Post on 14-Apr-2018
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Organizational Environments
External environment everything outsidean organizations boundaries that mightaffect it.
General environment
Task environment
Internal environment the conditions andforces within an organization.
Not all parts of the environment are equallyimportant to all organizations. [small organizations do nothave BoDs, but corporations are required to; private schools worry less about economicconditions as do schools supported by the government, etc]
See Figure 3.1, page 75.
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Figure 3.1
Organizationand Its
Environment
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The External Environment
General environmentis the set of broaddimensions and forces in an
organizations surroundings that create
its overall context.International dimension
Technological dimension
Political-legal dimensionSocio-cultural dimension
Economic dimension
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The External Environment. . .(continued)
Task environment consists of specificorganizations or groups that influence
an organization.Competitors
Customers
Suppliers
Strategic partnersRegulators
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The General Environment
Economic Dimension
Overall health and vitality of the economic
system in which the organization operates.
Usually influenced by economic growth,
inflation interest rates and unemployment.
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The General Environment. . .(continued)
Technological Dimension
Methods available for converting resources
into products or services.
Examples include:
CAD (computer-assisted design) techniques
Assembly-line techniques for car manufacturing and
hamburger assembly at McDonaldsUse of internet in all areas of business
Integrated business software systems
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The General Environment. . .(continued)
Socio-cultural Dimension
Customs, values and demographic characteristics of thesociety in which the organization functions.
Socio-cultural processes determine the products,
services and standards of conduct that society is likelyto value.
Consumer tastes change over time preferences forcolor, style, taste, etc change from season to season.[McDonalds response to healthier food selections]
Socio-cultural factors influence how workers feel abouttheir jobs and organizations.
Appropriate business conduct varies from culture toculture.
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The General Environment. . .(continued)
Political-Legal Dimension
Refers to government regulation of businessand the relationship between business and
government.The legal system partially defines what anorganization can and cannot do.
In western countries, periods of pro-business andanti-business climates can affect how businesses
operate. [mergers and acquisitions may not be possible due to worryabout organizations becoming too large and running small businesses outof business.]
Political stability with other countries can affectbusinesses willingness to trade with those countries.
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The General Environment. . .(continued)
International Dimension
The extent to which an organizations is involved inor affected by business in other countries.
Multinational firms are clearly affected bybusinesses in other countries. [car and aircraftmanufacturers, restaurants, electronics firms, etc]
Advances in transportation and informationtechnology have linked all parts of the world, no
matter how remote.Virtually every organization is affected by theinternational dimension of its general environment.
See Figure 3.2, page 77.
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Figure 3.2
McDonaldsGeneral
Environment
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The Task Environment
Provides useful information more
readily than does the General
Environment because the manager can
identify environmental factors of
specific interest to the organization.
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Public pressure
groupsSuppliers Customers
Government Labor unions
Competitors
The Organizational Environment
The
Organization
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The Task Environment. . . (continued)
Competitors
Other organizations that compete with our
organization for resources.
Most obvious resource is customer dollars.
Organizations compete for bank loans,
property, quality labor, technological
breakthroughs, patents, scarce raw materials.
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The Task Environment. . . (continued)
Customers
Whoever pays money to acquire anorganizations products or services.
Customers of major organizations may include:schools, hospitals, government agencies,wholesalers, retailers and manufacturers.
Customers have more discriminating tastesand new products and services expectations.
Companies who expand internationally facecritical differences [no beef served in India, alcohol served inGermany and France as a part of the menu].
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The Task Environment. . . (continued)
Suppliers
Organizations that provide resources for other
organizations.
McDonalds depends on Heinz for its ketchup
packets and Coca-Cola for its soft drinks.
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The Task Environment. . . (continued)
Strategic Partners (Allies)
Two or more companies that work together in joint
ventures or similar arrangement.
McDonalds with Wal-Mart and Disney.
Strategic partnerships allow companies to share
expertise they lack, spread risk and open new
market opportunities.
Usually occurs with international firms. [Ford shares adistribution and service center in South America with Volkswagen and builds minivans
in the US with Nissan]
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The Task Environment. . . (continued)
Regulators
A unit that has the potential to control, legislate orotherwise influence the organization's policies and
practices.Regulatory agencies created by the government toprotect the public from certain business practices or toprotect organizations from one another. [EPA, SEC, FDA,EEOC]
Interest groups organized by their members to attemptto influence organizations. No official power, but use themedia to call attention to their positions. [NOW, MADD, NRA,the Sierra Club, Ralph Naders Center for the Study of Responsive Law,Consumers Union, Better Business Bureau, etc].
