Assessing External Environments Chapter 3 Assessing External Environments

Learning Objectives After studying this chapter, you should be able to: 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. These learning objectives are expressed in the chapter and you may prefer to move directly to slide 4, if you are comfortable that students agree with the objectives. It should be noted at this point, that all slides that have been prepared for this and the other chapters, have been animated to assist in the presentation. The most important animations are not the bulleted text items (which are animated) but rather the animation of models and exhibits. Models and exhibits contain “sequenced” animations and attempt to portray in visual terms, what the text attempts to portray in words. Many of the models contained in the textbook are taken out of their “static” context and shown here as the “dynamic” constructs they are. A dynamic construct is one that shows how one variable or event is affected by another, and this implies change. Such concepts should be presented dynamically, which means the animation should reflect the change implied by the construct or model. It is a good idea to “play” through the slides before presenting the materials to be sure you understand how they work. Although these slides can be printed and displayed as “transparencies”, the dynamic nature of the concepts will be less obvious. The slides are best shown in the classroom with your computer connected to the overhead projector. To view the animated presentation, select “View Show” from the Slide Show pull-down menu, or press the F5 key at the top of the keyboard, or select “Slide Show” from the View pull-down menu. . The slides were prepared using Office 2000 to facilitate the likely lowest common denominator for software. However, they will also play under Office XP and newer software. ©2005 Prentice Hall

Learning Objectives After studying this chapter, you should be able to: Describe the key elements of an organization’s global environment. Describe the key considerations in conducting effective environmental scanning. ©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 This descriptive slide if followed by an animation of Exhibit 3.1 to assist in the explanation of external and internal environments. ©2005 Prentice Hall

Organization Environment General Environment Global Technology Economic Political-Legal Sociocultural External Environment General Environment Exhibit 3.1 (page 78 of the text) is an animated slide that is followed by two more that build and complete the model, permitting point-by-point discussion of the factors in the general environment, task environment and internal environment. These three slides will appear seamless if presented in the “View Show” mode. More detailed discussion of each factor will appear in slides 8-28. Detailed discussion of global, technology, economic, political-legal or sociocultural factors should be delayed during your initial overview of the model. ©2005 Prentice Hall Adapted from Exhibit 3.1: Organization Environment

Organization Environment General Environment Task Environment Global Technology Competitors Suppliers Regulators Strategic Partners Labor Customers External Environment General Environment Task Environment Sociocultural Economic Political-Legal ©2005 Prentice Hall Adapted from Exhibit 3.1: Organization Environment

Organization Environment Task Environment Global Technology Competitors External Environment General Environment Internal Environment Suppliers Customers Task Environment Owners Board of Directors Management Employees Culture Internal Environment Sociocultural Economic Regulators Labor Strategic Partners Political-Legal ©2005 Prentice Hall Adapted from Exhibit 3.1: Organization Environment

General Environment Sociocultural forces Technology forces Global Technology Economic Political-Legal Sociocultural Sociocultural forces Demographics Values Technology forces Product technological changes Process technological changes Economic forces Current economic conditions Economic cycles Structural changes This slide begins the detailed discussion of the forces within each of the environments, beginning with the general environment. Providing, or eliciting examples of variables for each category will assist students in understanding these environments. For example, under sociocultural forces, age distribution of the population is a demographic factor that affects business decisions, such as marketing strategies and segmentation. Exhibit 3.2: Economic Cycles follows this slide before discussion of the General Environment continues. ©2005 Prentice Hall

Economic Cycles Good economic conditions Poor economic conditions Time Exhibit 3.2 (page 84 of the text) is animated to permit individual explanation of the axes, the key and the graphed relationships. Time ©2005 Prentice Hall Adapted from Exhibit 3.2: Overall Economic Cycles and Industry Cycles

General Environment Political and legal forces Global forces Technology Economic Political-Legal Sociocultural Political and legal forces Laws and regulations Government spending Global forces Impact on and interaction with the other forces Institutional forces Physical forces ©2005 Prentice Hall

General Environment of Coca-Cola Environmental Factor Description Sociocultural Demographics 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 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 Exhibit 3.3 (found on page 91 of the text) is adapted for this and the next two slides, which are animated to permit point-by-point discussion and which will appear as one seamless slide if presented in the “View Show” mode. ©2005 Prentice Hall Adapted from Exhibit 3.3: Description of the General Environment of Coca-Cola

General Environment of Coca-Cola Environmental Factor Description Technological New “canning” technology makes using recycled aluminum easier and cheaper Internet opens up a new means of running promotion contests and activities 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 ©2005 Prentice Hall Adapted from Exhibit 3.3: Description of the General Environment of Coca-Cola

The General Environment of Coca-Cola Environmental Factor Description Global 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 ©2005 Prentice Hall Adapted from Exhibit 3.3: Description of the General Environment of Coca-Cola

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 Sociocultural Technological Economic Slow economic growth Prospect of economic recovery Political-Legal Increased health standards for bottling Stricter liability legislation Political-Legal Coca-Cola Global Global Increase in acceptance of carbonated drinks in India and China Easier consumer access to refrigeration Economic Exhibit 3.4 (page 91 of the text) is presented in this animated slide to permit point-by-point summarization of forces in Coca-Cola’s general environment. ©2005 Prentice Hall Adapted from Exhibit 3.4: The General Environment of Coca-Cola

