MGMT 1110

Introduction to Management
Topic 2 Managing the external environment

To learn more about this topic, read Ch.2 and Ch.3 of the textbook
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MGMT 1110 course outline:

The External Environment

The Internal
Environment

Topic 2: Managing the

external environment

Topic 4:
Decision making

Topic 1: Foundations
and history of
management

Topic 3:
Organizational
culture

The Manager
Planning

Topic 5: Planning
and strategy

Organizing

Topic 6:
Organizational
structure

Controlling

Topic 9:
Controlling

Leading

Topic 7: Motivation
Topic 8: Leadership

Todays Class
Understanding organizational environments
General environment
Task environment
Managing the external environment
Resource dependence perspective
Institutional perspective
Global perspective
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Map Ubers External Environment

Sit together with 3-4 fellow students
Discuss with your team what Ubers external environment
looks like by answering the following questions:
1. Which stakeholders are important for Ubers success?
2. What are some of the threats and opportunities in Ubers
environment that could impact the companys operations
and performance?
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The general environment

(economic, political/legal,
sociocultural, and
technological forces)
affects an organization
and its task environment
Suppliers

The
Organization

Distributors

The task environment

(competitors, suppliers,
distributors, and
customers) directly
affects an organizations
ability to obtain inputs
and dispose of its outputs.

Competitors

Customers

Economic Forces

General economic conditions (e.g. interest rates, inflation, unemployment,

exchange rate, economic growth, stock market fluctuation) of a nation or
region affect the demand for products and the costs of producing them,
creating threats or opportunities for organizations.

Example: Minimum Wages

China is facing rising wages. Shenzhen authorities
recently [Feb 2014] announced yet another rise in the
minimum wage, by 13 per cent to 1,808 yuan
(HK$2,297) a month. The increase would set the pace
for other cities in the Pearl River Delta.
China is losing status as 'world's factory. Companies,
including H&M, Tesco and Walmart, are increasingly
moving their production bases to Africa, lured by an
abundant and cheap workforce. The salary in Africa is
about HK$400 per month.

Source: China losing status as 'world's factory, South China Morning Post, 3 February, 2014
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Example: Tune Hotels

Social Forces

Social trends alter how people and businesses behave and set
their priorities, creating new opportunities and threats for
organizations.

Example: Starbucks LEED-certified Stores

[LEED is short for Leadership in Energy and Environmental Design]

We are building stores with sustainable products by utilizing metal, wood,

and stone/organics, as well as recyclable and recycled materials.
We are making
sustainability more visible
so people around the world
might consider an
environmental lifestyle.
Were educating consumers
about water conservation,
energy conservation, and
we have taken a leadership
position when it comes to
eco-conscious stores.

Shipping container Starbuck at Tukwila,

Washington, U.S.

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 Starbucks store in Porto Chino,

Bangkok, Thailand; the first
Starbucks in Asia to receive a gold
LEED certification for its
environmentally friendly practices.

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Example: Healthier, fewer

calories, right-sized food
options in Starbucks

Bistro boxes less than

500 calories
Mini-desserts less than
200 calories

Christine Hall, 66, of Virginia revealed that

she trimmed down from 190 lbs to 115 lbs
following a steady two-year regime that
involved getting almost all of her food from
her nearby Starbucks store.
The media called this the Starbucks Diet
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Source: Woman claims she lost 75 pounds on 'Starbucks diet'

New York Daily News, September 17, 2012.

Political & Regulatory Forces

Political action and regulatory changes govern the rules of

the game for organizations, creating new threats or
opportunities.

Example: Banking Regulations

After the fall of Lehman Brothers in 2008, and several scandals
related to remuneration and interest rate manipulation, banks
are increasingly pressured to comply with various regulations
aimed at preventing new scandals and financial crises.

Example: Softdrugs in the U.S.

Deregulation of U.S. marijuana market has created opportunities
for entrepreneurs to found new companies that sell this softdrug.

