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The

ExternalandInternal

Environments

Chapter Two

Copyright © 2015 McGraw-Hill Education. All rights resered. !o reproduction or distri"ution without the prior written consent o# McGraw-Hill Education.



2-2

Learning Objectives

LO 1 Describe how environmental forcesinuence organiations and how organiationscan inuence their environments!

LO 2 Distinguish between the macroenvironmentand the competitive environment!

LO 3 Explain wh" managers and organiationsshould attend to economic and social

developments!LO 4 Identif" elements of the competitive

environment!



2-$

Learning Objectives #cont!$

LO 5 %ummarie how organiationsrespond to environmentaluncertaint"!

LO 6 De&ne elements of anorganiation's culture!

LO 7 Discuss how an organiation's

culture and climate a(ects itsresponse to its external environment!



2-%

Organiation Inputs andOutputs

Figure 2.1



2-5

Open %"stems

Open systems

Organiations that are a(ected b") andthat a(ect) their environment!



2-&

Open %"stems

Inputs

*oods andservicesorganiationsta+e in and useto createproducts orservices!

Outputs

The productsand servicesorganiationscreate!



2-'

Open %"stems

External environment

,ll relevant forces outside a &rm'sboundaries) such as competitors)customers) the government) and theeconom"!

Competitive environment

The immediate environmentsurrounding a &rm- includes suppliers)customers) rivals) and the li+e!



2-(

Open %"stems

Macroenvironment

The general environment- includesgovernments) economic conditions) andother fundamental factors thatgenerall" a(ect all organiations!



2-)

The External Environment

Figure 2.2



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The Econom"

The economic environmentdramaticall" a(ects managers'abilit" to function e(ectivel" andinuences their strategic choices!

Interest and ination rates a(ect theavailabilit" and cost of capital)growth opportunities) prices) costs)and consumer demand for products!



2-11

.ercent Change in /onfarm .a"rollEmplo"ment since %tart of Each

0ecessionFigure 2.3



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The Econom"

In publicl" held companies)managers ma" feel re1uired to meet2all %treet's earnings expectations!

3anagers ma" focus on short4term results at the expense of long4termsuccess

%ome managers ma" be tempted toengage in unethical or unlawful behavior that misleads investors



2-1$

Technolog"

Technologicaladvances createnew products)advancedproductiontechni1ues) and

better wa"s ofmanaging andcommunicating

,s technolog"evolves) newindustries)mar+ets) andcompetitiveniches develop



2-1%

Laws and 0egulations

Reulators include agencies suchas5 Occupational %afet" and 6ealth

,dministration #O%6,$

Interstate Commerce Commission #ICC$

7ederal ,viation ,dministration #7,,$

E1ual Emplo"ment Opportunit"Commission #EEOC$

/ational Labor 0elations 8oard #/L08$



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Demographics

!emorap"ics

3easures ofvariouscharacteristics ofthe people whoma+e up groupsor other socialunits



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Demographics

!emorap"ic tren#s

*rowth of the labor force

Increasing education and s+ill levels

Immigration

Increased numbers of women in thewor+force

Increasingl" diverse wor+force



2-1'

%ocial Issues

%ocietal trends regarding how peoplethin+ and behave have majorimplications for management of thelabor force) corporate social actions)and strategic decisions aboutproducts and mar+ets!

7amil" leave) domestic partnerbene&ts) exible wor+ing hours) andchild care assistance!



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The CompetitiveEnvironment

Figure 2.4



2-1)

Competitors

Competition is most intense when5 There are man" direct competitors

Industr" growth is slow

.roduct9service is not easil"di(erentiated



2-20

/ew Entrants

$arriers to entry

conditions that prevent new companiesfrom entering an industr"

government polic") capitalre1uirements) brand identi&cation) costdisadvantages) and distribution

channels!



2-21

%ubstitutes andComplements

%u&stitutes

alternativeproducts or

services

Complements

products orservices that

increasepurchases ofother products



2-22

:uestion

;;;;;;;;;;;; costs are &xed costs bu"erface if the" change suppliers!

,!Exchange8!Lever

C!%witching

D! Transfer



2-2$

%uppliers

%uppliers provide

resources orinputs neededfor production

%'itc"in

costs &xed costs

bu"er face if

the" changesu liers



2-2%

%uppliers

%upply c"ain manaement

managing the networ+ of facilities andpeople that obtain materials from

outside the organiation) transformthem into products) and distributethem to customers



2-25

Customers

(inalcustomers

purchaseproducts in their&nished form

Interme#iatecustomers

purchase rawmaterial orwholesaleproducts before

selling them to&nal customers



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Environmental ,nal"sis

Environmental uncertainty

Lac+ of information needed tounderstand or predict the future!



2-2'

Environmental <ncertaint"

Environmentalcomplexity The number of

issues to whicha manager mustattend as wellas the

interconnectedness of theseissues

Environmental#ynamism The degree of

discontinuouschange thatoccurs within anindustr"



2-2(


Environmental scannin

searching out information that isunavailable to most people and sorting

that information to interpret what isimportant and what is not!

Competitive intellience

Information that helps managersdetermine how to compete better!



2-2)


%cenario#evelopment

, narrative thatdescribes aparticular set offuture conditions

8est4case) worst4case

(orecastin

3ethod forpredicting how

variables willchange thefuture



2-$0

:uestion

2hat is the process of comparing anorganiation's practices andtechnologies with those of othercompanies=

,!Comparative technolog"

8!8enchmar+ing

C!.rocess s"nchroniation

D!.rocess as"nchroniation



2-$1


$enc"mar)in

The process of comparing anorganiation's practices and

technologies with those of othercompanies!



2-$2

Changing the Environment >ou are In

%trateic maneuverin ,n organiation's conscious e(orts to

change the boundaries of its tas+

environment!omain selection Entrance to a new mar+et or industr"

with an existing expertise

!iversi*cation Occurs when a &rm invests in a di(erent

product) business) or geographic area



2-$$

Changing the Environment >ou are In

Merers One or more

companies

combine withanother

+c,uisitions One &rm bu"s

another!ivestiture , &rm sells one or

more businesses

-rospectors Continuousl" change

the boundaries of theirtas+ environment b"

see+ing new productsand mar+ets)diversif"ing andmerging) or ac1uiringnew enterprises

!e.en#ers %ta" within a stable

product domain as astrategic maneuver



2-$%

Inuencing >ourEnvironment

In#epen#entstrateies

%trategies thatan organiationacting on its ownuses to changesome aspect ofits currentenvironment!

Cooperativestrateies

%trategies usedb" two or moreorganiationswor+ing togetherto manage theexternalenvironment!



2-$5

Independent ,ction

Table 2.3



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Cooperative ,ction

Table 2.5



2-$'

,dapting to theEnvironment

$u/erin

Creating suppliesof excess

resources in caseof unpredictableneeds!

%moot"in

Leveling normaluctuations at

the boundariesof theenvironment!



2-$(

Organiation Culture

Orani0ational culture

The set of important assumptionsabout the organiation and its goals

and practices that members of thecompan" share

In strong cultures) the majorit" of people

within the organiation agree onorganiational goals

In wea+ cultures) di(erent people hold

di(erent values and there is confusionabout cor orate oals



2-$)

Competing ?alues 3odelof Culture

Figure 2.6

?id O t it



2 %0

?ideo5 Opportunit"International

2hich social issues in themacroenvironment are addressed b"Opportunit" International=

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