2 M Business Environtment ( Bus Tel Services)

8/6/2019 2 M Business Environtment ( Bus Tel Services)

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2. Business environment


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2. Business environment


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Chapter

2 The ExternalEnvironment


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The External Environment

Organizations are open systems

affected by, and in turn affect, their external environments

External environment

Everything outside an organizations boundaries that might affect it

all relevant forces outside a firms boundaries

relevant - factors to which managers must pay attention

organizationalboundaries - that which separates the organizationfrom its environment

two elements comprise the external environment

competitive environment- immediate environment surrounding afirm

macroenvironment- fundamental factors that generally affect allorganizations


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Laws and

politics

Economy

Technology

Demographics

Social

values

MacroenvironmentCompetitive

Environment

OrganizationSuppliers

New

Entrants

SubstitutesRivals

Buyers

The External Environment


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Economic EnvironmentEconomic Environment

Business Cycle

Patterns of short term ups anddown expansions and

contractions) in an economy

Aggregate Output

Total quantity of goods and

services produced by an economic

system during a given period


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Business CycleExpansionExpansion

ContractionContraction


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Aggregate Output

a. Standard of Living

b. Gross Domestic Product (GDP)

c. Gross National Product (GNP)

d. Purchasing Power Parity

e. Productivity

f. Balance of trade

g. National Debt


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Aggregate Output

a. Standard of Living

Total quantity and quality of goods and services that a countrys

citizerns can purchase with the currency used in their country

b. Gross Domestic Product (GDP)

Total value of all goods and services produced within a given period

by a national economy through domestic factors of production

Real GDP (GDP calculated to account for changes in currency

values and price changes)

Nominal GDP (GDP measured in current dollars or with all

components valued at current prices)

c. Gross National Product (GNP)

Total value of all goods and services produced by a national

economy within a given period regardless where the factors of

production are located


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Aggregate Output

d. Purchasing Power Parity

Principle that exchange rates are set so that the prices of

similar products in different countries are about the same

e. Productivity

Measure of economic growth that compares how much a

system produces with the resources needed to produce it

f. Balance of trade

Economic value of all products a country exports minus the

economic value of all products it imports

g. National Debt

Amount of money that a government owes its creditors


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Economic Stabilitya. Stability

b. Inflation

c. Consumer Price Index (CPI)d. Unemployment

e. Recession

f. Depression

g. Fiscal Policies

h. Monetary Policies

i. Stabilization Policies


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Economic Stabilitya. Stability

Condition in an economic system in which the amount of

money available and the quantity of goods and services

producedare growing at about the same rate

b. Inflation

Occurrence of widespread price increases throughout

an economic system

Inflation rate = (change in price Index/Initial Price Index)

X 100

c. Consumer Price Index (CPI)

Measure of prices of typical products purchased by

consumers living in urban areas

d. Unemployment

Measure of prices of typical products purchased by

consumers living in urban areas


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Monetary PolicyInterest RatesInterest Rates

Spending

Spending

TightTight

Interest RatesInterest Rates

SpendingSpending

EasyEasy


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Economic Stabilitye. Recession

Period during which aggregate output, as measuredby real GDP, declines

f. Depression

Particularly severe and long lasting recessiong. Fiscal Policies

Government economic policies that determine howthe government collects and spends its revenues

h. Monetary Policies Government economic policies that determine the

size of a nations monetary supply

i. Stabilization Policiese. Government policy, embracing both fiscal and

monetary policies whose goal is to smooth outfluctuations in output and unemployment and tostabilize prices


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Technological Environment Technology

Product/ServiceTechnologies

Business ProcessTechnologies


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Technological Environment Technology

All the ways in which firms create valuefor constituents

Product/Service Technologies Technologies employed for creating

products (goods and services) forcustomers

Business Process Technologies-

Enterprise Resource Planning

Large scale information system fororganizing and managing a firmsprocesses across product lines,departments and geographic locations


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Enterprise Resource Planning

ERP SystemERP System

HumanHuman

ResourcesResources

Data AnalysisData Analysis

AccountingAccounting& Finance& Finance

CustomerCustomer

ServicesServices

Sales &Sales &

MarketingMarketing

Supply ChainSupply Chain

ManagementManagement

ManufacturingManufacturing

* Benefits

* Payroll

* Product costs* Job costs * Sales Orders

* Pricing Systems

* Field Services* Quality

* Forecasting

* Purchasing* Distribution

* Account Payable andReceivable

* AssetManagement

* Material requirementsPlannning

* Schedulling


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Political-Legal Environment

Political-Legal Environment

Condition reflecting the relationship

between business and government,usually in the form of governmentregulation

Regulation

Defines Relationship BetweenGovernment & Business

Government

Pro vs. Anti-Business Sentiment


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Sociocultural Environment Sociocultural Environment

Conditions including the customs, mores, values

and demographic characteristics of the society inwhich an organization functions

Customer Preferences/Tastes- Vary

International

National

Ethical Compliance & Responsible Behavior

Enron

ArthurAndersen


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Business Environment Redrawing Corporate

