BUSINESS/ORGANIZATIONAL ENVIRONMENT :Environmental Forces

Presentation by Y. Ratnayake.BA(Econ); MBA; Dip. in Marketing CIM UK; Pgraduate Dip. in Project Management; Dip. in Regional Industrial Development; Dip in Rural Area Development.

WHAT IS A BUSINESS ?System.Goal driven.Social entity.Converting input.Adding values.

Environmental ForcesBusiness EnvironmentTask EnvironmentCompetitive Forces in the Task EnvironmentTechnological Forces Political and Legal Forces

The Organizations EnvironmentsExternal environment: everything outside an organizations boundaries that might affect it. The uncontrollable environment.Internal environment: the conditions and forces within an organization. The controllable environment. *

The Organization and Its Environments*

THE GENERAL ENVIRONMENTEconomic dimensions: the overall health and vitality of the economic system in which the organization operates.Technical dimensions: the methods available for converting resources into products or services.Socio-cultural dimensions: the customs, mores, values, and demographics of the society in which the organization functions. *

Additional DimensionsPolitical-Legal dimension: the government regulation of business and the general relationship between business and government.International dimension: the extent to which an organization is involved in or affected by business in other countries.*

The Task EnvironmentCompetitors: an organization that competes with other organizations.Customer: whoever pays money to acquire an organizations products or services.Supplier: an organization that provides resources for other organizations.Regulator: a unit that has the potential to control, legislate, or influence an organizations policies and practices. *

McDonalds Task Environment*

Task Environments ContinuedInterest group: a group organized by its members to attempt to influence organizations.Strategic partner: an organization working together with one or more organizations in a joint venture or other partnership. *

The Internal EnvironmentOwner: someone who has legal property rights to a business.Board of directors: governing body elected by a corporations stockholders and charged with overseeing the general management of the firm.Employees: those employed by the organization.Physical work environment: the firms facilities.*

The General EnvironmentSometimes called the macro-environment.Are external factors, such as inflation and demographics, that usually affect indirectly all or most organizations.

Factors in the General EnvironmentType of economic system and economic conditionsType of political system Condition of the ecosystemDemographicsCultural Background

Roles of Government in BusinessThe government acts as a watchdog over businessProvides direction in areas such as:antitrust,monetary policy, defense, human rightsenvironmental matters

The Economic SystemThe economic system in which there are:privately controlled marketsbased on supply and demandfree market competitionprivate contractsprofit incentivestechnological advancement

The EcosystemThere is a renewed commitment to the environment.Central Environmental Authority.International conventions.

Environmentally-Conscious Business Practices Cut back on environmentally unsafe operationsCompensate for environmentally risky endeavorsAvoid confrontation with state and federal pollution control agenciesComply early with government regulationsPromote new manufacturing technologiesRecycle wastes3.3

DemographicsCharacteristics of a population such as age, race, gender, ethnic origin, and social classdetermine the characteristics of work groups, organizations, specific markets, or nations population.Demographics influence marketing, advertising, and human resources decisions.Such as the number of individuals the ages of 18 to 25They change all the time.

Cultural ForcesCulture is the shared characteristics, values, and beliefs of a group that distinguishes them from another groupSuch as religion, language, and heritage

Hofstedes FrameworkPower distance Degree to which influence/control are unequally distributed among individuals within a particular culturesalary differentiation from CEO to front line employeesUncertainty avoidanceDegree to which members of a society attempt to avoid ambiguity, riskiness, and indefiniteness of futureIndividualism Extent to which society expects people to take care of themselves and their immediate families And/or the degree to which individuals believe they are masters of their own destiny 3.5

Hofstedes Framework (contd.)Collectivism Measures tendency of group members to focus on the common welfare and feel loyalty toward one anotherMasculinity Degree to which acquisition of money and things is valued and high quality of life for others is notConfucian dynamism Stability of society is based on unequal relationshipsFamily is the prototype of all organizationsPeople should treat others as they would like to be treated3.6

Basic Types of Task EnvironmentsFactors in environment are fewquite similar to each otherbasically the same over time

Example: Soft-drink distributors

Factors in environment are fewsomewhat similar to each othercontinually changing

Example: Fast-food outlets

Factors in environment are numerousnot similar to each otherbasically the same over time

Example: Basic food production firmsFactors in environment are numerousnot similar to each othercontinually changing

Example: Computer firms

STABLECHANGINGSI M P L EC O M P L E X3.8

Ambiguity or unpredictability of certain factors external to an organization governmental regulationscompetitionstability of inputsdemand characteristicse.g. Customer bargaining power

3.6Environmental Uncertainty

Turbulent EnvironmentComplex, constantly changingBoth ambiguous and unpredictable

Competitive Forces in the Task EnvironmentSuppliersbargainingpowerThreatof newcompetitorsBuyersbargainingpowerThreat ofsubstitutegoods/servicesRivalry amongexisting firms in industry3.9

CompetitorsImportance and Effect of Competitorscompetitors are an important day-to-day environmental force facing organizationsrivalry among competitors leads toprice cuttingadvertising promotionsenhanced customer service or warrantiesimprovements in product or service quality

New EntrantsBarriers to Entry:economies of scaledecrease in per unit costs as volume of goods/services produced increasesproduct differentiationuniqueness in quality, price, design, brand image, or customer service that gives a product an edge over the competition

New Entrants cont.capital requirementsdollars needed to finance equipment supplies, advertising, R&D, and the like necessary to startgovernment regulationmay bar or severely restrict potential new entrants to an industry

Substitute Goods and ServicesGoods/Servicesthat can easily replace the firms goods/servicesI.e. Starbucks introduced a new drink called Frappuccino. It is a cold drink that can substitute for the more traditional hot coffee drink

CustomersPotential Effects of Customersthey may drive down pricespush for more or higher-quality productsincrease competition among sellers by playing one against each other

IntegrationPurchasing or developing related business unitsthought of as facing the customerForward Integration-purchasing your customerWhy?Backward Integration-purchasing your supplierWhy?Horizontal Integration-purchasing competitorsWhy?

Customers cont...Exhibit Bargaining Power to the Extent that:they purchase a large volume relative to the suppliers total salesthe product/service represents a significant expenditure by the customerthey pose a realistic threat of backward integration, for example: the purchase of one or more of its suppliersthey have readily available alternatives for the same services/products

Suppliers Bargaining Power of Suppliersoften controls how much they can :raise prices above their costsreduce the quality of goods and servicesis increased by patents and copyrights is increased by supplier-customer allianceswhich are advocated by total quality programs

Impact of TechnologyWhat is technology?knowledge, tools, techniques, and actionsused to transform material , information, and other inputs into finished goods and servicesplays pivotal role in creating and changing an organizations task environment

Impact of Technology cont...Role in Strategy :creates strategic options not feasible with older technologies approaching those of traditional large-scale manufacturing facilities marketing over the internetonline, real-time financial management systemscan determine profit and loss on a a daily basisimproved access to services (e.g. Banking)

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