Mata kuliah : A0012 – Manajemen Umum
Tahun
: 2010
Session 2
THE EXTERNAL
ENVIRONMENT
Learning Objectives
• After studying The External Environment, you will know:
– how environmental forces influence organizations, as well as how organizations can influence
their environments
– how to make a distinction between the macroenvironment and the competitive environment
– why organizations should attend to economic and social developments in the environments
– how to analyze the competitive environment
– how organizations respond to environmental uncertainty
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Outline Materi
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Bina Nusantara
The Macroenvironment
The Competitive Environment
Environmental Analysis
Responding to the Environment
Choosing a Response Approach
The External Environment
• Organizations are open systems
– affected by, and in turn affect, their external environments
• External environment
– all relevant forces outside a firm’s boundaries
• relevant - factors to which managers must pay attention
– two elements comprise the external environment
• competitive environment - immediate environment surrounding a firm
• macroenvironment - fundamental factors that generally affect all
organizations
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The External Environment
Laws and
politics
New
Entrants
Suppliers
Buyers
Organization
Rivals
Economy
Competitive
Environment
Macroenvironment
Demographics
Substitutes
Social
values
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Technology
The Macroenvironment
• The macroenvironment
– most general elements in the external environment that can potentially influence strategic
decisions
– all organizations are affected by the general components of the macroenvironment
• Laws and regulations
– impose strategic constraints and provide opportunities
– regulators - specific government organizations in a firm’s more immediate task environment
• have the power to investigate company practices and take legal action to
ensure compliance with the laws
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The Macroenvironment (cont.)
• The economy
– created by complex interconnections among economies of different countries
– important elements include interest rates, inflation rates, unemployment rates, and the stock
market
– economic conditions change and are difficult to predict
• Technology
– technological advances create innovations in business
• new products, advanced production techniques, and improved methods of
managing and communicating
– strategies that ignore or lag behind competitors in considering technology lead to obsolescence
and extinction
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The Macroenvironment (cont.)
• Demographics
– measures of various characteristics of the people comprising groups or other social units
– workforce demographics must be considered in formulating human resources strategies
• population growth influences the size and composition of the labor force
– immigration also is a significant factor
• increasing diversity of the labor force has both advantages and
disadvantages
– must assure equal employment opportunity
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The Macroenvironment (cont.)
• Social issues and the natural environment
– management must be aware of how people think and behave
• the role of women in the workplace
• social costs of smoking
• protection of the natural environment
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Competitive Environment
• Competitive environment
– comprises the specific organizations with which the organization interacts
• Michael Porter - defined the competitive environment
– successful managers:
• react to the competitive environment
• act in ways that actually shape or change the competitive environment
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Competitive Environment
New
entrants
New
entrants
Rival firms
New
entrants
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New
entrants
Competitive Environment (cont.)
• Competitors
– competitors within an industry must deal with one another
– organizations must:
• identify their competitors
• analyze how competitors compete
• react to and anticipate competitors’ actions
– competition is most intense:
• where there are many competitors
• when industry growth is slow
• when the product or service cannot be differentiated
– intense competition causes an industry shakeout
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Competitive Environment (cont.)
• Threat of new entrants
– barriers to entry - influence the degree of threat
• include government policy, capital requirements, and brand identification
• Threat of substitutes
– technological advances and economic efficiencies may result in substitutes for existing
products
– substitutes can limit another industry’s revenue potential
– companies need to think about potentially viable substitutes
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Competitive Environment (cont.)
• Suppliers
– provide the resources needed for production
– powerful suppliers can reduce an organization’s profits
• international labor unions are noteworthy suppliers
– dependence on powerful suppliers is a competitive disadvantage
• power of supplier determined by:
– availability of other suppliers from whom to buy
– the number of customers for the supplier’s products
• switching costs - fixed costs buyers face if they change suppliers
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Competitive Environment (cont.)
• Customers
– purchase the products or services the organization offers
• final consumers - purchase end product
• intermediate consumers - buy raw materials or wholesale products
– sell them to final consumers
– make more purchases than individual final consumers do
– customer service - giving customers what they want, the way they want it, the first time
– disadvantageous to depend too heavily on powerful customers
• powerful customers make large purchases and have other suppliers
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Environmental Analysis
Environmental
Scanning
Scenario
Development
Benchmarking
Forecasting
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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 manager must attend as
well as their interconnectedness
• dynamism - the degree of discontinuous change that occurs within the
industry
– as uncertainty increases, techniques must be developed to collect, sort, and interpret
information about 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 competitive advantage
• unattractive environments - put firm at a competitive disadvantage
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Attractive
Attractive and Unattractive Environments
Environmental
Factor
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Unattractive
Attractive
Competitors
Many; low industry growth; Few; high industry growth
equal size; commodity
unequal size; differentiate
Threat of entry
High threat; few entry
barriers
Low threat; many barriers
Substitutes
Many
Few
Suppliers
Few; high bargaining power Many; low bargaining
power
Customers
Few; high bargaining power Many; low bargaining
power
Environmental Analysis (cont.)
• Scenario development
– scenarios - 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 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 a changed future environment
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Environmental Analysis (cont.)
• Benchmarking
– process of comparing the organization’s 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 own company’s
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 its structures and work processes
– in uncertain environment caused by complexity, companies tend to decentralize decision
making
• empowerment - process of sharing 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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Responding To The Environment (cont.)
• Adapting to the environment (cont.)
– Adapting at the boundaries
• buffering - creating supplies of excess resources in case of unpredictable
needs
– buffers created on both the input and output side of the business
• smoothing - leveling normal fluctuations at the boundaries of the
organization
– Adapting at the core
• flexible processes - permit adaptation of the technical core
– mass customization -use of a network of independent operating units that each performs a specific
process
» different modules join forces to deliver the product or service as specified by the customer
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Responding To The Environment (cont.)
• Influencing your environment
– proactive responses aimed at changing the environment
• Independent action - strategies that an organization acting on its own
uses to change some aspect of its current environment
• Cooperative action - strategies used by two or more organizations
working together to mange the external environment
– at an organizational level, establish strategic alliances, partnerships, joint ventures, and mergers with
competitors
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Responding To The Environment (cont.)
• Changing the environment you are in
– strategic maneuvering - conscious effort to change the boundaries of the competitive
environment
• prospectors - companies that continuously change the boundaries of
their task environments by:
– seeking new products and markets
– diversifying and merging
– acquiring new enterprises
• defenders - companies that stay within a stable, more- limited product
domain as a strategic maneuver
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