CHAPTER 3:
BUSINESS ENVIRONMENT
M.T.M.QUYEN
LEARNING OUTCOMES
1. Distinguish factors come from general environment vs
industry environment
2. Explain characteristics of organizational culture and its
determinants .
3. Explain factors such as strengths, weaknesses,
opportunities, and threats
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CONTENTS
3.1 Business environment: concepts and
classification
3.2 External factors: General environment and
Industry environment
3.3 Internal factors: Organizational culture
3.4 Business ethics and CSR
3.1 BUSINESS ENVIRONMENT:
CONCEPTS AND CLASSIFICATION
Managerial Constraints
Ø Manager’s decisions and actions are constrained.
Ø External constraints come from the organization’s
environment and internal constraints come from the
organization’s culture.
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What is the Organizational Environment
Organizational environment:
Ø The set of forces and conditions that operate
beyond an organization’s boundaries but affect a
manager’s ability to acquire and utilize resources
Ø Institutions or forces outside of the organization
that could potentially affect performance
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What is the Organizational Environment
Organizational environment:
Ø Forces and conditions change over time creating:
• Opportunities for managers to enhance
revenues, enter new markets, and strengthen the
firm’s competitive position.
• Threats to the firm from new competitors,
economic downturns, and diminished access to
critical resources.
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What is the Organizational Environment
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3.2 EXTERNAL FACTORS:
GENERAL ENVIRONMENT AND INDUSTRY ENVIRONMENT
The External Environment
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General Environment
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General Environment
v Economic: interest rates, inflation, changes in disposable
income, stock market fluctuations, ...
v Demographic: trends in population characteristics such as age,
race, gender, education level, geographic location, income, and
family composition.
v The political/legal: federal, state, and local laws as well as
global laws and laws of other countries. It also includes a
country’s political conditions and stability.
v The sociocultural: societal and cultural factors such as values,
attitudes, trends, traditions, lifestyles, beliefs, tastes, and patterns
of behavior.
v The technological: scientific or industrial innovations.
v The global: issues associated with globalization and a world
economy
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General Environment_Economic
Economic – Encompasses factors such as interest rates,
inflation, changes in disposable income, stock market
fluctuations...
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General Environment _ Demographic
Demographic – concerned with trends in population
characteristics such as age, race, gender, education level,
geographic location, income, and family composition.
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General Environment _ Political/Legal
Political/Legal– looks at federal, state, and local laws, as well
as global laws and laws of other countries. It also includes a
country’s political conditions and stability.
 Increases in laws and regulations
increase the costs of resources and
limit the uses of resources that
managers are responsible for acquiring
and using effectively and efficiently
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General Environment _ Sociocultural
Sociocultural – Concerned with societal
and cultural factors such as values,
attitudes, trends, traditions and lifestyles,
beliefs, tastes, and patterns of behavior.
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General Environment_ Technology
Technology– Concerned with scientific or industrial innovations
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General Environment_ Technology
Technology– Concerned with scientific or industrial innovations
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General Environment _ Global
Global– Encompasses issues associated with globalization and a
world economy
• Outcomes of changes in international relationships; changes in
nations’ economic, political, and legal systems; and changes in
technology, such as falling trade barriers, the growth of representative
democracies, and reliable and instantaneous communication
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General Environment _ KEY TAKEAWAYS
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General Environment _ YOUR TURN
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The Task (Industry) Environment
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Task Environment _ Supplier
Supplier– Individuals and organizations that provide an
organization with the input resources that it needs to produce
goods and services
Suppliers that are the sole source of a item are in a
strong bargaining position to raise their prices.
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Task Environment _ Distributors
Distributors–Organizations that help other organizations sell
their goods or services to customers
 Powerful distributors can limit access to markets
through its control of customers in those markets.
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Task Environment _ Customers
Customers – Individuals and groups that buy goods and services
that an organization produces
 Identifying an organization’s main customers and producing the
goods and services they want is crucial to organizational and
managerial success.
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Task Environment _ Competitors
Competitors – Organizations that produce goods and services
that are similar to a particular organization’s goods and
services.
Strong competitive rivalry
results in price competition,
and falling prices reduce
access to resources and
lower profits.
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Task Environment _ Pressure groups
Pressure groups – special-interest groups that attempt to
influence the action of organizations
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Task Environment _ Barriers to entry
Barriers to entry – Factors that make it difficult and costly for the
organization to enter a particular task environment or industry
Economies of scale
Cost advantages
associated with large
operations
Brand loyalty
Customers’
preference for the
products of
organizations
currently existing in
the task environment
Create Barriers to
entry
Deter potential
competitors
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Task Environment _ The Industry Life Cycle
The Industry Life Cycle – The changes that take place in an
industry as it goes through the stages of birth, growth,
shakeout, maturity, and decline.
