1
Q
INTRODUCTION
open systems
A
- organizations that are affected by, and that affect, their environment
- they take in inputs from their environment and use them to create products and services that are outputs to their environment
2
Q
INTRODUCTION
inputs
A
- goods and services organizations take in and use to create products or services
3
Q
INTRODUCTION
outputs
A
- the products and services organizations create
4
Q
INTRODUCTION
external environment
A
- all relevant forces outside a firm’s boundaries, such as competitors, customers, the government, and the economy
5
Q
INTRODUCTION
competitive environment
A
- the immediate environment surrounding a firm; includes suppliers, customers, rivals, and the like
6
Q
INTRODUCTION
macro environment
A
- the general environment; includes governments, economic conditions, and other fundamental factors that generally affect all organizations
7
Q
MACROENVIRONMENT
demographics
A
- measures of various characteristics of the people who make up groups or other social units
- work groups, organizations, countries, markets, and societies can be described statistically by referring to demographic measures such as their members’ age, gender, family size, income, education, occupation, and so forth
- managers must consider workforce demographics in formulating their human resources strategies. Population growth influences the size and composition of the labor force
- age : not many entry level workers, people willing to work past retirement age of 65 because of lack of pensions and adequate savings will make retirement unaffordable
- education and skill levels : share of workers with some college is increasing, some managers need knowledge of a skilled trade such as mechanists and toolmakers
- immigration : represents 15% of the U.S. Workforce, frequently of working age but have different educational a and occupational backgrounds
- gender : women have been joining the U.S. Labor force in record numbers
8
Q
THE COMPETITIVE ENVIRONMENT
Porter’s Five Forces Model
A
- rivalry among current competitors
- impact of new entrants
- substitute and complementary products
- suppliers
- customers
9
Q
THE COMPETITIVE ENVIRONMENT
Porter’s Five Forces Model
Competitors
A
- competitors within the industry must first deal with each other
- often compete through innovation, quality, service, and cost
- first step is organizations must identify their competitors :
1. Small, domestic firms, especially their entry into a tiny, premium market.
2. Strong regional competitors
3. Big new domestic companies exploring new markets
4. Overseas firms, especially those that either try to solidify their position in small niches (a traditional Japanese tactic) or are able to draw on an inexpensive labor force on a large scale (as in China)
5. Newer entries, such as firms offering their products on the web - next step is to analyze how they compete
- competitors use tactics such as price reductions, new product introductions, and advertising campaigns to gain advantage over their rivals
- competition is most intense when there are many direct competitors (including foreign contenders), when industry growth is slow, and when the product or service cannot be differentiated in some way
10
Q
THE COMPETITIVE ENVIRONMENT
Porter’s Five Forces Model
New Entrants
A
- compete with established companies
- if many factors prevent new companies from entering an industry, the threat to established firms is less serious.
- barriers to entry
- new entrants must displace existing products with promotions, price breaks, intensive selling, and other tactics.
12
Q
THE COMPETITIVE ENVIRONMENT
barriers to entry
A
- conditions that prevent new companies from entering an industry
- some major barriers to entry are government policy, capital requirements, brand identification, cost disadvantages, and distribution channels
- government can limit or prevent entry, as occurs when the FDA forbids a new drug entrant
- patents are also entry barriers; when a patent expires, other companies can then enter the market
- capital requirements may be so high that companies won’t risk or try to raise such large amounts of money
- brand identification forces new entrants to spend heavily to overcome customer loyalty
- existing competitors may have such tight distribution channels that new entrants have difficulty getting their goods or services to customers
13
Q
THE COMPETITIVE ENVIRONMENT
Porter’s Five Forces Model
Substitutes and Complements
A
- substitute is a potential threat, customers use it as an alternative, buying less of one kind of product but more of another
- complement is a potential opportunity because customers buy more of a given product if they also demand more of the complementary product
- technological advances and economic efficiencies are among the ways that firms develop substitutes for existing products, for example, ebooks replacing actual books, iPad replaced ereader
