industry life cycle

55Chapter

PowerPoint Presentation by Charlie Cook© Copyright The McGraw-Hill Companies, Inc., 2003. All rights reserved.

Managing the Managing the OrganizationalOrganizationalEnvironmentEnvironment

© Copyright McGraw-Hill. All rights reserved. 5–2

Forces in the Organizational EnvironmentForces in the Organizational EnvironmentForces in the Organizational EnvironmentForces in the Organizational Environment

Figure 5.1


The Task EnvironmentThe Task EnvironmentThe Task EnvironmentThe Task Environment

• SuppliersSuppliersIndividuals and organizations that provide an Individuals and organizations that provide an

organization with the input resources that it organization with the input resources that it needs to produce goods and servicesneeds to produce goods and services

• Raw materials, component parts, labor (employees)Raw materials, component parts, labor (employees)

Relationships with suppliers can be difficult Relationships with suppliers can be difficult due to materials shortages, unions, and lack of due to materials shortages, unions, and lack of substitutes.substitutes.

• Suppliers that are the sole source of a critical item are Suppliers that are the sole source of a critical item are in a strong bargaining position to raise their prices.in a strong bargaining position to raise their prices.

Managers can reduce these supplier effects by Managers can reduce these supplier effects by increasing the number of suppliers of an input.increasing the number of suppliers of an input.


The Task Environment (cont’d)The Task Environment (cont’d)The Task Environment (cont’d)The Task Environment (cont’d)

• DistributorsDistributorsOrganizations that help other organizations Organizations that help other organizations

sell their goods or services to customerssell their goods or services to customers• Powerful distributors can limit access to markets Powerful distributors can limit access to markets

through its control of customers in those markets.through its control of customers in those markets.

• Managers can counter the effects of distributors by Managers can counter the effects of distributors by seeking alternative distribution channels.seeking alternative distribution channels.



• CustomersCustomersIndividuals and groups that buy goods and Individuals and groups that buy goods and

services that an organization producesservices that an organization produces• Identifying an organization’s main customers and Identifying an organization’s main customers and

producing the goods and services they want is crucial producing the goods and services they want is crucial to organizational and managerial success.to organizational and managerial success.



• CompetitorsCompetitorsOrganizations that produce goods and Organizations that produce goods and

services that are similar to a particular services that are similar to a particular organization’s goods and servicesorganization’s goods and services

Potential CompetitorsPotential Competitors• Organizations that presently are not in the task Organizations that presently are not in the task

environment but could enter if they so choseenvironment but could enter if they so chose

Strong competitive rivalry results in price Strong competitive rivalry results in price competition, and falling prices reduce access competition, and falling prices reduce access to resources and lower profits.to resources and lower profits.



• Barriers to EntryBarriers to EntryFactors that make it difficult and costly for Factors that make it difficult and costly for

the organization to enter a particular task the organization to enter a particular task environment or industryenvironment or industry

Economies of scaleEconomies of scale• Cost advantages associated with large operationsCost advantages associated with large operations

Brand loyaltyBrand loyalty• Customers’ preference for the products of Customers’ preference for the products of

organizations currently existing in the task organizations currently existing in the task environment.environment.


The Industry Life CycleThe Industry Life CycleThe Industry Life CycleThe Industry Life Cycle

• Industry Life CycleIndustry Life CycleThe changes that take place in an industry as The changes that take place in an industry as

it goes through the stages of birth, growth, it goes through the stages of birth, growth, shakeout, maturity, and decline.shakeout, maturity, and decline.

Birth: industry competitors seek to develop Birth: industry competitors seek to develop the winning technologythe winning technology

Growth: industry products gain acceptance Growth: industry products gain acceptance and rapid growth in product demand attracts and rapid growth in product demand attracts new competitorsnew competitors

Shakeout: industry growth slows, weak firms Shakeout: industry growth slows, weak firms exit the industry, and rivalry increasesexit the industry, and rivalry increases


The Industry Life Cycle (cont’d)The Industry Life Cycle (cont’d)The Industry Life Cycle (cont’d)The Industry Life Cycle (cont’d)

• Industry Life Cycle (cont’d)Industry Life Cycle (cont’d)Maturity: the market stabilizes as demand Maturity: the market stabilizes as demand

levels off, the industry is now dominated by a levels off, the industry is now dominated by a few large competitorsfew large competitors

Decline: demand for industry products Decline: demand for industry products declines, competition increases, failing declines, competition increases, failing competitors either exit the market or are competitors either exit the market or are acquired by rival firmsacquired by rival firms


Stages in the Industry Life CycleStages in the Industry Life CycleStages in the Industry Life CycleStages in the Industry Life Cycle

Figure 5.3


The General EnvironmentThe General EnvironmentThe General EnvironmentThe General Environment

• Economic ForcesEconomic ForcesInterest rates, inflation, unemployment, Interest rates, inflation, unemployment,

economic growth, and other factors that economic growth, and other factors that affect the general health and well-being of a affect the general health and well-being of a nation or the regional economy of an nation or the regional economy of an organizationorganization

Managers usually cannot impact or control Managers usually cannot impact or control these.these.

