This document provides an overview of Royal Dutch Shell and discusses nine deep historical forces that have shaped the dynamic business environment: the Industrial Revolution, inequality, population growth, technology, globalization, nation-states, dominant ideologies, great leadership, and chance. It also examines key external environments including the economic, technological, and cultural environments that influence business operations.

1. Chapter 2
The Dynamic
Environment
McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

2. Royal Dutch Shell PLC
o One of the world’s largest companies
o Each year it makes capital investments of between
$30 billion and $40 billion
o In the 1970s pioneered the use of scenarios in
corporate planning
2-2

3. Royal Dutch Shell PLC
o When an oil embargo surprised the world in 1973
Shell was the only major oil firm prepared for the
supply interruption
o Shell sees an emerging drama in the global energy
system, with tensions building at the intersection of
three powerful trends
o Developing nations with expanding populations are
using policies of economic growth to alleviate poverty
2-3

4. Royal Dutch Shell PLC
o Supplies of oil and gas cannot keep pace with rising
demands for energy
o Environmental stresses are growing
2-4

5. Figure 2.1 - Nine Deep Historical
Forces
2-5

6. The Industrial Revolution
o Historical force: An environmental force of
unknown origin and mysterious action that provides
the energy for events
o The discussion divides this force, somewhat
artificially, into nine separate but related forces
causing distinct chains of events
2-6

7. The Industrial Revolution
o The Industrial Revolution: An economic
metamorphosis in England in the late 1700s
o It occurred when certain necessary conditions were
present and shifted the country from a simple agrarian
economy into a growing industrial economy
2-7

8. The Industrial Revolution
o Requirements for industrial growth:
o Sufficiency of capital, labor, natural resources and
fuels
o Adequate transportation
o Strong markets
o Ideas and institutions that support the productive blend
of all the above ingredients
2-8

9. The Industrial Revolution
o Industrial growth remakes societies in positive ways,
but also generates strains in the social fabric
o The total amount of goods and services produced in
the twentieth century exceeds all that produced in
recorded human history
2-9

10. Inequality
o The basic political conflict in every nation, and often
between nations, is the antagonism between rich and
poor
o The industrial revolution accelerated the
accumulation of wealth and widened the persistent
problem of its uneven distribution
o Global income inequality is measured by the Gini
index
2-10

11. Inequality
o Gini index: A statistical measure of inequality in
which zero is perfect equality (everyone has the same
amount of wealth and 100 is absolute inequality (a
single person has all wealth)
2-11

12. Figure 2.2 - World GDP Growth in 50- Year
Intervals
2-12

13. Figure 2.3 - World Poverty
and Income Inequality since 1820
2-13

14. Population Growth
o The basic population trend throughout human history
is upward
o Accelerated growth after 1825 due to:
o Advances in water sanitation and medicine, reduced
the number of deaths from infectious disease
o Mechanized farming, expanded the food supply
2-14

15. Population Growth
o Rapid growth now declining due to declining fertility
o Implications of current population trends:
o The wealth gap between high- and low-income
countries will widen
o Growth will continue to strain the earth’s ecosystems
o The West is in demographic decline compared with
other peoples
2-15

16. Figure 2.4 – Historical World Population Growth
and Projections: 1 A.D. to 2300
2-16

17. Technology
o Throughout history new technologies and devices
have fueled commerce and reshaped societies
o Printing press
o Steam engine
o New technologies:
o Foster the productivity gains that sustain long-term
economic progress
o Promote human welfare
o Can agitate societies
2-17

18. Figure 2.5 - Waves of Innovation since the
Beginning of the Industrial Revolution
2-18

19. Globalization
o Globalization: The creation of networks of human
interaction that span worldwide distances
o Consequences of globalization:
o Increased economic activity
o Changed cultures
2-19

20. Globalization
o Globalization has been accelerated by new
technologies, and sometimes slowed by national
rivalries and wars
o Transnational corporations are the central forces of
current economic globalization
2-20

21. Nation-States
o Nation-state: An international actor having a ruling
authority, citizens, and a territory with fixed borders
o Arose out of the wreckage of the Roman Empire
o In the past, nations increased their power by seizing
territory from other nations
o Today, nations use trade to increase their power
2-21

22. Nation-States
o Trade through world markets is a new source of
power, but it also limits the ability of regimes to
control their economies
o Other forces such as epidemics, climate change,
terrorism and international norms also limit a nation-
state’s autonomy
2-22

23. Dominant Ideologies
o Ideology: A set of reinforcing beliefs and values that
constructs a worldview
o The industrial revolution was facilitated by several
ideologies:
o Capitalism
o Constitutional democracy – protection of individuals’
rights
2-23

