2 m business environtment ( bus tel services)
TRANSCRIPT
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2. Business environment
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2. Business environment
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Chapter
2 The ExternalEnvironment
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The External Environment
Organizations are open systems
affected by, and in turn affect, their external environments
External environment
Everything outside an organizations boundaries that might affect it
all relevant forces outside a firms boundaries
relevant - factors to which managers must pay attention
organizationalboundaries - that which separates the organizationfrom its environment
two elements comprise the external environment
competitive environment- immediate environment surrounding afirm
macroenvironment- fundamental factors that generally affect allorganizations
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Laws and
politics
Economy
Technology
Demographics
Social
values
MacroenvironmentCompetitive
Environment
OrganizationSuppliers
New
Entrants
SubstitutesRivals
Buyers
The External Environment
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Economic EnvironmentEconomic Environment
Business Cycle
Patterns of short term ups anddown expansions and
contractions) in an economy
Aggregate Output
Total quantity of goods and
services produced by an economic
system during a given period
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Business CycleExpansionExpansion
ContractionContraction
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Economic EnvironmentEconomic Environment
Aggregate Output
a. Standard of Living
b. Gross Domestic Product (GDP)
c. Gross National Product (GNP)
d. Purchasing Power Parity
e. Productivity
f. Balance of trade
g. National Debt
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Economic EnvironmentEconomic Environment
Aggregate Output
a. Standard of Living
Total quantity and quality of goods and services that a countrys
citizerns can purchase with the currency used in their country
b. Gross Domestic Product (GDP)
Total value of all goods and services produced within a given period
by a national economy through domestic factors of production
Real GDP (GDP calculated to account for changes in currency
values and price changes)
Nominal GDP (GDP measured in current dollars or with all
components valued at current prices)
c. Gross National Product (GNP)
Total value of all goods and services produced by a national
economy within a given period regardless where the factors of
production are located
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Economic EnvironmentEconomic Environment
Aggregate Output
d. Purchasing Power Parity
Principle that exchange rates are set so that the prices of
similar products in different countries are about the same
e. Productivity
Measure of economic growth that compares how much a
system produces with the resources needed to produce it
f. Balance of trade
Economic value of all products a country exports minus the
economic value of all products it imports
g. National Debt
Amount of money that a government owes its creditors
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Economic Stabilitya. Stability
b. Inflation
c. Consumer Price Index (CPI)d. Unemployment
e. Recession
f. Depression
g. Fiscal Policies
h. Monetary Policies
i. Stabilization Policies
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Economic Stabilitya. Stability
Condition in an economic system in which the amount of
money available and the quantity of goods and services
producedare growing at about the same rate
b. Inflation
Occurrence of widespread price increases throughout
an economic system
Inflation rate = (change in price Index/Initial Price Index)
X 100
c. Consumer Price Index (CPI)
Measure of prices of typical products purchased by
consumers living in urban areas
d. Unemployment
Measure of prices of typical products purchased by
consumers living in urban areas
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Monetary PolicyInterest RatesInterest Rates
Spending
Spending
TightTight
Interest RatesInterest Rates
SpendingSpending
EasyEasy
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Economic Stabilitye. Recession
Period during which aggregate output, as measuredby real GDP, declines
f. Depression
Particularly severe and long lasting recessiong. Fiscal Policies
Government economic policies that determine howthe government collects and spends its revenues
h. Monetary Policies Government economic policies that determine the
size of a nations monetary supply
i. Stabilization Policiese. Government policy, embracing both fiscal and
monetary policies whose goal is to smooth outfluctuations in output and unemployment and tostabilize prices
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Technological Environment Technology
Product/ServiceTechnologies
Business ProcessTechnologies
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Technological Environment Technology
All the ways in which firms create valuefor constituents
Product/Service Technologies Technologies employed for creating
products (goods and services) forcustomers
Business Process Technologies-
Enterprise Resource Planning
Large scale information system fororganizing and managing a firmsprocesses across product lines,departments and geographic locations
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Enterprise Resource Planning
ERP SystemERP System
HumanHuman
ResourcesResources
Data AnalysisData Analysis
AccountingAccounting& Finance& Finance
CustomerCustomer
ServicesServices
Sales &Sales &
MarketingMarketing
Supply ChainSupply Chain
ManagementManagement
ManufacturingManufacturing
* Benefits
* Payroll
* Product costs* Job costs * Sales Orders
* Pricing Systems
* Field Services* Quality
* Forecasting
* Purchasing* Distribution
* Account Payable andReceivable
* AssetManagement
* Material requirementsPlannning
* Schedulling
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Political-Legal Environment
Political-Legal Environment
Condition reflecting the relationship
between business and government,usually in the form of governmentregulation
Regulation
Defines Relationship BetweenGovernment & Business
Government
Pro vs. Anti-Business Sentiment
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Sociocultural Environment Sociocultural Environment
Conditions including the customs, mores, values
and demographic characteristics of the society inwhich an organization functions
Customer Preferences/Tastes- Vary
International
National
Ethical Compliance & Responsible Behavior
Enron
ArthurAndersen
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Business Environment Redrawing Corporate
Boundaries- Core
Competencies Challenges/Opportunities
Outsourcing
Vertical Integration Viral Marketing
BusinessProcessManagement
Post-9/11
