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Three Component Relationship of the Firm to the Business Environment

Three Component Relationship of the Firm to the Business Environment. Deterministic - Regulatory, legal and market structures taken as givens Probabilistic – Areas where the firm has the ability to increase its odds of success.

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Three Component Relationship of the Firm to the Business Environment

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  1. Three Component Relationship of the Firm to the Business Environment • Deterministic - Regulatory, legal and market structures taken as givens • Probabilistic – Areas where the firm has the ability to increase its odds of success. • Random – Uncontrollable and uncertain elements from which the firm can attempt to protect itself

  2. AN ORGANIZATION’S ENVIRONMENT Task Environment Raw Materials Sector Suppliers, Manufacturers, Real Estate Industry Sector Competitors, Industry size and Characteristics, Related Industries Human Resources Sector Socio-Cultural sector Labor Market, Employment Agencies, Universities, Training Schools, Employees in Other Companies, Unionization Age, Values, Beliefs, Education, Religion, Work Ethic, Urban vs. Rural, Birth Rate DOMAIN Financial Resources Sector Government Sector City, State, Federal Laws and Regulations, Taxes, Services, Court System, Political Processes Stock Markets, Banks, Savings and Loans, Private Investors ORGANIZATION Market Sector Economic Conditions Sector Technology Sector Customers, Clients, Potential Users of Products and Services Techniques of Production, Science, Research Centers, Automation, New Materials Recession, Unemployment Rate, Inflation rate, Rate of Investment, Economics, Growth Macro Environment

  3. Environmental Complexity Simple Complex Simple + Stable = Low Uncertainty 1. Small number of external elements 2. Elements remain the same or change slowly or relatively predictably Examples: Soft drink bottlers, beer distributors, container manufacturers, local utilities Complex + Stable = Low/Moderate Uncertainty 1. Large number of external elements 2. Elements remain the same or change slowly or relatively predictably Examples: Universities, hospitals, insurance companies Stable Environmental Change Uncertainty Simple + Unstable = Low/Moderate Uncertainty 1. Small number of external elements 2. Elements change frequently, more unpredictably and reactively Examples: Fashion clothing, music industry, toy manufacturers Complex + Unstable = High Uncertainty 1. Large number of external elements 2. Elements change frequently, more unpredictably and reactively Examples: American airlines, oil companies, electronic firms, aerospace firms, personal computers Unstable

  4. Enactment of different parts of the environment ( Selection of the boundary) Standard operating procedures Working Capital Standard operating proceduresWorking Capital Raw materials inventory WIP inventory Maintenance programs Excess capacity Project scheduling Labor scheduling Finished Goods Inventory Negotiated lead times Monopoly Monopsony - captive suppliers, futures contracts Technical Core Interconnections, e.g. interlocking boards, vertical integration, etc. Boundary spanning activities, e.g. marketing, purchasing, etc. Administrative Level ORGANIZATIONAL RESPONSES TO ENVIRONMENTAL UNCERTAINTY

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