The Organization, Its Primary Stakeholders The Organization, Its Primary Stakeholders & the Broad Environment& the Broad Environment

The OrganizationThe Organization

Owners/Board of DirectorsOwners/Board of DirectorsManagersManagersEmployeesEmployees

The Operating EnvironmentThe Operating Environment

The Broad EnvironmentThe Broad Environment

FinancialFinancialIntermediariesIntermediaries

Government AgenciesGovernment Agenciesand Administratorsand Administrators

LocalLocalCommunitiesCommunities

CompetitorsCompetitors

SuppliersSuppliers CustomersCustomers

ActivistActivistGroupsGroups

UnionsUnions

Socio-cultural InfluencesSocio-cultural Influences Technological InfluencesTechnological Influences

Economic InfluencesEconomic Influences Political/Legal InfluencesPolitical/Legal Influences

The MediaThe Media

External EnvironmentExternal Environment

Stakeholders and forces Stakeholders and forces outside the traditional outside the traditional boundaries of the firm; they boundaries of the firm; they can be divided into the board can be divided into the board and operating environmentsand operating environments

Major Socio-cultural Issues in the U.S.Major Socio-cultural Issues in the U.S.

Role of Government in Health Care and Child Role of Government in Health Care and Child CareCare

Declining Quality of EducationDeclining Quality of Education Legality of Abortion and Stem-Cell ResearchLegality of Abortion and Stem-Cell Research Terrorism and Levels of Crime in GeneralTerrorism and Levels of Crime in General Security of Travel and Public PlacesSecurity of Travel and Public Places Importance and Role of the MilitaryImportance and Role of the Military Levels of Foreign Investment/Ownership in the Levels of Foreign Investment/Ownership in the

U.S.U.S. Social Costs of Restructuring, Especially LayoffsSocial Costs of Restructuring, Especially Layoffs

Major Socio-cultural Issues in the U.S.Major Socio-cultural Issues in the U.S.

Pollution and Disposal of Toxic and Non-Toxic Pollution and Disposal of Toxic and Non-Toxic WastesWastes

General Increase in Environmental AwarenessGeneral Increase in Environmental Awareness Drug Addiction and Drug TrafficDrug Addiction and Drug Traffic Continued Migration Toward the Sun Belt StatesContinued Migration Toward the Sun Belt States Graying of AmericaGraying of America AIDS and Other Health ProblemsAIDS and Other Health Problems Major Global IssuesMajor Global Issues Immigration Restrictions and ProgramsImmigration Restrictions and Programs

Why Monitor Society?Why Monitor Society?

Change = opportunitiesChange = opportunities

Avoid being called a “bad corporate citizen”Avoid being called a “bad corporate citizen”

A good reputation can lead to increased A good reputation can lead to increased

demand or business opportunitiesdemand or business opportunities

Accurate assessment can sometimes help Accurate assessment can sometimes help

firms avoid restrictive legislationfirms avoid restrictive legislation

Change = opportunitiesChange = opportunities

Avoid being called a “bad corporate citizen”Avoid being called a “bad corporate citizen”

A good reputation can lead to increased A good reputation can lead to increased

demand or business opportunitiesdemand or business opportunities

Accurate assessment can sometimes help Accurate assessment can sometimes help

firms avoid restrictive legislationfirms avoid restrictive legislation

Global Economic Forces to Global Economic Forces to Monitor and PredictMonitor and Predict

Economic GrowthEconomic Growth Influences consumer demand, cost of factors of Influences consumer demand, cost of factors of

production, availability of factors of production production, availability of factors of production (especially labor and scarce resources)(especially labor and scarce resources)

Interest RatesInterest Rates Influences cost of capital for new projects, cost of Influences cost of capital for new projects, cost of

refinancing existing debt, consumer demand (due to refinancing existing debt, consumer demand (due to customer ability to finance purchases)customer ability to finance purchases)

InflationInflation Influences interest rates, cost of factors of production, Influences interest rates, cost of factors of production,

optimism or pessimism of stakeholdersoptimism or pessimism of stakeholders

Global Economic Forces to Global Economic Forces to Monitor and PredictMonitor and Predict

Exchange RatesExchange Rates Influences ability to profitably remove profits from Influences ability to profitably remove profits from

foreign ventures, government policies towards foreign ventures, government policies towards businessbusiness

Trade DeficitsTrade Deficits Influences government policies, incentives, trade Influences government policies, incentives, trade

barriersbarriers

Political/legal ForcesPolitical/legal Forces

New LawsNew Laws New RegulationsNew Regulations Current Administrative PoliciesCurrent Administrative Policies Government StabilityGovernment Stability WarsWars International Pacts and TreatiesInternational Pacts and Treaties

Government Influences on Government Influences on Organizations in the U.S.Organizations in the U.S.