Forces have profound impact on the firm.Forces have profound impact on the firm.


The General EnvironmentThe General EnvironmentThe General EnvironmentThe General Environment

• Technological ForcesTechnological ForcesOutcomes of changes in the technology that Outcomes of changes in the technology that

managers use to design, produce, or managers use to design, produce, or distribute goods and servicesdistribute goods and services

• Results in new opportunities or threats to managersResults in new opportunities or threats to managers

• Often makes products obsolete very quickly.Often makes products obsolete very quickly.

• Can change how managers manage.Can change how managers manage.


The General Environment (cont’d)The General Environment (cont’d)The General Environment (cont’d)The General Environment (cont’d)

• Sociocultural ForcesSociocultural ForcesPressures emanating from the social Pressures emanating from the social

structure of a country or society or from the structure of a country or society or from the national culturenational culture

• Social structure: the arrangement of relationships Social structure: the arrangement of relationships between individuals and groups in societybetween individuals and groups in society

• National culture: the set of values that a society National culture: the set of values that a society considers important and the norms of behavior that considers important and the norms of behavior that are approved or sanctioned in that society.are approved or sanctioned in that society.

Cultures and their associated social Cultures and their associated social structures, values, and norms differ widely structures, values, and norms differ widely throughout the world.throughout the world.



• Demographic ForcesDemographic ForcesOutcomes of change in, or changing attitudes Outcomes of change in, or changing attitudes

toward, the characteristics of a population, toward, the characteristics of a population, such as age, gender, ethnic origin, race, such as age, gender, ethnic origin, race, sexual orientation, and social classsexual orientation, and social class

• During the past two decades, women have entered During the past two decades, women have entered the workforce in increasing numbers and most the workforce in increasing numbers and most industrial countries’ populations are aging.industrial countries’ populations are aging.

• This will change the opportunities for firms competing This will change the opportunities for firms competing in these areas as demands for child care and health in these areas as demands for child care and health care are forecast to increase dramatically.care are forecast to increase dramatically.



• Political ForcesPolitical ForcesOutcomes of changes in laws and Outcomes of changes in laws and

regulations, such as the deregulation of regulations, such as the deregulation of industries, the privatization of organizations, industries, the privatization of organizations, and increased emphasis on environmental and increased emphasis on environmental protectionprotection

• Increases in laws and regulations increase the costs Increases in laws and regulations increase the costs of resources and limit the uses of resources that of resources and limit the uses of resources that managers are responsible for acquiring and using managers are responsible for acquiring and using effectively and efficiently.effectively and efficiently.



• Global ForcesGlobal ForcesOutcomes of changes in international Outcomes of changes in international

relationships; changes in nations’ economic, relationships; changes in nations’ economic, political, and legal systems; and changes in political, and legal systems; and changes in technology, such as falling trade barriers, the technology, such as falling trade barriers, the growth of representative democracies, and growth of representative democracies, and reliable and instantaneous communicationreliable and instantaneous communication

Important opportunities and threats to Important opportunities and threats to managers:managers:

• The economic integration of countries through free-The economic integration of countries through free-trade agreements (GATT, NAFTA, EU) that decrease trade agreements (GATT, NAFTA, EU) that decrease the barriers to trade.the barriers to trade.


Managing the Organizational Managing the Organizational EnvironmentEnvironment

Managing the Organizational Managing the Organizational EnvironmentEnvironment

• Environmental ChangeEnvironmental ChangeThe degree to which forces in the task and The degree to which forces in the task and

general environments change and evolve over general environments change and evolve over timetime

• Reducing the Impact of Environmental ForcesReducing the Impact of Environmental ForcesTop management: devise strategies that take Top management: devise strategies that take

advantage of opportunities and counter threatsadvantage of opportunities and counter threatsMiddle managers: collecting about competitors’ Middle managers: collecting about competitors’

intentions, new customers, and new suppliers intentions, new customers, and new suppliers for the firm’s crucial or low-cost inputsfor the firm’s crucial or low-cost inputs

First-line managers: use resources efficiently First-line managers: use resources efficiently and get closer to customersand get closer to customers


Managing the Organizational Managing the Organizational Environment (cont’d)Environment (cont’d)

Managing the Organizational Managing the Organizational Environment (cont’d)Environment (cont’d)

• Creating an Organizational StructureCreating an Organizational StructureIncreasing the complexity of the Increasing the complexity of the

organization’s structure in response to the organization’s structure in response to the changing organizational environment changing organizational environment

Departments are assigned to develop the Departments are assigned to develop the skills and knowledge necessary to deal with skills and knowledge necessary to deal with environmental changes and to cooperate environmental changes and to cooperate with other departments to efficiently and with other departments to efficiently and effectively get products to customerseffectively get products to customers

industry life cycle

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