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Business Environment Redrawing Corporate
Boundaries- Core
Competencies
Core Competencies
Skills and resources with
which an organization
competes best and creates
the most values for owners
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Business Environment Challenges/Opportunities (1/2)
Outsourcing
Strategy of paying suppliers and distributors
to perform certain business processes or to
provide needed materials or resources
Vertical Integration
Strategy of owning the means by which an
organization produces goods or services
Viral Marketing
Strategy of using the internet and word of
mouth marketing to spread product
information
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Business Environment Challenges/Opportunities (2/2)
Process
Any activity that adds value to some input by
transforming it into an output for a customer
(whether internal or external)
BusinessProcessManagement
Approach by which firms move away from
department-oriented organization and toward
process oriented team structures that cut
across old departmental boundaries
Post-9/11
The government should be security concern
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Environmental
Scanning
BenchmarkingScenario
Development
Forecasting
Environmental Analysis
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Environmental Analysis
Environmental uncertainty lack of information needed to understand or predict
the future uncertainty arises from two related factors
complexity- the number of issues to which a managermust attend as well as their interconnectedness
dynamism - the degree of discontinuous change that
occurs within the industry
as uncertainty increases, techniques must bedeveloped to collect, sort, and interpret informationabout the environment
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Environmental Analysis (cont.) Environmental scanning
searching for and sorting through information
about the environment competitive intelligence - information that helps
managers determine how to compete better
competitive potential of environments differs
attractive environments- give firm a competitiveadvantage
unattractive environments- put firm at a competitivedisadvantage
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Attractive and Unattractive
Environments
Environmental
Factor
Competitors
Threat of entry
Substitutes
Suppliers
Customers
Unattractive
Many; low industry growth;
equal size; commodity
High threat; few entry
barriers
Many
Few; high bargaining power
Few; high bargaining power
Few; high industry growth;
unequal size; differentiated
Low threat; many barriers
Few
Many; low bargaining
power
Many; low bargaining
power
Attractive
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Environmental Analysis (cont.)
Scenario development scenario - a narrative that describes a particular set of
future conditions best-case scenario - events occur that are favorable to the
firm
worst-case scenario - events occur that are all unfavorable
help managers develop contingency plans
Forecasting
method for predicting how variables will change in the future accuracy varies from application to application
forecasts are most useful when they accurately predict achanged future environment
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Environmental Analysis (cont.)
Benchmarking
process of comparing the organizations practices
and technologies with those of other companies determine the best-in-class performance by a company in
a given area
benchmarking team collects information on its owncompanys operations and those of benchmark companies
to identify gaps gaps investigated to learn the underlying causes of
performance differences
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Responding To The Environment
Adapting to the environment company adjusts itsstructures and work processes
in uncertain environment caused by complexity, companiestend to decentralize decision making empowerment- process ofsharing power with employees
enhances their confidence in their ability to perform their jobs
engenders beliefs that they are influential contributors to the firm
in uncertain environments caused by dynamism, companies
tend to establish more flexible structures bureaucracy- suited for stable environments (low dynamism)
organic - provides flexibility required for changing environments(high dynamism)
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Complex
Simple
Stable Dynamic
Decentralized
Bureaucratic
(Standardized skills)
Centralized
Bureaucratic(Standardized work
processes)
Decentralized
Organic
(Mutual adjustment)
Centralized
Organic(Direct supervision)
Four Approaches for ManagingFour Approaches for Managing
UncertaintyUncertainty
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Res
ponding To The Environment (cont.)
Adapting to the environment (cont.)Adapting at the boundaries
buff
ering - creating supplies of excess resources in case of
unpredictable needs buffers created on both the input and outputside of the business
smoothing - leveling normal fluctuations at the boundaries ofthe organization
Adapting at the core flexible processes- permit adaptation of the technical core
masscustomization-use of a network of independent operatingunits that each performs a specific process
different modules join forces to deliver the product or service asspecified by the customer
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Responding To The Environment
(cont.)
Influencing your environment
proactive responses aimed at changing the
environment Independentaction- strategies that an organization
acting on its own uses to change some aspect of itscurrent environment
Cooperative action- strategies used by two or more
organizations working together to influence the externalenvironment
at an organizational level, establish strategic alliances,partnerships, joint ventures, and mergers with competitors
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Changing the environment you are in
strategicmaneuvering - conscious effort to
change the boundaries of the competitiveenvironment prospectors- companies that continuously change the
boundaries of their task environments by:
diversifying and merging
seeking new products and markets
acquiring new enterprises
defenders- companies thatstay within a stable, more-limited product domain as a strategic maneuver
Responding To The Environment(cont.)
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Change appropriate elements of the environment focus on elements that:
cause the company problems provide the company with opportunities
allow the company to change successfully
Choose responses that focus on specific elements ofthe environment
focus on competitive aggression and pacification Choose responses that offer the most benefit at the
lowest cost focus on both short- and long-term financial considerations
Choosing A Response Approach
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