Chapter

Managing the Organizational Environment

PowerPoint Presentation by Charlie Cook

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Forces in the Organizational Environment

Figure 5.1
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The Task Environment

Suppliers
Individuals and organizations that provide an organization with the input resources that it needs to produce goods and services
Raw materials, component parts, labor (employees)

Relationships with suppliers can be difficult due to materials shortages, unions, and lack of substitutes.
Suppliers that are the sole source of a critical item are in a strong bargaining position to raise their prices.

Managers can reduce these supplier effects by increasing the number of suppliers of an input.
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The Task Environment (contd)

Distributors
Organizations that help other organizations sell their goods or services to customers
Powerful distributors can limit access to markets through its control of customers in those markets.

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

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The Task Environment (contd)

Customers
Individuals and groups that buy goods and services that an organization produces
Identifying an organizations main customers and producing the goods and services they want is crucial to organizational and managerial success.

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The Task Environment (contd)

Competitors
Organizations that produce goods and services that are similar to a particular organizations goods and services Potential Competitors
Organizations that presently are not in the task environment but could enter if they so chose

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

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The Task Environment (contd)

Barriers to Entry
Factors that make it difficult and costly for the organization to enter a particular task environment or industry Economies of scale
Cost advantages associated with large operations

Brand loyalty
Customers preference for the products of organizations currently existing in the task environment.

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The Industry Life Cycle

Industry Life Cycle
The changes that take place in an industry as it goes through the stages of birth, growth, shakeout, maturity, and decline. Birth: industry competitors seek to develop the winning technology Growth: industry products gain acceptance and rapid growth in product demand attracts new competitors Shakeout: industry growth slows, weak firms exit the industry, and rivalry increases
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The Industry Life Cycle (contd)

Industry Life Cycle (contd)
Maturity: the market stabilizes as demand levels off, the industry is now dominated by a few large competitors Decline: demand for industry products declines, competition increases, failing competitors either exit the market or are acquired by rival firms

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Stages in the Industry Life Cycle

Figure 5.3
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The General Environment

Economic Forces
Interest rates, inflation, unemployment, economic growth, and other factors that affect the general health and well-being of a nation or the regional economy of an organization

Managers usually cannot impact or control these.

Forces have profound impact on the firm.

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The General Environment

Technological Forces
Outcomes of changes in the technology that managers use to design, produce, or distribute goods and services
Results in new opportunities or threats to managers

Often makes products obsolete very quickly.

Can change how managers manage.

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The General Environment (contd)

Sociocultural Forces
Pressures emanating from the social structure of a country or society or from the national culture
Social structure: the arrangement of relationships between individuals and groups in society

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

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

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The General Environment (contd)

Demographic Forces
Outcomes of change in, or changing attitudes toward, the characteristics of a population, such as age, gender, ethnic origin, race, sexual orientation, and social class
During the past two decades, women have entered the workforce in increasing numbers and most industrial countries populations are aging.
This will change the opportunities for firms competing in these areas as demands for child care and health care are forecast to increase dramatically.

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The General Environment (contd)

Political Forces
Outcomes of changes in laws and regulations, such as the deregulation of industries, the privatization of organizations, and increased emphasis on environmental protection
Increases in laws and regulations increase the costs of resources and limit the uses of resources that managers are responsible for acquiring and using effectively and efficiently.

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The General Environment (contd)

Global Forces
Outcomes of changes in international relationships; changes in nations economic, political, and legal systems; and changes in technology, such as falling trade barriers, the growth of representative democracies, and reliable and instantaneous communication Important opportunities and threats to managers:
The economic integration of countries through freetrade agreements (GATT, NAFTA, EU) that decrease the barriers to trade.

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Managing the Organizational Environment

Environmental Change
The degree to which forces in the task and general environments change and evolve over time

Reducing the Impact of Environmental Forces

Top management: devise strategies that take advantage of opportunities and counter threats Middle managers: collecting about competitors intentions, new customers, and new suppliers for the firms crucial or low-cost inputs First-line managers: use resources efficiently and get closer to customers
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Managing the Organizational Environment (contd)

Creating an Organizational Structure
Increasing the complexity of the organizations structure in response to the changing organizational environment

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

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