Chapter - 3 the Organizational Enviroment

8/8/2019 Chapter - 3 the Organizational Enviroment

1/21

TheOrganizational

Environment

TheOrganizational

Environment

33


2/21

Organizational EnvironmentOrganizational EnvironmentOrganizational EnvironmentOrganizational Environment Organizational Environment:Organizational Environment: those forcesthose forces

outside its boundaries that can impact it.outside its boundaries that can impact it. Forces can change over time and are made upForces can change over time and are made up

of Opportunities and Threats.of Opportunities and Threats.

Opportunities:Opportunities: openings for managers toopenings for managers toenhance revenues or open markets.enhance revenues or open markets.

New technologies, new markets and ideas.New technologies, new markets and ideas.

Threats:Threats: issues that can harm anissues that can harm an

organization.organization. economic recessions, oil shortages.economic recessions, oil shortages.

Managers must seek opportunities and avoidManagers must seek opportunities and avoidthreats.threats.


3/21

Forces in the Organizational EnvironmentForces in the Organizational EnvironmentForces in the Organizational EnvironmentForces in the Organizational EnvironmentFigure 3.1

Distributors

FirmFirm

TaskEnvironment

Supplier

s

Competitors

Customers

General

Environment

Economic

ForcesGlobal

Forces

Sociocultural

Forces

Demographic

Forces

Technological

Forces

Political &

Legal Forces


4/21


5/21

Task EnvironmentTask EnvironmentTask EnvironmentTask Environment

DistributorsDistributors:: organizations that help others to sell goods.organizations that help others to sell goods.

Compaq Computer first used special computer stores toCompaq Computer first used special computer stores tosell their computers but later sold through discountsell their computers but later sold through discount

stores to reduce costs.stores to reduce costs. Some distributors like WalSome distributors like Wal--Mart have strong bargainingMart have strong bargaining

power.power.

They can threaten not to carry your product.They can threaten not to carry your product.

C

ustomersC

ustomers::

people who buy the goods.people who buy the goods. Usually, there are several groups of customers.Usually, there are several groups of customers.

For Compaq, there are business, home, &For Compaq, there are business, home, &government buyers.government buyers.


6/21

Task EnvironmentTask EnvironmentTask EnvironmentTask Environment Competitors:Competitors: other organizations that produceother organizations that produce

similar goods.similar goods.

Rivalry between competitorsRivalry between competitors is usually theis usually themost serious force facing managers.most serious force facing managers.

High levels of rivalry often means lower prices.High levels of rivalry often means lower prices.

Profits become hard to find.Profits become hard to find.

Barriers to entry keep new competitors out andBarriers to entry keep new competitors out andresult from:result from:

Economies of scale: cost advantages due toEconomies of scale: cost advantages due to

large scale production.large scale production.

Brand loyalty: customers prefer a givenBrand loyalty: customers prefer a given

product.product.


7/21

Industry Life CycleIndustry Life CycleIndustry Life CycleIndustry Life Cycle

Reflects the changes that take place in anReflects the changes that take place in anindustry over time.industry over time.

Birth stage:Birth stage: firms seek to develop a winningfirms seek to develop a winningtechnology.technology.

VHS vs. Betamax in video, or 8VHS vs. Betamax in video, or 8--track vs.track vs.cassette in audio.cassette in audio.

Growth stage:Growth stage: Product gains customerProduct gains customeracceptance and grows rapidly.acceptance and grows rapidly.

New firms enter industry, productionNew firms enter industry, productionimproves, distributors emerge.improves, distributors emerge.


8/21

Shakeout stage:Shakeout stage: at end of growth, there is aat end of growth, there is a

slowing customer demand.slowing customer demand.

Competitor rivalry increases, prices fall.Competitor rivalry increases, prices fall.

Least efficient firms fail and leave industry.Least efficient firms fail and leave industry.

Maturity stage:

Maturity stage: most customers have boughtmost customers have bought

the product, growth is slow.the product, growth is slow.

Relationships between suppliers, distributorsRelationships between suppliers, distributorsmore stable.more stable.

