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8/8/2019 Chapter 3, Hitt Black Potter
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PowerPoint slides by
R. Dennis Middlemist
Colorado State University
Chapter 3Chapter 3
AssessingAssessing
ExternalExternal
EnvironmentsEnvironments
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Learning Objectives
Learning Objectives
Articulate the role of the externalenvironment in management decisions andeffectiveness.
Explain the five major dimensions of an
organizations general environment. Describe the critical forces in the
organizations task environment.
After studying this chapter, you should beable to:
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Learning Objectives
Learning Objectives
Describe the key elements of anorganizations global environment.
Describe the key considerations in
conducting effective environmental
scanning.
After studying this chapter, you should beable to:
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The Business Environment
The Business Environment
External environment: a set of forces and conditions
outside the organization that can influence its
performance
Task environment: forces that have a high potential of
affecting the organization on a immediate basis
General environment: forces that typically influence the
organizations external task environment and through them,
the organization itself
Internal environment: key factors and forces inside
the organization affecting its operation
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Organization EnvironmentOrganization Environment
External Environment
General Environment
Adapted from Exhibit 3.1: Organization Environment
General
Environment
Political-Legal
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General
Environment
Organization EnvironmentOrganization Environment
External Environment
General Environment
Task
Environment
Political-Legal
Competitors
Strategic Partners
Task Environment
Adapted from Exhibit 3.1: Organization Environment
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Organization EnvironmentOrganization Environment
External Environment
General Environment
Task
Environment
Political-Legal
Competitors
Strategic Partners
Internal
Environment
Owners
Board of Directors
Management
Employees
Culture
Task Environment
Internal Environment
Adapted from Exhibit 3.1: Organization Environment
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General Environment
General Environment
Sociocultural forces Demographics
Values Technology forces
Product technological changes
Process technological changes
Economic forces Current economic conditions
Economic cycles
Structural changes
General
Environment
Political-Legal
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Good
economic
conditions
Poor
economicconditions
Time
Economic CyclesEconomic Cycles
Adapted from Exhibit 3.2: Overall Economic Cycles and Industry Cycles
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General Environment
General Environment
Political and legal forces
Laws and regulations
Government spending
Global forces
Impact on and interaction with the otherforces
Institutional forces
Physical forces
General
Environment
Political-Legal
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Sociocultural
General Environment ofGeneral Environment of
CocaCoca--ColaCola
Adapted from Exhibit 3.3: Description of the General Environment of Coca-Cola
Environmental Factor
Baby boomers drinking less soft drinks as
they age
US population growth is slowing and much
of the growth comes from immigrants who
generally drink less soft drinks
Description
Demographics
Values Baby boomers drinking less soft drinks as
they age US population growth is slowing and much
of the growth comes from immigrants who
generally drink less soft drinks
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Technological
General Environment ofGeneral Environment of
CocaCoca--ColaColaEnvironmental Factor
New canning technology makes using
recycled aluminum easier and cheaper
Internet opens up a new means of running
promotion contests and activities
Description
Economic Slow economy reduces per person
consumption due to fewer social occasions
at which soft drinks might be served
Like end of economic downturn andprospects of economic recovery
Stricter liability for illness caused by
beverage contamination
Adapted from Exhibit 3.3: Description of the General Environment of Coca-Cola
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Global
The General Environment ofThe General Environment of
CocaCoca--ColaColaEnvironmental Factor
Gradual increase in acceptance of
carbonated soft drinks in other countries
such as India and China
Widely available electricity and increased
ability to afford refrigerators in emerging
countries and economies
Description
Adapted from Exhibit 3.3: Description of the General Environment of Coca-Cola
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The General Environment ofThe General Environment of
CocaCoca--ColaCola
Adapted from Exhibit 3.4: The General Environment of Coca-Cola
Sociocultural
Baby boomers drinking less
Immigrants drinking less
Concern about recycling
Concerns about health
Technological
New recycle-friendly canning
technology
New promotion opportunities
via the Internet
Political-Legal
Increased health standards
for bottling
Stricter liability legislation
Global
Increase in acceptance of
carbonated drinks in India
and China
Easier consumer access to
refrigeration
Economic
Slow economic growth
Prospect of economic
recovery
Coca-Cola
Sociocultural
Technological
Political-Legal
Global
Economic
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Task EnvironmentTask Environment
Organizations most immediateexternal environment
Consists of Competitors
Customers
Suppliers
Task
Environment
Competitors
Strategic Partners
Strategic partners
Labor
Regulators
Typically largest influence on the organization Managers must understand the fit between the
organization and its task environment
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LowerProfits
Higher
Profits
Profits and Industry ForcesProfits and Industry Forces
Few competitors
Quality-based
competition
High entry barriers
Few new entrants
Many customers
Fragmented
customers
Many suppliers
Many competitors
Price-based
competition
Low entry barriers
Many new entrants
Many substitutes
Few customers
United customers
Few suppliers
Adapted from Exhibit 3.5: Profits and Industry Forces
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Task
Environment
Competitors
Strategic Partners
Task Environment:Task Environment:
How big and strong are your
competitors?
