PRINCIPLES OF

MANAGEMENT-MGT-211
(SEC-04)

Chap 03
The Environment of Organizations and Managers
Spring 2016
The Business Environment

External Environment
General environment is everything outside an
organization’s boundaries—economic, legal,
political, socio-cultural, international, and
technical forces.
Task environment is composed of specific
groups and organizations that affect the firm.
Internal Environment
Conditions and forces present and at work
within an organization
The Organization and Its Environments

International Technological
dimension dimension

Competitors

Regulators Owners Customers

Employees
Physical environment
Board of directors
Culture
Political-
legal Economic
dimension Strategic dimension
Suppliers
partners

Sociocultural
Internal environment dimension
Task environment
External environment
General environment
The General Environment

 Economic dimension
- Overall health and vitality of the economic system in which the
organization operates
- General economic growth, inflation, interest rates and
unemployment
• Technological dimension
- Methods available for converting resources into products and
services
- The forms and availability of that technology come from the
general environment
- Technology is not associated only with manufacturing of
product but also with service sector 3–4
 The General Environment

• Sociocultural dimension
- Includes customs, mores, values and demographic
characteristics of the society
- Important because they determine the products, services and
standards of conduct that the society is likely to value
- Influence how workers in a society feel about their jobs and
organizations
- Appropriate standards of business conduct also vary across
culture

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scanned, or duplicated, in whole or in part, except for use as permitted
3–5
in a license distributed with a certain product or service or otherwise on
 The General Environment
• Political-legal dimension
- Government regulation of business and relationship between
business and government
- Three reason behind the importance of this dimension
1) Legal system partially defines what an organization can and
cannot do
2) Pro or anti-business sentiment in government influences
business activity.
3) Political stability has ramifications for planning

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scanned, or duplicated, in whole or in part, except for use as permitted
3–6
in a license distributed with a certain product or service or otherwise on
The General Environment
• International dimension
- Extent to which an organization is involved in or affected by
business in other countries
- Firms may face foreign competition at home
- Also applicable for not-profit organizations
- Virtually every organization is affected by the international
dimension of its general environment

3–7
McDonald’s General Environment

Technological
International Dimension Dimension
• Restaurants in 115 • Improved information
countries technology
• About two-thirds of • More efficient
sales from outside operating systems
the United
States

Political-Legal
Dimension McDonald’s Economic
• Government Dimension
food standards • Strong economic
• Local zoning growth
climate • Low unemploy-
• General posture ment
toward business • Low inflation
regulation
Sociocultural Dimension
• Demographic shifts in
number of single adults
Internal environment and dual-income families
• Growing concerns about
Task environment health and nutrition
External environment
General environment
The External Environment (cont’d)

 Dimensions of the Task Environment

 Specific groups affecting the organization
 Competitors seeking the same resources as the organization.
 Customers who acquire an organization’s products or
resources.
 Suppliers that provide resources for the organization.
 Regulators that control, legislate, or influence the
organization’s policies or practices:
 regulatory agencies.
 interest groups.
 Strategicpartners (allies) who are in a joint venture or
partnership with the organization.
 Task Environment
3–
10

 Competitors
- Are other organization that compete with for resources
- Competes for customers dollars
- Competes for different types of resource as for suppliers, bank
loans etc.
 Customers
- Who pays money to acquire an organization’s products or
services
- Customers can be individual or institutional
- Dealing customers has become more complex
- May face critical differences as they expand internationally
 Task Environment
3–
11

• Suppliers
- Provide resources for organization
- Examples are:

• May be vulnerable if the • Enable them to work together

supplier raises its price, goes better for their mutual benefit
out of business or is shut down • Make suppliers responsive to
by a labor union the customer’s need
• Can help maintain a competitive
relationship among suppliers,
keeping costs down
 Task Environment
3–
12

 Strategic Partners
- Two or more companies work together

 Regulators
- Potential to control, legislate or influence an organization’s
policies and practices
- Two kinds of regulations
a) Regulatory agencies
b) Interest groups
McDonald’s Task Environment

Competitors
• Burger King
• Wendy’s
• Subway
Regulators • Dairy Queen
• Food and Drug
Administration Customers
• Securities and • Individual
Exchange consumers
Commission • Institutional
• Environmental McDonald’s customers
Protection
Agency

Suppliers
Strategic Partners • Coca-Cola
• Wal-Mart • Wholesale food
• Disney processors
• Foreign partners • Packaging
manufacturers

Internal environment
Task environment
 The Internal Environment
3–14
 Conditions and stakeholder forces within
an organization
 Owners.

 Board of directors
 Employees

 Physical work environment

 Culture

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scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service
or otherwise on a password-protected website for classroom use.
The Internal Environment
 Conditions and stakeholder forces within an organization
 Owners are persons with legal property rights to a business.

 Board of directors are elected by the stockholders and are

charged with overseeing the general management of the firm to
ensure that it is run in a way that best serves the stockholders’
interest.
 Employees are persons who work for the firm and have a vested
interest in its continued operation and existence.
 Physical work environment is the actual physical environment of the
organization and the work that people do.
 The Organization’s Culture
3–
16

 Organization Culture
 Isthe set of internal values, beliefs, behaviors, customs,
and attitudes that determines the “feel” of the
organization.
 Isnot necessarily the same throughout the entire
organization.
 Must be managed so that its strength benefits the firm’s
overall effectiveness and long-term success.
 Can be dysfunctional if it becomes strongly resistant to
change.
 Porter’s Five Competitive Forces
3–
17

Threat of
substitute products

Power of Competitive Power of

suppliers rivalry customers

Threat of
new entrants

© 2013
 Porter’s Five Competitive Forces
3–
18

 Threat of new entrants

 Extent to and ease with which competitors can enter market.
 Competitive rivalry
 Competitive rivalry between firms in an industry.
 Threat of substitute products
 Extent to which alternative products/services may replace the need for
existing products/services.
 Power of buyers
 Extent to which buyers influence market rivals.
 Power of suppliers
 Extent to which suppliers influence market rivals.
©
 How Organizations Respond
3–
to Their Environments
19

 Information Management in Organizations

 Boundary spanners
 Environmental scanning

 Information systems

 Strategic Response
 Maintaining the status quo, altering the current strategy,
or adopting a new strategy.
 Mergers, Acquisitions, Alliances
 Firmscombine (merge), purchase (acquisition), or form
new venture partnerships or alliances.
©
3–
20

 Mergers: Occurs when two or more firms combine to form a new

firm.
 Acquisition: An acquisition is the purchase of one company by another in
which no new company is formed
 Strategic Alliance: An arrangement between two companies that have
decided to share resources to undertake a specific, mutually beneficial
project. A strategic alliance is less involved and less permanent than a joint
venture, in which two companies typically pool resources to create a
separate business entity. In a strategic alliance, each company maintains its
autonomy while gaining a new opportunity. A strategic alliance could help
a company develop a more effective process, expand into a new market or
develop an advantage over a competitor, among other possibilities.

© 2013
 Porter’s Five Competitive Forces

 Threat of new entrants

 Extent to and ease with which competitors can enter market.
 Competitive rivalry
 Competitive rivalry between firms in an industry.

 Threat of substitute products

 Extent to which alternative products/services may replace the need
for existing products/services.
 Power of buyers
 Extent to which buyers influence market rivals.
 Power of suppliers
 Extent to which suppliers influence market rivals.