Usually, industry dominated by a few, largeUsually, industry dominated by a few, largefirms.firms.

Decline stage:Decline stage: falling demand for the product.falling demand for the product.

Prices fall, weaker firms leave the industry.Prices fall, weaker firms leave the industry.


9/21

The General EnvironmentThe General EnvironmentThe General EnvironmentThe General Environment Consists of the wide economic,Consists of the wide economic,

technological, demographic and similartechnological, demographic and similarissues.issues.

Managers usually cannot impact or control

Managers usually cannot impact or controlthese.these.

Forces have profound impact on the firm.Forces have profound impact on the firm.

Economic forces:Economic forces: affect the nationalaffect the national

economy and the organization.economy and the organization. Includes interest rate changes,Includes interest rate changes,

unemployment rates, economic growth.unemployment rates, economic growth.

When there is a strong economy, peopleWhen there is a strong economy, people

have more money to spend on goods andhave more money to spend on goods andservices.services.


10/21

Technological forces:Technological forces: skills & equipment used in design,skills & equipment used in design, production and distribution.production and distribution.

Result in new opportunities or threats to managers.Result in new opportunities or threats to managers.

Often make products obsolete very quickly.Often make products obsolete very quickly.

Can change how we manage.Can change how we manage. Social cultural forces:Social cultural forces: result from changes in the socialresult from changes in the social

or national culture of society.or national culture of society. Social structure refers to the relationships between peopleSocial structure refers to the relationships between people

and groups.and groups.

Different societies have vastly different socialDifferent societies have vastly different social

structures.structures.

National culture includes the values that characterize aNational culture includes the values that characterize asociety.society.

Values and norms differ widely throughout the world.Values and norms differ widely throughout the world.

These forces differ between cultures and over time.These forces differ between cultures and over time.


11/21

The Industry Life CycleThe Industry Life CycleThe Industry Life CycleThe Industry Life CycleFigure 3.3

Birth Growth Shakeout Maturity Decline


12/21

Demographic forces:Demographic forces: result fromresult fromchanges in the nature, compositionchanges in the nature, compositionand diversity of a population.and diversity of a population.

These include gender, age, ethnic origin, etc.These include gender, age, ethnic origin, etc. For example, during the past 20 years, womenFor example, during the past 20 years, women

have entered the workforce in increasinghave entered the workforce in increasing

numbers.numbers.

Currently, most industrial countries are aging.Currently, most industrial countries are aging. This will change the opportunities for firmsThis will change the opportunities for firms

competing in these areas.competing in these areas.

New demand for health care, assisting living canNew demand for health care, assisting living can

be forecast.be forecast.


13/21

PoliticalPolitical--legal forces:legal forces: result from changes inresult from changes in

the political arena.the political arena.

These are often seen in the laws of a society.These are often seen in the laws of a society.

Today, there is increasing deregulation ofToday, there is increasing deregulation ofmany statemany state--run firms.run firms.

Global forces:Global forces: result from changes inresult from changes ininternational relationships between countries.international relationships between countries.

Perhaps the most important is the increase inPerhaps the most important is the increase ineconomic integration of countries.economic integration of countries.

FreeFree--trade agreements (GATT, NAFTA, EU)trade agreements (GATT, NAFTA, EU)decreases former barriers to trade.decreases former barriers to trade.

Provide new opportunities and threats toProvide new opportunities and threats tomanagers.managers.


14/21

Managing the OrganizationManaging the Organization

EnvironmentEnvironment

Managing the OrganizationManaging the Organization

EnvironmentEnvironment

Managers must measure the complexity ofManagers must measure the complexity of the environment and rate of environmentalthe environment and rate of environmental

change.change. Environmental complexity:Environmental complexity: deals with thedeals with the

number and possible impact of differentnumber and possible impact of different forces in the environment.forces in the environment.

Managers must pay more attention to forcesManagers must pay more attention to forceswith larger impact.with larger impact.

Usually, the larger the organization, theUsually, the larger the organization, thegreater the number of forces managers mustgreater the number of forces managers mustoversee.oversee.

The more forces, the more complex theThe more forces, the more complex the

mangers job becomes.mangers job becomes.