Ubers Regulatory Environment

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Technological Forces

New technologies open up possibilities to launch new products

and can make old products obsolete, creating threats or
opportunities for organizations

Example: 3D Printing Technology

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Example: 3D Scanning Technology

Bodymetrics provides 3D images of
customers body shape. Customers can find
the ideal fit without even trying the clothes on.
Merging technology with fashion by
partnering with Bodymetrics brings a new
experience to our shoppers that brings ease to
shopping, a Bloomingdale department store
spokeswoman said.
The technology isn't just for in-store purchases.
Bodymetrics will let customers "try on" the
clothes before they buy them online, resulting
in reduced return rates.
Source: Can't zip those jeans? Bodymetrics can help, money.cnn.com, July 24, 2012
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Uber and Technology

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Trends in Ubers Environment

Economic forces
Rising car ownership costs, low taxi driver wages,
Social forces
Increased mobility, pollution concerns,
Regulatory and political forces
Deregulation, minimum wages, legal liabilities,
Technological forces
Mobile Internet, apps, driverless cars,
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The general environment

(economic, political/legal,
sociocultural, and
technological forces)
affects an organization
and its task environment
Suppliers

The
Organization

Distributors

The task environment

(competitors, suppliers,
distributors, and
customers) directly
affects an organizations
ability to obtain inputs
and dispose of its outputs.

Competitors

Customers

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Task environment: Competitors

Task
environment

Existing competitors and potential competitors

represent threats to an organization
Existing competitors
Existing competitors are organizations that produce
products similar to the focal organizations
Strong rivalry among existing competitors results in
price competition; falling prices reduce profit
But if an organization has weak competitors, then it
is an opportunity for the organization to enjoy high
profitability

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Example: Rivalry among competitors in smartphone market

"Apple's profit margin for its handset division has been
fading recently due to lackluster iPhone 5 volumes and
tougher competition from rivals. Samsung is performing
well in the US market, while Huawei, ZTE and other local
brands are growing vigorously in China.
"Apple is now under intense pressure to launch more iPhone
models at cheaper price-points or with larger screens to fend
off the surging competition.
IDC's figures showed 52 percent growth in smartphones
with shipments totalling 237.9 million. It showed Samsung
on top with 30.4 percent to 13.1 percent for Apple, with LG
third at 5.1 percent, followed by Lenovo (4.7 percent) and
ZTE (4.2 percent).
Source: Apple is squeezed as smartphone market expands, The News Tribe, July 27, 2013
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Ubers Competitive Tactics

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Potential competitors
Threat of new entrants is less serious if there are barriers to entry
preventing potential competitors to enter to the industry:

Cost advantages enjoyed

by existing players that
cannot be duplicated by
potential new entrants

Customer loyalty enjoyed

by existing players that
cannot be duplicated by
potential new entrants

High capital requirements

such that other
organizations wont risk
or try to raise such large
amounts of money

Government regulations
that protect incumbent
firms and prevent entry of
new competitors
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Task Environment: Suppliers

Task
environment

Suppliers provide the resources needed for production including

people (supplied by trade unions and universities), raw materials
(from producers), information (supplied by researchers and
consulting firms), and financial capital (from banks and other
sources).
A managers job is to ensure a reliable supply of high-quality
inputs at competitive prices.
When an organization has many qualified suppliers for a
particular input, it has high bargaining power to demand lowcost, high-quality inputs from suppliers.
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Example: High bargaining power of NutraSweet before its patent expired

Prior to 1992, NutraSweet was the
sole supplier of low-calorie sweetener.
Patent prohibited other organizations
from introducing competing products.

What would you do if

you were NutraSweet?

At the end of 1992, NutraSweets

patent expired.
Other companies began to produce
other low-calorie sweeteners.

1992

What would you do if

you were Coca-Cola?

