learning objectives differentiate between the broad and operating environments analyze the various...
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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