Open systems
Organizations that affect and are affected by their environments and other systems.
Inputs
Goods and services that organizations take in and use to create products or services.
Outputs
The products and services organizations create.
Macroenvironment
The general environment; includes governments, economic conditions, and other fundamental factors that generally affect all organizations
five components of an organization's macroenvironment include
laws and regulations
the economy
technology
demographics
social values
Competitive environment
Porters 5 forces
Rivals
New competitors
customers
Substitute services or products
suppliers
Internal Environment
Managers, employees, resources, and organizational culture.
culture
values
resources
capabilities
Organizational culture
The set of important assumptions about the organization and its goals and practices that members of the company share
Corporate culture establishes and maintains the business philosophy, values, beliefs, and related behaviors among employees.
Ex. Apple:
- Top-notch excellence
- Creativity
- Innovation
- Secrecy
- Moderate combativeness
The three levels of organizational culture
- Visible
artifacts
- Values
- Unconscious assumptions
Visible artifacts
visible signs of an organization's culture, such as the office design and layout, company dress code, and company benefits and perks, like stock options, personal parking spaces, or the private company dining room
value
Under the surface, desirable qualities and behaviors
Unconscious assumptions
the strongly held and taken-for-granted beliefs that guide behavior in the firm
Ethos
Spirit of the culture, innate feeling
External Environment
customers
competitive partnerships
supplier relationships
The task environment consists of
external factors that directly affect and are affected by the organization's operations.
Regulators include agencies such as:
Equal Employment Opportunity Commission
Occupational Safety and Health Administration
Federal Aviation Administration
Food and Drug Administration
National Labor Relations Board
Attractive Environments
Competitors: Few, high industry growth, unequal size differentiated
Threat of entry: low threat, many barriers
Substitutes: few
Suppliers: Many, low bargaining power
Customers: Many, low bargaining power
Unattractive Environments
Competitors: Many, low industry growth, equal size, commodity
Threat of entry: high threat, few entry barriers
Substitutes: many
Suppliers: few, high bargaining power
Customers: few, high bargaining power
Examples of barriers to entry
capital req, start-up cost; branding; customers; lack of economies of scale; distro channels, gov policy, patent expiration.
Environmental uncertainty
When management lacks information to understand or predict the future
Environmental dynamism
The degree of discontinuous change that occurs within an industry.
High-growth industries (e.g., smartphones) with products and technologies that change rapidly are more uncertain than stable industries (e.g., utilities) where change is less dramatic and more predictable.
Discontinuous change
Non-incremental, sudden change that threatens existing or traditional authority or power structure.
Environmental Complexity
the number of issues to which a manager must attend, and the degree to which they are interconnected.
Industries (e.g., the automotive industry) with many different firms that compete in vastly different ways tend to be more complex—and uncertain—than industries (e.g., airplane manufacturers) with only a few key competitors.
Environmental scanning
Searching for and sorting through information about changes in the environment
Managers can ask questions such as these:
- Who are our current competitors?
- Are there few or many entry barriers to our industry?
- What substitutes exist for our product or service? - Is the company too dependent on powerful suppliers?
- Is the company too dependent on powerful customers?
Answers to these questions help managers develop competitive intelligence, the information necessary to decide how best to manage in the competitive environment they have identified.
Porter's competitive analysis, can guide environmental scanning and help managers evaluate the competitive potential of different environments.
We may wish to think of two extreme environments: an attractive environment, which gives a firm a competitive advantage, and an unattractive environment, which puts a firm at a competitive disadvantage.
Competitive intelligence
Information that helps managers determine how to compete better
best-case scenario
the occurrence of events that are favorable to the firm
Benchmarking
Comparing an organization's practices and technologies with those of other companies
Scenarios
As managers try to determine the effect of environmental forces on their organizations, they often develop different outcomes that are uncertain in the future—alternative combinations of different factors that form a total picture of the environment and the firm.
The value of scenarios is that they help managers develop contingency plans for what they might do given different outcomes.
They constantly update the scenarios to take into account relevant new factors that emerge, such as significant changes in the economy or actions by competitors.
Also, managers try to identify strategies that are the most robust across all of the different scenarios.
