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Ch 2 OutlineThe External Environment and

Organizational Culture1. 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

• Laws and Politics

• Economy

• Technology

• Demographics

• Social Values/Issues

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Components of the Competitive Environment

• 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

• 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

• Clues to Culture– Mission statements and official

goals– Symbols, Rites, and

Ceremonies– The stories people tell

• 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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