Management by hitt back porter CH03

Chapter 3
Assessing
External
Environments
PowerPoint slides by
R. Dennis Middlemist
Colorado State University


Learning Objectives
After studying this chapter, you should be
able to:






2

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.

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Learning Objectives
After studying this chapter, you should be
able to:




3

Describe the key elements of an
organization’s global environment.
Describe the key considerations in
conducting effective environmental
scanning.

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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

4

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Organization Environment

io
Soc

General
Environment

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Eco

ural
cult

nom
ic

 External Environment
 General Environment

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l
G

l
a
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Te
ch
n

Political-Legal
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Adapted from Exhibit 3.1: Organization Environment


Organization Environment
ers

y

nom
ic

s
or
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t

Eco

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Re
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La

ural
cult

General
Task
Environment
Environment

s
er

io
Soc

Cu
sto
m

ol
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pp

 Task Environment

Competitors

Su

 External Environment
 General Environment

o
l
G

l
a
b

Te
ch
n

Strategic Partners

Political-Legal
6

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Adapted from Exhibit 3.1: Organization Environment


Organization Environment

nom
ic

s
or

Eco

or

Re
g

b
La

ural

cult

Owners
BoardTask
of Directors
Management
Environment
Employees
Culture

ula
t

ers
Cu
sto
m

y

s
er

io
Soc

 Internal Environment

Internal
Environment

ol
og

li
pp

 Task Environment

Competitors

Su

 External Environment
 General Environment

o
l
G

l
a
b

Te
ch
n

Strategic Partners

Political-Legal
7

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Adapted from Exhibit 3.1: Organization Environment


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ol
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Eco
n

l

8

l t u ra

 Economic forces
 Current economic conditions
 Economic cycles
 Structural changes

iocu

 Product technological changes
 Process technological changes

Te
c

General
Environment

So c

 Sociocultural forces
 Demographics
 Values
 Technology forces

al
ob
Gl

omi
c

General Environment

Political-Legal

Economic Cycles
Good
economic
conditions

Poor
economic
conditions
Time
9

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Adapted from Exhibit 3.2: Overall Economic Cycles and Industry Cycles


l t u ra
l

Political-Legal

 Global forces
 Impact on and interaction with the other

forces
 Institutional forces
 Physical forces

10

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Eco
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iocu

 Government spending

hn

General
Environment

So c

 Political and legal forces
 Laws and regulations

Te
c

al
ob

Gl

omi
c

General Environment


General Environment of
Coca-Cola
Environmental Factor
Sociocultural
Demographics

Description
 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
11

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Adapted from Exhibit 3.3: Description of the General Environment of Coca-Cola


General Environment of
Coca-Cola
Environmental Factor
Technological

Description
 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
12

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Adapted from Exhibit 3.3: Description of the General Environment of Coca-Cola


The General Environment of
Coca-Cola
Environmental Factor
Global

Description
 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

13

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Adapted from Exhibit 3.3: Description of the General Environment of Coca-Cola


The General Environment of
Coca-Cola
Technological

Sociocultural

Sociocultural
Technological
Political-Legal
Global
Economic

•
•
•
•

Baby boomers drinking less
Immigrants drinking less
Concern about recycling
Concerns about health

Economic
•
•

•
•

New recycle-friendly canning
technology
New promotion opportunities
via the Internet

Political-Legal

Coca-Cola
•

Slow economic growth
Prospect of economic recovery

•

Increased health standards
for bottling
Stricter liability legislation

Global
•
•

14

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Increase in acceptance of
carbonated drinks in India
and China
Easier consumer access to
refrigeration

Adapted from Exhibit 3.4: The General Environment of Coca-Cola

Task Environment

 Strategic partners
 Labor

 Suppliers

 Regulators

Cu
s

ula
t

Re
g

Task
Environment

or
s

rs

 Competitors
 Customers

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La

external environment
 Consists of

lie

 Organization’s most immediate

pp

tom

Su

er s

Competitors

Strategic Partners

 Typically largest influence on the organization
 Managers must understand the fit between the

organization and its task environment

15

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Profits and Industry Forces
•
•

•
•
•
•

•

16

Few competitors
Quality-based
competition
High entry barriers
Few new entrants
Many customers
Fragmented
customers
Many suppliers

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•
•

•

Higher
Profits

•
•
•
•
•

Many competitors
Price-based
competition
Low entry barriers
Many new entrants
Many substitutes
Few customers
United customers
Few suppliers

Lower
Profits

Adapted from Exhibit 3.5: Profits and Industry Forces


Task Environment:
The Nature of Competition

pp

tom

Su

er s

Competitors

rs

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ula
t

 What are your competitors weaknesses?

Re
g

r
bo
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Environment

or
s

 How big and strong are your competitors?
Task
Strategic Partners

 What is the nature of competition or rivalry

in your industry?

17

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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

18

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Task Environment:
Substitutes

Strategic Partners

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or
s
ula
t

Re
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products
Task
Environment
or services can
substitute for
existing product
or service
 The fewer the available substitutes, the

greater the profits

rs

Cu
s

lie

 To what extent can alternative

pp

tom

Su

er s

Competitors


Task Environment:
Customers

rs

Cu
s

lie

Strategic Partners

20

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or
s

customers, they have
demand
 Lower prices
 Customized products or services
 Attractive financing terms from producers
 These demands reduce profits

ula
t

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La

united
more power to
Task
Environment

Re
g

 When there are fewer and

pp

tom

Su

er s

Competitors


Task Environment:
Strategic Partners

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Cu
s

rs

21

ula
t

Re
g

Task
Environment

or
s

with
beneficial goals
r
bo
La

a firm to pursue mutually
 Limited engagements
 Joint ventures
 Sharing of equity interest

lie

 Strategic partners work closely

pp

tom

Su

er s

Competitors

Strategic Partners


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
22

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Task Environment:
Regulators

rs

Cu

s

lie

regulatory
Task
Environment
agencies and
interest groups
 Regulators can influence and sometimes
dictate organizational actions
Re
g

ula
t

r
bo
La

or
s

 Regulators consist of both

pp

tom

Su

er s

Competitors

Strategic Partners

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Task Environment of JetBlue
Task Environmental
Factor
Competitors
Rivalry

Description

 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
Customers

 Business travelers who want convenience
 Leisure travelers who want low price

24

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Adapted from Exhibit 3.6: Description of the Task Environment of JetBlue


Task Environment of JetBlue
Task Environmental
Factor
Suppliers

Description
 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
25

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Adapted from Exhibit 3.6: Description of the Task Environment of JetBlue