Organizational Environment
l Organizational Environment: those forces outside its boundaries that can impact it.
n Forces can change over time and are made up of Opportunities and Threats.
l Opportunities: openings for managers to enhance revenues or open markets.
n New technologies, new markets and ideas.
l Threats: issues that can harm an organization.
n Economic recessions, oil shortages.
l Managers must seek opportunities and avoid threats.
Forces in the Organizational Environment
l Task Environment
n Competitors
n Customers
n Distributors
n Supplier
l The General Environment
n Demographic forces
n Political & Legal Forces
n Global Forces
n Technological Forces
n Socio cultural Forces
n Economic Forces
Task Environment
l Task Environment: forces from suppliers, distributors, customers, and competitors.
l Suppliers: provide organization with inputs
n Managers need to secure reliable input sources.
n Suppliers provide raw materials, components, and even labor.
u Working with suppliers can be hard due to shortages, unions, and lack of substitutes.
u Suppliers with scarce items can raise the price and are in a good bargaining position.
n Managers often prefer to have many, similar suppliers of each item.
l Distributors: organizations that help others to sell goods.
n Compaq Computer first used special computer stores to sell their computers but later sold through discount stores to reduce costs.
n Some distributors like Wal-Mart have strong bargaining power.
u They can threaten not to carry your product.
l Customers: people who buy the goods.
n Usually, there are several groups of customers.
u For Compaq, there are business, home, & government buyers.
l Competitors: other organizations that produce similar goods.
n Rivalry between competitors is usually the most serious force facing managers.
n High levels of rivalry often mean lower prices.
u Profits become hard to find.
n Barriers to entry keep new competitors out and result from:
u Economies of scale: cost advantages due to large scale production.
u Brand loyalty: customers prefer a given product.
Industry Life Cycle
l Reflects the changes that take place in an industry over time.
l Birth stage: firms seek to develop a winning technology.
n VHS vs. Betamax in video, or 8-track vs. cassette in audio.
l Growth stage: Product gains customer acceptance and grows rapidly.
n New firms enter industry, production improves, and distributors emerge.
l Shakeout stage: at end of growth, there is a slowing customer demand.
n Competitor rivalry increases, prices fall.
n Least efficient firms fail and leave industry.
l Maturity stage: most customers have bought the product, growth is slow.
n Relationships between suppliers, distributors more stable.
n Usually, industry dominated by a few, large firms.
l Decline stage: falling demand for the product.
n Prices fall, weaker firms leave the industry.
The General Environment
l Consists of the wide economic, technological, demographic and similar issues.
n Managers usually cannot impact or control these.
n Forces have profound impact on the firm.
l Economic forces: affect the national economy and the organization.
n Includes interest rate changes, unemployment rates, and economic growth.
n When there is a strong economy, people have more money to spend on goods and services.
l Technological forces: skills & equipment used in design, production and distribution.
n Result in new opportunities or threats to managers.
n Often make products obsolete very quickly.
n Can change how we manage.
l Social cultural forces: result from changes in the social or national culture of society.
n Social structure refers to the relationships between people and groups.
l Different societies have vastly different social structures.
n National culture includes the values that characterize a society.
l Values and norms differ widely throughout the world.
n These forces differ between cultures and over time.
l Demographic forces: result from changes in the nature, composition and diversity of a population.
n These include gender, age, ethnic origin, etc.
l For example, during the past 20 years, women have entered the workforce in increasing numbers.
n Currently, most industrial countries are aging.
l This will change the opportunities for firms competing in these areas.
l New demand for health care, assisting living can be forecast.
l Political-legal forces: result from changes in the political arena.
n These are often seen in the laws of a society.
n Today, there is increasing deregulation of many state-run firms.
l Global forces: result from changes in international relationships between countries.
n Perhaps the most important is the increase in economic integration of countries.
n Free-trade agreements (GATT, NAFTA, EU) decreases former barriers to trade.
Provide new opportunities and threats to managers.
Managing the Organization Environment
l Managers must measure the complexity of the environment and rate of environmental change.
l Environmental complexity: deals with the number and possible impact of different forces in the environment.
n Managers must pay more attention to forces with larger impact.
n Usually, the larger the organization, the greater the number of forces managers must oversee.
l The more forces, the more complex the manager’s job becomes.
l Environmental change: refers to the degree to which forms in the task and general environments change over time.
n Change rates are hard to predict.
n The outcomes of changes are even harder to identify.
l Managers thus cannot be sure that actions taken today will be appropriate in the future given new changes.
Reducing Environmental Impact
l Managers can counter environmental threats by reducing the number of forces.
n Many firms have sought to reduce the number of suppliers it deals with which reduces uncertainty.
l All levels of managers should work to minimize the potential impact of environmental forces.
n Examples include reduction of waste by first line managers, determining competitor’s moves by middle managers, or the creation of a new strategy by top managers.
Organizational Structure
l Managers can create new organizational structures to deal with change.
n Many firms use specific departments to respond to each force.
l Managers also create mechanistic or organic structures.
n Mechanistic structures have centralized authority.
u Roles are clearly specified.
u Good for slowly changing environments.
n Organic structures authority is decentralized.
u Roles overlap, providing quick response to change.
Boundary Spanning
l Managers must gain access to information needed to forecast future issues.
n Rod Canyon’s forecast of Compaq’s future was wrong due to his incorrect view of the environment.
l Boundary spanning is the practice of relating to people outside the organization.
n Seek ways to respond and influence stakeholder perception.
n By gaining information outside, managers can make better decisions about change.
l More management levels involved in spanning yields better overall decision making.
Scanning and Monitoring
l Environmental scanning is an important boundary spanning activity.
n Includes reading trade journals, attending trade shows, and the like.
l Gate keeping: the boundary spanner decides what information to allow into organization and what to keep out.
n Must be careful not to let bias decide what comes in.
l Inter organizational Relations: firms need alliances globally to best utilize resources.
Managers can become agents of change and impact the environment
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