Demand a high price;

____________________

Use
the threat of shifting
____________________

Coca-Cola had no
____________________

to other suppliers to
____________________

alternative
____________________

negotiate a lower price

____________________

____________________

with NutraSweet
____________________
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Ubers Suppliers

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Task Environment: Distributors

Task
environment

Distributors are organizations that help the focal organization to

sell its products to customers

When an organization has many distributors to choose from, it has

high bargaining power. On the contrary, when distributors become so
large and strong that they can control customers access to an
organizations product, the distributors have high bargaining power
that can threaten the focal organization.
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Example: High bargaining power of ParknShop

"ParknShop charges a lot when you sell goods to
them and you wait a long time to get back the
money [i.e. a long bill-settlement period]," one
beverage supplier said. "Because of their large
market share, most suppliers have little
bargaining power and have to accept whatever
terms it sets.
Source: Suppliers fear being squeezed. The Standard, August 26, 2013

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Task Environment: Customers

Customers are individuals and groups that buy products that the
focal organization produces
Changes in the number and types of customers or in customers
tastes and needs result in opportunities and threats.
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Example: Dairy Queens localized menus in China

There's the challenge of developing localized menus that make sense to
customers.
"You have to get to know your customer and offer flavors that cater to the
local market. In northern China, people love strong flavors but enjoy fruitbased desserts and less chocolate. In southern China, green tea-based
flavors are more popular, and there's more consumption of chocolate, but it
can't be the central flavor," Kevin Lee (who was manager for China and
Southeast Asia at Dairy Queen International from 2007 to 2012) said.

Source: Bates, D. Baskin-Robbins vs. Dairy

Queen: A delicious cold war in China,
Fortune. April 4, 2013.
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Example: McDonald's operates in 119

countries; it adapts its products to
local tastes and consumer needs.
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Ubers Customers

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Managers are responsible for

developing strategies to cope
with the threats and
opportunities created by the
organizations environment.

Competitors

The
Organization

Distributors

Organizations are influenced by

both the task environment
(competitors, supplier,
distributors, and customers)
and the general environment
(economic, political/legal,
sociocultural, and technological
forces).

Task environment

Suppliers

To Summarize:

General environment

Customers

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Todays Class
Understanding organizational environments
General environment
Task environment
Managing the external environment
Resource dependence perspective
Institutional perspective
Global perspective
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Managers Often Fail To Observe New Trends

What could be more palpably absurd than the prospect of
locomotives traveling twice as fast as stagecoaches. The
Quarterly Review, March 1825
The horse is here to stay, but the automobile is only a novelty a
fad. Advice to Henry Fords Lawyer, 1922
This telephone has too many shortcomings to be seriously
considered as a means of communication. The device is inherently
of no value to us. Western Union Internal Memo, 1876

Managers Often Fail To Observe New Trends

The wireless music box has no imaginable commercial
value. Who would pay for a message sent to nobody in
particular? Response of Associates of David Sarnoff, when
invited to invest in radio
I think there is a market for about five computers.
Thomas Watson, Sr. Founder of IBM, 1943
There is no reason anyone would want a computer in their
home.Ken Olsen, President and Founder of Digital Equipment
Corp., 1977

Adapting to Changes in the Environment

Environments differ in the degree

of uncertainty they exhibit.
The higher the uncertainty, the
more important it becomes for
managers to frequently scan the
environment for threats and
opportunities.
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Learning about Environmental Changes

Scanning activities
Follow news and social media, attend conferences, talk to
industry leaders

Hire people
Technical experts, experienced executives, appoint board
members

Form relationships
Form alliances with other organizations, acquire firms, invest
in entrepreneurial firms
Gather competitive intelligence
Reverse-engineer competitors products, mystery shopping
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Organization-Environment Relationships

Resource dependence
perspective

Institutional perspective

Global perspective

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Managing Resource Dependence

Organizations are dependent on their environments for
obtaining resources that are needed for their survival.
There are various resources that organizations require to be
successful. Examples are educated workers, investment capital,
production facilities, and legal permits and licenses.