Federal, State and Local Regulators

(enforce regulations)

Federal, State and Local Regulators

(enforce regulations)

Federal, State and

Local Revenue

Collectors

(collect taxes and fees,

grant licenses)

Federal, State and

Local Revenue

Collectors

(collect taxes and fees,

grant licenses)

Federal, State and Local

Law Makers

(create laws, regulations, taxes,

agencies, incentives)

Federal, State and Local

Law Makers

(create laws, regulations, taxes,

agencies, incentives)

Federal, State and Local Courts

(enforce laws and regulations, impose fines and penalties, settle disputes, restructure, protect

Federal, State and Local Courts

(enforce laws and regulations, impose fines and penalties, settle disputes, restructure, protect

The

Organization

The

Organization

Technological ForcesTechnological Forces

Technology is knowledge about products and services and the Technology is knowledge about products and services and the way they are made and deliveredway they are made and delivered

Organizations should monitorOrganizations should monitor New Production ProcessesNew Production Processes New Products/Product IdeasNew Products/Product Ideas Current Process Research EffortsCurrent Process Research Efforts Current Product Research EffortsCurrent Product Research Efforts Scientific Discoveries that May Have an ImpactScientific Discoveries that May Have an Impact

Characteristics of innovationCharacteristics of innovation New innovations often emerge from existing technologiesNew innovations often emerge from existing technologies A dominant design will eventually be widely adoptedA dominant design will eventually be widely adopted Radical innovations often come from outside the industryRadical innovations often come from outside the industry

From Analysis of the Broad From Analysis of the Broad Environment to Development of Environment to Development of

Alternative StrategiesAlternative Strategies

For each key influence found during analysis of For each key influence found during analysis of the broad environment, determine whether it is:the broad environment, determine whether it is: An opportunityAn opportunity A threatA threat NeutralNeutral

Then determine which strategies the firm might Then determine which strategies the firm might pursue in response to each influence, if action pursue in response to each influence, if action should be taken at allshould be taken at all

This is one way to generate ideas regarding This is one way to generate ideas regarding future strategies the firm might pursuefuture strategies the firm might pursue

The Organization and Its The Organization and Its Operating EnvironmentOperating Environment

The OrganizationThe Organization

The Operating EnvironmentThe Operating Environment

FinancialFinancialIntermediariesIntermediaries

Government AgenciesGovernment Agenciesand Administratorsand Administrators

LocalLocalCommunitiesCommunities

CompetitorsCompetitors

SuppliersSuppliers CustomersCustomers

ActivistActivistGroupsGroups

UnionsUnions The MediaThe Media

Five Forces of Industry CompetitionFive Forces of Industry Competition

Potential Entrants

Suppliers Customers

IndustryCompetitors

Rivalry AmongExisting Firms

Bargaining power of suppliers

Bargaining power of suppliers

Threat of new entrants

Threat of new entrants

Bargaining power of customers

Bargaining power of customers

Substitutes

Threat of substitute products

or services

Threat of substitute products

or services Source: Adapted with the permission of the Free Press, an imprint of Simon & Schuster Adult Publishing Group (see text for complete reference)

Source: Adapted with the permission of the Free Press, an imprint of Simon & Schuster Adult Publishing Group (see text for complete reference)

Economic Power of CustomersEconomic Power of Customers Customers are more powerful if:Customers are more powerful if:

They are few in numberThey are few in number They make high-volume purchasesThey make high-volume purchases They are buying undifferentiated productsThey are buying undifferentiated products They are highly motivated to get good deals (i.e., They are highly motivated to get good deals (i.e.,

earn low profits or buy a lot from the industry)earn low profits or buy a lot from the industry) They can easily vertically integrate backward and They can easily vertically integrate backward and

become their own suppliersbecome their own suppliers They are not very concerned about qualityThey are not very concerned about quality They have an information advantage over the They have an information advantage over the

supplierssuppliers They are well organizedThey are well organized

Economic Power of SuppliersEconomic Power of Suppliers Suppliers are more powerful if:Suppliers are more powerful if:

They are few in numberThey are few in number They sell products/services that are not easily They sell products/services that are not easily

substitutedsubstituted They do not sell a large percentage of their They do not sell a large percentage of their

products/services to the buying industryproducts/services to the buying industry They have a dependent customerThey have a dependent customer They sell products/services that are differentiatedThey sell products/services that are differentiated They can easily vertically integrate forward and They can easily vertically integrate forward and

become their own customersbecome their own customers They have an information advantage relative to their They have an information advantage relative to their

buyersbuyers They are well organizedThey are well organized

Industry CompetitionIndustry Competition A high level of competition is expected when:A high level of competition is expected when:

There are many competitors and none of them is dominantThere are many competitors and none of them is dominant Slow industry growthSlow industry growth Hard to differentiate productsHard to differentiate products High fixed costs existHigh fixed costs exist High exit barriers exist (what is lost if you leave the industry)High exit barriers exist (what is lost if you leave the industry)

Terms to describe industry competition:Terms to describe industry competition: A monopoly is a situation in which one firm is the only significant A monopoly is a situation in which one firm is the only significant

provider of a good or serviceprovider of a good or service An oligopoly exists when an industry contains a few very large An oligopoly exists when an industry contains a few very large

firms (very common in established industries)firms (very common in established industries) Hyper-competition is a condition of rapidly escalating competitionHyper-competition is a condition of rapidly escalating competition

