Unit 03 Business Environment

8/12/2019 Unit 03 Business Environment

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BUSINESS ENVIRONMENT

Ng Qu Nhm, MBA

Email: [email protected]

Unit 3:


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Lecture outline

External environment Types of external environment

Analysing the environment

Managing the environment


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External environment

External environmentrefers to the outsideforces or institutions that potentially affect anorganisations performance

External environment is made up of:

The General environmentThe broad conditions and trends that may affect theorganisation.

The Specific environment

The part of the environment that is directly relevantto the achievement of an organisations goals.


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Economic

environment

Socio-cultural

environment

The externalEnvironment

Theorganisation

Suppliers

Competitors

Customers

Pressuregroups


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The General Environment

The General (Societal) Environment Economic forces

Technological forces

Political-legal forces

Sociocultural forces The Task (Specific) Environment Governments

Suppliers

Competitors Customers

Pressure group


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Economic Environment

GDP trends

Interest rates

Money supply Inflation rates

Unemployment levels

Wage/price control

Devaluation andrevaluation

Energy available andcost

Disposal income

Currency market

regulate the exchange of materials,money, energy, and information


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Political-Legal Environment

Legal & governmental systems within which anorganisation must function.

Allocate power and provide constraining andprotecting laws and regulation

Antitrust regulations Environmental protection

laws

Tax laws

Special incentives

Foreign trade regulations

Attitudes toward foreigncompanies

Laws on hiring andpromotion

Stability of government

Outsourcing regulation



Technological environment

refers to the current state of technological

knowledge and know-how (which generateproblem-solving inventions)

Total governmentspending for R&D

Total industry spendingfor R&D

Focus of technologicalefforts

Patent protection

New products

New developments intechnology transfer

from lab to market place Productivity improvements

through automation

Internet availability

Telecommunication

infrastructure



Socio-cultural environment

Attitudes, values, norms, beliefs, behaviours &associated demographic trends characteristic of agiven geographic area.

Lifestyle changes

Career expectations Consumer activism

Rate of familyformulations

Growth rate of

population Age distribution of

population

Regional shifts in

population Life expectancies

Birthrates

Pension plans

Health care

Level of education



International environment

International economic integration andglobalisation

How do these factors influence on anorganisations strategies and operation?

Fewer tariffs

Currencies liked via floating exchange rates

More global capital flows



The Specific environment

Suppliers

Competitors

Government &

regulators

The

employment

marketPublic pressure

groups

The

Organisation

Customers

/clients



PORTERS FIVE FORCES OF COMPETITION

Bargainingstrengthof

suppliers

Bargainingstrengthof

customers

Existence of

substitutes

Ease of entryinto industry

Intensity ofcompetition


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Potential Competitors

The greater the barriers to entry, thehigher tends to be above-normal profit

Barriers to entry Brand loyalty (product differentiation)

Cost advantage over new entrants (technology:learning curve)

Economies of Scale (Size)

Large fixed costs associate with marketing,

association, R&D and design Capital requirements

Government policy


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Competition Among Existing Firms

The extent of competition among establishedfirms depends on:

Competitive structure Fragmented industry: low entry barriers &

commodity-type products price wars

Consolidatedindustrytacit agreement

Rate of industry growth

Amount of fixed costs

Excess capacity Exit barriers (economic, strategic, emotional

factors)


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The bargaining of customers

Customers are most powerful when:

1. There are many small companies in supplyindustry and few, large buyers

2. The buyers purchase in large quantities

3. The supply industry depend on the buyers for alarge percentage of its total orders

4. Low switching cost between supply companies

5. Buyers can purchase the input from severalcompanies at once

6. Buyers can use the threat to supply their ownneeds through vertical integration


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The bargaining power of suppliers

Suppliers become most powerful when:

1. The product that suppliers sell has fewsubstitutes and is important to the company

2. The companys industry is not an important

customer to the company3. Suppliers products are differentiated (to suchan extent that its costly to change supplier)

4. Suppliers can use the threat to of vertically

integrate forward into the companys industry5. Buying companies cannot use the threatvertically integrate backward


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The existence of substitutes

Substitute products are ones ofindustries that serve similar customerneeds

The existence of close substitutes

presents a strong competitive threat

Key: Elasticity of substitution


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Analysing the environment

Environment characteristics: Environmental Uncertainty

Managers do not have enough information about theenvironment to understand or predict the future.

Uncertainty is determined by the degree of complexity

and change

Environmental ComplexityNumber of elements in an organisations environment andthe degree of an organisations knowledge about itsenvironmental components.

Environmental DynamismRate and predictability of change in the elements of anorganisations environment.


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Managing the Environment

Degree of changeStable Dynamic

Degreeofcomp

lexity

Sim

ple

Complex

DecentralisedBureaucratic

(Standardised skills)

DecentralisedOrganic

(Mutual adjustment)

DecentralisedBureaucratic

(Standardised skills)

CentralisedOrganic

(Direct supervision)

Four approaches for managing uncertainty:


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Three approaches to managing theenvironment:

Adapting to your environmentInvolves changing internal operations & activities to make

the organisation and its environment more compatible. Influencing your environment

Involves trying to alter environmental elements to makethem more compatible with the organisations needs.

Domain shiftingChanging product/service mix to create favourableinterface.


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Adapting to your environment

BufferingStockpiling either inputs into or outputs from aproduction or service process to cope withenvironmental fluctuations.

Smoothing

Taking actions aimed at reducing the impact offluctuations, given the market.

ForecastingPredicting changing conditions & future eventsthat significantly affect an organisations

business.Rationing

Providing limited access to a product or service inhigh demand.


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Influencing your environment

Advertising & public relations Boundary spanning

Recruiting

Negotiating contracts Co-opting

Strategic alliances

Trade associations

Political activity


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Domain shifting

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

Expand current domains throughdiversification or expansion ofproducts/services offered


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Social Responsibility of Business

Social Responsibility A business firms obligation, beyond that

required by the law and economics, to pursuelong-term goals that are good for society.

To whom should the firm be responsible? Employee relations

Consumer protection

The environment Financial honesty and openness


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Lecture summary

External environment: Types of external environment

General environment; Specific

environment Analysing the environment


Adaptation, Favourability influence &Domain shift

Unit 03 Business Environment

Documents

Transcript of Unit 03 Business Environment