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PowerPoint slides by R. Dennis Middlemist Colorado State University Chapter 3 Assessing External Environments
2 ©2005 Prentice Hall Learning Objectives Articulate the role of the external environment in management decisions and effectiveness. Explain the five major dimensions of an organization’s general environment. Describe the critical forces in the organization’s task environment. After studying this chapter, you should be able to:
3 ©2005 Prentice Hall Learning Objectives Describe the key elements of an organization’s global environment. Describe the key considerations in conducting effective environmental scanning. After studying this chapter, you should be able to:
4 ©2005 Prentice Hall The Business Environment External environment: a set of forces and conditions outside the organization that can influence its performance Task environment: forces that have a high potential of affecting the organization on a immediate basis General environment: forces that typically influence the organization’s external task environment and through them, the organization itself Internal environment: key factors and forces inside the organization affecting its operation
5 ©2005 Prentice Hall Organization Environment External Environment General Environment Adapted from Exhibit 3.1: Organization Environment General Environment Global Technology Economic Political-Legal Sociocultural
6 ©2005 Prentice Hall General Environment Organization Environment External Environment General Environment Task Environment Global Technology Economic Political-Legal Sociocultural Competitors Suppliers Regulators Strategic Partners Labor Customers Task Environment Adapted from Exhibit 3.1: Organization Environment
7 ©2005 Prentice Hall Organization Environment External Environment General Environment Task Environment Global Technology Economic Political-Legal Sociocultural Competitors Suppliers Regulators Strategic Partners Labor Customers Internal Environment Owners Board of Directors Management Employees Culture Task Environment Internal Environment Adapted from Exhibit 3.1: Organization Environment
8 ©2005 Prentice Hall General Environment Sociocultural forces Demographics Values Technology forces Product technological changes Process technological changes Economic forces Current economic conditions Economic cycles Structural changes General Environment Global Technology Economic Political-Legal Sociocultural
9 ©2005 Prentice Hall Good economic conditions Poor economic conditions Time Economic Cycles Adapted from Exhibit 3.2: Overall Economic Cycles and Industry Cycles
10 ©2005 Prentice Hall General Environment Political and legal forces Laws and regulations Government spending Global forces Impact on and interaction with the other forces Institutional forces Physical forces General Environment Global Technology Economic Political-Legal Sociocultural
11 ©2005 Prentice Hall Sociocultural General Environment of Coca-Cola Adapted from Exhibit 3.3: Description of the General Environment of Coca-Cola Environmental Factor Baby boomers drinking less soft drinks as they age US population growth is slowing and much of the growth comes from immigrants who generally drink less soft drinks Description Demographics Values Baby boomers drinking less soft drinks as they age US population growth is slowing and much of the growth comes from immigrants who generally drink less soft drinks
12 ©2005 Prentice Hall Technological General Environment of Coca-Cola Environmental Factor New “canning” technology makes using recycled aluminum easier and cheaper Internet opens up a new means of running promotion contests and activities Description Economic Slow economy reduces per person consumption due to fewer social occasions at which soft drinks might be served Like end of economic downturn and prospects of economic recovery Stricter liability for illness caused by beverage contamination Adapted from Exhibit 3.3: Description of the General Environment of Coca-Cola
13 ©2005 Prentice Hall Global The General Environment of Coca-Cola Environmental Factor Gradual increase in acceptance of carbonated soft drinks in other countries such as India and China Widely available electricity and increased ability to afford refrigerators in emerging countries and economies Description Adapted from Exhibit 3.3: Description of the General Environment of Coca-Cola
14 ©2005 Prentice Hall The General Environment of Coca-Cola Adapted from Exhibit 3.4: The General Environment of Coca-Cola Sociocultural Baby boomers drinking less Immigrants drinking less Concern about recycling Concerns about health Technological New recycle-friendly canning technology New promotion opportunities via the Internet Political-Legal Increased health standards for bottling Stricter liability legislation Global Increase in acceptance of carbonated drinks in India and China Easier consumer access to refrigeration Economic Slow economic growth Prospect of economic recovery Coca-Cola Sociocultural Technological Political-Legal Global Economic
15 ©2005 Prentice Hall Task Environment Organization’s most immediate external environment Consists of Competitors Customers Suppliers Task Environment Competitors Suppliers Regulators Strategic Partners Labor Customers Strategic partners Labor Regulators Typically largest influence on the organization Managers must understand the fit between the organization and its task environment