Whereas environmental scanning identifies important factors, and scenario development develops alternative pictures of the future, forecasting predicts exactly how some variable or variables will change in the future.
worst-case scenario
the occurrence of unfavorable events
forecasts
Method for predicting how variables will change the future
The accuracy of forecasts varies from application to application.
Because they extrapolate from the past to project the future, forecasts tend to be most accurate when the future ends up looking a lot like the past.
Forecasts are most useful when the future will look radically different from the past.
Unfortunately, that is when forecasts tend to be less accurate. The more things change, the less confidence we have in our forecasts.
Accuracy decreases as you go further into the future.
"You have power over your mind - not outside events, realize this, and you will find strength
Marcus Aurelius
Buffering
Creating supplies of excess resources in case of unpredictable needs
Independent strategies
Strategies that an organization acting on its own uses to change (or manage, shape) some aspect of its current environment
In addition to adapting or reacting to the environment, managers and organizations can develop proactive responses aimed at influencing stakeholders or changing the environment.
Two general types of proactive responses are independent action and cooperative action.
A company uses independent strategies when it acts on its own to influence stakeholders or change some aspect of its current environment.
Cooperative Action to influence the external environment
Cooperative strategies
Strategies used by two or more organizations working together to manage the external environment
Contracts, Cooptation, and Coalition
Smoothing
Leveling normal fluctuations.
Example- reduce prices to move jacket inventory at end of winter.
Cooperative strategies
Contracts
negotiating an agreement between the organization and another group to exchange goods, services, information, patents, and so on.
Suppliers and customers, or managers and labor unions, may sign formal agreements about the terms and conditions of their future relationships.
These contracts are explicit attempts to make their future relationships predictable.
Cooperative strategies
Coalition
groups that act jointly with respect to a set of political initiatives for some period
Change the Boundaries of the Environment
Strategic maneuvering
Domain selection
AKA adjacent market
Entrance to a new market or industry with an existing expertise.
Ex. Raytheon using flight control radar expertise to enter the tolling business.
Cooperative strategies
Cooptation
absorbing new elements into the organization's leadership structure to avert threats to its stability or existence.
Many universities invite wealthy alumni to join their boards of directors.
Mergers
One or more companies combine with another
Mergers and acquisitions can offer greater efficiency from combined operations or can give companies relatively quick access to new markets or industries.
Acquisitions
One firm buys another
Mergers and acquisitions can offer greater efficiency from combined operations or can give companies relatively quick access to new markets or industries.
Divestiture
A firm selling one or more businesses
Strategic maneuvering
organizations can redefine or change which environment they are in.
An organization's conscious efforts to change the boundaries of its task environment.
By making a conscious effort to change the boundaries of its competitive environment, a firm can maneuver around potential threats and capitalize on opportunities.
Managers can use several strategic maneuvers, including
- domain selection
- diversification
- merger and acquisition
- divestiture
Prospectors
Continuously change the boundaries of their task environment by seeking new products and markets, diversifying and merging, or acquiring new enterprises
Aggressive companies like Amazon, Google, and Apple continuously change the boundaries of their competitive environments by seeking new products and markets, diversifying, and merging or acquiring new enterprises.
In these and other ways, corporations put their competitors on the defensive and force them to react.
Defenders
Stay within a stable product domain as a strategic maneuver
stay within a more limited, stable product domain.
Diversification
A firm's investment in a different product, business, or geographic area.
occurs when a firm invests in different types of businesses or products or when it expands geographically to reduce its dependence on a single market or technology.
Ex. Starbucks selling mugs in Australia etc.
Weak culture
different people hold different values, there is confusion about corporate goals, and it is not clear from one day to the next what principles should guide decisions.
Fosters confusion, conflict, and poor performance.
Most managers would agree that they want to create a strong culture that encourages and supports goals and useful behaviors that will make the company more effective.
In other words, they want to create a culture that is appropriately aligned with the organization's competitive environment
Alignment missing between speech and action.
True or false: In a slow-growing, mature industry, competition intensifies and profits fall.
