View
217
Download
1
Category
Preview:
Citation preview
2. Business environment
2. Business environment
Chapter
2 The External
Environment
The 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
Laws and
politics
Economy
Technology
Demographics
Social
values
Macroenvironment Competitive
Environment
Organization Suppliers
New
Entrants
Substitutes Rivals
Buyers
The External Environment
The 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 macroenvironment
Laws 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
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
The Macroenvironment (cont.)
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
The Macroenvironment (cont.)
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
Competitive 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
Rival firms
New
entrants
Suppliers Customers
Substitutes
Competitive Environment
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
Competitive Environment (cont.)
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
Competitive Environment (cont.)
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
Competitive Environment (cont.)
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
Economic Stability Inflation
Widespread Price Increases In An Economic System
Unemployment
Level of Joblessness Among Those Actively Seeking Work In An Economic System
Recession vs. Depression
Organizational Boundaries & Environments
External Environment
Organizational Boundary- Separates Organization From Environment
Dimensions of External Environments
The Business
Organization
Economic
Technological
Political-Legal
Business
Sociocultural
Economic Environment
Business Cycle
Patterns of short term ups and down in an economy
Aggregate Output
Standard of Living
Total quantity and quality of goods and services that a
country’s citizerns can purchase with the currency used
in their country
Gross Domestic Product (GDP)
Real (GDP calculated to account for changes in
currency values and price changes)
Nominal (GDP measured in current dollars or with all
components valued at current prices)
Gross National Product (GNP)
Business Cycle Expansion
Contraction
Managing the U.S. Economy
Fiscal Policy Determines How
Government Collects/Spends Revenues
Monetary Policy Determines Size of
Nation’s Money Supply
Monetary Policy Interest Rates
Spending Tight
Interest Rates
Spending Easy
Technological Environment
Product/Service Technologies Technologies employed for
creating products (goods and services) for customers
Business Process Technologies- Enterprise Resource Planning Large scale information system
for organizing and managing a firm’s processes across product lines, departments and geographic locations
Enterprise Resource Planning
ERP System
Human
Resources
Data Analysis
Accounting & Finance
Customer
Services
Sales &
Marketing
Supply Chain
Management
Manufacturing
Moore’s Law Means More Performance. Processing power, measured in millions of
instructions per second (MIPS), has risen because of increased transistor counts.
Copyright © 2005 Intel Corporation
4
Intel Silicon Innovation: ”Fueling New Solutions for the Digital Planet”, Copyright © 2005 Intel
Corporation.
5
Samsung 40” TV Active Matrix 1280x800 pixel OLED
(July 2005)
Siemens 4 cm Active Matrix 128x48 pixel OLED
Suitable for MP3 Player
Sony Thin Screen OLED for Mobile Devices
(September 2004)
Electronic Paper OLED
64
Prof. Dr. Andreas Tünnermann: “OPTICS AND PHOTONICS:
Enabling Technology and Driving Force for Regional Development and Competitiveness”,
IST 2004
66
Political-Legal Environment
Regulation-
Defines Relationship Between Government & Business
Government =
Pro vs. Anti-Business Sentiment
Sociocultural Environment
Customer Preferences/Tastes- Vary International National
Ethical Compliance & Responsible Behavior Enron Arthur Andersen
Business Environment
Redrawing Corporate
Boundaries- Core Competencies
Challenges/Opportunities
Outsourcing
Vertical Integration
Viral Marketing
Business Process Management
Post-9/11
Environmental
Scanning
Benchmarking Scenario
Development
Forecasting
Environmental Analysis
Environmental 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
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
Attractive and Unattractive Environments
Environmental
Factor
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 bargaining
power
Many; low bargaining
power
Attractive
Environmental Analysis (cont.)
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 plans
Forecasting 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
Environmental Analysis (cont.)
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
Responding 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)
Complex
Simple
Stable Dynamic
Decentralized
Bureaucratic
(Standardized skills)
Centralized
Bureaucratic
(Standardized work
processes)
Decentralized
Organic
(Mutual adjustment)
Centralized
Organic
(Direct supervision)
Four Approaches for Managing
Uncertainty
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
Responding To The Environment (cont.)
