The Organization, Its Primary Stakeholders
& the Broad Environment
The Broad Environment
Technological Influences
Socio-cultural Influences
The Operating Environment
Activist
Groups
Suppliers
Unions
Competitors
The Organization
Owners/Board of Directors
Managers
Employees
Financial
Intermediaries
Economic Influences
Local
Communities
Customers
The Media
Government Agencies
and Administrators
Political/Legal Influences
External Environment
Stakeholders and forces
outside the traditional
boundaries of the firm; they
can be divided into the board
and operating environments
Major Socio-cultural Issues in the U.S.
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Role of Government in Health Care and Child
Care
Declining Quality of Education
Legality of Abortion and Stem-Cell Research
Terrorism and Levels of Crime in General
Security of Travel and Public Places
Importance and Role of the Military
Levels of Foreign Investment/Ownership in the
U.S.
Social Costs of Restructuring, Especially Layoffs
Major Socio-cultural Issues in the U.S.
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Pollution and Disposal of Toxic and Non-Toxic
Wastes
General Increase in Environmental Awareness
Drug Addiction and Drug Traffic
Continued Migration Toward the Sun Belt States
Graying of America
AIDS and Other Health Problems
Major Global Issues
Immigration Restrictions and Programs
Why Monitor Society?
 Change
 Avoid
= opportunities
being called a “bad corporate
citizen”
 A good
reputation can lead to increased
demand or business opportunities
 Accurate
assessment can sometimes help
firms avoid restrictive legislation
Global Economic Forces to
Monitor and Predict

Economic Growth
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
Interest Rates
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Influences consumer demand, cost of factors of
production, availability of factors of production
(especially labor and scarce resources)
Influences cost of capital for new projects, cost of
refinancing existing debt, consumer demand (due to
customer ability to finance purchases)
Inflation

Influences interest rates, cost of factors of production,
optimism or pessimism of stakeholders
Global Economic Forces to
Monitor and Predict
 Exchange

Influences ability to profitably remove
profits from foreign ventures,
government policies towards business
 Trade

Rates
Deficits
Influences government policies,
incentives, trade barriers
Political/legal Forces
 New
Laws
 New Regulations
 Current Administrative Policies
 Government Stability
 Wars
 International Pacts and Treaties
Government Influences on
Organizations in the U.S.
Federal, State and Local Regulators
(enforce regulations)
Federal, State and
Federal, State and Local
Local Revenue
The
Law Makers
Collectors
Organization
(create laws,
regulations, taxes,
agencies, incentives)
(collect taxes and fees,
grant licenses)
Federal, State and Local Courts
(enforce laws and regulations, impose fines and
penalties, settle disputes, restructure, protect
Technological Forces
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Technology is knowledge about products and services and
the way they are made and delivered
Organizations should monitor
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New Production Processes
New Products/Product Ideas
Current Process Research Efforts
Current Product Research Efforts
Scientific Discoveries that May Have an Impact
Characteristics of innovation
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New innovations often emerge from existing technologies
A dominant design will eventually be widely adopted
Radical innovations often come from outside the industry
From Analysis of the Broad
Environment to Development of
Alternative Strategies
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For each key influence found during analysis of
the broad environment, determine whether it is:
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An opportunity
A threat
Neutral
Then determine which strategies the firm might
pursue in response to each influence, if action
should be taken at all
 This is one way to generate ideas regarding
future strategies the firm might pursue
The Organization and Its
Operating Environment
The Operating Environment
Activist
Groups
Suppliers
Unions
Competitors
The Organization
Local
Communities
Customers
The Media
Financial
Government Agencies
Intermediaries
and Administrators
Five Forces of Industry Competition
Potential Entrants
Threat of
new entrants
Bargaining power
of suppliers
Industry
Competitors
Bargaining power
of customers
Customers
Suppliers
Rivalry Among
Existing Firms
Threat of
substitute products
or services
Substitutes
Source: Adapted with the permission
of the Free Press, an imprint of Simon &
Schuster Adult Publishing Group (see
text for complete reference)
Economic Power of Customers
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Customers are more powerful if:
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They are few in number
They make high-volume purchases
They are buying undifferentiated products
They are highly motivated to get good deals (i.e.,
earn low profits or buy a lot from the industry)
They can easily vertically integrate backward and
become their own suppliers
They are not very concerned about quality
They have an information advantage over the
suppliers
They are well organized
Economic Power of Suppliers
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Suppliers are more powerful if:
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They are few in number
They sell products/services that are not easily
substituted
They do not sell a large percentage of their
products/services to the buying industry
They have a dependent customer
They sell products/services that are differentiated
They can easily vertically integrate forward and
become their own customers
They have an information advantage relative to their
buyers
They are well organized
Industry Competition
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A high level of competition is expected when:
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There are many competitors and none of them is dominant
Slow industry growth
Hard to differentiate products
High fixed costs exist
High exit barriers exist (what is lost if you leave the industry)
Terms to describe industry competition:
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A monopoly is a situation in which one firm is the only significant
provider of a good or service
An oligopoly exists when an industry contains a few very large
firms (very common in established industries)
Hyper-competition is a condition of rapidly escalating competition
Entry Barriers
 Some
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common entry barriers include:
Economies of scale
High capital requirements
High levels of product/service differentiation
Limited access to distribution channels
Inimitable resources
Government policies or regulations that
discourage new entry
Substitute Products
 Substitutes
are products or services
provided by another industry that can be
readily substituted for an industry’s own
products or services
 Substitutes place a ceiling on the price
that can be charged
 They can also set new performance
standards
Typical Roles of Various
Stakeholders
Ownership
Managers w/stock
Other companies
Directors w/stock
that own stock
Stockholders
S
T
Econo-
A
mic
K
E
Dependence
Social
Managers/directors
Employees
Competitors
Venture partners
Customers
For. govern.
Creditors
Competitors
Local communities
Regulators
Financial
Activists
Unpaid trustees
community
The media
Formal
Economic
Political
INFLUENCE ON BEHAVIOR (POWER)
Managing the Operating
Environment

Economic Actions
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Erect new entry barriers
Competitive tactics such as advertising, new-product launches,
cost-reduction efforts, new distribution methods or quality
improvements (to name a few)
Competitive benchmarking
Political Strategies include all firm activities that have as
one of their objectives the creation of a friendlier political
climate
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Direct contact with legislators and government leaders
Political contributions
Lobbying
Creation of collective institutions such as trade associations
Common Forms of Interorganizational Relationships

Joint Venture
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Network
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An entity that is created when two or more firms pool a portion of
their resources to create a separate jointly owned entity
A hub and wheel configuration with a local firm at the hub
organizing the interdependencies of a complex array of firms
Consortia

Specialized joint ventures encompassing many different
arrangements. Consortia are often a group of firms oriented
towards problem solving and technology development, such as
R&D consortia
Source: Adapted from B.B. Barringer and J.S. Harrison, “Walking a Tightrope: Creating Value Through
Interorganizational Relationships,” Journal of Management 26 (2000), p. 383, used with permission.
Common Forms of Interorganizational Relationships
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Alliance
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Trade Association
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An arrangement between two or more firms that establishes an
exchange relationship but has no joint ownership involved
Organizations (typically nonprofit) that are formed by firms in the
same industry to collect and disseminate trade information, offer
legal and technical advice, furnish industry-related training, and
provide a platform for collective lobbying
Interlocking Directorate

Occurs when a director or executive of one firm sits on the board
of a second firm or when two firms have directors who also serve
on the board of a third firm. Interlocking directorates serve as a
mechanism for inter-firm information sharing and cooperation