Ch 2 Outline
The External Environment and
Organizational Culture
1. The Macroenvironment
2. The Competitive Environment
3. Environmental Analysis
4. Responding to the Environment
5. Culture
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Introduction and Review
• Organizations are open systems
• Organizations affect and are affected by
the external environment
• The external environment has two
components
– Macro-Environment
– Competitive Environment
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The Macroenvironment
• The most general elements in the external
environment that potentially can
influence strategic decisions
• Top executives must consider external
factors before taking any action
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Components of the
Macroenvironment
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Laws and Politics
Economy
Technology
Demographics
Social Values/Issues
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Components of the Competitive
Environment
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Suppliers
Competitors
Potential New Entrants
Substitutes
Customers
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The Competitive Environment
• A smaller environment
that includes the specific
organizations with which
the organization interacts
• Includes:
– Threat of new entrants
– Threat of substitutes
– Rivalry among current
competitors
– Power of customers
– Power of suppliers
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Competitor Analysis
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Who are the current competitors?
What resources do they control?
What are their strengths and weaknesses?
How will they respond to your actions?
How can you respond to their actions?
Who else might be able to observe and exploit the
opportunity you’ve identified?
• Are there ways to co-opt competitors by forming
alliances?
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Customer Service
“Your most unhappy customers are
your greatest source of learning.”
- Bill Gates
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Environmental Analysis
• Managers must understand how the
environment affects their organization
• It is difficult to predict how certain
events will affect both the environment
and the organization which creates
uncertainty
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Environmental Scanning
• Searching and sorting through information
about the environment
• Commonly asked questions (Porter’s Model)
– Who are our current competitors
– Are there few or many entry barriers to our industry?
– What substitutes exist for our product or service?
– Is the company too dependent on powerful suppliers?
– Is the company too dependent on powerful customers?
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Environmental Scanning
• Using environmental scanning helps managers
develop competitive intelligence (information
that helps managers determine how to compete
better)
• Other tools for environmental scanning
– Scenario development
– Forecasting
– Benchmarking
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Responding to the Environment
• Managers must respond effectively to
their environment
• Response options can be grouped into
three categories
– Adapting to the environment
– Influencing the environment
– Select a new environment
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Adapting to the Environment
• Coping with
environmental
complexity
– Organizations tend to
adapt by decentralizing
decision making
– Create buffers or
utilize smoothing
techniques
• Coping with
dynamism in the
environment
– Organizations tend
to establish more
flexible structures
– Create flexible
work processes
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Selecting a new environment
• This is referred to as strategic maneuvering
– An organization’s conscious efforts to change he
boundaries of its task environment
• There are several strategic maneuvers to
choose from
– Domain selection – entrance by a company into
another suitable market or industry
– Other options include diversification,
merger/acquisition, and divestiture
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Choosing a Response Approach
• Organizations should attempt to change appropriate
elements of the environment
• Organizations should choose responses that focus on
pertinent elements of the environment
• Companies should choose responses that offer the
most benefit at the lowest cost
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Culture and the Internal
Environment of Organizations
• Organizational culture is the set of important
assumptions about the organization and its
goals and practices that members of the
company chare
• Maybe difficult to define easily; but it can often
be sensed almost immediately
• Cultures can be weak or strong (strong cultures
can have a great influence on how people think
and behave
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Diagnosing Culture
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Clues to Culture
– Mission statements and official
goals
– Symbols, Rites, and
Ceremonies
– The stories people tell
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Types of cultures
– Group – internally oriented and
flexible; tends to be based n values
and norms
– Hierarchical Culture – internally
oriented by more focus on control
and stability
– Rational culture – externally
oriented and focused on control
through productivity, planning, and
efficiency
– Adhocracy – externally oriented
and flexible; emphasizes change in
which growth, resource acquisition
and innovation are stressed
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