- companies must consider complements for their products, for example buying a new home means buying the appliances and landscaping for that home, buying a car means buying insurance
14
Q
THE COMPETITIVE ENVIRONMENT
switching costs
A
- fixed costs buyers face when they change suppliers
15
Q
THE COMPETITIVE ENVIRONMENT
supply chain management
A
- the managing of the network of facilities and people that obtain materials from outside the organization, transform them into products, and distribute them to customers
- increased competition has required managers to pay very close attention to their costs
- with emergence of the Internet, customers look for products built to their specific needs and preferences - and they want the, delivered quickly at the lowest available price
- this requires the supply chain to be not only efficient but also flexible, so that the organization’s output can quickly respond to changes in demand
- today the goal of effective supply chain management is to have the right product in the right quantity available at the right place at the right cost
16
Q
THE COMPETITIVE ENVIRONMENT
Porter’s Five Forces Model
Suppliers
A
- organizations must acquire resources (inputs) from their environment and convert them into products or services to sell (outputs)
- suppliers provide the resources needed for production, and those resources may come in the form of people (supplied by trade schools and universities), raw materials (from producers, wholesalers, and distributors), information (supplied by other sources)
- suppliers can raise their prices or provide poor-quality goods and services
- workers may produce either outstanding or defective work
- powerful suppliers, then, can reduce an organization’s profits, particularly if the organization cannot pass on price increases to the customers
- organizations are at a disadvantage if they become overly dependent on any powerful supplier (if the buyer has few other sources of supply or if the supplier has many other buyers)
- dependence also results from high switching costs
- choosing the right supplier is an important strategic decision
- suppliers can affect manufacturing time, product quality, and inventory levels
- close supplier relationship has become a new model for many organization’s that are using a just-in-time manufacturing approach
16
Q
THE COMPETITIVE ENVIRONMENT
Porter’s Five Forces Model
Customers
A
- customers purchase the goods or services an organization offers
- customers can be intermediate (wholesalers or retailers) of final (end users), depending on where they are in the value chain
- can demand lower prices, higher quality, unique product specifications, or better service
- can play competitors against each other, as occurs when a car buyer collects different offers and negotiates the best price
- internet provides easy source of information - both about product features and about pricing
- actions and attitudes that provide excellent customer service :
- speed of filing and delivering normal orders
- willingness to meet emergency needs
- merchandise delivered in good condition
- readiness to take back defective goods and results quickly
- availability of installation and repair services and parts
- service charges (whether services are free or priced separately)
17
Q
THE COMPETITIVE ENVIRONMENT
final consumer
A
- a customer who purchases products in their finished form
18
Q
THE COMPETITIVE ENVIRONMENT
intermediate consumer
A
- a customer who purchases raw materials or wholesale products before selling them to final customers
- include retailers, who buy clothes from wholesalers and manufacturers’ representatives before selling them to their customers, and industrial buyers, who buy raw materials (such as chemicals) before converting them into final products
- selling to intermediate customers is often called business-to-business (B2B) selling
19
Q
ENVIRONMENTAL ANALYSIS
environmental uncertainty
A
- means that managers do not have enough information about the environment to understand or predict the futures
- arises from two factors :
1. Complexity refers to the number of issues to which a manager must attend as well as their interconnectedness
2. Dynamism refers to the degree of discontinuous change that occurs within the industry - as environmental uncertainty increases, managers must develop techniques and methods for collecting, sorting through, and interpreting information about the environment
20
Q
ENVIRONMENTAL ANALYSIS
environmental scanning
A
- searching for and sorting through information about the environment
- means both searching out information that is unavailable to most people and sorting through that information to interpret what is important and what is not.
- managers can ask :
- 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?