What are your competitors weaknesses?
What is the nature of competition or
rivalry in your industry?
The Nature of CompetitionThe Nature of Competition
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Task Environment:Task Environment:
New entrants increase competition
Increased competition leads to lower
profits
More choices for customers causes
companies to increase value to
customers
Entry barriers keep new entrants out
New EntrantsNew EntrantsPotential CompetitorsPotential Competitors
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Task Environment:Task Environment:
To what extent can alternative
products or services can
substitute for existing productor service
The fewer the available substitutes, the
greater the profits
SubstitutesSubstitutes
Task
Environment
Competitors
Strategic Partners
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Task Environment:Task Environment:
When there are fewer and
united customers, they have
more power to demandLower prices
Customized products or services
Attractive financing terms from producers These demands reduce profits
CustomersCustomers
Task
Environment
Competitors
Strategic Partners
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Task Environment:Task Environment:
Strategic partners work closely
with a firm to pursue mutually
beneficial goalsLimited engagements
Joint ventures
Sharing of equity interest
Strategic PartnersStrategic Partners
Task
Environment
Competitors
Strategic Partners
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Task Environment:Task Environment:
The balance between supply and
demand for types of workers significantly
affects a firms performanceWhen demand exceeds supply, the
imbalance can lead to high labor costs
Labor unions can exert pressure onmanagers to increase wages and offer other
costly benefits, decreasing performance
LaborLabor
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Task Environment:Task Environment:
Regulators consist of both
regulatory agencies and
interest groups
Regulators can influence and sometimes
dictate organizational actions
RegulatorsRegulators
Task
Environment
Competitors
Strategic Partners
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Competitors
Task Environment of JetBlueTask Environment of JetBlue
Task Environmental
Factor
Primarily price-based, hurting performance
Many established and big players
Description
Rivalry
New Entrants $35 million start-up costs, frequent failures
discourages new entrants
Substitutes $ Video conferencing may substitute for
face-to-face (travel) business meetingsCustomers Business travelers who want convenience
Leisure travelers who want low price
Adapted from Exhibit 3.6: Description of the Task Environment of JetBlue
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Task Environment of JetBlueTask Environment of JetBlue
Task Environmental
Factor
Airbus supplies all of JetBlues planes
Many jet fuel suppliers
Description
Suppliers
Strategic Partners Currently not a part of any airline alliance
Initial partner with satellite TV provider
Currently not represented by labor unions
Ample supply of pilots and flight attendants
due to significant downsizing in industryRegulators FAA dictates standards and regulations
Airport authorities determine access and
cost of landing slots and gates at airports
Adapted from Exhibit 3.6: Description of the Task Environment of JetBlue
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Task Environment of JetBlueTask Environment of JetBlue
Competitors
Adapted from Exhibit 3.7: The Task Environment of JetBlue
Competitors
Rivalry: Price
New Entrants: Few
Substitutes: Video
conferencing
Customers
Business travelers
Leisure Travelers
Suppliers
Planes:Airbus
Jet Fuel: many suppliers
such as Exxon Mobil
Labor
No union representation
Ample supply of pilots and
flight attendants
Regulators
FAA
AirportAuthorities
Strategic
Partners
No airline partners
Initial partnership with
satellite TV provider
Suppliers
Labor
Regulators
Strategic partners
Customers
JetBlue
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The Internal EnvironmentThe Internal Environment
Owners
Single owner can determine
objectives and distribution of profits
Diversified set of shareholders have more
difficulty agreeing on objectives and profits
Board of DirectorsSet of individuals elected by shareholders of
the company to represent their interests
Internal
EnvironmentOwners
Board of Directors
Management
Employees
Culture
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The Internal EnvironmentThe Internal Environment
Employees
Demographics
Values
Culture
Assumptions
Values
Beliefs
Internal
EnvironmentOwners
Board of Directors
Management
Employees
Culture
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Environmental Scanning &Environmental Scanning &
Response
Response
Know what to scan
Have a plan of how to scan
Gain advantage over competitors
Be superior in analyzing publicly available
information and anticipating how it relates to
your job, company, and industryObtain information from nonpublic sources
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What type of
information do Ineed?
Define
Environmental ScanningEnvironmental Scanning
What information
is relevant?
Recognition
What are the
potential and mostimportant issues?
Analyze
What impact could
this have and what
is the response?
Respond
Adapted from Exhibit 3.8: Environmental Scanning
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Responding Effectively toResponding Effectively to
Changing EnvironmentsChanging Environments
Direct influence
Strategic response
Organization agility
Information management