Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
3-1
The
Organizational
Environment
3
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
3-2
Organizational Environment
?Organizational Environment,those forces outside its boundaries that can impact it,
? Forces can change over time and are made up of
Opportunities and Threats,
?Opportunities,openings for managers to enhance revenues or open markets.
? New technologies,new markets and ideas,
?Threats,issues that can harm an
organization,
? economic recessions,oil shortages,
?Managers must seek opportunities and avoid
threats,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
3-3
Forces in the Organizational Environment
Figure 3.1
Distributors
Firm
Task Environment
Supplier
s
Competitors
Customers
General
Environment
Economic
Forces
Global
Forces
Sociocultural
Forces
Demographic
Forces
Technological
Forces
Political &
Legal Forces
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
3-4
Task Environment
?Task Environment,forces from suppliers,
distributors,customers,and competitors,
?Suppliers,provide organization with inputs
? Managers need to secure reliable input sources,
? Suppliers provide raw materials,components,and even
labor,
?Working with suppliers can be hard due to shortages,
unions,and lack of substitutes,
?Suppliers with scarce items can raise the price and are
in a good bargaining position,
? Managers often prefer to have many,similar suppliers
of each item,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
3-5
Task Environment
?Distributors,organizations that help others to sell goods,
? Compaq Computer first used special computer stores to
sell their computers but later sold through discount stores
to reduce costs,
? Some distributors like Wal-Mart have strong bargaining
power,
?They can threaten not to carry your product,
?Customers,people who buy the goods,
? Usually,there are several groups of customers,
?For Compaq,there are business,home,& government
buyers,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
3-6
Task Environment
?Competitors,other organizations that produce
similar goods,
? Rivalry between competitors is usually the most serious
force facing managers,
? High levels of rivalry often means lower prices,
?Profits become hard to find,
? Barriers to entry keep new competitors out and result
from,
?Economies of scale,cost advantages due to large scale
production,
?Brand loyalty,customers prefer a given product,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
3-7
Industry Life Cycle
?Reflects the changes that take place in an
industry over time,
?Birth stage,firms seek to develop a winning
technology,
? VHS vs,Betamax in video,or 8-track vs,cassette in
audio,
?Growth stage,Product gains customer
acceptance and grows rapidly,
? New firms enter industry,production improves,
distributors emerge,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
3-8
?Shakeout stage,at end of growth,there is a
slowing customer demand,
? Competitor rivalry increases,prices fall,
? Least efficient firms fail and leave industry,
?Maturity stage,most customers have bought
the product,growth is slow,
? Relationships between suppliers,distributors more
stable,
? Usually,industry dominated by a few,large firms,
?Decline stage,falling demand for the
product,
? Prices fall,weaker firms leave the industry,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
3-9
The General Environment
?Consists of the wide economic,
technological,demographic and similar
issues,
? Managers usually cannot impact or control these,
? Forces have profound impact on the firm,
?Economic forces,affect the national
economy and the organization,
? Includes interest rate changes,unemployment rates,
economic growth,
? When there is a strong economy,people have more
money to spend on goods and services,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
3-10
?Technological forces,skills & equipment used in design,production and distribution,
? Result in new opportunities or threats to managers,
? Often make products obsolete very quickly,
? Can change how we manage,
?Socialcultural forces,result from changes in the social or national culture of society,
? Social structure refers to the relationships between people
and groups,
?Different societies have vastly different social structures,
? National culture includes the values that characterize a
society,
?Values and norms differ widely throughout the world,
? These forces differ between cultures and over time,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
3-11
The Industry Life Cycle
Figure 3.3
Birth Growth Shakeout Maturity Decline
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
3-12
?Demographic forces,result from changes in
the nature,composition and diversity of a
population,
? These include gender,age,ethnic origin,etc,
?For example,during the past 20 years,women have
entered the workforce in increasing numbers,
? Currently,most industrial countries are aging,
?This will change the opportunities for firms competing
in these areas,
?New demand for health care,assisting living can be
forecast,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
3-13
?Political-legal forces,result from changes in
the political arena,
? These are often seen in the laws of a society,
? Today,there is increasing deregulation of many state-run
firms,
?Global forces,result from changes in
international relationships between countries,
? Perhaps the most important is the increase in economic
integration of countries,
? Free-trade agreements (GATT,NAFTA,EU) decreases
former barriers to trade,
? Provide new opportunities and threats to managers,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
3-14
Managing the Organization Environment
?Managers must measure the complexity of the environment and rate of environmental
change,
?Environmental complexity,deals with the number and possible impact of different
forces in the environment,
? Managers must pay more attention to forces with larger
