Chapter 3 Environmental Forces

1. Chapter 3EnvironmentalForces MGT 301

2. Learning Goals 1. Explain how economic, demographic, and cultural factors affect organizations 2. State the five competitive forces in an industry 3. Describe the political and legal strategies managers use to cope with changes in the environment 4. Explain how technology changes the structure of industries

3. The Environment: General Environment General Environment—sometimes called themacroenvironment, includes the external factors that usually affect all or most organizations

4. Politics Competitors Forces Impacting Organizations(adapted from Figure 3.1) Macroenvironment Organization

5. The Economy • Economics is the discipline that focuses on understanding how people or people or nations produce, distribute, and consume various goods and services.

6. New Value matters – information is key New markets – distance vanished Customers buy activities not products – a click away Human capital – rise of knowledge worker Old Size of organization matters – manufacturing is key Defined market segments – demographics Customers for a lifetime – loyalty, repeat business Physical and capital assets – tangible assets Trends in the New Versus the Old Economy(adapted from Table 3.1)

7. The Economy (cont’d) The New Age of Competition Old New Low-cost manufacturing Value-added services Self-reliance Outsourcing Made in U.S.A. Borderless competition Local knowledge Customer convenience Physical labor Human capital, software, knowledge management Smoke-stack industries Environmental stewardship Source: Adapted from Friedman, T.L. The World is Flat. New York: Farrar, Straus & Giroux, 2005, 48-172.

8. Snapshot “Our assets leave on the elevator every night. Organizations do not own human capital; they can only rent them. In today’s world, human capital will have greater power than other resources because it is the people who create knowledge.” Andy Grove, Founder and CEO Intel Corporation

9. Demographics • Demographics are the characteristics of a work group, an organization, a specific market, or various populations. • Some current demographic changes include: • Increasing Diversity • Education and Skills • Managerial Challenges

10. Impact of Changing Demographics on Organizations • Increasing diversity • Women participation rate increasing • Hispanic men rate increasing • People of color rate increasing • Managerial challenges • Multicultural awareness programs • Language offerings • Career challenges • Lifestyle issues • Illegal immigration

11. Why is Culture Important to Managers? • Culture:refers to the unique pattern of shared characteristics, such as values, that distinguish the Members of one group of people from those of another. • Value:a basic belief about a condition that has considerable importance and meaning to individuals and is relatively stable over time • Value system:comprises multiple beliefs that are compatible and supportive of one another

12. Why is Culture Important to Managers? (cont’d) How values can effect a manager? Perceives situations and problems Goes about solving problems Views otherpeople andgroups Determines what isand is notethical behavior Leads and controls employees

13. Why is Culture Important to Management: Overview of Cultural Factors Power Distance Long-TermOrientation UncertaintyAvoidance Gender RoleOrientation Culture Individualism

14. Why is Culture Important to Management: Hofstede’s Framework • Power Distance—the degree to which less powerful members of society accept that influence is unequally divided • Uncertainty Avoidance—the extent to which members of a culture feel threatened by risky or unknown situations • Individualism—a combination of the degree to which society expects to take care of themselves and their immediate family and the degree to which people believe they are masters of their own destinies

15. Why is Culture Important to Management: Hofstede’s Framework (cont’d) • The opposite of individualism is collectivism—a tight social framework in which group (family, clan, organization, and nation) members focus on the common welfare and feel strongly toward one another • Gender Role Orientation— refers to the extent to which a society reinforces traditional norms of masculinity versus femininity • Long-Term Orientation—reflects the extent to which a culture stresses that its members accept delayed gratification of material, social, and emotional needs

16. Why is Culture Important to Management? Cultural Values Rankings

17. Competitive Forces in the Task Environment(adapted from Figure 3.3) Supplier bargaining power Threat of substitute goods or services Threat of new competitors Customer bargaining power Rivalry among existing firms in industry

18. Competitors “For virtually all organizations,the critical environment constraint is their actionsin relation to competitors. Therefore, any change inthe environment that affects any competitor will have consequences that require some degree of adaptation. This requires continual change and adaptation by all competitors merely to maintainrelative position.” Bruce D. Henderson, founder and chairman of the Boston Consulting Group

19. Key Influences on New Entrants • High versus low barriers to entry • Economies of scale: achieved when increased volume lowers the unit cost of a good or service produced by a firm • Product differentiation: the uniqueness in quality, price, design, brand image, or customer service that gives one firm’s product an edge over another firm’s • Capital requirements: the dollars needed to finance equipment, purchase supplies, purchase or lease land, hire staff, and the like • Government regulation: barrier to entry if it bars or severely restricts potential new entrants to an industry

20. Substitute Goods and Services • In a general sense, all competitors produce substitute goods or services, or goods or services that can easily replace another’s goods or services • Movie rental versus movie theatres • Books versus TV versus newspapers • Purchase versus rental • Cell phone versus hard lines

21. Customers • Customer bargaining power may be relatively great when: • Customer purchases a large volume relative to the supplier’s total sales • Product or service represents a significant expenditure by the customer • Large customers pose a threat of backward integration • Customers have readily available alternatives for the same services or products

22. Suppliers • Bargaining power of suppliers often controls: 1. how much they can raise prices above their costs or 2. reduce the quality of goods and services they provide before losing customers

23. Political-Legal Forces: Managerial Political Strategies Political Strategies Political-Legal Forces • Political actioncommittees (PACs) • Laws • Government • Labor unions • Others • Negotiation • Lobbying • Alliance • Representation • Socialization

24. Technology Forces: TechnologyImpacts on Organizations Technology Workplace Strategy Manufacturing Distribution

25. Technology Impacts on Organizations Snapshot “With 135 million users selling goods in more than 45,000 categories in 27 international markets, eBay has left all competitors in the dust. Technology has really changed people’s lives for the better.” Meg Whitman, CEO, eBay

26. Technology's Impact in the Workplace • Workers need greater problem-solving skills • Outsourcing routine tasks • Virtual organizations

27. Technology's Impact on Strategy • Faster new product introductions to market • Entrance of “electronic” competitors • Formation of “electronic shopping malls” • Wider choice of suppliers for company • More substitute goods and services available to company • Product differentiation based on technological sophistication

28. Technology's Impact on Manufacturing MassCustomization Reduction inManufacturing time Outsourcing of routine jobs

29. Technology's Impact on Distribution Internetaccess forshopping Telecommunicationdevices Information superhighwayfor global competition