Chap2 Environment

Lecture 2 Understanding Competitive

Environment and Organisational Culture

Prepared by: ANS First Prepared on: 13-12-05 Last Modified on: xx-xx-xxQuality checked by: HKP

Copyright 2004 Asia Pacific Institute of Information Technology

Introduction to ManagementBM007-3-1-IMT

Module Code and Module Title Title of Slides

At the end of this topic, YOU should be able to:

• Explain the concept of mega-environment and outline its major elements

• Distinguishing between the concepts of task environment and mega-environment and describe the major elements of the task environment.

• Explain how environmental uncertainty and munificence impact organisation

• Describe the major methods that organisations use to manage their environments

Learning Outcomes


Definitions

• External Environment– The major forces outside the organisation that have

the potential to significantly influence the likely success of products and services.

• Internal Environment– The general condition that exit within an organisation.


Environment

MEGA-ENVIRONMENT

Labour

Government Agencies

Customers & Clients

Supplier

Competitors

TASK ENVIRONMENTTechnological Element

Economic Element

Legal-political Element

Sociocultural Element

International Element


Mega-Environment

• The general environment which reflects the broad conditions and trends in the societies within which an organisation operates.

• It consists of FIVE major elements:– Technological– Economic– Legal-political– Sociocultural– International


UNDERSTANDING THE MACRO ENVIRONMENT USING A PESTEL ANALYSIS

• How stable is the political environment?• Tax policies• Etc.

• Projected interest rates?• Inflation?• Etc.

• Lifestyle trends?• Demographic changes?• Etc.

• Level of government research funding?• How mature is technology?• Etc.

Political

Economic

Socio-cultural

Technological

• Is intellectual property protected?• Relevant consumer laws? • Etc.

Legal


Technological Element

• The current state of knowledge regarding the production of products and services.

• Most organisations can be greatly effected, either positively or negatively by technological progress.

• In order to remain competitive, organisations must stay abreast of current technological developments that may affect their ability to offer desirable products and services.


Economic Element

• The systems of producing, distributing, and consuming wealth

• Capitalist economy – Activity is governed by market forces and the means of production are privately owned by individuals, either directly or through corporations

• Socialist economy – The means of production are owned by the state ad economic activity is coordinated by plan

• Due to these differences, organisations that do business in a variety of countries typically confront strikingly diverse sets of economic ground rules within which they must operate.


Legal-Political Element

• The legal and political systems within which an organisation must function.

• Trends in legislation, court decisions, politics and government regulation are particularly important.

• Variety of laws that specifically address the manner which they must function e.g. OSHA


Sociocultural Element

• The attitudes, norms, beliefs, behaviours and associated demographic trends that are characteristic of a given demographic area.

• The elements is subject to change, it is important for managers to monitor trends that might offer new opportunities or pose significant threats.

• E.g. Mc Donald’s modifies menus all over the world.


International Element

• The development of countries outside an organisation’s home country than have potential to influence the organisation.

• International development can greatly affect the ability of an organisation to conduct business abroad.

• E.g. NAFTA – North American Free Trade Agreement involving Canada, Mexico and US, offer big opportunities for market growth, they allow goods, services and funds to move more easily between the countries involved.

• This factor is beyond the manipulation of a particular organisation.


The Macro Environment (pest)

Political-legal• Supports and controls

• Pending legislation

Economic• Governmental stability

• Inflation and unemployment

• Productivity and growth

Socio-cultural• Geographic location of population

• Customs and values

• Demographics

Technological• New knowledge and discoveries

• New products, processes, and services


• Political:– Government type and stability – Freedom of the press, rule of law and levels of bureaucracy and corruption – Regulation and de-regulation trends – Social and employment legislation – Tax policy, and trade and tariff controls – Environmental and consumer-protection legislation – Likely changes in the political environment

• Economic:– Stage of a business cycle – Current and projected economic growth, inflation and interest rates – Unemployment and supply of labor– Labor costs – Levels of disposable income and income distribution – Impact of globalization – Likely impact of technological or other changes on the economy – Likely changes in the economic environment

PESTLE


PESTLE• Sociological:

– Cultural aspects, health consciousness, population growth rate, age distribution, – Organizational culture, attitudes to work, management style, staff attitudes– Education, occupations, earning capacity, living standards – Ethical issues, diversity, immigration/emigration, ethnic/religious factors– Media views, law changes affecting social factors, trends, advertisements,

publicity– Demographics: age, gender, race, family size

• Technological:– Maturity of technology, competing technological developments, research funding,

technology legislation, new discoveries– Information technology, internet, global and local communications – Technology access, licensing, patents, potential innovation, replacement

technology/solutions, inventions, research, intellectual property issues, advances in manufacturing

– Transportation, energy uses/sources/fuels, associated/dependent technologies, rates of obsolescence, waste removal/recycling


PESTLE• Legal:

– current home market legislation, future legislation– European/international legislation– regulatory bodies and processes– environmental regulations, employment law, consumer protection– industry-specific regulations, competitive regulations

• Environmental:– Ecological– environmental issues, environmental regulations– customer values, market values, stakeholder/ investor values– management style, staff attitudes, organizational culture, staff engagement


Task Environment

• The specific external elements with which an organisation interfaces in the course of conducting its business

• It depends largely on the precise products and services that the organisation decides to offer and on the locations where it chooses to conduct its business

• An organisation can influence the elements in this environment.

• The elements comprises of;– Customers and clients– Competitors– Suppliers– Labour supply– Government agencies


Customers and Clients

• Individuals or organisations that purchase products and / or services.

• Orgsanisation today build customer relationship and ensure customer satisfaction so that they stay close to a customer to build rapport and receive continuous buying.

• IKEA provides baby sitting, children playground and cafeteria to make customers feel at home and want ot stay and shop.