impact,
? Usually,the larger the organization,the greater the
number of forces managers must oversee,
?The more forces,the more complex the manger’s job becomes,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
3-15
?Environmental change,refers to the degree
to which forms in the task and general
environments change over time,
? Change rates are hard to predict,
? The outcomes of changes are even harder to identify,
?Managers thus cannot be sure that actions
taken today will be appropriate in the
future given new changes,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
3-16
Reducing Environmental Impact
?Managers can counter environmental
threats by reducing the number of forces,
? Many firms have sought to reduce the number of
suppliers it deals with which reduces uncertainty,
?All levels of managers should work to
minimize the potential impact of
environmental forces,
? Examples include reduction of waste by first line
managers,determining competitor’s moves by
middle managers,or the creation of a new strategy by
top managers,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
3-17
Organizational Structure
?Managers can create new organizational
structures to deal with change,
? Many firms use specific departments to respond to
each force,
?Managers also create mechanistic or
organic structures,
? Mechanistic structures have centralized authority,
?Roles are clearly specified,
?Good for slowly changing environments,
? Organic structures authority is decentralized,
?Roles overlap,providing quick response to change,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
3-18
Boundary Spanning
?Managers must gain access to information
needed to forecast future issues,
? Rod Canion’s forecast of Compaq’s future was wrong due
to his incorrect view of the environment,
?Boundary spanning is the practice of relating to people
outside the organization,
? Seek ways to respond and influence stakeholder perception,
? By gaining information outside,managers can make better
decisions about change,
?More management levels involved in spanning,yields
better overall decision making,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
3-19
Boundary Spanning Roles
Figure 3.5
Managers in boundary
spanning roles feedback
information to other managers
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
3-20
Scanning and Monitoring
?Environmental scanning is an important boundary spanning activity,
? Includes reading trade journals,attending trade
shows,and the like,
?Gatekeeping,the boundary spanner decides
what information to allow into organization
and what to keep out,
? Must be careful not to let bias decide what comes in,
?Interorganizational Relations,firms need
alliances globally to best utilize resources,
? Managers can become agents of change and impact
the environment,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
3-21
Change as a 2-way Process
Environment Organization
Change in Environment affects
Managerial actions impact
Figure 3.6
3-1
The
Organizational
Environment
3
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
3-2
Organizational Environment
?Organizational Environment,those forces outside its boundaries that can impact it,
? Forces can change over time and are made up of
Opportunities and Threats,
?Opportunities,openings for managers to enhance revenues or open markets.
? New technologies,new markets and ideas,
?Threats,issues that can harm an
organization,
? economic recessions,oil shortages,
?Managers must seek opportunities and avoid
threats,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
3-3
Forces in the Organizational Environment
Figure 3.1
Distributors
Firm
Task Environment
Supplier
s
Competitors
Customers
General
Environment
Economic
Forces
Global
Forces
Sociocultural
Forces
Demographic
Forces
Technological
Forces
Political &
Legal Forces
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
3-4
Task Environment
?Task Environment,forces from suppliers,
distributors,customers,and competitors,
?Suppliers,provide organization with inputs
? Managers need to secure reliable input sources,
? Suppliers provide raw materials,components,and even
labor,
?Working with suppliers can be hard due to shortages,
unions,and lack of substitutes,
?Suppliers with scarce items can raise the price and are
in a good bargaining position,
? Managers often prefer to have many,similar suppliers
of each item,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
3-5
Task Environment
?Distributors,organizations that help others to sell goods,
? Compaq Computer first used special computer stores to
sell their computers but later sold through discount stores
to reduce costs,
? Some distributors like Wal-Mart have strong bargaining
power,
?They can threaten not to carry your product,
?Customers,people who buy the goods,
? Usually,there are several groups of customers,
?For Compaq,there are business,home,& government
buyers,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
3-6
Task Environment
?Competitors,other organizations that produce
similar goods,
? Rivalry between competitors is usually the most serious
force facing managers,
? High levels of rivalry often means lower prices,
?Profits become hard to find,
? Barriers to entry keep new competitors out and result
from,
?Economies of scale,cost advantages due to large scale
production,
?Brand loyalty,customers prefer a given product,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
3-7
Industry Life Cycle
?Reflects the changes that take place in an
industry over time,
?Birth stage,firms seek to develop a winning
technology,
? VHS vs,Betamax in video,or 8-track vs,cassette in
audio,
?Growth stage,Product gains customer
acceptance and grows rapidly,
? New firms enter industry,production improves,
distributors emerge,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
3-8
?Shakeout stage,at end of growth,there is a
slowing customer demand,
? Competitor rivalry increases,prices fall,
