Principles of Management-MGT-

211

CHAP 03
T H E E N V I R O N M E N T O F O R G A N I Z AT I O N S A N D M A N A G E R S
SPRING 2017
 The Business Environment

External Environment
General environment is everything outside an
organizations boundarieseconomic, legal,
political, socio-cultural, international, and
technical forces.
Task environment is composed of specific
groups and organizations that affect the firm.
Internal Environment
Conditions and forces present and at work
within an organization
 The Organization and Its Environments

International Technological
dimension dimension

Competitors

Regulators Owners Customers

Employees
Physical environment
Board of directors
Culture
Political-
legal Economic
dimension Strategic dimension
Suppliers
partners

Sociocultural
Internal environment dimension
Task environment
External environment
General environment
 The General Environment

Economic dimension
- Overall health and vitality of the economic system in which the
organization operates
- General economic growth, inflation, interest rates and
unemployment
Technological dimension
- Methods available for converting resources into products and
services
- The forms and availability of that technology come from the
general environment
- Technology is not associated only with manufacturing of product
but also with service sector

34
 The General Environment

Sociocultural dimension
- Includes customs, morals, values and demographic
characteristics of the society
- Important because they determine the products, services
and standards of conduct that the society is likely to value
- Influence how workers in a society feel about their jobs and
organizations
- Appropriate standards of business conduct also vary across
culture

2013 Cengage Learning. All rights reserved. May not be copied, scanned, or 35
duplicated, in whole or in part, except for use as permitted in a license distributed
 The General Environment

Political-legal dimension
- Government regulation of business and relationship
between business and government
- Three reason behind the importance of this dimension
1) Legal system partially defines what an organization can
and cannot do
2) Pro or anti-business sentiment in government influences
business activity.
3) Political stability has ramifications for planning

2013 Cengage Learning. All rights reserved. May not be copied, scanned, or 36
duplicated, in whole or in part, except for use as permitted in a license distributed
 The General Environment

International dimension
- Extent to which an organization is involved in or affected by
business in other countries
- Firms may face foreign competition at home
- Also applicable for not-profit organizations
- Virtually every organization is affected by the international
dimension of its general environment

37
 McDonalds General Environment

Technological
International Dimension Dimension
Restaurants in 115 Improved information
countries technology
About two-thirds of More efficient
sales from outside operating systems
the United
States

Political-Legal
Dimension McDonalds Economic
Government Dimension
food standards Strong economic
Local zoning growth
climate Low unemploy-
General posture ment
toward business Low inflation
regulation
Sociocultural Dimension
Demographic shifts in
number of single adults
Internal environment and dual-income families
Growing concerns about
Task environment health and nutrition
External environment
General environment
 The External Environment (contd)

Dimensions of the Task Environment

Specific groups affecting the organization
Competitors seeking the same resources as the organization.
Customers who acquire an organizations products or resources.
Suppliers that provide resources for the organization.
Regulators that control, legislate, or influence the organizations
policies or practices:
regulatory agencies.
interest groups.
Strategic partners (allies) who are in a joint venture or
partnership with the organization.
McDonalds Task Environment

Competitors
Burger King
Wendys
Subway
Regulators Dairy Queen
Food and Drug
Administration Customers
Securities and Individual
Exchange consumers
Commission Institutional
Environmental McDonalds customers
Protection
Agency

Suppliers
Strategic Partners Coca-Cola
Wal-Mart Wholesale food
Disney processors
Foreign partners Packaging
manufacturers

Internal environment
Task environment
The Internal Environment
Conditions and stakeholder forces within an organization
Owners are persons with legal property rights to a business.
Board of directors are elected by the stockholders and are
charged with overseeing the general management of the firm
to ensure that it is run in a way that best serves the
stockholders interest.
Employees are persons who work for the firm and have a
vested interest in its continued operation and existence.
Physical work environment is the actual physical
environment of the organization and the work that people do.
How Environments Affect Organizations
James D. Thompson was one of the first people
to recognize the importance of the
organizations environment.