- answers to these help managers develop competitive intelligence
21
Q
ENVIRONMENTAL ANALYSIS
competitive intelligence
A
- information that helps managers determine how to compete better
- Porter’s competitive analysis can guide environmental scanning and help managers evaluate the competitive potential of different environments
- two extreme environments :
1. Attractive environment which gives a firm a competitive advantage- Competitors : few, high industry growth, unequal size, differentiated
- threat of entry : low threat, many entry barriers
- substitutes : few
- suppliers : many, low bargaining power
- customers : many, low bargaining power
2. Unattractive environment which puts a from at a competitive disadvantage - competitors : many, low industry growth, equal size, commodity
- threat of entry : high threat, few entry barriers
- substitutes : many
- suppliers : few, high bargaining power
- customers : few, high bargaining power
22
Q
ENVIRONMENTAL ANALYSIS
scenario
A
- a narrative that describes a particular set of future conditions
- create alternative combinations of different factors into a total picture of the environment and the firm
- frequently, organizations develop a best-case scenario (occurrence of events that are favorable to the firm), a worst-case scenario (occurrence of unfavorable events), and some middle-ground alternatives
- helps managers develop contingency plans for what they might do given different outcomes
- managers constantly update the scenarios to take into account relevant new factors that emerge, such as significant changes in the economy or actions by competitors
23
Q
ENVIRONMENTAL ANALYSIS
forecasting
A
- method for predicting how variables will change the future
- best advice for using forecasts :
- use multiple forecasts, and perhaps average their predictions
- remember that accuracy decreases the further into the future you are trying to predict
- forecasts are no better than the data used to construct them
- use simple forecasts (rather than complicated ones) when possible
- keep in mind that important events often are surprises and represent a departure from predictions
24
Q
ENVIRONMENTAL ANALYSIS
benchmarking
A
- the process of comparing an organization’s practices and techniques with those of other companies
- benchmarking team would collect information on its own company’s operations and those of the other firm to determine gaps
- gaps serve as point of entry to learn underlying causes of performance differences
- team would map out a set of best practices that lead to world-class performance
25
RESPONDING TO THE ENVIRONMENT
| strategic maneuvering
- an organization's conscious efforts to CHANGE the boundaries of its task environment, a firm can maneuver around potential threats and capitalize on arising opportunities
- managers can use several strategic maneuvers, including domain selection, diversification, merger and acquisition, and divestiture
26
RESPONDING TO THE ENVIRONMENT
| domain selection
- entering a new market or industry with an existing expertise
- for example, the market may have limited competition or regulation, ample suppliers and customers, or high growth
27
RESPONDING TO THE ENVIRONMENT
| diversification
- a firm's investment in a different product, business, or geographic area to reduce its dependence on a single market or technology
- example : Apple diversified successfully when it added iPod, iTouch, iPad, and iPhone to its offerings of personal computers
28
RESPONDING TO THE ENVIRONMENT
| merger
- one or more companies combining with one another
- can offer greater efficiency from combined operations or can give companies relatively quick access to new markets or industries
29
RESPONDING TO THE ENVIRONMENT
| acquisition
- one firm buying another
- can offer greater efficiency from combined operations or can give companies relatively quick access to new markets or industries
- can also give a company quick expertise in an area where it wants to grow
30
RESPONDING TO THE ENVIRONMENT
| divestiture
- a firm selling one or more business
| - example : Ford auto company sold Aston Martin and Hertz to cut costs
31
RESPONDING TO THE ENVIRONMENT
| prospectors
- companies that continuously change the boundaries for their task environments by seeking new products and markets, diversifying and merging, or acquiring new enterprises
- aggressive companies continuously change the boundaries of their competitive environments by seeking new products and markets, diversifying, and merging or acquiring new enterprises
- corporations put their competitors on the defensive and force them to react
32
RESPONDING TO THE ENVIRONMENT
| defenders
- companies that stay within a stable product domain as a strategic maneuver
33
RESPONDING TO THE ENVIRONMENT
| independent strategies
- strategies that an organization acting on its own uses to change some aspect of its current environment
- competitive aggression :
- exploiting a distinctive competence or improving internal efficiency for competitive advantage
- examples : aggressive pricing, comparative advertising (E.g.Walmart)
- competitive pacification :
- independent action to improve relations with competitors
- examples : helping competitors find raw materials
- public relations :
- establishing and maintaining favorable images in the minds of those making up the environment
- examples : sponsoring sporting events
- voluntary action :
- voluntary commitment to various interest groups, causes, and social problems
- examples : Johnson & Johnson donating supplies to tsunami victims
- legal action :
- engaging company in private legal battle
- examples : Warner Music lawsuits against illegal music copying
- political action :
- efforts to influence elected representatives to create a more favorable business environment or limit competition
- examples : issue advertising, lobbying at state and national levels
34
RESPONDING TO THE ENVIRONMENT
| cooperative strategies
- strategies used by two or more organizations working together to manage the external environment
