Module-II Part 3

3. Management and
Society Concept,
External Environment,
Environment
CSR, Corporate
Governance, Ethical
Standards.

Management and Society

The result of managerial actions as reflected in the
organizational performance is the outcome of
synchronization of internal systems to respond to the
external environment.
Successful organizations not only focus their efforts on
satisfaction of customers and other stakeholders but also
on society in general.
The long term sustainable growth necessarily requires ethical
and value-based approach to achieve organizational goals
on a continuing basis.

External Environment
All organizations irrespective of their goals, operate amidst
changing external environment that affects and influences
their strategic decisions. Top management essentially
consider external factors for effective decision making.
Macro-economic factors like technological, demographic,
economic, political, competitive, legal, cultural and social
need to be continuously monitored and their implications on
organizational operations have to be identified.
Technological
Social

Political

Demographic

Cultural
Legal
Organization
Competitive

Economic

Factors of external environment

1. Emerging Economy- Vital issues affecting economic development are :--
Inflation

Taxes(both individual and corporate)

Employment and wages paid to labor

Cost of production

Production process

Prices of goods and services

Competitive forces, technological developments

Collective bargaining of organized labor

Change in interest rates => Change in cost of capital =>Change in cost of
production
Inflation => demand for goods and services=> change in cost of production
2. Demographics- this characteristic of the population reflects the details on
parameters like age, gender profile, family form, income levels, education
pattern and occupation pattern.
A diverse young and dynamic workforce provides a number of advantages
in terms of flexibility, adaptation to change in an organization.

Factors of external environment

(contd.)

3. Technological environment- In modern world, any organization has to

adapt to emerging technologies in its strategic plans. They offer:
Better management

Communication

Decision making

Better production quality

Distribution networks
4. Social Environment- They have as strong bearing on the way people
think and behave . Thus changes in social norms and values need to
be taken into account by the management of organizations as they
have a bearing on their organization.
5. Cultural Environment- It relates to shared characteristics like
language, religion, heritage and values that differentiate the
members of one group of people from another. Thus diagnosis of
culture and value systems help a great deal in understanding
expectations of customers, employees and stakeholders.

Factors of external environment

(contd.)
6. Competitive Environment- Each organization operates in the
context of its immediate competitive environment consisting of
competitors operating in the same product or service industry.

7. Legal & Political Environment The working of organizations in any

society gets affected by political and legal framework. Different
industrial associations attempt to influence government decisions.
Some of them are:Federation of Indian Chamber if
commerce and industry (FICCI)
Confederation of Indian Industry (CII)
Bharat chamber of Commerce and Industry (BCCI)
National Association of Software and Service Companies
(NASSCOM)

Michael Porters ModelCompetitive Diagnosis

According to Michael Porter , a Harvard Professor a model
using the competitive forces help to understand the position
and standing of the organization. The competitors may
include other local companies, regional, domestic and global
companies operating in the same product/service line and
encroach the market share.
The tactics for driving competitive advantage may include:

price reduction
product development
advertising
packaging
sales force incentives
supply chain management
incentives offered to retailers and wholesalers

High technology
& growth

offer greater
opportunities

more profit
making

Michael Porters ModelCompetitive Diagnosis

Threats of New Entrants

Power of Suppliers

Rival firms &

their rivalry

Threat of substitutes

Power of Customers

Michael Porters ModelCompetitive Diagnosis

New entrants threat :- There are many barriers to entry of new businesses due
to government policies, volume of capital investments, cost disadvantage
compared to existing market players and lack of distribution network.
Threat of substitutes:- Companies should continuously work on new strategies,
research and technologies to prevent threats from existing substitutes and
potential new ones that may enter the market in future.
Power of suppliers:- Companies acquire various resources to add value and
convert them into potential goods and services to earn profits. Suppliers offer
these resources to the organizations and may affect the business adversely by
dictating the terms of prices and quality of such resources. It is not advisable to
depend immensely on such suppliers. There is a switching cost involved in
shifting preferences from an existing supplier to another.
Power of customers:- The ultimate test of the organization lies in winning the
goodwill of existing and prospective customers. They add value to the
existence of the company. There is a need to constantly develop strategies and
new methods to improve quality of products and services offered to its
customers.
Large
purchases
more

Strong bargaining
power of customers

High net worth

Backward
customers spend Integration