24. Dominant Ideologies
o Progress – the idea that humanity was in upward
motion toward material betterment
o Darwinism – constant improvement characterized the
biological world
o Social Darwinism – evolutionary competition in
human society weeds out the unfit and advances
humanity
2-24

25. Dominant Ideologies
o Protestant ethic – hard work, saving, thrift and
honesty lead to salvation
o Many doctrines have perished as a result of
globalization
o The capitalism ideology accelerated in the 20th
century due to rising literacy and innovations that
spread information
2-25

26. Great Leadership
o Leaders have brought both beneficial and disastrous
changes to societies and businesses
o Two views of historic leaders:
o Leaders simply ride the wave of history
o Leaders themselves change history
2-26

27. Chance
o Some changes in the business environment may be
best explained as the product of unknown and
unpredictable causes.
o Machiavelli observed that fortune determines about
half the course of human events and human beings
the other half.
2-27

28. Figure 2.6 - Six Key External
Environments
2-28

29. The Economic Environment
o The economic environment consists of forces that
influence market operations, including:
o Overall economic activity
o Commodity prices
o Interest rates
o Currency fluctuations
o Wages
o Competitor’s actions
o Government policies
2-29

30. The Economic Environment
o Two basic subtrends underlying economic growth:
o Rising trade
o Major expansion of foreign direct investment by
transnational corporations
2-30

31. Figure 2.7 - Worldwide FDI Inflows:1980–
2009
2-31

32. The Technological Environment
o New technologies create both threats and
opportunities
o Technologies such as nanotechnology, open sourcing,
and collaborative computing will have a significant
impact on business
2-32

33. The Technological Environment
o New technologies have unforeseen consequences for
society when they are put into widespread use for
commercial gain
o Businesses must carefully weigh not only the
strategic impact of technologies on their business
models, but also the dangers they may impose on
people
2-33

34. The Cultural Environment
o Culture: A system of shared knowledge, values,
norms, customs, and rituals acquired by social
learning
o The environment of a transnational corporation
includes a variety of cultures
o This variation causes conflicts of business customs
o There is a fundamental divide between the culture of
Western economic development and the rest of the
world’s cultural groupings
2-34

35. The Cultural Environment
o The rise of postmodern values has uniformly shifted
the social, political, economic, and sexual norms of
wealthy countries
o Postmodern norms are a strong influence in the
operating environments of multinational corporations
2-35

36. The Government Environment
o There are currently two long-term global trends in the
government environment of major importance to
business:
o Government activity has greatly expanded
o Larger social welfare roles
o Expanded regulation of domestic industries
2-36

37. The Government Environment
o More governments are becoming open and democratic
o Governments increasingly respond to public demands
for corporate social performance
o These demands reflect postmodern vales promoting
human rights, the environment, aesthetics, and ethics
2-37

38. Figure 2.8 - The Rise of Democratic
Regimes
2-38

39. The Legal Environment
o The legal environment consists of legislation,
regulation, and litigation
o Five enduring trends:
o Laws and regulations have steadily grown in number
and complexity
o Corporations have expanding duties to protect rights of
stakeholders
o Globalization has increased the complexity of the legal
environment and expanded the application of
voluntary codes of conduct
2-39

40. The Legal Environment
o Ethical behavior and corporate social responsibility
often become codified in laws
o The law is constantly evolving
2-40

41. The Natural Environment
o Economic activity is a geophysical force with power
to change the natural environment
o Economic productivity in the 20th century has:
o Depleted mineral resources
o Reduced forest cover
o Killed species
o Released molecules not found in nature
o Unbalanced the nitrogen cycle
o Possibly triggered climate change
2-41

42. The Natural Environment
o The human ecological footprint moved beyond the
earth’s carrying capacity in the 1980s and is now
unsustainable
o Managers must adapt to changed thinking, toward
preservation of nature
2-42

43. Figure 2.9 - Measures of Human Impact on
Nature
2-43

44. The Internal Environment
o In a corporation, the internal environment consists of
four groups: employees, managers, the board of
directors, and owners
o Each of these groups has different objective, beliefs,
needs, and functions that must be coordinated
o Forces in external environments have recently
reduced the power of these internal groups
2-44

45. Figure 2.10 - The Internal Environment
2-45

46. Concluding Observations
o The environments of business have profound
implications for managers
o The actions of business constantly influence not only
current environments but, in addition, the deeper
course of history
o Although strongly constrained by its environment,
business has a powerful capacity to shape society and
change history in ways large and small
2-46

47. Figure 2.11 - The Dynamic Environment of
Business
2-47