See Figure 3.3, page 79.
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Figure 3.3
McDonaldsTask
Environment
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The Internal Environment
Internal Environment consists of:
Owners
Board of Directors
Employees
Physical Work Environment
Organizational Culture
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The Internal Environment.. .(continued)
Owners
People who can claim property rights to anorganization.
Single individual who establishes and runs a smallbusiness.
Partners who jointly own a business.
Shareholders who own shares of stock in acorporation or other organization.
Companies who own other companies which are runas wholly owned subsidiaries by the parentcompanies. [McDonalds owns bakeries that supply it with buns andhave partial ownership in other chains.]
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The Internal Environment.. .(continued)
Board of Directors
Governing body elected by a corporation's
stockholders and charged with overseeing the
general management of the firm to ensure that
it is being run in a way that best serves the
stockholders interests.
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The Internal Environment.. .(continued)
Employees
The nature of the workforce is changing in terms of
gender, ethnicity, age, etc.
Workers are also demanding more job ownership partial ownership in the company or more say in how
they perform their jobs.
Companies are relying on temps more less salary and
benefits cost but no company loyalty.
Labor unions are presenting management with anotherlayer with which to deal some companies deal with
more than one union.
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The Internal Environment.. .(continued)
Physical Work Environment
An important consideration for many businesses.
Construction supervisors may rely on wireless
communication equipment to keep in touch with variouswork crews.
Facilities may be spread out among various buildings in
the city, in rural or suburban areas, or in campus-like
facilities.
Some facilities have traditional offices on each side of ahall, some modular cubicles with partial walls, or an even
more open arrangement.
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The Internal Environment.. .(continued)
Culture
A set of values, beliefs, behaviors, customs
and attitudes that helps the members of the
organization to understand what it stands for,
how it does things and what it considers
important.
Plays an important part in shaping
management behavior.
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Organization-Environment Relationships
Three basic perspectives can be used
to describe how environments affect
organizations:
1. Environmental change and complexity
2. Competitive forces
3. Environmental turbulence
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1. Environmental Change and Complexity
J ames D Thompson theorized that organizationalenvironment can be described along twodimensions:
Degree of change the extent to which the
environment is relativelystableor relativelydynamic.Degree of homogeneity the extent to which theenvironment is relatively simple (few elements, littlesegmentation) or relatively complex (many elements,much segmentation).
Thesetwo dimensionsinteract to determine the levelof uncertainty faced by the organization.
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Environmental Change and Complexity. . .(continued)
Uncertainty unpredictability createdby environmental change andcomplexity.
Least environmental uncertainty is faced byorganizations with stable and simpleenvironments. [Subway and Taco Bell focus on certain segments of theconsumer market, produce a limited product line, have a constant source of suppliersand face relatively consistent competition]
Organizations with dynamic but simpleenvironments generally face a moderatedegree of uncertainty [clothing manufacturers and certain CDproducers who target a certain kind of clothing or CD buyer but are alert to changingtastes]
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Environmental Change and Complexity. . .(continued)
Moderate amount of uncertainty results in
organizations with stability and complexity.[automobile manufacturers must interact with many suppliers, regulators,
consumer groups and competitors, yet change occurs quite slowly in this
industry despite changes in the styles of cars]
Very dynamic and complex environmental
conditions create a high degree of uncertainty.occurs in the technology area due to rapid rate of innovation and change in
consumer markets which affect the industry, their suppliers and theircompetitors. Intel, Sony, Compaq, IBM, Apple and internet-based firms like
eBay and Amazon.com face high levels of uncertainty]
See Figure 3.4, page 90.
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Figure 3.4: Environmental Change,
Complexity, and Uncertainty
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2. Competitive Forces
Michael E Porter proposes thatmanagers should view the
organizational environments in terms
of five competitive forces:The threat of new entrants
Competitive rivalry
The threat of substitute productsThe power of buyers
The power of suppliers
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Competitive Forces. . .(continued)
The threat of new entrants
The extent to which new competitors can easily enter a
market or market segment.
Entrance is easier for market requiring a small amount ofcapital to open. [dry cleaner, pizza, hamburger or sandwich shop, etc.]
More difficult when it takes a tremendous investment in
plant, equipment and distribution systems [automobile
market, etc.]
The internet has reduced the costs and other barriers ofentry into many market segments so the threat has
increased for many firms.
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Competitive Forces. . .(continued)
Competitive rivalry
The nature of the competitive relationshipbetween firms in the industry.
Large firms, dominant in the field, engage inprice wars, comparative advertising and new-product introductions.
