Elements of an organization’s macroenvironment

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1. Describe the five elements of an organization’s macroenvironment.
2. Explain the five components of an organization’s competitive environment.
3. Understand how managers stay on top of changes in the external environment.
4. Summarize how managers respond to changes in the external environment.
5. Discuss how to use organizational cultures to overcome challenges in the external environment.

Open Systems

Open systems.

• Organizations that affect and are affected by their environments and other systems.

Inputs.

• Goods and services that organizations take in and use to create products or services.

Outputs.

• The products and services organizations create.

 

External Environment

External environment.

• All relevant forces outside a firm’s boundaries.

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The Macroenvironment

Macroenvironment.

• The general environment: includes governments, economic conditions, and other fundamental factors that generally affect all organizations.
• May be uncontrollable.

Exhibit 3.1 Environments

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Laws and Regulations Protect and Restrain Organizations

United States regulators include agencies such as:

• Equal Employment Opportunity Commission (eeoc.gov).
• Occupational Safety and Health Administration (osha.gov).
• Federal Trade Commission (ftc.gov).
• Food and Drug Administration (fda.gov).
• National Labor Relations Board (nlrb.gov).
• Department of Agriculture (usda.gov).
• Environmental Protection Agency (epa.gov).

The Competitive Environment

The immediate environment surrounding a firm; includes suppliers, customers, rivals, and the like.

Porter’s Five Forces

Each organization functions in a close, immediate competitive environment consisting of:

• The rivalry among existing competitors.
• The threat of new entrants.
• The threat of substitute and complementary products.
• The bargaining power of suppliers.
• The bargaining power of buyers.

Exhibit 3.2 Porter’s Five Forces

Access the text alternative for these images.                                          Source: Adapted from M.E. Porter, “The Five Competitive Forces That Shape Strategy,” Harvard Business Review. www.hbr.org (January 2008), pp. 78-93.

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Exhibit 3.3 Attractive and Unattractive Environments

Environmental Factor	Attractive	Unattractive
Competitors.	Few; high industry growth; unequal size differentiated.	Many; low industry growth; equal size; commodity.
Threat of entry.	Low threat; many barriers.	High threat; few entry barriers.
Substitutes.	Few.	Many.
Suppliers.	Many; low bargaining power.	Few; high bargaining power.
Customers.	Many; low bargaining power.	Few; high bargaining power.

Sources: Adapted from S. Ghoshal, “Building Effective Intelligence Systems for Competitive Advantage,” Sloan Management Review 28, no 1 (Fall 1986), pp. 49-58; and K.D.Cory, “Can Competitive Intelligence Lead to a Sustainable competitive Advantage?” Competitive Intelligence Review 7, no. 3 (Fall 1996), pp. 45-55.

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Keep Up with Changes in the Environment

Environmental uncertainty. • When management lacks information to understand or predict the future.

Complexity.

• The number of issues a manager must attend to and the degree to which they are interconnected.

Dynamism.

• The degree of discontinuous change that occurs within an industry.

Environmental Scanning Keeps You Aware

Environmental scanning           Competitive intelligence

Searching for and sorting through information about the environment.		Information that helps managers determine how best to manage in the competitive environment.
Benchmarking
The process of comparing an organization’s practices and technologies with those of other companies.

Scenario Development and Forecasting

Scenario.

• A narrative that describes a particular set of future conditions.
• Best-case, worst-case.

Forecasting.

• Method for predicting how variables will change the future.

Responding to the Environment

Effective response choices:

• Adapting to the environment.
• Influencing the environment.
• Selecting a new environment.

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Exhibit 3.4 Four Structural Approaches for Managing Uncertainty

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Adapting at the Boundaries

	Buffering. Creating supplies of excess resources in case of unpredictable needs.		Smoothing. Leveling normal fluctuations at the boundaries of the environment.
Independent strategies. Strategies that an organization acting on its own uses to change some aspect of its current environment.

Exhibit 3.5 Ways That Managers Can Influence Their Environment

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Cooperative strategies. • Strategies used by two or more organizations working together to manage the external environment.

Contracts. Cooptation. Coalition.

 

Strategic maneuvering.

• An organization’s conscious efforts to change the boundaries of its task environment.

Domain selection.

• Entrance to a new market or industry with an existing expertise.

Diversification.

• A firm’s investment in a different product, business, or geographic area.

Mergers.

• One or more companies combine with another.

Acquisitions.

• One firm buys another.

Divestiture.

• A firm sells one or more businesses.

Prospectors.

• Continuously change the boundaries of their task environment by seeking new products and markets, diversifying and merging, or acquiring new enterprises.

Defenders.

• Stay within a stable product domain as a strategic maneuver.

 

Three Criteria Help You Choose the Best Approach

1. Managers need to change what matters and can be changed.
2. Managers should use the most appropriate response.
3. Managers should choose responses that offer the most benefit at the lowest cost.

Culture and the Internal Environment of Organizations

Internal Environment.

• All relevant forces inside a firm’s boundaries.
• Managers, employees, resources, and organizational culture.

Businessman working in beanbag chair in office

What Is an Organizational Culture? (1 _{of 2)}

 

Organizational culture.

• The set of assumptions about the organization and its goals and practices that members of the company share.

 

Source: Adapted from E.H. Schein, “Coming to a New Awareness of Organizational Culture,” Sloan Management Review 25, no. 2 (Winter 1984), pp. 3-16.

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What Is an Organizational Culture? (2 _{of 2)}

A strong culture is one in which everyone understands and believes in the firm’s goals, priorities, and practices.

In a weak culture, different people hold different values, there is confusion about corporate goals, and it is not clear from one day to the next what principles should guide decisions.

Exhibit 3.7 Competing-Values Model of Culture

Source: Adapted from K.S. Cameron and R.E. Quinn, Diagnosing and Changing Organizational Culture, 3^rd edition, 2011, Jossey-Bass.

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Challenge

Develop a list of substitutes and complements for the following items.

Chapter Review (1 _{of 2)}

Five elements of an organization’s macroenvironment:

• Laws and regulations, the economy, technology, demographics, and social values.

Five components of an organization’s competitive environment:

• Impact of new competitors, power of customers, impact of substitute or complement products, power of suppliers, competition between existing rivals in the industry.

Chapter Review (2 _{of 2)}

Keeping up with the environment.

• Environmental scanning, scenarios, competitive intelligence, forecasting, benchmarking. Responding to the environment.
• Buffering, smoothing, flexible processes.

Organizational culture.

• Clan, adhocracy, hierarchy, market.

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