Change and Complexity

Environmental change occurs in two ways:
Degree to which change in environment
is occurring
Degree of homogeneity or complexity
of the environment
Uncertainty is a driving force
that influences organizational
decisions.
 Environmental Change, Complexity,
and Uncertainty

Simple
Degree of Homogeneity

Least Moderate
uncertainty uncertainty

Moderate Most
uncertainty uncertainty

Complex

Stable Degree of Change Dynamic

 How Environments Affect Organizations
(contd)

Competitive Forces
Porters Five Competitive Forces
Threat of new entrants into the market
Competitive rivalry among present competitors
Threat of substitute products
Power of buyers
Power of suppliers

Environmental Turbulence
Unexpected changes and upheavals in the environment of an
organization.
 Porters Five Competitive Forces

Threat of new entrants

Extent to and ease with which competitors can enter market.
Competitive rivalry
Competitive rivalry between firms in an industry.

Threat of substitute products

Extent to which alternative products/services may replace the
need for existing products/services.
Power of buyers
Extent to which buyers influence market rivals.

Power of suppliers
Extent to which suppliers influence market rivals.
How Organizations Respond to Their
Environments

General Environment

Task Environment
Information
management

Mergers, takeovers,
Social
acquisitions,
responsibility
alliances
The
Organization
Strategic Direct
response influence

Organization
design and
flexibility
 How Organizations Respond to

Their Environments (contd)

Information Management in Organizations
A boundary spanner is an employee who accumulates information

through contacts outside the organization.
Environmental scanning is the process of monitoring the
environment.
Information systems summarize and deliver information in a form
pertinent to a managers needs.
Strategic Response
Maintaining the status quo, altering the current strategy, or adopting
a new strategy.
Mergers, Acquisitions, Alliances
Firms can combine (merge), purchase (acquisition), or form new
venture partnerships or alliances with another firm.
 Mergers: Occurs when two or more firms combine to form
a new firm.
Acquisition: An acquisition is the purchase of one company by
another in which no new company is formed
Strategic Alliance: An arrangement between two companies that
have decided to share resources to undertake a specific, mutually
beneficial project. A strategic alliance is less involved and less
permanent than a joint venture, in which two companies typically pool
resources to create a separate business entity. In a strategic alliance,
each company maintains its autonomy while gaining a new
opportunity. A strategic alliance could help a company develop a more
effective process, expand into a new market or develop an advantage
over a competitor, among other possibilities.
 How Organizations Respond to
Their Environments (contd)

Organizational Design and Flexibility

An organization may adapt to its environmental conditions by
incorporating flexibility in its structural design.
Mechanistic firms operate best in stable environments.

Organic firms are best suited for dynamic environments.

Direct Influence of the Environment

An organization may attempt to change the nature of the competitive
conditions in its environment to suit its needs.
Pursuing new or changed relationships with suppliers, customers,
and regulators can alter the organizations environment in a way that
favors the organization.
 The Environment and
Organizational Effectiveness

Models of Organizational Effectiveness

Systems resource approach focuses on acquiring inputs.

Internal processes approach focuses on the transformation

processes (production efficiencies).
Goal approach focuses on outputs (achieving organizational
goals).
Strategic constituencies approach focuses on feedback
(satisfying stakeholders).
A Model of Organizational Effectiveness
1 2 3
Acquiring the resources and combining them facilitates the attainment
needed from the in an efficient and of organizational goals
environment productive manner
(Systems resource approach) (Internal processes approach) (Goal approach)

Transformation

Inputs Organizational Outputs

System

Feedback

5 4
and satisfies the
making it easier to
strategic constituents
acquire future
in the environment, . . .
resources.
(Strategic constituencies
(Combined approach)
approach)
 Examples of Admired and
High-performing Firms

Fortunes Most Admired Business Weeks Best

Companies (2000) Performing Companies (2000)

1. General Electric 1. Microsoft

2. Microsoft 2. Time Warner
3. Dell Computer 3. Cisco Systems
4. Cisco Systems 4. Oracle
5. Wal-Mart 5. EMC
6. Southwest Airlines 6. Citrix Systems
7. Berkshire Hathaway 7. Morgan Stanley Dean Witter
8. Intel 8. Gap
9. Home Depot 9. Warner-Lambert
10. Lucent Technologies 10. Lucent Technologies