CHAPTER 3
Managing Business
Environment
Learning Outcomes
ü Contrast the actions of managers according to
the omnipotent and symbolic views.
ü Describe the external environment.
ü Describe the internal environment.
3.1. The Managers’ View
ü Omnipotent View of Management - the view
that managers are directly responsible for an
organization’s success or failure.
ü Symbolic view of Management - the view that
much of an organization’s success or failure is
due to external forces outside managers’
control.
What happens…
Exhibit 3-2 Components of External Environment
3.2. External Environment
A. The General Environment/Macro-Environment
vIs the broad environmental context in which a firm’s
industry is situated.
vIncludes strategically relevant components over which
the firm has no direct control.
ü General economic conditions
ü Immediate industry and competitive environment
3.2. External Environment
A. The General/Macro-Environment
3.2.1. Political-Legal
ü Government type and stability
ü Freedom of the press, rule of law and levels of
bureaucracy and corruption
ü Regulation and de-regulation trends
ü Social and employment legislation
ü Tax policy, and trade and tariff controls
ü Environmental & consumer-protection legislation
ü Likely changes in the political environment
3.2. External Environment
A. The General Environment
3.2.2. Economic
ü Stage of a business cycle
ü Current and projected economic growth, inflation and
interest rates
ü Unemployment and supply of labor, labor costs
ü Levels of disposable income and income distribution
ü Impact of globalization
ü Likely impact of technological or other changes on the
economy
ü Likely changes in the economic environment
3.2. External Environment
A. The General Environment
3.2.3. Sociocutural
ü Cultural aspects, health consciousness, population growth
rate, age distribution.
ü Organizational culture, attitudes to work, management
style, staff attitudes.
ü Education, occupations, earning capacity, living standards.
ü Ethical
issues,
diversity,
immigration/emigration,
ethnic/religious factors.
ü Media views, law changes affecting social factors, trends,
advertisements, publicity.
ü Demographics: age, gender, race, family size.
3.2. External Environment
A. The General Environment
3.2.4. Technological
ü Maturity
of
technology,
competing
technological
developments, research funding, technology legislation.
ü Information technology, internet, global and local
communications.
ü Technology access, licensing, patents, potential innovation,
replacement technology/solutions, inventions, research,
intellectual property issues, advances in manufacturing.
ü Transportation,
energy
uses/sources/fuels,
associated/dependent technologies, rates of obsolescence,
waste removal/recycling.
3.2. External Environment
A. The General Environment
3.2.5. Demographic
ü Population growth rate
ü Age distribution.
ü Gender
ü Race
ü Family size.
3.2. External Environment
A. The General Environment
3.2.6. Global
ü Economic recession/integration
ü War, terrorism
ü Tensions between countries
ü Emerging Economies
ü MNC expansions
ü Global advancements in technologies and
telecommunications
ü Global Marketing & Distribution Channels
ü International Strategic Alliances
PESTEL Analysis
Key aspects of PESTLE Analysis
ü Don’t just list environmental factors; derive
implications for the industry
ü Focus on the key drivers of change
ü Focus is on future impact of environmental factors
ü Consider the combined effect of environmental factors
ü Environmental factors would be different from country
to country
PESTLE and SWOT
v The PESTEL Analysis essentially provides the basis for
identifying many of the Opportunities and Threats for
the SWOT Analysis.
v Whereas, Strengths and Weaknesses are considered
INTERNAL to the organisation, Opportunities and
Threats are EXTERNAL.
3.2. External Environment
B. The Industry/Task Environment
ü To identify the main structural features of an industry
that influence competition and – therefore – profitability
=> understand how an industry structure drives the level
of competiton within the industry, which determines the
level of its profitability
Exhibit 3-4 Industry
environment
Michael Porter’s
five forces (1980)
Using the Five-Forces model Analysis
Common Weapons for Competing with Rivals
3.2. External Environment
The External Environment Analysis (Macro-environment
+ Industry analysis) provides the basis for identifying
many of the Opportunities and Threats for the SWOT
Analysis.
3.3 Internal Environment
Strategic Capability
The Resource-Based View of Strategy (RBV)
ü “...The resource-based view emphasizes the
internal capabilities of the organisation in
formulating strategy to achieve a sustainable
competitive advantage.” A Henry, pp. 126
ü Strategic capability is based on the resources
available to the organisation and the competencies
it develops in order to make use of the resources
(Chief Advocates: Hamel & Prahalad(1990);
Rumelt(1991); Barney(1991); Grant(1991)).