• Birth: industry competitors seek to develop the winning
technology
• Growth: industry products gain acceptance and rapid
growth in product demand attracts new competitors
• Shakeout: industry growth slows, weak firms exit the
industry, and rivalry increases
• Maturity: the market stabilizes as demand levels off, the
industry is now dominated by a few large competitors
• Decline: demand for industry products declines,
competition increases, failing competitors either exit the
market or are acquired by rival firms
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Task Environment _ The Industry Life Cycle
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The Environment and Environmental Uncertainty
vEnvironments differ on degree of environmental
uncertainty
vEnvironmental uncertainty has two dimensions
• Degree of change
• Degree of complexity
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The Environment and Environmental Uncertainty
Figure: Environmental uncertainty
matrix
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How to manage Environmental Change?
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Organizational Environmental Change
TIME FOR DISCUSSION
How to manage the Organizational Environment?
3.3 INTERNAL FACTORS: ORGANIZATIONAL CULTURE
Just as each individual has a unique personality, an organization,
too, has a personality.
Internal Environment
• Organizational culture
• Ethics and Corporate Social Responsibility
• Human resource capabilities
• R&D
• Financial capabilities
•…
 Determinate Organizational Strengths and Weaknesses
Organizational Culture
Organizational culture – The pattern of shared values, beliefs and
assumptions considered to be the appropriate way to think and act
within an organization.
• Culture is shared
• Culture helps members solve problems
• Culture is taught to newcomers
• Culture strongly influences behavior
Organizational Culture
Organizational Culture
TIME FOR DISCUSSION
1. Give some examples that you think they are the reflection of
organizational culture?
2. When is organizational culture functional? Dysfunctional?
3. Is it possible to change organizational culture? If yes, how to
change?
Organizational Culture
• Research shows there are six dimensions that appear to
capture an organization’s culture:
1. Adaptability
2. Attention to detail
3. Outcome orientation
4. People orientation
5. Team orientation
6. Integrity
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Organizational Culture
• Strong cultures: organizational cultures in which the
key values are intensely held and widely shared
Strong Cultures
Weak Cultures
Values widely shared
Values limited to a few people –
usually top management
Culture conveys consistent
messages about what’s important
Culture sends contradictory
messages about what’s important
Most employees can tell stories about Employees have little knowledge of
company history or heroes
company history or heroes
Employees strongly identify with
culture
Employees have little identification
with culture
Strong connection between shared
values and behaviors
Little connection between shared
values and behaviors
Organizational Culture
Culture’s Functions
• Social glue that helps hold an organization together
Provides appropriate standards for what employees should say or do
• Boundary-defining
• Conveys a sense of identity for organization members
• Facilitates commitment to something larger than one’s
individual self-interest
• Enhances social system stability
• Serves as a “sense-making” and control mechanism
Guides and shapes the attitudes and behavior of employees
Organizational Culture
Culture’s Dysfunction
• Culture as a Barrier to Change
When organization is undergoing change, culture may impede change
• Culture as a Barrier to Diversity
Strong cultures put considerable pressure on employees to conform
• Culture as a Barrier to Mergers and Acquisitions
Merging the cultures of two organizations can be difficult, if not impossible
Organizational Culture
Where Culture Comes From and How it Continues?
• The original source of the culture usually reflects the vision of
the founders.
• Once the culture is in place, certain organizational practices
help maintain it.
• The actions of top managers also have a major impact on the
organization’s culture.
Organizational Culture
Where Culture Comes From and How it Continues?
• Selection: Identify and hire individuals who will fit in with the culture
• Top Management: Senior executives establish and communicate the norms of
the organization
• Socialization: Organizations need to teach the culture to new employees
How Employees learn culture?
• Stories — organizational stories abut significant events in the life of the
company help keep culture alive.
• Rituals — repetitive sequences of activities that express and reinforce
important organizational values and goals.
• Material Artifacts and Symbols — convey to employees what is
important and the kinds of expected behaviors, ex. Risk-taking, etc.
• Language — many organizations or units of an organization use
language to identify and unite members of a culture. New employees
are frequently overwhelmed with acronyms and jargon that quickly
becomes a part of their language.
3.4. BUISNESS ETHIC AND CSR
MORE DETAILED IN CSR COURSE