Task Environment Organization’s most immediate external environment Competitors Suppliers Regulators Strategic Partners Labor Customers Organization’s most immediate external environment Consists of Competitors Customers Suppliers Strategic partners Labor Regulators This slide introduces the task environment. More detailed discussion of these factors will be undertaken in following slides, so the initial discussion should be general, focusing perhaps on the distinction between the general environment and the task environment. Typically largest influence on the organization Managers must understand the fit between the organization and its task environment ©2005 Prentice Hall

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 Higher Profits Lower Profits Exhibit 3.5 (page 92 of the text) is animated to illustrate the impact that differences in the task environment has on a firm’s profits. ©2005 Prentice Hall Adapted from Exhibit 3.5: Profits and Industry Forces

Task Environment: The Nature of Competition Competitors Suppliers Regulators Strategic Partners Labor Customers How big and strong are your competitors? What are your competitors weaknesses? What is the nature of competition or rivalry in your industry? This is the first of several slides that focuses on specific forces affecting the six factors in the task environment. Examples of firms, and how they differ in terms of competitor weaknesses, or of industries with differences in competitive rivalry, will help in this discussion. Similarly, using examples in slides 18-23 will help students understand the importance of each factor in the task environment. ©2005 Prentice Hall

Task Environment: New Entrants—Potential Competitors 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 ©2005 Prentice Hall

Task Environment: Substitutes Competitors Suppliers Regulators Strategic Partners Labor Customers To what extent can alternative products or services can substitute for existing product or service The fewer the available substitutes, the greater the profits ©2005 Prentice Hall

Task Environment: Customers Competitors Suppliers Regulators Strategic Partners Labor Customers 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 ©2005 Prentice Hall

Task Environment: Strategic Partners Competitors Suppliers Regulators Strategic Partners Labor Customers Strategic partners work closely with a firm to pursue mutually beneficial goals Limited engagements Joint ventures Sharing of equity interest ©2005 Prentice Hall

Task Environment: Labor 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 ©2005 Prentice Hall

Task Environment: Regulators Competitors Suppliers Regulators Strategic Partners Labor Customers Regulators consist of both regulatory agencies and interest groups Regulators can influence and sometimes dictate organizational actions ©2005 Prentice Hall

Task Environment of JetBlue Task Environmental Factor Description Competitors Rivalry Primarily price-based, hurting performance Many established and big players New Entrants $35 million start-up costs, frequent failures discourages new entrants Substitutes $ Video conferencing may substitute for face-to-face (travel) business meetings Exhibit 3.3 (found on page 91 of the text) is adapted for this and the next slide, which are animated to permit point-by-point discussion and which will appear as one seamless slide if presented in the “View Show” mode. Customers Business travelers who want convenience Leisure travelers who want low price ©2005 Prentice Hall Adapted from Exhibit 3.6: Description of the Task Environment of JetBlue

Task Environment of JetBlue Task Environmental Factor Description Suppliers Airbus supplies all of JetBlue’s planes Many jet fuel 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 ©2005 Prentice Hall Adapted from Exhibit 3.6: Description of the Task Environment of JetBlue

Task Environment of JetBlue Customers Business travelers Leisure Travelers Competitors Rivalry: Price New Entrants: Few Substitutes: Video conferencing Competitors Strategic Partners No airline partners Initial partnership with satellite TV provider Suppliers Suppliers Planes: Airbus Jet Fuel: many suppliers such as Exxon Mobil Labor JetBlue Regulators Regulators FAA Airport Authorities Labor No union representation Ample supply of pilots and flight attendants Strategic partners This animated slide has been adapted from Exhibit 3.7 (page 98 of the text) and will permit point-by-point summarization of forces in JetBlue’s task environment if you are presenting in the “Slide Show” mode. Customers ©2005 Prentice Hall Adapted from Exhibit 3.7: The Task Environment of JetBlue

The Internal Environment Owners Board of Directors Management Employees Culture 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 Forces in the internal environment are detailed in this and the next slide. Examples of the distinctions between small and large firms, or firms in different industries will assist students in learning the importance of this environment. ©2005 Prentice Hall

The Internal Environment Owners Board of Directors Management Employees Culture Employees Demographics Values Culture Assumptions Beliefs ©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 The text has a good discussion of environmental scanning and how firms scan their environment to assist in designing effective strategies for coping with competitive forces (see pages 101-105). This descriptive slide is followed by an animated illustration of the scanning process. ©2005 Prentice Hall

Environmental Scanning What type of information do I need? Define What information is relevant? Recognition What are the potential and most important issues? Analyze This slide has been adapted from Exhibit 3.8, page 102 of the textbook, to permit resizing of the text. You should play this animation in the “View Show” mode before going to class to be sure you understand where mouse clicks are necessary and where they are not. The animation will permit point-by-point discussion of the steps. The environmental scanning process begins with defining the nature of information needed (will it come from the general, the task, or the internal environment, etc.?), recognizing the relevance of information, analyzing the information and deciding on the most likely response to the environmental forces. What impact could this have and what is the response? Respond ©2005 Prentice Hall Adapted from Exhibit 3.8: Environmental Scanning

Responding Effectively to Changing Environments Direct influence Strategic response Organization agility Information management This slide presents the four types of effective responses described in the text book. You may elaborate on the bulleted items as you feel necessary. A good teaching strategy here, however, will be to elicit from the students how these response strategies might be used in the business world, supporting their beliefs with examples from current business periodicals or the recent items in local newspapers. ©2005 Prentice Hall