Managers seek to reduce the organizations dependence on its

environment through several boundary-spanning strategies.
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Example: Lobbying and Donations

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Example: Hire Former Government Officials as CEO

Many organizations are dependent on the government. For instance,
the government sets regulations or may be an important customer.
One way to get access to the government and influence its policy is by
hiring former government officials who previously worked in powerful
positions.

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Example: Acquire Other Firms

Twitter plans to acquire ZipDial, an Indian startup, to reduce its
dependence on the U.S. market. Facebook and Yahoo have already
made acquisitions in Indian startups, and a successful deal with ZipDial
would make it Twitters first acquisition in India.

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Managing the Institutional Environment

Organizations are judged by stakeholders
on the basis of whether they conform to
prevailing norms and practices.
When organizations comply with these
pressures they are considered legimate
entities. When organizations dont, they
fail to achieve legitimacy.
Legitimacy is critical for obtaining
resources from stakeholders.

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Example: Boston Dynamics and Google

Google search and destroy: The
internet giant (motto: 'Don't be
evil') has bought a pioneer of
scary robot animals. Can its
ethics survive?

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Creating Legitimacy
Hire prestigious people
CEO with track-record, well connected board members
Develop professional communications channels
Website, logo, social media, business cards
Create familiar structures
Job titles, legal entities, office location
Obtain endorsements
Certifications, affiliations with prominent organizations,
reviews from famous critics
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Managing the Global Environment

When organizations go international, they can use different approaches.
Minimal global
investment

Significant global
investment

Global outsourcing: Purchasing materials or labor from

around the world
Exporting (making products domestically and selling them
abroad) and Importing (acquiring products made abroad
and selling the products domestically)
Licensing/franchising: One organization gives another
organization the right to use its brand name, technology or
product specifications in return for payment.
Joint venture with a foreign organization: An organization
and a foreign partner forming a separate, independent
organization for some business purpose
Foreign subsidiary: Directly investing in a foreign country
by setting up a production facility or office.
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Regardless of an organizations mode of going

international, managers need to know how the
general environment in foreign countries will
affect its business.
It is critical that managers
determine what aspects
of the organization need
to be adapted to the
local environment of the
foreign country.

Movie: Red Obsession (2013)

A documentary film on the
Bordeaux fine wine industry
and China

Political and legal forces

Economic forces

In 2013, China launched an

antidumping probe of
European wine in response to
the EU's move to increase
tariffs on Chinese-made solar
panels.

Good economic condition in

high
China, resulting in _______
purchasing power. China is
replacing U.S. as the largest
buyer of Bordeaux wine.

Sociocultural forces
Bordeaux wine as a symbol
status
of ________
Hierarchical culture where
_____________
opinion leaders influence
consumer decisions
numerology
Strong belief in ____________
Counterfeit
_______________
problem

General
environment
facing the French
Bordeaux wine
industry exporting
to China

Technological forces
New technologies to make
better wine (e.g. optical sorting
of grapes), to make good wine
more cheaply (e.g.
mechanical harvesting), and to
combat fakes (e.g. bubble seal)

Supplementary information:
Bubble seal technology helps to combat fake wines
To combat fakes, wine producers apply a bubble seal to individual
bottles. Made by Prooftag, a French firm, it contains both a serial
number and a unique pattern of bubbles embedded in plastic, and is
destroyed when the wine is opened. Anyone can check the pattern
for each bottle number on Prooftags website

Source: Wine technology: Bacchus to the future, www.economist.com, Nov 30, 2013.

Intended learning outcomes

for Topic 2
By now, you should be able to:
Identify the elements in an organizations task and general
environment, and describe how those elements affect the
organizations ability to thrive
Explain how managers can learn about changes in the
external environment and understand when doing so is
important
Describe resource dependence, institutional, and global
perspectives on how organizations can manage their
relationships with their environment

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