Entry BarriersEntry Barriers

Some common entry barriers include:Some common entry barriers include: Economies of scaleEconomies of scale High capital requirementsHigh capital requirements High levels of product/service differentiationHigh levels of product/service differentiation Limited access to distribution channelsLimited access to distribution channels Inimitable resourcesInimitable resources Government policies or regulations that Government policies or regulations that

discourage new entrydiscourage new entry

Substitute ProductsSubstitute Products

Substitutes are products or services Substitutes are products or services provided by another industry that can be provided by another industry that can be readily substituted for an industry’s own readily substituted for an industry’s own products or servicesproducts or services

Substitutes place a ceiling on the price Substitutes place a ceiling on the price that can be chargedthat can be charged

They can also set new performance They can also set new performance standardsstandards

Typical Roles of Various Typical Roles of Various StakeholdersStakeholders

S

T

A

K

E

S

T

A

K

E

INFLUENCE ON BEHAVIOR (POWER)INFLUENCE ON BEHAVIOR (POWER)

Owner-

ship

Econo-

mic

Depen-

dence

Social

Owner-

ship

Econo-

mic

Depen-

dence

Social

Formal Economic PoliticalFormal Economic Political

Managers w/stock

Directors w/stock

Stockholders

Managers/directors

Venture partners

Creditors

Regulators

Unpaid trustees

Managers w/stock

Directors w/stock

Stockholders

Managers/directors

Venture partners

Creditors

Regulators

Unpaid trustees

Other companies

that own stock

Employees

Customers

Competitors

Financial

community

Other companies

that own stock

Employees

Customers

Competitors

Financial

community

Competitors

For. govern.

Local communities

Activists

The media

Competitors

For. govern.

Local communities

Activists

The media

Managing the Operating Managing the Operating EnvironmentEnvironment

Economic ActionsEconomic Actions Erect new entry barriersErect new entry barriers Competitive tactics such as advertising, new-product launches, Competitive tactics such as advertising, new-product launches,

cost-reduction efforts, new distribution methods or quality cost-reduction efforts, new distribution methods or quality improvements (to name a few)improvements (to name a few)

Competitive benchmarkingCompetitive benchmarking

Political Strategies include all firm activities that have as Political Strategies include all firm activities that have as one of their objectives the creation of a friendlier political one of their objectives the creation of a friendlier political climateclimate

Direct contact with legislators and government leadersDirect contact with legislators and government leaders Political contributionsPolitical contributions LobbyingLobbying Creation of collective institutions such as trade associationsCreation of collective institutions such as trade associations

Common Forms of Inter-Common Forms of Inter-organizational Relationshipsorganizational Relationships

Joint VentureJoint Venture An entity that is created when two or more firms pool a portion of An entity that is created when two or more firms pool a portion of

their resources to create a separate jointly owned entitytheir resources to create a separate jointly owned entity

NetworkNetwork A hub and wheel configuration with a local firm at the hub A hub and wheel configuration with a local firm at the hub

organizing the interdependencies of a complex array of firmsorganizing the interdependencies of a complex array of firms

ConsortiaConsortia Specialized joint ventures encompassing many different Specialized joint ventures encompassing many different

arrangements. Consortia are often a group of firms oriented arrangements. Consortia are often a group of firms oriented towards problem solving and technology development, such as towards problem solving and technology development, such as R&D consortiaR&D consortia

Source: Adapted from B.B. Barringer and J.S. Harrison, “Walking a Tightrope: Creating Value Through Interorganizational Relationships,” Journal of Management 26 (2000), p. 383, used with permission.

Source: Adapted from B.B. Barringer and J.S. Harrison, “Walking a Tightrope: Creating Value Through Interorganizational Relationships,” Journal of Management 26 (2000), p. 383, used with permission.

Common Forms of Inter-Common Forms of Inter-organizational Relationshipsorganizational Relationships

AllianceAlliance An arrangement between two or more firms that establishes an An arrangement between two or more firms that establishes an

exchange relationship but has no joint ownership involvedexchange relationship but has no joint ownership involved

Trade AssociationTrade Association Organizations (typically nonprofit) that are formed by firms in the Organizations (typically nonprofit) that are formed by firms in the

same industry to collect and disseminate trade information, offer same industry to collect and disseminate trade information, offer legal and technical advice, furnish industry-related training, and legal and technical advice, furnish industry-related training, and provide a platform for collective lobbyingprovide a platform for collective lobbying

Interlocking DirectorateInterlocking Directorate Occurs when a director or executive of one firm sits on the board Occurs when a director or executive of one firm sits on the board

of a second firm or when two firms have directors who also serve of a second firm or when two firms have directors who also serve on the board of a third firm. Interlocking directorates serve as a on the board of a third firm. Interlocking directorates serve as a mechanism for inter-firm information sharing and cooperationmechanism for inter-firm information sharing and cooperation