Chapter 3 Environmental Forces

1
Chapter 3 EnvironmentalForces

• MGT 301

2
Learning Goals
1. Explain how economic, demographic, and
cultural factors affect organizations
2. State the five competitive forces in an
industry
3. Describe the political and legal strategies
managers use to cope with changes in the
environment
4. Explain how technology changes the structure
of industries
3
The Environment General Environment
General Environmentsometimes called
themacroenvironment, includes the external
factors that usually affect all or most
organizations
4
Forces Impacting Organizations(adapted from
Figure 3.1)
Macroenvironment
Organization
5
The Economy

• Economics is the discipline that focuses on
  understanding how people or people or nations
  produce, distribute, and consume various goods
  and services.

6
Trends in the New Versus the Old Economy(adapted
from Table 3.1)

• Old
• Size of organization matters manufacturing is
  key
• Defined market segments demographics
• Customers for a lifetime loyalty, repeat
  business
• Physical and capital assets tangible assets

• New
• Value matters information is key
• New markets distance vanished
• Customers buy activities not products a click
  away
• Human capital rise of knowledge worker

7
The Economy (contd)
The New Age of Competition
Old
New
Low-cost manufacturing
Value-added services
Self-reliance
Outsourcing
Made in U.S.A.
Borderless competition
Local knowledge
Customer convenience
Physical labor
Human capital, software, knowledge management
Smoke-stack industries
Environmental stewardship
Source Adapted from Friedman, T.L. The World is
Flat. New York Farrar, Straus Giroux, 2005,
48-172.
8
Snapshot
Our assets leave on the elevator every night.
Organizations do not own human capital they can
only rent them. In todays world, human capital
will have greater power than other resources
because it is the people who create knowledge.
Andy Grove, Founder and CEO Intel Corporation
9
Demographics

• Demographics are the characteristics of a work
  group, an organization, a specific market, or
  various populations.
• Some current demographic changes include
• Increasing Diversity
• Education and Skills
• Managerial Challenges

10
Impact of Changing Demographics on Organizations

• Increasing diversity

• Women participation rate increasing

• Hispanic men rate increasing

• People of color rate increasing

• Managerial challenges

• Multicultural awareness programs

• Language offerings

• Career challenges

• Lifestyle issues

• Illegal immigration

11
Why is Culture Important to Managers?

• Culture refers to the unique pattern of shared
• characteristics, such as values, that distinguish
  the
• Members of one group of people from those of
• another.

• Value a basic belief about a condition that has
  considerable importance and meaning to
  individuals and is relatively stable over time
• Value system comprises multiple beliefs that are
  compatible and supportive of one another

12
Why is Culture Important to Managers? (contd)
How values can effect a manager?
Perceives situations and problems
Goes about solving problems
Views otherpeople andgroups
Determines what isand is notethical behavior
Leads and controls employees
13
Why is Culture Important to Management Overview
of Cultural Factors
Power Distance
Long-TermOrientation
UncertaintyAvoidance
Gender RoleOrientation
Culture
Individualism
14
Why is Culture Important to Management Hofstedes
Framework

• Power Distancethe degree to which less powerful
  members of society accept that influence is
  unequally divided

• Uncertainty Avoidancethe extent to which members
  of a culture feel threatened by risky or unknown
  situations

• Individualisma combination of the degree to
  which society expects to take care of themselves
  and their immediate family and the degree to
  which people believe they are masters of their
  own destinies

15
Why is Culture Important to Management Hofstedes
Framework (contd)

• The opposite of individualism is collectivisma
  tight social framework in which group (family,
  clan, organization, and nation) members focus on
  the common welfare and feel strongly toward one
  another

• Gender Role Orientation refers to the extent to
  which a society reinforces traditional norms of
  masculinity versus femininity

• Long-Term Orientationreflects the extent to
  which a culture stresses that its members accept
  delayed gratification of material, social, and
  emotional needs

16
Why is Culture Important to Management? Cultural
Values Rankings
17
Competitive Forces in the Task Environment(adapte
d from Figure 3.3)
Threat of substitute goods or services
Supplier bargaining power
Customer bargaining power
Threat of new competitors
Rivalry among existing firms in industry
18
Competitors
For virtually all organizations,the critical
environment constraint is their actionsin
relation to competitors. Therefore, any change
inthe environment that affects any competitor
will have consequences that require some degree
of adaptation. This requires continual change
and adaptation by all competitors merely to
maintainrelative position.
Bruce D. Henderson, founder and chairman of the
Boston Consulting Group
19
Key Influences on New Entrants

• High versus low barriers to entry

• Economies of scale achieved when increased
  volume lowers the unit cost of a good or service
  produced by a firm

• Product differentiation the uniqueness in
  quality, price, design, brand image, or customer
  service that gives one firms product an edge
  over another firms

• Capital requirements the dollars needed to
  finance equipment, purchase supplies, purchase or
  lease land, hire staff, and the like

• Government regulation barrier to entry if it
  bars or severely restricts potential new entrants
  to an industry

20
Substitute Goods and Services

• In a general sense, all competitors produce
  substitute goods or services, or goods or
  services that can easily replace anothers goods
  or services

• Movie rental versus movie
  theatres

• Books versus TV versus
  newspapers

• Purchase versus rental

• Cell phone versus hard lines

21
Customers

• Customer bargaining power may be relatively great
  when

• Customer purchases a large volume relative to the
  suppliers total sales

• Product or service represents a significant
  expenditure by the customer

• Large customers pose a threat of backward
  integration

• Customers have readily available alternatives for
  the same services or products

22
Suppliers

• Bargaining power of suppliers often controls

1. how much they can raise prices above their
costs or
2. reduce the quality of goods and services they
provide before losing customers
23
Political-Legal Forces Managerial Political
Strategies
Political Strategies
Political-Legal Forces

• Political actioncommittees (PACs)
• Laws
• Government
• Labor unions
• Others

• Negotiation
• Lobbying
• Alliance
• Representation
• Socialization

24
Technology Forces TechnologyImpacts on
Organizations
Technology
Workplace
Strategy
Manufacturing
Distribution
25
Technology Impacts on Organizations
Snapshot
With 135 million users selling goods in more
than 45,000 categories in 27 international
markets, eBay has left all competitors in the
dust. Technology has really changed peoples
lives for the better.
Meg Whitman, CEO, eBay
26
Technology's Impact in the Workplace

• Workers need greater problem-solving skills

• Outsourcing routine tasks

• Virtual organizations

27
Technology's Impact on Strategy

• Faster new product introductions to market
• Entrance of electronic competitors
• Formation of electronic shopping malls
• Wider choice of suppliers for company
• More substitute goods and services available to
  company
• Product differentiation based on technological
  sophistication

28
Technology's Impact on Manufacturing
MassCustomization
Reduction inManufacturing time
Outsourcing of routine jobs
29
Technology's Impact on Distribution
Internetaccess forshopping
Telecommunicationdevices
Information superhighwayfor global competition