Copyright 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 3–1

CHAPTER 3

UNDERSTANDING INTERNAL & EXTERNAL ENVIRONMENTS

Copyright 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 3–2

EXTERNAL ENVIRONMENT

‘Major forces outside the organisation with potential to influence significantly the likely success of a product or service.’

Copyright 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 3–3

EXTERNAL ENVIRONMENT

External environment is made up of:• The mega-environment

The broad conditions and trends in societies in which an organisation operates.

• The task environmentSpecific outside elements with which an organisation interfaces in the course of conducting its business.

Copyright 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 3–4

THE MEGA-ENVIRONMENT

The organisation

Sociocultural element

Legal-political element

International element

Technological element

Economic element

Copyright 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 3–5

Five major elements:1) Technological element:

Current state of knowledge regarding production of products & services

2) Economic element:Systems of producing, distributing & consuming wealth

Consumers purchasing power, unemployment rate, interest rates mergers and acquisition. Capitalist and socialist economy

3) Legal-political element:Legal & governmental systems within which an organisation must function

4) Sociocultural element:Attitudes, values, norms, beliefs, behaviours & associated demographic trends characteristic of a given geographic area.

Delay marriages, single parents, growing work force diversity

5) International element:Developments in countries outside of an organisation’s home country with potential to influence the organisation.

Currency fluctuations, free trade agreements(NAFTA)

Copyright 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 3–6

Example

• Economic element- Soaring jet price is one of the reason threatening the survival of Japan Airlines Company. Fuel prices increased 45% to $32 a barrel on the Singapore exchange, causing Japan Airline’s fuel bills to increase $90 million.

• Legal-political element- In India where cow is regarded as a sacred animal, McDonald’s has opened its first beef-free restaurants where its burgers are made of 100% lamb.

Copyright 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 3–7

Copyright 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 3–8

THE TASK ENVIRONMENT

Suppliers

Competitors

Government & regulators

The employment

market Public pressure groups

THE ORGANISATION

Customers/clients

Copyright 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 3–9

Five elements:1) Customers and clients:

Individuals and organisations purchasing products/services people who buy the goods. Usually, there are several groups of customers.

IMPORTANCE OF CUSTOMER SERVICE INTERNET threat

2) Competitors:Other organisations offering (or with a high potential to offer) rival products/services

Rivalry between competitors is usually the most serious force facing managers.

In Telecom industry, rivalry among the competing firms is very high i.e. Warid, Telenor, Jazz etc.

3) Suppliers:Organisations and individuals supplying resources an organisation needs to conduct its operations

Managers need to secure reliable input sources Suppliers provide raw materials, components, and even labor. Cooperation key element to save money, maintain quality and

time

Copyright 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 3–10

Copyright 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 3–11

4) Labour supply:Individuals potentially employable by an organisation.

Every organization needs a supply of trained personnel

5) Government agencies:Agencies providing services and monitoring compliance with laws and regulations at local, state or regional and national levels

Tax, consumer affairs, police

Copyright 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 3–12

1) Uncertainty:Condition in which future environmental circumstances affecting an organisation cannot be accurately assessed and predicted.

More uncertain-more time and effort spent by the managers.

2) Complexity:Number of elements in an organisation’s environment(task) and their degree of similarity

3) Dynamism:Rate and predictability of change in the elements of an organisation’s environment

4) Manificence:Extent to which the environment can support sustained growth and stability

Characteristics of the Environment:

Copyright 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 3–13

MANAGING THE ENVIRONMENT Three approaches to managing the environment:

• Adaptation:Involves changing internal operations & activities to make the organisation and its environment more compatible

• Favourability influence:Involves trying to alter environmental elements to make them more compatible with the organisation’s needs

• Domain shifting:Changing product/service mix to create favourable interface

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ADAPTATION• Buffering:

Stockpiling either inputs into, or outputs from, a production or service process to cope with environmental fluctuations

• Smoothing:Taking actions aimed at reducing the impact of fluctuations, given the market

• Forecasting:Predicting changing conditions & future events that significantly affect an organisation’s business

• Rationing:Providing limited access to a product or service in high demand

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FAVOURABILITY INFLUENCE

• Advertising & public relations• Boundary spanning• Recruiting• Negotiating contracts• Co-opting• Strategic alliances• Trade associations• Political activity

Example

• Advertising- Olper’s launch was, perhaps one of the most aggressive as far as processed liquid milk is concerned, with TVCs, print ads, radio commercials, billboards etc. Due to this aggressive marketing campaign, the competition seems to be getting tougher. This can be gauged from the fact that Nestle re-launched its product packagingand marketing campaign just before Olper’s launch. One can also see a far greater number of milk advertising billboards in Multan city than seen earlier like of Nirala, Good Milk and Nestle.

Copyright 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 3–16

Example

• Strategic alliance (joint venture)- The US fast food giant McDonald’s entered the Indian market by investing in two 50:50 joint ventures with individual entrepreneurs in Bombay and Delhi, India who will start operations with one outlet in each city.

Copyright 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 3–17

Copyright 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 3–18

DOMAIN SHIFTS

• Move out of a current product, service or geographic area into a more favourable domain

• Expand current domains through diversification or expansion of products/services offered

Example

• Domain shifting- Harley Davidson Inc. has used both domain shifts and favorability influence approaches in order to deal with environmental threats.

1. Domain shifts included expanding into other areas, including motor homes, defense and commercial contracts.

2. Efforts to influence the favorability of the environment included convincing the federal government to impose tariffs on foreign competitors, advertising and public relations.

Copyright 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 3–19

Copyright 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 3–20

INTERNAL ENVIRONMENTNature of organisational culture:

• ‘A system of shared values, assumptions, beliefs and norms uniting organisational members’ (Smircich 1983; Kilman et al. 1986).

• ‘The way we do things around here.’• The ‘glue’ binding the disparate parts (or the oil that

keeps them moving).• The interpretive part of organisational behaviour: it

explains, gives direction, sustains energy, commitment, and cohesion.

Example

• Organizational culture- During top management visits to various offices of Enterprise Rent-a-Car, the executives, including CEO Andy Taylor, have been known to help assist with daily activities when the other staff members are busy. The executives have been known to help with transactions and even wash and vacuum cars. Such activities help boost morale within the company, as well as help illustrate the concept of a team effort.

Copyright 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 3–21

Copyright 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 3–22

MANIFESTATIONS OF CULTURE• Symbols

Objects, acts, events or qualities serving as a vehicle for conveying meaning

• StoriesNarratives based on true events, which may be embellished to highlight intended value

• RitesRelatively elaborate, dramatic, planned sets of activities intended to convey cultural values to participants and, usually, an audience

• CeremonialsSystems of rites performed in conjunction with a single occasion or event

Copyright 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 3–23

PROMOTING INNOVATION• Strategic

Focused on identifying opportunities

• Committed to seizing opportunitiesWilling to make major, fast changes

• Commitment of resourcesMany stages with risk assessed for each stage

• Control of resourcesRental or outsourcing of resources for flexibility

• Management structureFew levels, with informal communication

Copyright 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 3–24

CHANGING ORGANISATIONAL CULTURE

An approach to changing culture:• Surfacing actual norms• Articulating new directions• Establishing new norms• Identifying culture gaps• Closing culture gaps

Copyright 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 3–25

LEADERSHIP &CULTURAL CHANGE

• Crisis identification

• Communication of a new vision

• Motivation of key staff

to lead cultural change by implementing the new vision and its corresponding strategy