- an examples of contracting occurs when suppliers and customers, or managers and labor unions, sign formal agreements about the terms and conditions of their future relationships
- contraction :
- negotiation of an agreement between the organization and another group to exchange goods, services, information, patents, and so on
- examples : contractual marketing systems
- cooptation :
- absorbing new elements into the organization's leadership structure to avert threats to its stability or existence
- examples : consumer and labor representatives and bankers on boards of directors
- coalition :
- two or more groups that coalesce and act jointly with respect to some set of issues for some period of time
- examples : industry associations, political initiatives of the Business Roundtable and the U.S. Chamber of Commerce
- at organizational level, firms establish strategic alliances, partnerships, joint ventures, and mergers with competitors to deal with environmental uncertainties and make most sense when :
- taking joint action will reduce the organization's' costs and risks
- cooperation will increase their power
35
RESPONDING TO THE ENVIRONMENT
| empowerment
- the process of sharing power with employees, thereby enhancing their confidence in their ability to perform their jobs and their belief that they are influential contributors to the organization
- decentralized authority
36
RESPONDING TO THE ENVIRONMENT
| buffering
- creating supplies of excess resources in case of unpredictable needs
- on input side, organizations establish relationships with employment agencies to hire part-time and temporary help during rush periods when labor demand is difficult to predict
- on output side, most organizations use some type of ending inventory that allow them to keep merchandise on hand in case a rush of customers decide to buy their products
37
RESPONDING TO THE ENVIRONMENT
| smoothing
- leveling normal fluctuations at the boundaries of the environment
- examples : at the end of each clothing season, retailers discount their merchandise to clear it out to make room for incoming inventories
38
RESPONDING TO THE ENVIRONMENT
| flexible process
- methods for adapting the technical code to changes in the environment
- firms increasingly try to customize goods and services to meet the varied and changing demands of the customers
- even in manufacturing, where it is difficult to change basic core processes, firms are adopting techniques of mass customization that help them create flexible factories
- the process of mass customization involves the use of a network of independent operating units in which each performs a specific task or process such as making a dashboard assembly on an automobile
- when an order comes in, different modules join forces to deliver the product or service as specified by the customer
39
THE INTERNAL ENVIRONMENT OF ORGANIZATIONS : CULTURE AND CLIMATE
organizational culture
- the set of important assumptions about the organization and its goals and practices that members of the company share
- system of shared values about what is important and beliefs about how the world works
- for example : the way people dress and behave, the way they interact with each other and with customers, and the qualities that are likely to be valued by managers are usually quite different at a bank than they would be at a rock concert or a law firm
- strong cultural is one in which everyone understand and believes in the firm's goals, priorities, and practices.
- weak culture characteristics : different people hold different values, there is confusion about corporate goals, and it is not clear from one day to the next what principles should guide decisions
- corporate mission statements
- business practices can be observed : how a company responds to problems, makes strategic decisions, and treats employees and customers tells a lot about what top management really values
- symbols, rites, and ceremonies : status symbols can give you a feel for how rigid the hierarchy is and for the nature of relationships between lower and higher levels
- the stories people tell : every company has its myths, legends,candy true stories about important past decisions and actions that convey the company's main values
- four types :
1. Group culture
- dominant attributes : cohesiveness, participation, teamwork, sense of family
- leadership style : mentor, facilitator, parent figure
- bonding : loyalty, tradition, interpersonal cohesion
- strategic emphasis : toward developing human resources, commitment, and morale
2. Hierarchical culture
- dominant attributes : order, rules and regulations, uniformity, efficiency
- leadership style : coordinator, organizer, administrator
- bonding : rules, policies and procedures, clear expectations
- strategic emphasis : toward stability, predictability, smooth
3. Rational culture
- dominant attributes : goal achievement, environment exchange, competitiveness
- leadership style : production and achievement oriented, decisive
- bonding : goal orientation, production, competition
- strategic emphasis : toward competitive advantage and market superiority
4. Adhocracy
- dominant attributes : entrepreneurship, creativity, adaptability, dynamism
- leadership style : innovator, entrepreneur, risk taker
- bonding : flexibility, risk, entrepreneur
- strategic emphasis : toward innovation, growth, new resources
40
THE INTERNAL ENVIRONMENT OF ORGANIZATIONS : CULTURE AND CLIMATE
organizational climate
- the patterns of attitudes and behavior that shape people's experience of an organization
- for examples, might include clear performance standards, frequent conflict, great trust in leaders, and open communication between supervisors and their employees
- an organization is most effective when it has a climate that motivates and enables workers to achieve the organization's strategy
41
REVIEW
| Describe how environmental forces influence organizations and how organizations can influence their environments.
