Chapter Assessing External Environments PowerPoint slides by R Dennis Middlemist Colorado State University Learning Objectives After studying this chapter, you should be able to: Articulate the role of the external environment in management decisions and effectiveness Explain the five major dimensions of an organization’s general environment Describe the critical forces in the organization’s task environment ©2005 Learning Objectives After studying this chapter, you should be able to: Describe the key elements of an organization’s global environment Describe the key considerations in conducting effective environmental scanning ©2005 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 organization’s external task environment and through them, the organization itself Internal environment: key factors and forces inside the organization affecting its operation ©2005 Organization Environment io Soc General Environment ol og y Eco ural cult nom ic External Environment General Environment o l G l a b Te ch n Political-Legal ©2005 Adapted from Exhibit 3.1: Organization Environment Organization Environment ers y nom ic s or ula t Eco or Re g b La ural cult General Task Environment Environment s er io Soc Cu sto m ol og li pp Task Environment Competitors Su External Environment General Environment o l G l a b Te ch n Strategic Partners Political-Legal ©2005 Adapted from Exhibit 3.1: Organization Environment Organization Environment nom ic s or Eco or Re g b La ural cult Owners BoardTask of Directors Management Environment Employees Culture ula t ers Cu sto m y s er io Soc Internal Environment Internal Environment ol og li pp Task Environment Competitors Su External Environment General Environment o l G l a b Te ch n Strategic Partners Political-Legal ©2005 Adapted from Exhibit 3.1: Organization Environment ©2005 hn ol og y Eco n l l t u Economic forces Current economic conditions Economic cycles Structural changes iocu Product technological changes Process technological changes Te c General Environment So c Sociocultural forces Demographics Values Technology forces al ob Gl omi c General Environment Political-Legal Economic Cycles Good economic conditions Poor economic conditions Time ©2005 Adapted from Exhibit 3.2: Overall Economic Cycles and Industry Cycles l t u l Political-Legal Global forces Impact on and interaction with the other forces Institutional forces Physical forces 10 ©2005 ol og y Eco n iocu Government spending hn General Environment So c Political and legal forces Laws and regulations Te c al ob Gl omi c General Environment Task Environment: The Nature of Competition pp tom Su er s Competitors rs Cu s lie ula t What are your competitors weaknesses? Re g r bo La Environment or s How big and strong are your competitors? Task Strategic Partners What is the nature of competition or rivalry in your industry? 17 ©2005 Task Environment: New Entrants—Potential Competitors 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 18 ©2005 Task Environment: Substitutes Strategic Partners 19 ©2005 or s ula t Re g r bo La products Task Environment or services can substitute for existing product or service The fewer the available substitutes, the greater the profits rs Cu s lie To what extent can alternative pp tom Su er s Competitors Task Environment: Customers rs Cu s lie Strategic Partners 20 ©2005 or s customers, they have demand Lower prices Customized products or services Attractive financing terms from producers These demands reduce profits ula t r bo La united more power to Task Environment Re g When there are fewer and pp tom Su er s Competitors Task Environment: Strategic Partners ©2005 Cu s rs 21 ula t Re g Task Environment or s with beneficial goals r bo La a firm to pursue mutually Limited engagements Joint ventures Sharing of equity interest lie Strategic partners work closely pp tom Su er s Competitors Strategic Partners Task Environment: Labor The balance between supply and demand for types of workers significantly affects a firm’s performance When demand exceeds supply, the imbalance can lead to high labor costs Labor unions can exert pressure on managers to increase wages and offer other costly benefits, decreasing performance 22 ©2005 Task Environment: Regulators rs Cu s lie regulatory Task Environment agencies and interest groups Regulators can influence and sometimes dictate organizational actions Re g ula t r bo La or s Regulators consist of both pp tom Su er s Competitors Strategic Partners 23 ©2005 Task Environment of JetBlue Task Environmental Factor Competitors Rivalry Description Primarily price-based, hurting performance Many established and big players New Entrants $35 million start-up costs, frequent failures discourages new entrants Substitutes $ Video conferencing may substitute for face-to-face (travel) business meetings Customers Business travelers who want convenience Leisure travelers who want low price 24 ©2005 Adapted from Exhibit 3.6: Description of the Task Environment of JetBlue Task Environment of JetBlue Task Environmental Factor Suppliers Description Airbus supplies all of JetBlue’s planes Many jet fuel 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 industry Regulators FAA dictates standards and regulations Airport authorities determine access and cost of landing slots and gates at airports 25 ©2005 Adapted from Exhibit 3.6: Description of the Task Environment of JetBlue Task Environment of JetBlue Customers Competitors Suppliers Labor Regulators Strategic partners Customers Business travelers Leisure Travelers ©2005 Rivalry: Price New Entrants: Few Substitutes: Video conferencing Strategic Partners Suppliers No airline partners Initial partnership with satellite TV provider JetBlue Regulators FAA Airport Authorities 26 Competitors Planes: Airbus Jet Fuel: many suppliers such as Exxon Mobil Labor No union representation Ample supply of pilots and flight attendants Adapted from Exhibit 3.7: The Task Environment of JetBlue The Internal Environment Owners Single owner can determine Internal Environment Owners Board of Directors Management Employees Culture objectives and distribution of profits Diversified set of shareholders have more difficulty agreeing on objectives and profits Board of Directors Set of individuals elected by shareholders of the company to represent their interests 27 ©2005 The Internal Environment Employees Demographics Values Culture Assumptions Values Beliefs 28 ©2005 Internal Environment Owners Board of Directors Management Employees Culture Environmental Scanning & 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 industry Obtain information from nonpublic sources 29 â2005 Environmental Scanning Define What type of information I need? Recognition Analyze •What information is relevant? •What are the potential and most important issues? Respond •What impact could this have and what is the response? 30 ©2005 Adapted from Exhibit 3.8: Environmental Scanning Responding Effectively to Changing Environments Direct influence Strategic response Organization agility Information management 31 ©2005 ... Description 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 Values Baby boomers... Environment Organization Environment nom ic s or Eco or Re g b La ural cult Owners BoardTask of Directors Management Environment Employees Culture ula t ers Cu sto m y s er io Soc Internal Environment... studying this chapter, you should be able to: Articulate the role of the external environment in management decisions and effectiveness Explain the five major dimensions of an organization’s general