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Chap002 BUS137

Environment of Business

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Chap002 BUS137

  1. 1. McGraw-Hill/Irwin 2-1 Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
  2. 2. Learning Objectives L01: How do environmental forces influence organizations influence their environments? L02: Can you distinguish between the macro environment and the competitive environment? L03: Why should managers and organizations attend to economic and social developments? 2-2
  3. 3. Learning Objectives L04: Can you identify elements of the competitive environment? L05: Summarize how organization respond to environmental uncertainty. L06: Define elements of an organization’s culture. L07: Discuss how an organization’s culture affects its response to its external environment 2-3
  4. 4. 2-4
  5. 5. How organizations interact with theirenvironment 2-5
  6. 6. The Macroenvironment General elements in the external environment that potentially can influence strategic decisions.  Laws and regulations  Economy  Technology  Demographics  Social Values 2-6
  7. 7. The External Environment 2-7
  8. 8. Managing the Macroenvironment The economy affects a company’s value Technology is changing every business function Demographics describe employees and customers Social issues shape attitudes toward your company and its products 2-8
  9. 9. The Competitive Environment 2-9
  10. 10. Who is the Competition?  Worldwide Competition  New Entrants  Barriers to entry low  Substitutes and Complements  Resources from Suppliers 2-10
  11. 11. Barriers to Entry Barriers to entry – conditions that prevent new companies from entering an industry  Government policy (e.g., patent laws)  Capital requirements (start-up costs)  Brand identification (consumer brand loyalty)  Cost disadvantages (Established economies of scale)  Distribution channels (e.g., supermarket shelf space) 2-11
  12. 12. Resources from Suppliers People – from schools, colleges and universities Raw materials – from producers, wholesalers, and distributors Information – from researchers and consulting firms Financial capital – from banks and other sources 2-12
  13. 13. Suppliers are important because… They can:  Raise their prices  Provide poor quality goods and services  Fail to provide human resources 2-13
  14. 14. Supply Chain Management The managing of the network of facilities and people that obtain materials from outside the organization, transform them into products and distribute them to customers. “The right product in the right quantity available at the right place at the right time” 2-14
  15. 15. Without customers, a company won’tsurvive… Final consumers – those who purchase products in their finished form. Intermediate consumers – those who purchase raw materials or wholesale products before selling them to final customers. 2-15
  16. 16. Environmental Analysis Managers must identify organizational opportunities and threats. Managers must use environmental analysis to make decisions 2-16
  17. 17. Environmental Scanning Searching for and sorting through information about the environment that is unavailable to most people to determine what is important. 2-17
  18. 18. Questions managers can ask about theenvironment Who are our current competitors? Are there few or many entry barriers to our industry? What substitutes exist for our product or service? Is the company too dependent on powerful suppliers? Is the company too dependent on powerful customers? 2-18
  19. 19. Competitive Intelligence The information necessary to decide how best to manage in the competitive environment they have identified. 2-19
  20. 20. Identifying Your Environment 2-20
  21. 21. Scenario DevelopmentScenarios – alternative combinations of different factors into a total picture of the environment and the firm. Best-case scenario: occurrence of events that are favorable to the firm Worst-case scenario: occurrence of events that are unfavorable to the firm 2-21
  22. 22. Forecasting Predicts exactly how some variable or variables will change the future. 2-22
  23. 23. Successful forecasting involves  Using multiple forecasts, and perhaps average their predictions  Remembering that accuracy decreases as you go further into the future  Collecting data carefully  Using simple forecasts where possible  Remembering that important events are often surprises that depart from predictions 2-23
  24. 24. Benchmarking Identifying the best-in-class performance by a company in a given area and then comparing your processes with theirs. 2-24
  25. 25. Adapting at the boundaries Buffering – creating supplies of excess resources in case of unpredictable needs  Internal (Contingent workers)  External (ending inventories) Smoothing – leveling normal fluctuations at the boundaries of the environment 2-25
  26. 26. Adapting at the core Flexible processes – methods for adapting the technical core to changes in the environment.  Mass customization – use of a network of independent operating in which each performs a specific process or task 2-26
  27. 27. Influence your environmentTwo proactive responses to changing the environment  Independent action – when a company acts on its own to change some aspect of its current environment.  Cooperative action – two or more organizations work together to change some aspect of the current environment. 2-27