? Least efficient firms fail and leave industry,
?Maturity stage,most customers have bought
the product,growth is slow,
? Relationships between suppliers,distributors more
stable,
? Usually,industry dominated by a few,large firms,
?Decline stage,falling demand for the
product,
? Prices fall,weaker firms leave the industry,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
3-9
The General Environment
?Consists of the wide economic,
technological,demographic and similar
issues,
? Managers usually cannot impact or control these,
? Forces have profound impact on the firm,
?Economic forces,affect the national
economy and the organization,
? Includes interest rate changes,unemployment rates,
economic growth,
? When there is a strong economy,people have more
money to spend on goods and services,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
3-10
?Technological forces,skills & equipment used in design,production and distribution,
? Result in new opportunities or threats to managers,
? Often make products obsolete very quickly,
? Can change how we manage,
?Socialcultural forces,result from changes in the social or national culture of society,
? Social structure refers to the relationships between people
and groups,
?Different societies have vastly different social structures,
? National culture includes the values that characterize a
society,
?Values and norms differ widely throughout the world,
? These forces differ between cultures and over time,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
3-11
The Industry Life Cycle
Figure 3.3
Birth Growth Shakeout Maturity Decline
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
3-12
?Demographic forces,result from changes in
the nature,composition and diversity of a
population,
? These include gender,age,ethnic origin,etc,
?For example,during the past 20 years,women have
entered the workforce in increasing numbers,
? Currently,most industrial countries are aging,
?This will change the opportunities for firms competing
in these areas,
?New demand for health care,assisting living can be
forecast,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
3-13
?Political-legal forces,result from changes in
the political arena,
? These are often seen in the laws of a society,
? Today,there is increasing deregulation of many state-run
firms,
?Global forces,result from changes in
international relationships between countries,
? Perhaps the most important is the increase in economic
integration of countries,
? Free-trade agreements (GATT,NAFTA,EU) decreases
former barriers to trade,
? Provide new opportunities and threats to managers,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
3-14
Managing the Organization Environment
?Managers must measure the complexity of the environment and rate of environmental
change,
?Environmental complexity,deals with the number and possible impact of different
forces in the environment,
? Managers must pay more attention to forces with larger
impact,
? Usually,the larger the organization,the greater the
number of forces managers must oversee,
?The more forces,the more complex the manger’s job becomes,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
3-15
?Environmental change,refers to the degree
to which forms in the task and general
environments change over time,
? Change rates are hard to predict,
? The outcomes of changes are even harder to identify,
?Managers thus cannot be sure that actions
taken today will be appropriate in the
future given new changes,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
3-16
Reducing Environmental Impact
?Managers can counter environmental
threats by reducing the number of forces,
? Many firms have sought to reduce the number of
suppliers it deals with which reduces uncertainty,
?All levels of managers should work to
minimize the potential impact of
environmental forces,
? Examples include reduction of waste by first line
managers,determining competitor’s moves by
middle managers,or the creation of a new strategy by
top managers,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
3-17
Organizational Structure
?Managers can create new organizational
structures to deal with change,
? Many firms use specific departments to respond to
each force,
?Managers also create mechanistic or
organic structures,
? Mechanistic structures have centralized authority,
?Roles are clearly specified,
?Good for slowly changing environments,
? Organic structures authority is decentralized,
?Roles overlap,providing quick response to change,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
3-18
Boundary Spanning
?Managers must gain access to information
needed to forecast future issues,
? Rod Canion’s forecast of Compaq’s future was wrong due
to his incorrect view of the environment,
?Boundary spanning is the practice of relating to people
outside the organization,
? Seek ways to respond and influence stakeholder perception,
? By gaining information outside,managers can make better
decisions about change,
?More management levels involved in spanning,yields
better overall decision making,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
3-19
Boundary Spanning Roles
Figure 3.5
Managers in boundary
spanning roles feedback
information to other managers
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
3-20
Scanning and Monitoring
?Environmental scanning is an important boundary spanning activity,
? Includes reading trade journals,attending trade
shows,and the like,
?Gatekeeping,the boundary spanner decides
what information to allow into organization
and what to keep out,
? Must be careful not to let bias decide what comes in,
?Interorganizational Relations,firms need
alliances globally to best utilize resources,
? Managers can become agents of change and impact
the environment,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
3-21
Change as a 2-way Process
Environment Organization
Change in Environment affects
Managerial actions impact
Figure 3.6