16 ©2005 Prentice Hall Lower Profits Higher Profits Profits and Industry Forces Few competitors Quality-based competition High entry barriers Few new entrants Many customers Fragmented customers Many suppliers Many competitors Price-based competition Low entry barriers Many new entrants Many substitutes Few customers United customers Few suppliers Adapted from Exhibit 3.5: Profits and Industry Forces
17 ©2005 Prentice Hall Task Environment Competitors Suppliers Regulators Strategic Partners Labor Customers Task Environment: How big and strong are your competitors? What are your competitors weaknesses? What is the nature of competition or rivalry in your industry? The Nature of Competition
18 ©2005 Prentice Hall Task Environment: New entrants increase competition Increased competition leads to lower profits More choices for customers causes companies to increase value to customers Entry barriers keep new entrants out New Entrants—Potential Competitors
19 ©2005 Prentice Hall Task Environment: To what extent can alternative products or services can substitute for existing product or service The fewer the available substitutes, the greater the profits Substitutes Task Environment Competitors Suppliers Regulators Strategic Partners Labor Customers
20 ©2005 Prentice Hall Task Environment: When there are fewer and united customers, they have more power to demand Lower prices Customized products or services Attractive financing terms from producers These demands reduce profits Customers Task Environment Competitors Suppliers Regulators Strategic Partners Labor Customers
21 ©2005 Prentice Hall Task Environment: Strategic partners work closely with a firm to pursue mutually beneficial goals Limited engagements Joint ventures Sharing of equity interest Strategic Partners Task Environment Competitors Suppliers Regulators Strategic Partners Labor Customers
22 ©2005 Prentice Hall Task Environment: The balance between supply and demand for types of workers significantly affects a firm’s performance When demand exceeds supply, the imbalance can lead to high labor costs Labor unions can exert pressure on managers to increase wages and offer other costly benefits, decreasing performance Labor
23 ©2005 Prentice Hall Task Environment: Regulators consist of both regulatory agencies and interest groups Regulators can influence and sometimes dictate organizational actions Regulators Task Environment Competitors Suppliers Regulators Strategic Partners Labor Customers
24 ©2005 Prentice Hall Competitors Task Environment of JetBlue Task Environmental Factor Primarily price-based, hurting performance Many established and big players Description Rivalry New Entrants $35 million start-up costs, frequent failures discourages new entrants Substitutes $ Video conferencing may substitute for face-to-face (travel) business meetings Customers Business travelers who want convenience Leisure travelers who want low price Adapted from Exhibit 3.6: Description of the Task Environment of JetBlue
25 ©2005 Prentice Hall Task Environment of JetBlue Task Environmental Factor Airbus supplies all of JetBlue’s planes Many jet fuel suppliers Description Suppliers Strategic Partners Currently not a part of any airline alliance Initial partner with satellite TV provider Currently not represented by labor unions Ample supply of pilots and flight attendants due to significant downsizing in industry Regulators FAA dictates standards and regulations Airport authorities determine access and cost of landing slots and gates at airports Adapted from Exhibit 3.6: Description of the Task Environment of JetBlue
26 ©2005 Prentice Hall Task Environment of JetBlue Competitors Adapted from Exhibit 3.7: The Task Environment of JetBlue Competitors Rivalry: Price New Entrants: Few Substitutes: Video conferencing Customers Business travelers Leisure Travelers Suppliers Planes: Airbus Jet Fuel: many suppliers such as Exxon Mobil Labor No union representation Ample supply of pilots and flight attendants Regulators FAA Airport Authorities Strategic Partners No airline partners Initial partnership with satellite TV provider Suppliers Labor Regulators Strategic partners Customers JetBlue
27 ©2005 Prentice Hall The Internal Environment Owners Single owner can determine objectives and distribution of profits Diversified set of shareholders have more difficulty agreeing on objectives and profits Board of Directors Set of individuals elected by shareholders of the company to represent their interests Internal Environment Owners Board of Directors Management Employees Culture
28 ©2005 Prentice Hall The Internal Environment Employees Demographics Values Culture Assumptions Values Beliefs Internal Environment Owners Board of Directors Management Employees Culture
29 ©2005 Prentice Hall Environmental Scanning & Response Know what to scan Have a plan of how to scan Gain advantage over competitors Be superior in analyzing publicly available information and anticipating how it relates to your job, company, and industry Obtain information from nonpublic sources
30 ©2005 Prentice Hall What type of information do I need? Define Environmental Scanning What information is relevant? Recognition What are the potential and most important issues? Analyze What impact could this have and what is the response? Respond Adapted from Exhibit 3.8: Environmental Scanning
31 ©2005 Prentice Hall Responding Effectively to Changing Environments Direct influence Strategic response Organization agility Information management
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