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 influence the external environment
at an organizational level, establish strategic alliances, partnerships, joint ventures, and mergers with competitors
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:
diversifying and merging
seeking new products and markets
acquiring new enterprises
defenders - companies that stay within a stable, more- limited product domain as a strategic maneuver
Responding To The Environment (cont.)
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 specific 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 Approach
U.S. Balance of Trade (2003)
U.S. Buys $1.5 Trillion of Goods/Services
U.S. Sells $1.0 Trillion of Goods/Services
U.S. Balance of Trade
-$500 Billion
Source: U.S. Census Bureau- Foreign Trade Statistics (2003 Annual Highlights), http://www.census.gov/foreign-trade/statistics/highlights/annual.html
Chapter 2
Understanding the Environments of Business
Chapter Outline
Organizational Boundaries & Environments
Economic Environment
Technological Environment
Political-Legal Environment
Sociocultural Environment
Business Environment
% GDP Change From Previous Period
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
1975 1985 1995 2003
Source: U.S. Department of Commerce, Bureau of Economic Analysis
U.S. GDP & Real GDP
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
1975
1980
1985
1990
1995
2000
2003
Gross DomesticProduct
Gross DomesticProduct (2000Dollars)
(In $ Billons)
Source: U.S. Department of Commerce, Bureau of Economic Analysis
GDP & GDP Per Capita
Purchasing Power Parity (Big Mac Index Based On At Market Exchange Rate 12/13/04)
$5.46
$3.75
$3.00
$2.56
$2.50
$2.12
$1.60
$1.49
$1.26
$0.00 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00
Switzerland
Euro Area
U.S.
Chile
Japan
Mexico
Argentina
Russia
China
US Big Mac = $3 Average
(Average of 4 Cities)
Source: The New York Times, “Big Mac Index”, Dec. 16th, 2004. http://www.economist.com/markets/bigmac/displayStory.cfm?story_id=3503641
U.S. Productivity
GDP % Change From Preceding Period
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
1930
1935
1940
1945
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2004
Source: U.S. Dept. of Commerce- Bureau of Economic Analysis
Expansion vs. Recession vs. Depression?
*
*3rd Quarter 2004
% GDP Change vs. % Labor Productivity Change
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
1995
1996
1997
1998
1999
2000
2001
2002
2003
GDP
Productivity
Source: U.S. Department of Commerce, Bureau of Economic Analysis U.S. Department of Labor- Bureau of Labor Statistics
U.S. National Debt
$0
$1
$2
$3
$4
$5
$6
$7
$8
1950 1960 1970 1980 1990 2000*For Today’s Figure go to “U.S. National Debt Clock”, http://www.brillig.com/debt_clock/
Source: Bureau of the Public Debt: Historical Debt Outstanding- Annual, http://www.publicdebt.treas.gov/opd/opdhisto4.htm
In $ Trillions*
U.S. Consumer Price Index (Dec.- All Urban Consumers)
0
20
40
60
80
100
120
140
160
180
1965 1970 1975 1980 1985 1990 1995 2000
1982-1984- = 100
Source: U.S. Department of Labor- Bureau of Labor Statistics
U.S. Unemployment Rate (Seasonally Adjusted on 12/31)
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
1965 1970 1975 1980 1985 1990 1995 2000 2004
* * 11/30/04
Source: U.S. Department of Labor- Bureau of Labor Statistics, http://data.bls.gov/PDQ/servlet/SurveyOutputServlet
U.S. Prime Interest Rate (Jan.1)
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
1950 1960 1970 1980 1990 2000 2004Source: Board of Governors of the Federal Reserve System
Earnings & Educational Attainment (1999 Dollars)
$0 $20,000 $40,000 $60,000 $80,000 $100,000$120,000
Ph.D.
Professional
Master's
Bachelor's
Associate's
Some College
H.S. Grad.
Not H.S. Grad.
Source: U.S. Census Bureau
Full-Time Year-Round Workers
Foreign Direct Investment Confidence Index (Oct. 2004)
0 0.5 1 1.5 2 2.5
China
U.S.
India
Germany
Japan
Russia
Brazil
Mexico
Taiwan
Source: A.T. Kearney Consulting, http://www.atkearney.com/main.taf?p=5,3,1,89
Corporate Investors’ Interest in Global Investment
Scale = 0-3
Low Confidence High Confidence
Recommended