- Organizations are open systems that are affected by, and in turn affect, their external environments. Organizations receive financial, human, material, and information resources from the environment; transform those resources into finished goods and services; and then send those outputs back into the environment.
42
REVIEW
| Distinguish between the macroenvironment and the competitive environment.
- The macroenvironment is composed of economic, legal and political, technological, demographic, social, and natural environment forces that influence strategic decisions.
- The competitive environment. Is composed of forces closer to the organization, such as current competitors, new entrants, substitutes and complementary products, suppliers, and customers.
- Perhaps the simplest distinction between the macroenvironment and the competitive environment is in the amount of control a firm can exert on external forces.
- Macroenvironmental forces such as the economy and social trends are much less controllable than are forces in the competitive environment such as suppliers and customers.
43
REVIEW
| Explain why managers and organizations should attend to economic and social differences.
- Developments outside the organization can have a profound effect on the way managers and companies operate. For example, higher energy costs or increased spending on security may make it harder for managers to keep their prices low.
- The growing diversity of the labor force gives managers access to a much broader range of talent but also requires them to make sure different types of employees are treated equally.
- Effective managers stay aware of trends like these and respond to them appropriately.
44
REVIEW
| Identify elements of the competitive environment.
- Elements in the environment can range from favorable to unfavorable.
- To determine how favorable a competitive environment is, managers should consider the nature of the competitors, potential new entrants, threat of substitutes, opportunities from complements, and relationships with suppliers and customers.
- Analyzing how these forces influence the organization provides an indication of potential threats and opportunities.
- Effective management of the firm's supply chain is one way to achieve a competitive advantage. Attractive environments tend to be those with high industry growth, few competitors, products that can be differentiated, few potential entrants, many barriers to entry, few substitutes, many suppliers (none with much power), and many customers.
- After identifying and analyzing competitive forces, managers must formulate a strategy that minimizes the power external forces have over the organization.
45
REVIEW
| Summarize how organizations respond to environmental uncertainty.
- Responding effectively to the environment often requires proactive strategies to change the environment.
- Strategic maneuvering involves changing the boundaries of the competitive environment through domain selection, diversification, mergers, and the like.
- Independent strategies require not moving into a new environment but rather changing some aspect of the current environment through competitive aggression, public relations, legal action, and so on.
- Cooperative strategies, such as contracting, cooptation, and coalition building, involve the working together of two or more organizations.
- Organizations also may make themselves better able to handle environmental change by decentralizing authority, buffering or smoothing, and establishing flexible processes.
46
REVIEW
| Define elements of an organization's culture.
- An organization's culture is its set of shared values and practices related to what is important and how the world works.
- The culture provides a framework that organizes and directs people's behavior at work.
- Elements of the culture may be expressed in corporate mission statements and official goals, assuming these reflect how the organization actually operates.
- Business practices are a basic measure of culture.
- Symbols, rites, ceremonies, and the stories people tell express and reinforce their cultural values.
46
REVIEW
| Discuss how an organization's culture and climate affect its response to its external environment.
- A culture may be strong or weak and may be on of the four types : group, hierarchical, rational, or adhocracy.
- These cultures shape whether they are flexible and whether the focus is on the external or internal environment.
- Managing and changing the culture to align it with the organization's environment will require strong, long-term commitment by the CEO and other managers.
- Managers should espouse high ideals and lay constant attention to conveying values by communicating and modeling them, making decisions that are consistent with cultural values, and rewarding those who demonstrate the organization's values.
- In addition, an organization's climate shapes the attitudes and behaviors of its people.
- When the climate is positive, employees want to and are able to carry out its strategy for responding to the external environment.