Boundaries- Core

Competencies Challenges/Opportunities

Outsourcing

Vertical Integration Viral Marketing

BusinessProcessManagement

Post-9/11


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Business Environment Redrawing Corporate

Boundaries- Core

Competencies

Core Competencies

Skills and resources with

which an organization

competes best and creates

the most values for owners


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Business Environment Challenges/Opportunities (1/2)

Outsourcing

Strategy of paying suppliers and distributors

to perform certain business processes or to

provide needed materials or resources

Vertical Integration

Strategy of owning the means by which an

organization produces goods or services

Viral Marketing

Strategy of using the internet and word of

mouth marketing to spread product

information


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Business Environment Challenges/Opportunities (2/2)

Process

Any activity that adds value to some input by

transforming it into an output for a customer

(whether internal or external)

BusinessProcessManagement

Approach by which firms move away from

department-oriented organization and toward

process oriented team structures that cut

across old departmental boundaries

Post-9/11

The government should be security concern


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Environmental

Scanning

BenchmarkingScenario

Development

Forecasting

Environmental Analysis


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Environmental Analysis

Environmental uncertainty lack of information needed to understand or predict

the future uncertainty arises from two related factors

complexity- the number of issues to which a managermust attend as well as their interconnectedness

dynamism - the degree of discontinuous change that

occurs within the industry

as uncertainty increases, techniques must bedeveloped to collect, sort, and interpret informationabout the environment


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Environmental Analysis (cont.) Environmental scanning

searching for and sorting through information

about the environment competitive intelligence - information that helps

managers determine how to compete better

competitive potential of environments differs

attractive environments- give firm a competitiveadvantage

unattractive environments- put firm at a competitivedisadvantage


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Attractive and Unattractive

Environments

Environmental

Factor

Competitors

Threat of entry

Substitutes

Suppliers

Customers

Unattractive

Many; low industry growth;

equal size; commodity

High threat; few entry

barriers

Many

Few; high bargaining power

Few; high bargaining power

Few; high industry growth;

unequal size; differentiated

Low threat; many barriers

Few

Many; low bargaining

power

Many; low bargaining

power

Attractive


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Environmental Analysis (cont.)

Scenario development scenario - a narrative that describes a particular set of

future conditions best-case scenario - events occur that are favorable to the

firm

worst-case scenario - events occur that are all unfavorable

help managers develop contingency plans

Forecasting

method for predicting how variables will change in the future accuracy varies from application to application

forecasts are most useful when they accurately predict achanged future environment


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Environmental Analysis (cont.)

Benchmarking

process of comparing the organizations practices

and technologies with those of other companies determine the best-in-class performance by a company in

a given area

benchmarking team collects information on its owncompanys operations and those of benchmark companies

to identify gaps gaps investigated to learn the underlying causes of

performance differences


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Responding To The Environment

Adapting to the environment company adjusts itsstructures and work processes

in uncertain environment caused by complexity, companiestend to decentralize decision making empowerment- process ofsharing power with employees

enhances their confidence in their ability to perform their jobs

engenders beliefs that they are influential contributors to the firm

in uncertain environments caused by dynamism, companies

tend to establish more flexible structures bureaucracy- suited for stable environments (low dynamism)

organic - provides flexibility required for changing environments(high dynamism)


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Complex

Simple

Stable Dynamic

Decentralized

Bureaucratic

(Standardized skills)

Centralized

Bureaucratic(Standardized work

processes)

Decentralized

Organic

(Mutual adjustment)

Centralized

Organic(Direct supervision)

Four Approaches for ManagingFour Approaches for Managing

UncertaintyUncertainty


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Res

ponding To The Environment (cont.)

Adapting to the environment (cont.)Adapting at the boundaries

buff

ering - creating supplies of excess resources in case of

unpredictable needs buffers created on both the input and outputside of the business

smoothing - leveling normal fluctuations at the boundaries ofthe organization

Adapting at the core flexible processes- permit adaptation of the technical core

masscustomization-use of a network of independent operatingunits that each performs a specific process

different modules join forces to deliver the product or service asspecified by the customer


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Responding To The Environment

(cont.)

Influencing your environment

proactive responses aimed at changing the

environment Independentaction- strategies that an organization

acting on its own uses to change some aspect of itscurrent environment

Cooperative action- strategies used by two or more

organizations working together to influence the externalenvironment

at an organizational level, establish strategic alliances,partnerships, joint ventures, and mergers with competitors


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Changing the environment you are in

strategicmaneuvering - conscious effort to

change the boundaries of the competitiveenvironment prospectors- companies that continuously change the

boundaries of their task environments by:

diversifying and merging

seeking new products and markets

acquiring new enterprises

defenders- companies thatstay within a stable, more-limited product domain as a strategic maneuver

Responding To The Environment(cont.)


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Change appropriate elements of the environment focus on elements that:

cause the company problems provide the company with opportunities

allow the company to change successfully

Choose responses that focus on specific elements ofthe environment

focus on competitive aggression and pacification Choose responses that offer the most benefit at the

lowest cost focus on both short- and long-term financial considerations

Choosing A Response Approach


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