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2-1. Chapter The External Environment and Organizational Culture 2 2McGraw-Hill/Irwin Management, 7/e Copyright © 2007 The McGraw-Hill Companies, Inc.

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Presentation on theme: "2-1. Chapter The External Environment and Organizational Culture 2 2McGraw-Hill/Irwin Management, 7/e Copyright © 2007 The McGraw-Hill Companies, Inc."— Presentation transcript:

1 2-1

2 Chapter The External Environment and Organizational Culture 2 2McGraw-Hill/Irwin Management, 7/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

3 2-3 Learning Objectives  After Studying Chapter 2, You will know:  Understand how environmental forces influence organizations, as well as how organizations can influence their environments  Understand how to make a distinction between macro- environment and the competitive environment  Understand why managers and organizations should attend to economic and social developments  Understand how to analyze the competitive environment  Understand how organizations respond to environmental uncertainty  Understand how an organizations culture affects its response to its environment

4 2-4 Introduction and Review  Organizations are open systems  Organizations affect and are affected by the external environment  The external environment has two components  Macro-Environment  Competitive Environment

5 2-5 The Macroenvironment  The most general elements in the external environment that potentially can influence strategic decisions  Top executives must consider external factors before taking any action

6 2-6 Components of the Macroenvironment  Laws and Politics  Economy  Technology  Demographics  Social Values

7 2-7 The Competitive Environment  A smaller environment that includes the specific organizations with which the organization interacts  Includes:  Intensity of rivalry among current players  threat of new entrants  threat of substitutes  power of suppliers  power of customers

8 2-8 Customer Service  Speed of filling and delivering normal orders  Willingness to meet emergency needs  Merchandise delivered in good condition  Readiness to take back defective goods and re-supply quickly  Availability of installation and repair services and parts  Service charges

9 2-9 Customer Service “Your most unhappy customers are your greatest source of learning.” - Bill Gates

10 2-10 Environmental Analysis  Managers must understand how the environment affects their organization  It is difficult to predict how certain events will affect both the environment and the organization which create uncertainty

11 2-11 Environmental Scanning  Searching and sorting through information about the environment  Commonly asked questions  Who are our current competitors  Are there few or many entry barriers to our industry?  What substitutes exist for our product or service?  Is the company too dependent on powerful suppliers?  Is the company too dependent on powerful customers?

12 2-12 Environmental Scanning

13 2-13 Environmental Scanning  Using environmental scanning helps managers develop competitive intelligence (information that helps managers determine how to compete better)  Other tools for environmental scanning  Scenario development  Forecasting  Benchmarking

14 2-14 Responding to the Environment  Managers must respond effectively to their environment  Response options can be grouped into three categories  Adapting to the environment  Influencing the environment  Select a new environment

15 2-15 Adapting to the Environment  Coping with environmental complexity  Organizations tend to adapt by decentralizing decision making  Create buffers or utilize smoothing techniques  Coping with dynamism in the environment  Organizations tend to establish more flexible structures  Create flexible work processes

16 2-16 Adapting to the Environment

17 2-17 Influencing your Environment  Proactive responses aimed at changing the environment  Independent Action  Cooperative Action

18 2-18 Selecting a new environment  This is referred to as strategic maneuvering  An organization’s conscious efforts to change he boundaries of its task environment  There are several strategic maneuvers to choose from  Domain selection – entrance by a company into another suitable market or industry  Other options include diversification, merger/acquisition, and divestiture

19 2-19 Choosing a Response Approach  Organizations should attempt to change appropriate elements of the environment  Organizations should choose responses that focus on pertinent elements of the environment  Companies should choose responses that offer the most benefit at the lowest cost

20 2-20 Culture and the Internal Environment of Organizations  Organizational culture is the set of important assumptions about the organization and its goals and practices that members of the company chare  Maybe difficult to define easily; but it can often be sensed almost immediately  Cultures can be weak or strong cultures can have a great influence on how people think and behave

21 2-21 Diagnosing Culture  Clues to Culture  Mission statements and official goals  Symbols, Rites, and Ceremonies  The stories people tell  Types of cultures  Group – internally oriented and flexible; tends to be based n values and norms  Hierarchical Culture – internally oriented by more focus on control and stability  Rational culture – externally oriented and focused on control through productivity, planning, and efficiency  Adhocracy – externally oriented and flexible; emphasizes change in which growth, resource acquisition and innovation are stressed

22 2-22 Diagnosing Culture

23 2-23 Looking Ahead  Chapter 3: Managerial Decision Making  The kinds of decisions you will face as a manager  How to make rational decisions  The pitfalls you should avoid when making decisions  The pros and cons of using a group to make decisions  The procedures to use in leading a decision- making group  How to encourage creative decisions  The processes by which decisions are made in organizations  How to make decisions in a crisis

24 2-24 Open Systems Return

25 2-25 External Environment Return

26 2-26 Laws and Politics  U.S. government policies both impose strategic constraints and provide opportunities  The government can affect business opportunities through tax laws, economic policies, and international trade rulings  Regulators are specific government organizations in a firm’s more immediate task environment Return

27 2-27 Economy  The economic environment is created by complex interconnections among the economies of different countries  Economic conditions change over time and are difficult to predict Return Twelve month comparison of Stock Markets

28 2-28 Technology  Technology creates new products, advance production techniques, and better ways of managing and communicating Return

29 2-29 Demographics  The measures of various characteristics of the people comprising groups or other social units Return

30 2-30 Social Values  Societal trends regarding how people thing and behave have major implications for management Return The Honda FCX, the first Hydrogen powered fuel cell vehicle, was the first car in the world to be certified as a Zero- Emission Vehicle.

31 2-31 Rivalry Among Current Competitors  Step one: Identify the competition  Small domestic firms  Strong regional competitors  Companies exploring new markets  Overseas firms  New entries to the market  Step two: How do they compete? Return

32 2-32 Threat of New Entrants  New entrants into an industry compete with established companies  By creating barriers to entry (conditions that prevent new companies from entering an industry) the threat of new entrants is less serious  Barriers to entry include government policy, capital requirements, brand identification, cost disadvantages, and distribution channels Return

33 2-33 Threat of Substitute Products Return

34 2-34 Power of Suppliers  Suppliers provide the resources needed for production  Organization are at a disadvantage if they become overly dependent on any powerful supplier  Switching costs are fixed costs buyers face if they change suppliers  Supply chain management is the process of managing the entire network of facilities and people that obtain raw materials from outside the organization, transform them into products, and distribute them to customers Return

35 2-35 Power of Customers  Customers purchase the products or services an organization offers  Final consumers are those individuals that purchase products in their finished form  Intermediate consumers are individuals who purchase raw materials or wholesale products before selling them to final customers  Customers can demand lower prices, higher quality, unique product specifications, or better service  Customers are powerful if they make large purchases or if they can easily find alternative places to buy Return

36 2-36 Environmental Uncertainty  Managers do not have enough information about the environment to understand or predict the future Return

37 2-37 Independent Action Return

38 2-38 Cooperative Action Return

39 2-39 Strong Cultures Return


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