Stricter liability for illness caused by

beverage contamination



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Global

The General Environment ofThe General Environment of

CocaCoca--ColaColaEnvironmental Factor

Gradual increase in acceptance of

carbonated soft drinks in other countries

such as India and China

Widely available electricity and increased

ability to afford refrigerators in emerging

countries and economies

Description



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The General Environment ofThe General Environment of

CocaCoca--ColaCola

Adapted from Exhibit 3.4: The General Environment of Coca-Cola

Sociocultural

Baby boomers drinking less

Immigrants drinking less

Concern about recycling

Concerns about health

Technological

New recycle-friendly canning

technology

New promotion opportunities

via the Internet

Political-Legal

Increased health standards

for bottling

Stricter liability legislation

Global

Increase in acceptance of

carbonated drinks in India

and China

Easier consumer access to

refrigeration

Economic

Slow economic growth

Prospect of economic

recovery

Coca-Cola

Sociocultural

Technological

Political-Legal

Global

Economic


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Task EnvironmentTask Environment

Organizations most immediateexternal environment

Consists of Competitors

Customers

Suppliers

Task

Environment

Competitors

Strategic Partners

Strategic partners

Labor

Regulators

Typically largest influence on the organization Managers must understand the fit between the

organization and its task environment


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LowerProfits

Higher

Profits

Profits and Industry ForcesProfits and Industry Forces

Few competitors

Quality-based

competition

High entry barriers

Few new entrants

Many customers

Fragmented

customers

Many suppliers

Many competitors

Price-based

competition

Low entry barriers

Many new entrants

Many substitutes

Few customers

United customers

Few suppliers

Adapted from Exhibit 3.5: Profits and Industry Forces


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Task

Environment

Competitors

Strategic Partners

Task Environment:Task Environment:

How big and strong are your

competitors?

What are your competitors weaknesses?

What is the nature of competition or

rivalry in your industry?

The Nature of CompetitionThe Nature of Competition


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New entrants increase competition

Increased competition leads to lower

profits

More choices for customers causes

companies to increase value to

customers

Entry barriers keep new entrants out

New EntrantsNew EntrantsPotential CompetitorsPotential Competitors


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To what extent can alternative

products or services can

substitute for existing productor service

The fewer the available substitutes, the

greater the profits

SubstitutesSubstitutes

Task

Environment

Competitors

Strategic Partners


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When there are fewer and

united customers, they have

more power to demandLower prices

Customized products or services

Attractive financing terms from producers These demands reduce profits

CustomersCustomers

Task

Environment

Competitors

Strategic Partners


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Strategic partners work closely

with a firm to pursue mutually

beneficial goalsLimited engagements

Joint ventures

Sharing of equity interest

Strategic PartnersStrategic Partners

Task

Environment

Competitors

Strategic Partners


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The balance between supply and

demand for types of workers significantly

affects a firms performanceWhen demand exceeds supply, the

imbalance can lead to high labor costs

Labor unions can exert pressure onmanagers to increase wages and offer other

costly benefits, decreasing performance

LaborLabor


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Regulators consist of both

regulatory agencies and

interest groups

Regulators can influence and sometimes

dictate organizational actions

RegulatorsRegulators

Task

Environment

Competitors

Strategic Partners


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Competitors

Task Environment of JetBlueTask Environment of JetBlue

Task Environmental

Factor

Primarily price-based, hurting performance

Many established and big players

Description

Rivalry

New Entrants $35 million start-up costs, frequent failures

discourages new entrants

Substitutes $ Video conferencing may substitute for

face-to-face (travel) business meetingsCustomers Business travelers who want convenience

Leisure travelers who want low price

Adapted from Exhibit 3.6: Description of the Task Environment of JetBlue


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Task Environmental

Factor

Airbus supplies all of JetBlues planes

Many jet fuel suppliers

Description

Suppliers

Strategic Partners Currently not a part of any airline alliance

Initial partner with satellite TV provider

Currently not represented by labor unions

Ample supply of pilots and flight attendants

due to significant downsizing in industryRegulators FAA dictates standards and regulations

Airport authorities determine access and

cost of landing slots and gates at airports

Adapted from Exhibit 3.6: Description of the Task Environment of JetBlue


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Competitors

Adapted from Exhibit 3.7: The Task Environment of JetBlue

Competitors

Rivalry: Price

New Entrants: Few

Substitutes: Video

conferencing

Customers

Business travelers

Leisure Travelers

Suppliers

Planes:Airbus

Jet Fuel: many suppliers

such as Exxon Mobil

Labor

No union representation

Ample supply of pilots and

flight attendants

Regulators

FAA

AirportAuthorities

Strategic

Partners

No airline partners

Initial partnership with

satellite TV provider

Suppliers

Labor

Regulators

Strategic partners

Customers

JetBlue


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The Internal EnvironmentThe Internal Environment

Owners

Single owner can determine

objectives and distribution of profits

Diversified set of shareholders have more

difficulty agreeing on objectives and profits

Board of DirectorsSet of individuals elected by shareholders of

the company to represent their interests

Internal

EnvironmentOwners

Board of Directors

Management

Employees

Culture


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The Internal EnvironmentThe Internal Environment

Employees

Demographics

Values

Culture

Assumptions

Values

Beliefs

Internal

EnvironmentOwners

Board of Directors

Management

Employees

Culture


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Environmental Scanning &Environmental Scanning &

Response

Response

Know what to scan

Have a plan of how to scan

Gain advantage over competitors

Be superior in analyzing publicly available

information and anticipating how it relates to

your job, company, and industryObtain information from nonpublic sources


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What type of

information do Ineed?

Define

Environmental ScanningEnvironmental Scanning

What information

is relevant?

Recognition

What are the

potential and mostimportant issues?

Analyze

What impact could

this have and what

is the response?

Respond

Adapted from Exhibit 3.8: Environmental Scanning


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Responding Effectively toResponding Effectively to

Changing EnvironmentsChanging Environments

Direct influence

Strategic response

Organization agility

Information management

Chapter 3, Hitt Black Potter

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