TRUE
Stock Market affects on individual managers
- May feel required to meet Wall Streets earnings expectations and is likely you will be asked to improve budget or sales numbers
- Such external pressures usually have a positive effect helping firms become more profitable and efficient
- But failure to meet expectations causes the company stock to drop making it difficult for the firm to raise additional capital for investment
- Compensation can also be affected, particularly if they have been issued stock
- These pressures sometimes leads managers to focus on short term results at the expense of the long term success of their organizations or engage in unlawful or unethical behavior that misleads investors
When will competition be more intense within an industry?
When there are many direct competitors.
When the product or service cannot be differentiated.
When a company uses an employment agency to hire part-time workers during periods of unpredictable needs, the company is
buffering
independent strategies
when it acts on its own to influence stakeholders or change some aspect of its current environment
- Competitive aggression
- Competitive Pacification
- Public Relations
-
Voluntary Action
- Legal Action
- Political Action
Strong culture
Alignment, Authenticity.
one in which everyone understands and believes in the firm's goals, priorities, and practices.
It can be a real advantage to the organization if the behaviors it encourages and facilitates are appropriate.
In contrast, a strong culture that encourages inappropriate behaviors can severely hinder an organization's ability to deal effectively with its external environment particularly if the environment is undergoing change, as is almost always the case today.
A culture that was suitable and even advantageous in a prior era may become counterproductive in a new environment.
Competitive aggression
exploiting a distinctive competence or improving internal efficiency for competitive advantage
Competitive Pacification
independent action to improve relations with competitors
Public Relations
establishing and maintaining a relationship between an organization and the public
Voluntary Action
voluntary commitment to various interest groups, causes, and social problems
Legal Action
engaging company in private legal battle
Political Action
efforts to influence elected representatives to create a more favorable business environment or limit competition
Three general considerations that helps guide management's response to the environment
1. mManagers need to change what matters and can be changed
2. Managers should use the most appropriate response
3. Managers should choose responses that offer the most benefit at the lowest cost
components of the competitive environment
- Rivalry among existing competitors
- Threat of new entrants
- Threat of substitute and Complementary products
- Bargaining power of suppliers and buyers
Actions and attitudes that provide excellent customer service include
- Speed of filling and delivering orders
- Willingness to meet emergency needs
- Merchandise delivered in good condition
- Readiness to take back defective goods and resupply quickly
- Availability of installation and repair services and parts
- Service charges
switching costs
fixed costs buyers face when they change suppliers
The macroenvironment includes which of the following?
The economy
Technology
Demographics
regulators
The specific government organizations in a firm's more immediate task environment are known as
Which of the following is NOT a regulatory agency with the power to investigate company practices and take legal action to ensure compliance with laws?
U.S. Chamber of Commerce (USCC)
How does immigration affect the U.S. workforce?
Some immigrants have different educational and occupational backgrounds from the rest of the labor force.
It will make the labor force more ethnically diverse in the future.
According to Porter's model of the competitive environment, successful managers do more than simply react to the environment; they
act in ways that actually shape or change the organization's environment
A barrier to entry a company might encounter is
capital requirements
Supply Chain Management
the managing of the network of facilities and people that obtain materials from outside the organization, transform them into products, and distribute them to customers
The goal of supply chain management is to
have the right product in the right quantity available at the right place at the right cost
organizational cultures
clan, adhocracy, market, hierarchy
clan culture
internal focused, values flexibility rather than stability, encourages collaboration among employees
directives flow from trust, tradition, and long term commitment
leaders tend to act as mentors and facilitators
adhocracy culture
external focus and values flexibility
emphasizes growth, change, and innovation
leaders tend to be entrepreneurial
market culture
"rational" focused on external environment, values stability and control, driven by competition and a strong desire to deliver results
hierarchy culture
internally oriented by more focus on control and stability
values and norms associated with bureaucracy
Managers can take several approaches to managing culture. Which of the following is one of these approaches?
Celebrate and reward members who behave in ways that exemplify the desired culture
A company might decide to develop scenarios for which of the following purposes?
To list initiatives it can eliminate if necessary in an economic downturn
To identify possible new investments in an economic upturn
To have contingency plans in the case of a serious accident
Methods that permit the technical core to adapt to changes in the environment are called ______ processes.
flexible