Examples include: Coke and Pepsi; AmericanExpress and Visa; Kodak and Fuji; US and foreign
auto makers.Small establishments, in contrast, do notgenerally engage in such practices.
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Competitive Forces. . .(continued)
The threat of substitute products
The extent to which alternative products or
services may take the place of or diminish the
need for existing products and/or services.
Personal computers (PCs) have virtually
eliminated the need for calculators, typewriters
and large mainframe computers.
Sugar and salt substitutes are used more often.
DVD players will render VCRs obsolete in the
next few years.
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Competitive Forces. . .(continued)
The power of buyers
The extent to which buyers of the products or
services in an industry have the ability to
influence the suppliers.
Relatively few potential buyers for aircraft.
Therefore, buyers have considerable influence
over the price they are willing to pay, the
delivery date of the order, etc.
Buyers have virtually no power with products
that have very many willing buyers.
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Competitive Forces. . .(continued)
The power of suppliers
The extent to which suppliers have the ability
to influence potential buyers.
The power of the supplier depends on the
product being offered. The more restricted the
service or product, the more power to the
supplier. [electricity providers, telephone/internet access]
Small wholesaler of vegetables has little power,
since if people do not like the product, they can
easily find an alternative supplier.
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3. Environmental Turbulence
Environmental change or turbulence whichoccurs with no warning at all.
Most common is an organizational crisis of somesort.
9/11 affected travel, international and domesticbusinesses.
Workplace violence unhappy or dismissedworkers assault other workers.
Spread of computer viruses that can shut down
businesses around the world. [Love Bug virus in 2000]Far too few organizations have developed crisisplans and special teams to deal with such events.
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How Organizations Adapt to
Their Environment
Basic Techniques for Adapting
Information Technology
Strategic Response
Mergers, Acquisitions and Alliances
Organization Design and Flexibility
Direct Influence
Social Responsibility
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Adapting Information Technology
Important when forming an initialunderstanding of the environment andwatching for signs of change.
Boundary Scanner is an employee[sales rep or purchasing agent] whospends much time in contact withothers outside the organization. Cankeep up with what is going on in otherorganizations.
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Adapting Information Technology
Environmental Scanning managersmonitor the environments through
observation and reading.
Management Information Systems
[MIS] within the organization must
gather and organize information
valuable to all managers or specialists.
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Adapting Strategic Response
Strategic Options may include:
Maintaining the present course
Expanding the business [going international]
Shrinking the business or shutting down
certain areas
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Adapting Mergers, Acquisitions and Alliances
Merger two or more firms cometogether under one name.[Banoco and Bapco]
Acquisition one firm buys another
firm out.[Starbucks and Seattle Coffee Company]Hostile Takeover a firm takes another firmover by force.
Alliance two or more firms undertake
a venture together, but each keeps itsown identity. [British Airways and American Airlines; McDonalds withDisney and Wal-Mart]
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Adapting Organization Design and Flexibility
Mechanistic Organization Design:Firms operating in low levels of uncertainty whooperate under rigid rules, regulations andstandard operating procedures [SOPs].
Managers have little flexibility with decisionmaking.
Organic Organization Design:Firms operating in high levels of uncertainly who
operate with relatively few SOPs.Managers have great flexibility with decisionmaking and can react quickly to environmentalchanges.
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AdaptingDirect Influence
Suppliers may be influenced to sign long-term contracts
with fixed prices.
Companies may become their own suppliers. [McDonalds ownsbakeries; Campbells makes its own soup cans, etc.]
Certain activity may affect an organizations competitors. [carmanufacturer discounts and upgrades in warranties, electronic products warranty and
price changes, etc]
Advertising to show people new uses for products, finding
new customers, taking customers from competitors, etc.
Lobbying and bargaining with government and other
regulating agencies to influence decisions that might affectthe organization/industry.
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AdaptingSocial Responsibility
Social Responsibilityis the set of obligationsan organization has to protect and enhance
the societal context in which it functions.
Organizational stakeholdersinclude:Person or organization directly affected by the practices
of an organization and has a stake in its performance suppliers, employees, customers, creditors, interest groups, trade
associations, local community.
Natural environment air, water, noise pollution, recycling, wastecontrol, etc.
General social welfare charities, supporting events, boycottingproducts from certain countries.
See Figure, 3.5, page 93.
O
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How Organizations Adapt to Their
Environments:
Information
management
Social
responsibility
Strategic
responses
The
Organization
Direct
influence
Organization
design and
flexibility
Taskenvironment
General environment
Mergers,
takeovers
acquisitions,
alliances