Definition of Resources and Capability
v Resource
ü Is a productive input or competitive asset that is
owned or controlled by a company (e.g., a fleet of
oil tankers).
v Capability
ü Is the capacity of a firm to perform some activity
proficiently (e.g., superior skills in marketing). It is a
“firm’s capacity to deploy resources for a desired
end result”.
Resources
40
Source: Based on the discussion in Michael E. Porter, Competitive Advantage (New York: Free Press, 1985), pp. 37–43.
Source: Based on the discussion in Michael E. Porter, Competitive Advantage (New York: Free Press, 1985), pp. 37–43.
44
45
The
Competency
framework
Resources
v THRESHOLD RESOURCES – “needed to play”
Those resources that an organisation needs to have in order
to meet the minimum requirements of its customers
ü For example, an airline needs more than a fleet of planes, it
will also need all the supporting structure, including landing
and fly-over rights
v DISTINCTIVE RESOURCES – “needed to win”
“...those resources that criPcally underpin competitive
advantage and that others cannot easily imitate or obtain.”
ü For example, a strong brand name or reputation
47
Competencies
v THRESHOLD COMPETENCIES – “needed to play”
Those minimum competences an organisation requires in
order to ensure that resources are deployed efficiently
enough to meet minimum customer requirements
ü For example, an airline will need to ensure its operations
conform to minimum safety standards
v DISTINCTIVE (CORE) COMPETENCIES - “needed to win”
“...the linked set of skills, activities and resources that,
together, deliver customer value, differentiate a business
from its competitors and, potentially, can be extended or
developed .”
ü For example, a high level of marketing expertise
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3.3 Internal Environment
ü Organizational culture
ü A system of shared meanings and common beliefs held
by organizational members that determines, in a large
degree, how they act towards each other.
ü “The way we do things around here.”: Values, symbols, rituals,
myths, and practices
ü Implications:
v Culture is a perception.
v Culture is shared.
v Culture is descriptive.
Exhibit 3-5 Organizational Culture
How Culture Affects Managers
Cultural Constraints on Managers
Ø Whatever managerial actions the organization
recognizes as proper or improper on its behalf
Ø Whatever organizational activities the organization
values and encourages
Ø The overall strength or weakness of the
organizational culture
Exhibit 3–6 Managerial Decisions Affected by Culture
• Planning
• The degree of risk that plans should contain
• Whether plans should be developed by individuals or teams
• The degree of environmental scanning in which
management will engage
• Organizing
• How much autonomy should be designed into employees’
jobs
• Whether tasks should be done by individuals or in teams
• The degree to which department managers interact with
each other
Exhibit 3–6 Managerial Decisions Affected by Culture
• Leading
• The degree to which managers are concerned with increasing
employee job satisfaction
• What leadership styles are appropriate
• Whether all disagreements—even constructive ones—should
be eliminated
• Controlling
• Whether to impose external controls or to allow employees to
control their own actions
• What criteria should be emphasized in employee
performance evaluations
• What repercussions will occur from exceeding one’s budget
Organization Culture Issues
v Creating an Ethical Culture
ü High in risk tolerance
ü Low to moderate
aggressiveness
ü Focus on means as well
as outcomes
v Creating an Innovative Culture
ü Challenge and involvement
ü Freedom
ü Trust and openness
ü Idea time
ü Playfulness/humor
ü Conflict resolution
ü Debates
ü Risk-taking
Exhibit 3–7 Creating a More Ethical Culture
• Be a visible role model.
• Communicate ethical expectations.
• Provide ethics training.
• Visibly reward ethical acts and punish unethical
ones.
• Provide protective mechanisms so employees
can discuss ethical dilemmas and report
unethical behavior without fear.
Organization Culture Issues
v Creating a Customer-Responsive Culture
ü Hiring the right type of employees (those with a strong
ü
ü
ü
ü
ü
interest in serving customers)
Having few rigid rules, procedures, and regulations
Using widespread empowerment of employees
Having good listening skills in relating to customers’
messages
Providing role clarity to employees to reduce
ambiguity and conflict and increase job satisfaction
Having conscientious, caring employees willing to take
initiative
Exhibit 3–8 Creating a Customer-Responsive Culture