  28. 28. Cooperative strategies make sense when…1. Taking joint action will reduce the organizations’ costs and risks2. Cooperation will increase their power (their ability to successfully accomplish the changes they desire). 2-28
  29. 29. Ways to change the boundaries of yourenvironment Strategic maneuvering – organizations can redefine or change which environment they are in Domain selection – the entrance by a company into another suitable market or industry. Diversification – when a firm invests in different types of business or products or when it expands geographically to reduce its dependence on a single market or technology 2-29
  30. 30. Ways to change the boundaries of yourenvironment (cont’d) Merger – when one or more companies combine with another. Acquisition – when one firm buys another. Divestiture – when a firm sells or more businesses.  Prospectors – companies that continuously change the boundaries for their task environments by seeking new products and markets, diversifying and merging, or acquiring new enterprises.  Defenders – companies that stay within a stable product domain as a strategic maneuver. 2-30
  31. 31. Culture and the Internal Environment Culture – the set of important assumptions about the organization and its goals and practices that members of the company share. System of shared values about what is important and beliefs about how the world works. Provides a framework that organizes and directs people’s behavior on the job. 2-31
  32. 32. Culture clues Corporate mission statements and official goals Business practices (how a company responds to problems, makes strategic decisions, and treats employees and customers) Symbols, rites, and ceremonies Stories (myths, legends, and true stories) 2-32
  33. 33. The Ritz Carlton Service Values “I Am Proud To Be Ritz-Carlton” I build strong relationships and create Ritz-Carlton guests for life. I am always responsive to the expressed and unexpressed wishes and needs of our guests. I am empowered to create unique, memorable and personal experiences for our guests. I understand my role in achieving the Key Success Factors and creating The Ritz-Carlton Mystique. I continuously seek opportunities to innovate and improve The Ritz-Carlton experience. I own and immediately resolve guest problems. I create a work environment of teamwork and lateral service so that the needs of our guests and each other are met. I have the opportunity to continuously learn and grow. I am involved in the planning of the work that affects me. I am proud of my professional appearance, language and behavior. I protect the privacy and security of our guests, my fellow employees and the companys confidential information and assets. I am responsible for uncompromising levels of cleanliness and creating a safe and accident- free environment. Excerpt from 2-33
  34. 34. Types of Organizational Culture Group culture Hierarchical culture -internally oriented and - Internally oriented flexible - Focused on control and -based on value and stability norms associated with - Values and norms affiliation associated with a -compliance stems from bureaucracy trust, tradition, and long- - Values stability term commitment - Assumes compliance will -emphasizes member occur through formalized development roles 2-34
  35. 35. Types of Organizational Culture Rational culture Adhocracy- Externally oriented - Externally oriented- Focused on control - Flexible- Productivity, planning - Emphasizes changeand efficiency are (growth, resourceprimary objectives acquisition, and innovation)- Members motivated by the belief that performance - Members motivated by the leads to rewards importance or idealogical appeal - Leaders are entrepreneurial and risk takers 2-35
  36. 36. Managing cultures Make sure that underlying values align with the desired culuture Managers should espouse lofty ideals and visions for the company that will inspire organization members Managers must give constant attention to the mundane details of daily affairs and set examples Routinely celebrate and reward those who exemplify the values Hire, socialize newcomers, and promote employees based on the values 2-36
  37. 37. What kind of culture do you want to workin?To determine the type of culture best fits you visit: interview/Assess-Company-Culture-to-Find-the- /home.aspx 2-37
  38. 38. 2-38
  39. 39. You should be able to L01: Describe how do environmental forces influence organizations influence their environments L02: Distinguish between the macroenvironment and the competitive environment. L03: Explain why managers and organizations should attend to economic and social developments. 2-39
  40. 40. You should be able to L04: Identify elements of the competitive environment. L05: Summarize how organization respond to environmental uncertainty. L06: Define elements of an organization’s culture. L07: Discuss how an organization’s culture affects its response to its external environment. 2-40
  41. 41. Test Your KnowledgeAn open system organization: Inputs ___________, goods and services organizations take in and use Outputsand ______________, products and services organizations create. 2-41
  42. 42. Test Your Knowledge Identify elements of the competitive environment 2-42
  43. 43. Test Your KnowledgeDescribe the three ways that organizations can respond to their environments.1. Adapt to the environment2. Influence the environment3. Select a new environment 2-43
  44. 44. Test Your KnowledgeThe Ritz Carlton service values are an example of which aspect of culture? 1. corporate mission statement 2. business practices 3. ceremony 4. myth 2-44