Competitors

• Other organisations that either offer or have a high potential of offering rival products or services.

• Organisations need to keep abreast of what their competitors are doing.

Suppliers• Are those organisations and individuals that supply the

resources (raw material, products services) the organisation needs to carry on operations.


Competitive Factors

• Competitive factors are the business strategies and actions of one’s competitors.

• The competition may have designed a better product or service. Examples:

– Sony vs. Microsoft Videogame– Nokia vs. Motorola Cellular – Verizon vs. AT&T Telephony


Labour Supply

• Consists of those individuals who are potentially employable by the organisation.

• Labour supply varies from unskilled, semi-skilled and to professional.

Government Agencies• Agencies that provide services and monitor compliance

with laws and regulations at local state or regional and national levels


The Task EnvironmentEntities that directly impact the organization

• Competitors that seek the same customers or resources as the organization.

• Customers who acquire and use an organization’s products or resources.

• Suppliers that provide resources to the organization.

• Regulators (government agencies, interest groups, unions, and communities) that control, legislate, or influence the organization’s policies and practices.

• Strategic partners (allies) who are in joint ventures or partnerships with the organization.


McDonald’s Task

Environment


Managing Environmental Elements

Adaptation• Buffering• Smoothing• Forecasting• Rationing

Favourable Influence• Advertising and Public Relations• Boundary Spanning• Recruiting• Negotiating contracts• Co-Opting• Strategic alliances• Trade Associations• Political Activity


The Internal Environment : Organisational Culture

• Organisational Culture – A system of shared values assumptions, beliefs and norms that unite the members of an organisation.

• “The way things are done in an organisation”.• It is important in an organisation because as individuals

act on shared values and other aspects of organisational culture, their behaviours can have significant impact on organisational effectiveness.

• Cultures that develop reflect the drive and imagination of the individuals involved.

• E.g. Mc Donald’s – “Quality service, cleanliness and value.

• Culture can have a positive or negative impact.


Manifestation of Organisational Culture

• Symbols – an object, act, event, or quality that serves as a vehicle for conveying meaning.

• Stories – narrative based on true events, which sometimes may be embellished to highlight the intended value.

• Rites and Ceremonials – a relatively elaborate, dramatic, planned set of activities intended to convey cultural values to participants.


Types of Cultures

• There are many classification systems, including those based on:

• Risk Tolerance

• Communication Patterns

• Types of Control

• Coordination Techniques

• Reward Systems

• Open-Systems Focus


VisibleVisible

Artifacts such as dress, office Artifacts such as dress, office layout, symbols, slogans, layout, symbols, slogans, ceremoniesceremonies

InvisibleInvisible

Expressed values such as “The Penney Idea,” Expressed values such as “The Penney Idea,” “The H-P Way”“The H-P Way”

Underlying assumptions and deep beliefs Underlying assumptions and deep beliefs such as “people are lazy and can’t be trusted”such as “people are lazy and can’t be trusted”

Culture that can be seen at the surface levelCulture that can be seen at the surface level

Deeper values and shared understandings held by organization members.Deeper values and shared understandings held by organization members.


Corporate Culture

What corporate culture do you think the following businesses have managed to develop?

Virgin GroupCopyright: Joshua2150, http://www.sxc.hu

The Body ShopCopyright: fadaquiqa, http://www.sxc.hu

McDonaldsCopyright: alexalliedhttp://www.sxc.hu

NikeCopyright: alexbolhttp://www/sxc.hu


Levels of organizational culture—observable culture and core culture.


The Cultural Environment• Language

– In Japanese the word “hai” can mean either “yes” or “I understand.”

– General Motors’ brand name “Nova” pronounced as “no va” in Spanish means “doesn’t go.”

• The Meaning of Colors– Green is popular in Muslim countries, yet it signifies

death in other countries.– Pink is associated with feminine characteristics in the

U.S.; yellow is the most feminine color in other countries.


Environmental Challenges of International Management

International Management FunctionsInternational Management FunctionsInternational Management FunctionsInternational Management Functions

Political/Legal Political/Legal EnvironmentEnvironment

• Government stabilityGovernment stability

• Incentives for Incentives for international tradeinternational trade

• Controls on Controls on international tradeinternational trade

• Economic Economic communitiescommunities

Political/Legal Political/Legal EnvironmentEnvironment

• Government stabilityGovernment stability

• Incentives for Incentives for international tradeinternational trade

• Controls on Controls on international tradeinternational trade

• Economic Economic communitiescommunities

EconomicEconomicEnvironmentEnvironment

• Economic systemEconomic system

• Natural resourcesNatural resources

• InfrastructureInfrastructure

EconomicEconomicEnvironmentEnvironment

• Economic systemEconomic system

• Natural resourcesNatural resources

• InfrastructureInfrastructure

CulturalCulturalEnvironmentEnvironment

• Values, symbols, Values, symbols, beliefs, and languagebeliefs, and language

• Individual differences Individual differences across culturesacross cultures

CulturalCulturalEnvironmentEnvironment

• Values, symbols, Values, symbols, beliefs, and languagebeliefs, and language

• Individual differences Individual differences across culturesacross cultures

Module Code and Module Title Title of Slides Slide 32 of 18

QUESTIONS


Review Questions

• Outline the major elements that make up the mega-environment. How would they influence the decisions which are made in an organisation?

• Explain how environmental uncertainties effect the organisation.

• How can an organisations adapt and cope with the ever so changing environment.

• How does a manager help cultivate a positive organisation culure?


Follow up Assignment

• Read;– Chapter 3 of Management by Kathryn M.

Bartol and D. Martin.– Chapter 2 of Management by Bateman Snell.


Topic and Structure of next session: -

•Chapter 3 – Organisational Structure

Next Session