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Learning Objectives

2-1 Describe how environmental forces influence

organizations and how organizations can influence
their environments.
The External 2-2 Distinguish between the macroenvironment and
and Internal the competitive environment.
Environments 2-3 Explain why managers and organizations should
CHAPTER 2 attend to economic and social developments.
2-4 Identify elements of the competitive environment.
2-5 SWOT Analysis

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Open Systems Exhibit 2.1 Open-System Perspective

of an Organization
Inputs
• Goods and services
organizations take in
Organizations are and use to create
affected by, and affect, products or services.
their environment.
Outputs
• The products and
services organizations
create.

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External Environment Exhibit 2.2 The External and Internal

Environments
External environment
• All relevant forces outside a firm’s boundaries, such as
competitors, customers, the government, and the
economy.
• Competitive environment.
• Macroenvironment.

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The Economy Managers and the Economy

Role of managers
The economic environment • In publicly held companies, managers may feel required
to meet Wall Street’s earnings expectations.
dramatically affects
managers’ ability to function • Managers may focus on short-term results at the expense
of long-term success.
effectively and influences
their strategic choices. • Some managers may be tempted to engage in unethical
or unlawful behavior that misleads investors.
• Keep in mind that economic conditions change over time
and are difficult to predict.

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Technology Laws and Regulations

Technological advances create new products, Regulators include agencies such as:
advanced production techniques, and better ways of • Securities and Exchange Commission (SEC).
managing and communicating.
• Occupational Safety and Health Administration (OSHA).
• As technology evolves, new industries, markets, and
competitive niches develop. • Equal Employment Opportunity Commission (EEOC).
• National Labor Relations Board (NLRB).
• Office of Federal Contract Compliance Programs
(OFCCP).
The 3D printing process has
revolutionized design.

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Demographics Social Issues

Demographics Societal trends regarding how people think and

• Measures of various characteristics of the people who
behave have major implications for management of
make up groups or other social units. the labor force.
• Demographic trends: • Family leave policies.
• Aging of the workforce. • Flexible benefit packages.
• Increasing education and skill levels. • Domestic partner benefits.
• Immigration factors. • Company response to social issues.
• Increasingly diverse workforce.

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Sustainability and the Natural Social Entrepreneurship:

Environment Combating Climate Change

Organizations depend on the natural environment to
provide them with resources.
• Operations impact quality and quantity of resources.
• Impacts on local citizens.
• Impacts on social issues as well as political and legal
environments.
• More than 360 U.S. companies wrote an open letter to
the U.S. president saying, in part, “Failure to build a low-
carbon economy puts American prosperity at risk. But the
right action now will create jobs and boost U.S.
competitiveness.”
• Although their petition went unheeded, many businesses
have begun their own initiatives.

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Exhibit 2.4 The Competitive Environment Competitors

Competition is most intense when:
• There are many direct competitors.
• Industry growth is slow.
• Product/service is not easily differentiated.

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New Entrants Substitutes and Complements

Barriers to Entry
• Conditions that prevent new companies from entering an Substitutes Complements
industry. • Alternative products or • Products or services that
services. increase purchases of
• Government policy, capital requirements, brand
• Potential threat. other products.
identification, cost disadvantages, and distribution
channels. • Potential opportunity.

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Exhibit 2.6 Actions and Attitudes = Customers

Excellent Customer Service
Without customers to purchase its goods or
services, a company won’t survive.
• Final consumer (end users).
• Intermediate consumer (wholesalers and retailers).

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Environmental Analysis Environmental Scanning

Environmental uncertainty Environmental scanning

• Lack of information needed to understand or predict the • Searching for information that is unavailable to most,
future. sorting that information and interpreting what is important.
Environmental complexity Competitive intelligence
• The number of issues that must be attended to as well as • Information that helps managers determine how to
the interconnectedness of these issues. compete better.

Environmental dynamism
• The degree of discontinuous change that occurs within an
industry.

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What is SWOT Analysis? What is SWOT Analysis?

STRENGTHS

Acronym for Strengths, Characteristics of the business or a team

Strengths Weaknesses, Opportunities, and that give it an advantage over others in
Threats. the industry.
Technique is credited to Stanford Positive tangible and intangible
University in the 1960s and attributes, internal to an organization.
1970s.
Beneficial aspects of the organization
Planning tool used to understand or the capabilities of an organization,

Oppurtunity
SWOT Weakness
Strengths, Weaknesses,
Opportunities, & Threats
which includes human competencies,
process capabilities, financial

Analysis involved in a project / business.

Used as framework for
resources, products and services,
customer goodwill and brand loyalty.
organizing and using data and
Examples - Abundant financial resources,
information gained from
Well-known brand name, Economies of
situation analysis of internal and
scale, Lower costs [raw materials or
external environment.
processes], Superior management talent,
Better marketing skills, Good distribution
Threats skills, Committed employees.

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What is SWOT Analysis? What is SWOT Analysis?

OPPORTUNITIES
Chances to make greater profits in the
environment - External attractive factors
that represent the reason for an
organization to exist & develop.
Arise when an organization can take
benefit of conditions in its
environment to plan and execute
strategies that enable it to become
more profitable.
Organization should be careful and
recognize the opportunities and grasp
them whenever they arise. Opportunities
may arise from market, competition,
industry/government and technology.
Examples - Rapid market growth, Rival
firms are complacent, Changing customer
needs/tastes, New uses for product
discovered, Economic boom, Government
deregulation, Sales decline for a substitute
product .
WEAKNESSES
Characteristics that place the firm at a
disadvantage relative to others.
Detract the organization from its
ability to attain the core goal and
influence its growth.
Weaknesses are the factors which do
not meet the standards we feel they
should meet. However, weaknesses
are controllable. They must be
minimized and eliminated.
Examples - Limited financial resources,
Weak spending on R & D, Very narrow
product line, Limited distribution, Higher
costs, Out-of-date products / technology,
Weak market image, Poor marketing skills,
Limited management skills, Under-trained
employees.

What
SWOT is- THREAT
ANALYSIS SWOT Analysis?

THREATS

External elements in the environment that

could cause trouble for the business -
External factors, beyond an organization’s
control, which could place the
!
organization’s mission or operation at risk.
Arise when conditions in external
environment jeopardize the reliability
and profitability of the organization’s
business.
Compound the vulnerability when they
relate to the weaknesses. Threats are
uncontrollable. When a threat comes, the
stability and survival can be at stake.
Examples - Entry of foreign competitors,
Introduction of new substitute products,
Product life cycle in decline, Changing
customer needs/tastes, Rival firms adopt
new strategies, Increased government
regulation, Economic downturn.

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