Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 3–1 CHAPTER 3 UNDERSTANDING INTERNAL & EXTERNAL ENVIRONMENTS

Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 3–2 EXTERNAL ENVIRONMENT ‘Major forces outside the organisation with potential to influence significantly the likely success of a product or service.’

Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 3–3 EXTERNAL ENVIRONMENT External environment is made up of: The mega-environment The broad conditions and trends in societies in which an organisation operates. The task environment Specific outside elements with which an organisation interfaces in the course of conducting its business.

Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 3–4 THE MEGA-ENVIRONMENT The organisation Sociocultural element Legal-political element International element Technological element Economic element

Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 3–5 Five major elements: 1) Technological element: Current state of knowledge regarding production of products & services 2) Economic element: Systems of producing, distributing & consuming wealth Consumers purchasing power, unemployment rate, interest rates mergers and acquisition. Capitalist and socialist economy 3) Legal-political element: Legal & governmental systems within which an organisation must function

4) Sociocultural element: Attitudes, values, norms, beliefs, behaviours & associated demographic trends characteristic of a given geographic area. Delay marriages, single parents, growing work force diversity 5) International element: Developments in countries outside of an organisation’s home country with potential to influence the organisation. Currency fluctuations, free trade agreements(NAFTA) Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 3–6

Example Economic element- Soaring jet price is one of the reason threatening the survival of Japan Airlines Company. Fuel prices increased 45% to $32 a barrel on the Singapore exchange, causing Japan Airline’s fuel bills to increase $90 million. Legal-political element- In India where cow is regarded as a sacred animal, McDonald’s has opened its first beef-free restaurants where its burgers are made of 100% lamb. Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 3–7

Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 3–8 THE TASK ENVIRONMENT Suppliers Competitors Government & regulators The employment market Public pressure groups THE ORGANISATION Customers/ clients

Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 3–9 Five elements: 1) Customers and clients: Individuals and organisations purchasing products/services people who buy the goods. Usually, there are several groups of customers. IMPORTANCE OF CUSTOMER SERVICE INTERNET threat 2) Competitors: Other organisations offering (or with a high potential to offer) rival products/services Rivalry between competitors is usually the most serious force facing managers. In Telecom industry, rivalry among the competing firms is very high i.e. Warid, Telenor, Jazz etc.

3) Suppliers: Organisations and individuals supplying resources an organisation needs to conduct its operations Managers need to secure reliable input sources Suppliers provide raw materials, components, and even labor. Cooperation key element to save money, maintain quality and time Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 3–10

Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 3–11 4) Labour supply: Individuals potentially employable by an organisation. Every organization needs a supply of trained personnel 5) Government agencies: Agencies providing services and monitoring compliance with laws and regulations at local, state or regional and national levels Tax, consumer affairs, police

Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 3–12 1 ) Uncertainty: Condition in which future environmental circumstances affecting an organisation cannot be accurately assessed and predicted. More uncertain-more time and effort spent by the managers. 2) Complexity: Number of elements in an organisation’s environment(task) and their degree of similarity 3) Dynamism: Rate and predictability of change in the elements of an organisation’s environment 4) Manificence: Extent to which the environment can support sustained growth and stability Characteristics of the Environment:

Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 3–13 MANAGING THE ENVIRONMENT Three approaches to managing the environment: Adaptation: Involves changing internal operations & activities to make the organisation and its environment more compatible Favourability influence: Involves trying to alter environmental elements to make them more compatible with the organisation’s needs Domain shifting: Changing product/service mix to create favourable interface

Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 3–14 ADAPTATION Buffering: Stockpiling either inputs into, or outputs from, a production or service process to cope with environmental fluctuations Smoothing: Taking actions aimed at reducing the impact of fluctuations, given the market Forecasting: Predicting changing conditions & future events that significantly affect an organisation’s business Rationing: Providing limited access to a product or service in high demand

Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 3–15 FAVOURABILITY INFLUENCE Advertising & public relations Boundary spanning Recruiting Negotiating contracts Co-opting Strategic alliances Trade associations Political activity

Example Advertising- Olper’s launch was, perhaps one of the most aggressive as far as processed liquid milk is concerned, with TVCs, print ads, radio commercials, billboards etc. Due to this aggressive marketing campaign, the competition seems to be getting tougher. This can be gauged from the fact that Nestle re-launched its product packaging and marketing campaign just before Olper’s launch. One can also see a far greater number of milk advertising billboards in Multan city than seen earlier like of Nirala, Good Milk and Nestle. Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 3–16

Example Strategic alliance (joint venture)- The US fast food giant McDonald’s entered the Indian market by investing in two 50:50 joint ventures with individual entrepreneurs in Bombay and Delhi, India who will start operations with one outlet in each city. Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 3–17

Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 3–18 DOMAIN SHIFTS Move out of a current product, service or geographic area into a more favourable domain Expand current domains through diversification or expansion of products/services offered

Example Domain shifting- Harley Davidson Inc. has used both domain shifts and favorability influence approaches in order to deal with environmental threats. 1. Domain shifts included expanding into other areas, including motor homes, defense and commercial contracts. 2. Efforts to influence the favorability of the environment included convincing the federal government to impose tariffs on foreign competitors, advertising and public relations. Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 3–19

Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 3–20 INTERNAL ENVIRONMENT Nature of organisational culture: ‘A system of shared values, assumptions, beliefs and norms uniting organisational members’ (Smircich 1983; Kilman et al. 1986). ‘The way we do things around here.’ The ‘glue’ binding the disparate parts (or the oil that keeps them moving). The interpretive part of organisational behaviour: it explains, gives direction, sustains energy, commitment, and cohesion.

Example Organizational culture- During top management visits to various offices of Enterprise Rent-a-Car, the executives, including CEO Andy Taylor, have been known to help assist with daily activities when the other staff members are busy. The executives have been known to help with transactions and even wash and vacuum cars. Such activities help boost morale within the company, as well as help illustrate the concept of a team effort. Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 3–21

Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 3–22 MANIFESTATIONS OF CULTURE Symbols Objects, acts, events or qualities serving as a vehicle for conveying meaning Stories Narratives based on true events, which may be embellished to highlight intended value Rites Relatively elaborate, dramatic, planned sets of activities intended to convey cultural values to participants and, usually, an audience Ceremonials Systems of rites performed in conjunction with a single occasion or event

Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 3–23 PROMOTING INNOVATION Strategic Focused on identifying opportunities Committed to seizing opportunities Willing to make major, fast changes Commitment of resources Many stages with risk assessed for each stage Control of resources Rental or outsourcing of resources for flexibility Management structure Few levels, with informal communication

Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 3–24 CHANGING ORGANISATIONAL CULTURE An approach to changing culture: Surfacing actual norms Articulating new directions Establishing new norms Identifying culture gaps Closing culture gaps

Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 3–25 LEADERSHIP &CULTURAL CHANGE Crisis identification Communication of a new vision Motivation of key staff to lead cultural change by implementing the new vision and its corresponding strategy