Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 Chapter 3 Environmental Forces

Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 PPT Environmental Forces n Business Environment n Task Environment n Competitive Forces in the Task Environment n Technological Forces n Political and Legal Forces

Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 PPT The General Environment and Environmental Forces Affecting Organizations Adapted from Figure 3.1 The General Environment Cultural Forces Political - Legal Forces Technological Forces Competitive Forces Organization Ecosystem Political System Demographics Economic System 3.2

Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 PPT The General Environment n Sometimes called the macro-environment. n Are external factors, such as inflation and demographics, that usually affect indirectly all or most organizations.

Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 PPT Factors in the General Environment n Type of economic system and economic conditions n Type of political system n Condition of the ecosystem n Demographics n Cultural Background

Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 PPT Roles of Government in Business n In the US, the government acts as a watchdog over business n Provides direction in areas such as: n antitrust, n monetary policy, n defense, n human rights n environmental matters

Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 PPT The Economic System n The US has an economic system in which there are: n privately controlled markets n based on supply and demand n free market competition n private contracts n profit incentives n technological advancement

Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 PPT The Ecosystem n There is a renewed commitment to the environment in the US n % wanted environmental improvements n % want improvements

Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 PPT Environmentally-Conscious Business Practices n Cut back on environmentally unsafe operations n Compensate for environmentally risky endeavors n Avoid confrontation with state and federal pollution control agencies n Comply early with government regulations n Promote new manufacturing technologies n Recycle wastes 3.3

Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 PPT Demographics n Characteristics of a population such as age, race, gender, ethnic origin, and social class n determine the characteristics of work groups, organizations, specific markets, or nations population. n Demographics influence marketing, advertising, and human resources decisions. n Such as the number of individuals the ages of 18 to 25 n They change all the time.

Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 PPT Cultural Forces n Culture is the shared characteristics, values, and beliefs of a group that distinguishes them from another group n Such as religion, language, and heritage

Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 PPT Hofstede’s Framework n Power distance n Degree to which influence/control are unequally distributed among individuals within a particular culture n salary differentiation from CEO to front line employees n Uncertainty avoidance n Degree to which members of a society attempt to avoid ambiguity, riskiness, and indefiniteness of future n Individualism n Extent to which society expects people to take care of themselves and their immediate families n And/or the degree to which individuals believe they are masters of their own destiny 3.5

Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 PPT Hofstede’s Framework (contd.) n Collectivism n Measures tendency of group members to focus on the common welfare and feel loyalty toward one another n Masculinity n Degree to which acquisition of money and things is valued and high quality of life for others is not n Confucian dynamism n Stability of society is based on unequal relationships n Family is the prototype of all organizations n People should treat others as they would like to be treated 3.6

Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 PPT Basic Types of Task Environments Adapted from Figure 3.3 Factors in environment are n few n quite similar to each other n basically the same over time Example: Soft-drink distributors Factors in environment are n few n somewhat similar to each other n continually changing Example: Fast-food outlets Factors in environment are n numerous n not similar to each other n basically the same over time Example: Basic food production firms Factors in environment are n numerous n not similar to each other n continually changing Example: Computer firms STABLECHANGING S SSIMPLEIMPLESSIMPLEIMPLE COMPLEXCOMPLEXCOMPLEXCOMPLEX 3.8

Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 PPT n Ambiguity or unpredictability of certain factors external to an organization n governmental regulations n competition n stability of inputs n demand characteristics n e.g. Customer bargaining power 3.6 Environmental Uncertainty

Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 PPT Turbulent Environment n Complex, constantly changing n Both ambiguous and unpredictable

Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 PPT Competitive Forces in the Task Environment Adapted from Figure 3.4 Suppliers bargaining power Threat of new competitors Buyers bargaining power Threat of substitute goods/services Rivalry among existing firms in industry 3.9

Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 PPT Competitors n Importance and Effect of Competitors n competitors are an important day-to-day environmental force facing organizations n rivalry among competitors leads to n price cutting n advertising promotions n enhanced customer service or warranties n improvements in product or service quality

Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 PPT New Entrants n Barriers to Entry: n economies of scale n decrease in per unit costs as volume of goods/services produced increases n product differentiation n uniqueness in quality, price, design, brand image, or customer service that gives a product an edge over the competition

Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 PPT New Entrants cont. n capital requirements n dollars needed to finance equipment supplies, advertising, R&D, and the like necessary to start n government regulation n may bar or severely restrict potential new entrants to an industry

Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 PPT Substitute Goods and Services n Goods/Services n that can easily replace the firm’s goods/services n I.e. Starbucks introduced a new drink called Frappuccino. It is a cold drink that can substitute for the more traditional hot coffee drink

Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 PPT Customers n Potential Effects of Customers n they may drive down prices n push for more or higher-quality products n increase competition among sellers by playing one against each other

Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 PPT Integration n Purchasing or developing related business units n thought of as facing the customer n Forward Integration-purchasing your customer n Why? n Backward Integration-purchasing your supplier n Why? n Horizontal Integration-purchasing competitors n Why?

Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 PPT Customers cont... n Exhibit Bargaining Power to the Extent that: n they purchase a large volume relative to the supplier’s total sales n the product/service represents a significant expenditure by the customer n they pose a realistic threat of backward integration, for example: the purchase of one or more of its suppliers n they have readily available alternatives for the same services/products

Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 PPT Suppliers n Bargaining Power of Suppliers n often controls how much they can : n raise prices above their costs n reduce the quality of goods and services n is increased by patents and copyrights n is increased by supplier-customer alliances n which are advocated by total quality programs

Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 PPT Impact of Technology n What is technology? n knowledge, tools, techniques, and actions n used to transform material, information, and other inputs into finished goods and services n plays pivotal role in creating and changing an organization’s task environment

Hellriegel, Jackson, and Slocum MANAGEMENT, 8E South-Western College Publishing Copyright © 1999 PPT Impact of Technology cont... n Role in Strategy : n creates strategic options not feasible with older technologies n approaching those of traditional large-scale manufacturing facilities n marketing over the internet n online, real-time financial management systems n can determine profit and loss on a a daily basis n improved access to services (e.g. Banking)