Chapter 3
Environmental
Forces
MGT 301
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
General Environment—sometimes called the
macroenvironment, includes the external
factors that usually affect all or
most organizations
Forces Impacting Organizations
(adapted from Figure 3.1)
Macroenvironment
Technology
Demographics
Politics
Competitors
Country
Cultural
Values
Organization
Economy
The Economy

Economics is the
discipline that focuses
on understanding how
people or people or
nations produce,
distribute, and
consume various
goods and services.
Trends in the New Versus the Old
Economy
(adapted from Table 3.1)
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
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.
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
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
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
 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
Why is Culture Important to Managers?
(cont’d)
How values can effect a manager?
Perceives
situations and
problems
Goes about
solving problems
Views other
people and
groups
Determines
what is
and is not
ethical behavior
Leads
and controls
employees
Why is Culture Important to Management:
Overview of Cultural Factors
Power
Distance
Long-Term
Orientation
Uncertainty
Avoidance
Gender Role
Orientation
Culture
Individualism
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
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
Importance of Cultural Orientation
100
90
80
70
Japan
60
USA
50
Canada
40
France
30
20
10
0
Power Distance
Uncertainty
Avoidance
Individualism
Gender Role
Orientation
Cultural Value Dimension
Short-term/
Long-term
Orientation
Competitive Forces in the Task
Environment
(adapted from Figure 3.3)
Supplier
bargaining
power
Threat of
substitute goods
or services
Threat
of new
competitors
Rivalry among
existing firms in
industry
Customer
bargaining
power
Competitors
“For virtually all organizations,
the critical environment constraint is their actions
in relation to competitors. Therefore, any change in
the 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 maintain
relative position.”
Bruce D. Henderson, founder and chairman of the
Boston Consulting Group
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
 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
 Books
 Purchase
 Cell phone
versus movie theatres
versus TV
versus newspapers
versus rental
versus hard lines
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
 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
Political-Legal Forces: Managerial
Political Strategies
Political Strategies
Political-Legal Forces
 Negotiation
 Lobbying
 Alliance
 Representation
 Socialization
 Political action
committees (PACs)
 Laws
 Government
 Labor unions
 Others
Technology Forces: Technology
Impacts on Organizations
Technology
Workplace
Strategy
Manufacturing
Distribution
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
Technology's Impact in the
Workplace
 Workers need greater problemsolving skills
 Outsourcing routine tasks
 Virtual organizations
 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
Mass
Customization
Reduction in
Manufacturing time
Outsourcing of routine jobs
Internet
access for
shopping
Telecommunication
devices
Information superhighway
for global competition