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Lecture # 5 Chapter 3 – Understanding Internal & External Environments.

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1 Lecture # 5 Chapter 3 – Understanding Internal & External Environments

2 Internal & External Environment  External environment: major forces outside the organization with potential to influence a product or service’s success.  Internal environment: general conditions existing within an organization.  Organizational culture: system of shared values, assumptions, beliefs and norms uniting members of an organization.

3 Types of External Environment 1.Mega-environment: broad conditions and trends in societies in which an organization operates. 2.Task environment: specific outside elements with which an organization interfaces in the course of conducting its business.

4 Mega-Environment 1.Technological element: current knowledge regarding production of products and services. 2.Economic element: systems of producing, distributing and consuming wealth. 3.Legal-political element: legal and governmental systems within which an organization must function.

5 4.Socio-cultural element: attitude, values, norms, beliefs, behaviors and associated demographic trends of a given geographic area. 5.International element: developments in countries outside an organization’s home country with potential to influence the organization. E.g. Currency fluctuations influences an organization’s ability to compete globally.

6 Capitalist Vs. Socialist Economy  Capitalist economy: economy in which economic activity is governed by market forces and the means of production are owned by individuals. E.g. America  Socialist economy: in this means of production are owned by the state and economic activity is co-ordinated by plan. E.g. China

7 Task Environment 1.Customers and clients: individuals and organizations purchasing an organization’s products or services. 2.Competitors: other organizations either offering or with a high potential of offering rival products or services. 3.Suppliers: organizations and individuals supplying resources an organization needs to conduct its operations with.

8 4.Employees: individuals working for an organizations. 5.Government agencies: agencies providing services and monitoring compliance with laws and regulations at local, state or regional and national levels. E.g. Tax and workers compensation.

9 Analyzing Environmental Conditions 1.Environment interface  Population ecology model or natural selection model: model focusing on population or groups of organizations, arguing that environmental factors cause organizations with appropriate charactertics to survive and others to fail.  Resource dependence model: model highlighting the organization’s dependence on the environment for resources and arguing to manipulate the environment to reduce dependence.

10 2.Charactertics of the Environment  Environmental Uncertainty: condition in which future environmental circumstances affecting an organization cannot be accurately assessed and predicted.  Environmental bounty: extent to which the environment can support sustained growth and stability.

11 Environmental uncertainty results from 2 major factors: i.Environmental complexity: number of elements in an organization’s environment and their degree of similarity. ii.Environmental dynamism: rate and predictability of change in the elements of an organization’s environment.

12 Methods of managing Environmental Impacts 1.Adaptation a.Buffering: stockpiling either inputs into or outputs from a production or service process to cope with environmental fluctuations. b.Smoothing: taking actions aimed at reducing the impact of fluctuations. c.Forecasting: predicting changing conditions and future events. d.Rationing: providing limited access to a product or service in high demand.

13 2.Favorability influence a.Advertising and engaging in public relations b.Boundary spanning: creating roles within an organization. c.Recruiting d.Negotiating contracts e.Co-opting: absorbing key members into a policy- making structure. f.Strategic alliance: gaining mutual strategic advantage by forming a partnership of two or more organizations. g.Trade associations: organizations composed of individuals or firms with common business concerns. h.Political activity

14 3.Domain Shifts: changes in the product or service mix offered, so an organization will interface with more favorable environmental elements. E.g. Organizations can expand their current domains through diversification, or expansion of products and services offered.

15 Internal Environment – Organizational culture Manifestation of Organizational Culture:  Symbol: object, act, event or quality serving as a vehicle for conveying meaning.  Story: narrative based on true events.  Rite: relatively elaborate, dramatic, planned set of activities intended to convey cultural values to an audience.  Ceremonial: system of rites performed in conjunction with a single event.


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