Bateman and Snell Chap 02

McGraw-Hill © 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill © 2003 The McGraw-Hill Companies, Inc. All rights reserved.

2 - 1


2 - 2

Chapter

2 The ExternalEnvironment


2 - 3

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


2 - 4

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


2 - 5

Laws andpolitics

Economy

Technology

DemographicsSocialvalues

MacroenvironmentCompetitiveEnvironment

OrganizationSuppliers

NewEntrants

SubstitutesRivals

Buyers

The External EnvironmentThe External Environment


2 - 6

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


2 - 7

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


2 - 8


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


2 - 9


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


2 - 10

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


2 - 11

Rival firms

Newentrants

Suppliers Customers

Substitutes

Competitive EnvironmentCompetitive Environment


2 - 12

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


2 - 13


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


2 - 14


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


2 - 15


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


2 - 16

EnvironmentalScanning

BenchmarkingScenario

Development

Forecasting

Environmental AnalysisEnvironmental Analysis


2 - 17

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


2 - 18

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


2 - 19

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


2 - 20


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


2 - 21


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


2 - 22

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)


2 - 23

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


2 - 24

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


2 - 25


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


2 - 26

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


2 - 27

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



2 - 28

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


2 - 29

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

Bateman and Snell Chap 02

Documents

Transcript of Bateman and Snell Chap 02