Bateman

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The External Environment and Organizational
Culture
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Learning Objectives

• After Studying Chapter 2, You will know
• Understand how environmental forces influence
  organizations, as well as how organizations can
  influence their environments
• Understand how to make a distinction between
  macro-environment and the competitive environment
• Understand why managers and organizations should
  attend to economic and social developments
• Understand how to analyze the competitive
  environment
• Understand how organizations respond to
  environmental uncertainty
• Understand how an organizations culture affects
  its response to its environment

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Introduction and Review

• Organizations are open systems
• Organizations affect and are affected by the
  external environment
• The external environment has two components
• Macro-Environment
• Competitive Environment

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The Macroenvironment

• The most general elements in the external
  environment that potentially can influence
  strategic decisions
• Top executives must consider external factors
  before taking any action

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Components of the Macroenvironment

• Laws and Politics
• Economy
• Technology
• Demographics
• Social Values

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The Competitive Environment

• A smaller environment that includes the specific
  organizations with which the organization
  interacts
• Includes
• Intensity of rivalry among current players
• threat of new entrants
• threat of substitutes
• power of suppliers
• power of customers

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Customer Service

• Speed of filling and delivering normal orders
• Willingness to meet emergency needs
• Merchandise delivered in good condition
• Readiness to take back defective goods and
  re-supply quickly
• Availability of installation and repair services
  and parts
• Service charges

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Customer Service

• Your most unhappy customers are your greatest
  source of learning.
• - Bill Gates

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Environmental Analysis

• Managers must understand how the environment
  affects their organization
• It is difficult to predict how certain events
  will affect both the environment and the
  organization which create uncertainty

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Environmental Scanning

• Searching and sorting through information about
  the environment
• Commonly asked questions
• 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?

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Environmental Scanning
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Environmental Scanning

• Using environmental scanning helps managers
  develop competitive intelligence (information
  that helps managers determine how to compete
  better)
• Other tools for environmental scanning
• Scenario development
• Forecasting
• Benchmarking

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Responding to the Environment

• Managers must respond effectively to their
  environment
• Response options can be grouped into three
  categories
• Adapting to the environment
• Influencing the environment
• Select a new environment

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Adapting to the Environment

• Coping with environmental complexity
• Organizations tend to adapt by decentralizing
  decision making
• Create buffers or utilize smoothing techniques

• Coping with dynamism in the environment
• Organizations tend to establish more flexible
  structures
• Create flexible work processes

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Adapting to the Environment
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Influencing your Environment

• Proactive responses aimed at changing the
  environment
• Independent Action
• Cooperative Action

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Selecting a new environment

• This is referred to as strategic maneuvering
• An organizations conscious efforts to change he
  boundaries of its task environment
• There are several strategic maneuvers to choose
  from
• Domain selection entrance by a company into
  another suitable market or industry
• Other options include diversification,
  merger/acquisition, and divestiture

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Choosing a Response Approach

• Organizations should attempt to change
  appropriate elements of the environment
• Organizations should choose responses that focus
  on pertinent elements of the environment
• Companies should choose responses that offer the
  most benefit at the lowest cost

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Culture and the Internal Environment of
Organizations

• Organizational culture is the set of important
  assumptions about the organization and its goals
  and practices that members of the company chare
• Maybe difficult to define easily but it can
  often be sensed almost immediately
• Cultures can be weak or strong cultures can have
  a great influence on how people think and behave

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Diagnosing Culture

• Clues to Culture
• Mission statements and official goals
• Symbols, Rites, and Ceremonies
• The stories people tell

• Types of cultures
• Group internally oriented and flexible tends
  to be based n values and norms
• Hierarchical Culture internally oriented by
  more focus on control and stability
• Rational culture externally oriented and
  focused on control through productivity,
  planning, and efficiency
• Adhocracy externally oriented and flexible
  emphasizes change in which growth, resource
  acquisition and innovation are stressed

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Diagnosing Culture
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Looking Ahead

• Chapter 3 Managerial Decision Making
• The kinds of decisions you will face as a manager
• How to make rational decisions
• The pitfalls you should avoid when making
  decisions
• The pros and cons of using a group to make
  decisions
• The procedures to use in leading a
  decision-making group
• How to encourage creative decisions
• The processes by which decisions are made in
  organizations
• How to make decisions in a crisis

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Open Systems
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External Environment
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Laws and Politics

• U.S. government policies both impose strategic
  constraints and provide opportunities
• The government can affect business opportunities
  through tax laws, economic policies, and
  international trade rulings
• Regulators are specific government organizations
  in a firms more immediate task environment

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Economy

• The economic environment is created by complex
  interconnections among the economies of different
  countries
• Economic conditions change over time and are
  difficult to predict

Twelve month comparison of Stock Markets
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Technology

• Technology creates new products, advance
  production techniques, and better ways of
  managing and communicating

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Demographics

• The measures of various characteristics of the
  people comprising groups or other social units

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Social Values
The Honda FCX, the first Hydrogen powered fuel
cell vehicle, was the first car in the world to
be certified as a Zero- Emission Vehicle.

• Societal trends regarding how people thing and
  behave have major implications for management

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Rivalry Among Current Competitors

• Step one Identify the competition
• Small domestic firms
• Strong regional competitors
• Companies exploring new markets
• Overseas firms
• New entries to the market
• Step two How do they compete?

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Threat of New Entrants

• New entrants into an industry compete with
  established companies
• By creating barriers to entry (conditions that
  prevent new companies from entering an industry)
  the threat of new entrants is less serious
• Barriers to entry include government policy,
  capital requirements, brand identification, cost
  disadvantages, and distribution channels

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Threat of Substitute Products
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Power of Suppliers

• Suppliers provide the resources needed for
  production
• Organization are at a disadvantage if they become
  overly dependent on any powerful supplier
• Switching costs are fixed costs buyers face if
  they change suppliers
• Supply chain management is the process of
  managing the entire network of facilities and
  people that obtain raw materials from outside the
  organization, transform them into products, and
  distribute them to customers

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Power of Customers

• Customers purchase the products or services an
  organization offers
• Final consumers are those individuals that
  purchase products in their finished form
• Intermediate consumers are individuals who
  purchase raw materials or wholesale products
  before selling them to final customers
• Customers can demand lower prices, higher
  quality, unique product specifications, or better
  service
• Customers are powerful if they make large
  purchases or if they can easily find alternative
  places to buy

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Environmental Uncertainty

• Managers do not have enough information about the
  environment to understand or predict the future

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Independent Action
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Cooperative Action
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Strong Cultures
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