The External Environment Assessing Opportunities & Threats in the Macro & the Industry environment

Organizations as Open Systems inputs process outputs The External Environment feedback The Internal Environment Bertalanffy (1951)

Evironmental Scanning Defined as the monitoring, evaluating, and disseminating of information from the external and internal environments to key people within the corporation.

The Macro & Industry Environments The Org’n Technological Forces Political- Legal Forces Economic Forces Social Forces Substitutes Buyer Power Supplier Power New Entrants Competitive Rivalry

Legal-Political Forces zOutcomes of elections, legislation, and court decisions, as well as the decisions rendered by various commissions and agencies at every level of government

Economic Forces zGDP zInterest Rates zInflation Rates zValue of Dollar zUnemployment Rates zManufacturers Inventory Rates zRecession vs Recovery

Technological Forces zScientific improvements, innovations, trends and changes zAreas most often impacted 1. Products 2. Processes

Social Forces (social cultural & demographic) zSocial forces include traditions, values, societal trends, society’s expectation of business, demographic changes & trends.

Porter’s Five Forces Model of an Industrial Environment Industry Competitors Competitive Rivalry Bargaining Power of Buyers Bargaining Power of Suppliers Threat of New Entrants Threat of Substitutes Porter (1980)

Competitive Rivalry znumerous of equally balanced customers zslow industry growth zhigh fixed or storage costs zlack of differentiation or switching costs zcapacity must be added in large increments zdiverse competitors zhigh strategic stakes zhigh exit barriers

Threat of New Entrants zNew entrants increase rivalry & prevented by barriers to entry including: 1. Economies of scale 2. Cost disadvantages from other than scale 3. Product differentiation 4. Capital requirements 5. Switching costs 6. Access to distribution channels 7. Government policy

Bargaining Power of Buyers zPurchase large volumes zPurchased items represent significant cost zPurchased products deemed a commodity zPurchaser earns substandard profits zPurchaser can produce items itself zPurchased items not important to quality zPurchaser has full info on sellers costs

Bargaining Power of Suppliers zDominated by a few suppliers zLack of substitutes zIndustry not considered a key customer zSuppliers products are differentiated or presence of switching costs zSupplier can integrate vertically and manufacture the products that the industry is currently providing

Threat of Substitutes zCan other industries satisfy the consumers needs that our industry is satisfying? USPS? Airline Industry? Automotive Industry? Arkansas State University? Bell South and other Baby Bells? Long Distance Phone Packages?

Scanning the Environment Informal zTalking to customers or reading sales reports zreading industry trade journals ztalking with supplier sales people

Scanning the Environment Formal zFocus groups zExternal Information Systems (EIS)

Challenges Faced in Environmental Scanning zInformation overload zEnvironment might be changing too quick zTime and expense of examining info