different internal and external factors that effect the business

1. chapter
2
The External and
Internal Environment
McGraw-Hill/Irwin
Principles of Management © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.

2. 2 - 2
The Environment
of Managers
General
Environment
Task
Environment
Internal
Environment
The Manager

3. 2 - 3
Task Environment
Bargaining Power
of Suppliers
Threat of Entry
Threat of
Substitutes
Bargaining Power
of Buyers
Intensity
of
Rivalry
Porter’s
Competitive
Forces Model

4. 2 - 4
Threat of Entry
• Barriers to entry – factors that might make it costly
for potential competitors to enter an industry and
compete with firms already in the industry
• Economies of scale – cost reduction associated
with large output
• Brand loyalty – the preference of consumers for
the products of established companies

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Bargaining Power
of Buyers
• Buyers are most powerful when:
- They are few in number and purchase large quantities
- They can choose between equivalent products from many
different firms
- They can switch easily between the offerings of different firms
• Buyers are least powerful when:
- They are plentiful and purchase in small quantities
- They have little choice
- They cannot switch easily between the offerings of
different firms
• Switching Costs

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Bargaining Power of
Suppliers
• Firm has greater power over suppliers when:
- The firm purchases in large quantities
- It can choose between multiple suppliers
- The costs of switching between suppliers is low
- The firm is not dependant on any single
supplier for important inputs

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The Threat of
Substitutes
• The goods or services of different businesses or
industries that can satisfy similar customer needs
• The existence of substitutes is a strong competitive
threat because it limits the price that companies in
one store can change
• If there are few substitutes, firms have the
opportunity to raise prices

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The Intensity
of Rivalry
• The nature of the product
- The intensity of rivalry depends on how close the
product is to a commodity (a product that is difficult to
differentiate from those produced by rivals).

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The Sixth Force
Bargaining Power
of Suppliers
Threat of Entry
Threat of
Substitutes
Bargaining Power
of Buyers
Intensity
of
Rivalry
Complements
•Availability
•Price

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The General
Environment
Technological
Forces
Sociocultural
Forces
Demographic
Forces
Macroeconomic
Forces
Political & Legal
Forces
International
Forces

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The Internal
Environment
Employees Resources
Organization
of the firm

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Culture
• The basic pattern of values and
assumptions shared by
employees within an
organization.
• Important because it influences
what a manager can and cannot
do and what is encouraged or
discouraged by the organization

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Human Capital
Knowledge Skills
Capabilities

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Resources
•Tangible resources
– physical assets
•Intangible
resources – non
physical assets