15/21

Environmental change:Environmental change: refers torefers to

the degree to which forms in thethe degree to which forms in thetask and general environmentstask and general environmentschange over time.change over time.

Change rates are hard to predict.Change rates are hard to predict. The outcomes of changes are even harderThe outcomes of changes are even harder

to identify.to identify.

Managers thus cannot be sureManagers thus cannot be sure

that actions taken today will bethat actions taken today will beappropriate in the future givenappropriate in the future givennew changes.new changes.


16/21

Reducing Environmental ImpactReducing Environmental ImpactReducing Environmental ImpactReducing Environmental Impact M

anagers can counter environmentalM

anagers can counter environmentalthreats by reducing the number of forces.threats by reducing the number of forces.

Many firms have sought to reduce theMany firms have sought to reduce thenumber of suppliers it deals with whichnumber of suppliers it deals with whichreduces uncertainty.reduces uncertainty.

All levels of managers should work toAll levels of managers should work tominimize the potential impact ofminimize the potential impact ofenvironmental forces.environmental forces.

Examples include reduction of waste by firstExamples include reduction of waste by first

line managers, determining competitorsline managers, determining competitorsmoves by middle managers, or the creationmoves by middle managers, or the creationof a new strategy by top managers.of a new strategy by top managers.


17/21

Organizational StructureOrganizational StructureOrganizational StructureOrganizational Structure Managers can create new organizational structuresManagers can create new organizational structures

to deal with change.to deal with change.

Many firms use specific departments to respond toMany firms use specific departments to respond toeach force.each force.

Managers also create mechanistic or organic

Managers also create mechanistic or organicstructures.structures.

Mechanistic structuresMechanistic structures have centralized authority.have centralized authority.

Roles are clearly specified.Roles are clearly specified.

Good for slowly changing environments.Good for slowly changing environments.

Organic structuresOrganic structures authority is decentralized.authority is decentralized.

Roles overlap, providing quick response toRoles overlap, providing quick response to

change.change.


18/21

Boundary SpanningBoundary SpanningBoundary SpanningBoundary Spanning

Managers must gain access to information needed toManagers must gain access to information needed toforecast future issues.forecast future issues.

Rod Canions forecast of Compaqs future was wrongRod Canions forecast of Compaqs future was wrong

due to his incorrect view of the environment.due to his incorrect view of the environment. Boundary spanningBoundary spanning is the practice of relating to peopleis the practice of relating to people

outside the organization.outside the organization.

Seek ways to respond and influence stakeholderSeek ways to respond and influence stakeholderperception.perception.

By gaining information outside, managers can makeBy gaining information outside, managers can makebetter decisions about change.better decisions about change.

More management levels involved in spanning, yieldsMore management levels involved in spanning, yieldsbetter overall decision making.better overall decision making.


19/21

Boundary Spanning RolesBoundary Spanning RolesBoundary Spanning RolesBoundary Spanning Roles

Managers in boundary

spanning roles feedback

information to other managers


20/21

Scanning and MonitoringScanning and MonitoringScanning and MonitoringScanning and Monitoring

Environmental scanningEnvironmental scanning is an important boundaryis an important boundary spanning activity.spanning activity.

Includes reading trade journals, attending tradeIncludes reading trade journals, attending tradeshows, and the like.shows, and the like.

Gatekeeping:Gatekeeping: the boundary spanner decides whatthe boundary spanner decides what information to allow into organization and what toinformation to allow into organization and what to

keep out.keep out.

Must be careful not to let bias decide what comesMust be careful not to let bias decide what comesin.in.

Interorganizational Relations:Interorganizational Relations: firms need alliancesfirms need alliances

globally to best utilize resources.globally to best utilize resources.

Managers can become agents of change andManagers can become agents of change andimpact the environment.impact the environment.


21/21

Change as a 2Change as a 2--way Processway ProcessChange as a 2Change as a 2--way Processway Process

EnvironmentEnvironment OrganizationOrganization

Change in Environment affects

Managerial actions impact

Figure 3.6

Documents

Chapter - 3 the Organizational Enviroment