CHAPTER 3

Managing Business
Environment
Learning Outcomes
ü Contrast the actions of managers according to
the omnipotent and symbolic views.
ü Describe the external environment.
ü Describe the internal environment.
ü Discuss current issues in organizational
culture.
3.1. The Managers’ View
ü Omnipotent View of Management - the view
that managers are directly responsible for an
organization’s success or failure.

ü Symbolic view of Management - the view that

much of an organization’s success or failure is
due to external forces outside managers’
control.
What happens…
Exhibit 3-2 Components of External Environment
3.2. External Environment
A. The General Environment/Macro-Environment
vIs the broad environmental context in which a firm’s
industry is situated.
vIncludes strategically relevant components over which
the firm has no direct control.
ü General economic conditions
ü Immediate industry and competitive environment
3.2. External Environment
A. The General/Macro-Environment
3.2.1. Political-Legal
ü Government type and stability
ü Freedom of the press, rule of law and levels of
bureaucracy and corruption
ü Regulation and de-regulation trends
ü Social and employment legislation
ü Tax policy, and trade and tariff controls
ü Environmental & consumer-protection legislation
ü Likely changes in the political environment
3.2. External Environment
A. The General Environment
3.2.2. Economic
ü Stage of a business cycle
ü Current and projected economic growth, inflation and
interest rates
ü Unemployment and supply of labor, labor costs
ü Levels of disposable income and income distribution
ü Impact of globalization
ü Likely impact of technological or other changes on the
economy
ü Likely changes in the economic environment
3.2. External Environment
A. The General Environment
3.2.3. Sociocutural
ü Cultural aspects, health consciousness, population growth
rate, age distribution.
ü Organizational culture, attitudes to work, management
style, staff attitudes.
ü Education, occupations, earning capacity, living standards.
ü Ethical issues, diversity, immigration/emigration,
ethnic/religious factors.
ü Media views, law changes affecting social factors, trends,
advertisements, publicity.
ü Demographics: age, gender, race, family size.
3.2. External Environment
A. The General Environment
3.2.4. Technological
ü Maturity of technology, competing technological
developments, research funding, technology legislation.
ü Information technology, internet, global and local
communications.
ü Technology access, licensing, patents, potential innovation,
replacement technology/solutions, inventions, research,
intellectual property issues, advances in manufacturing.
ü Transportation, energy uses/sources/fuels,
associated/dependent technologies, rates of obsolescence,
waste removal/recycling.
3.2. External Environment
A. The General Environment
3.2.5. Demographic
ü Population growth rate
ü Age distribution.
ü Gender
ü Race
ü Family size.
3.2. External Environment
A. The General Environment
3.2.6. Global
ü Economic recession/integration
ü War, terrorism
ü Tensions between countries
ü Emerging Economies
ü MNC expansions
ü Global advancements in technologies and
telecommunications
ü Global Marketing & Distribution Channels
ü International Strategic Alliances
PESTEL Analysis
Key aspects of PESTLE Analysis

ü Don’t just list environmental factors; derive

implications for the industry

ü Focus on the key drivers of change
ü Focus is on future impact of environmental factors

ü Consider the combined effect of environmental factors

ü Environmental factors would be different from country

to country
PESTLE and SWOT

v The PESTEL Analysis essentially provides the basis for

identifying many of the Opportunities and Threats for

the SWOT Analysis.

v Whereas, Strengths and Weaknesses are considered

INTERNAL to the organisation, Opportunities and

Threats are EXTERNAL.
3.2. External Environment
B. The Industry/Task Environment
ü To identify the main structural features of an industry
that influence competition and – therefore – profitability
=> understand how an industry structure drives the level
of competiton within the industry, which determines the
level of its profitability
Exhibit 3-4 Industry
environment

Michael Porter’s
five forces (1980)
Using the Five-Forces model Analysis
Common Weapons for Competing with Rivals
3.2. External Environment
The External Environment Analysis (Macro-environment
+ Industry analysis) provides the basis for identifying
many of the Opportunities and Threats for the SWOT
Analysis.
3.3 Internal Environment
Strategic Capability
The Resource-Based View of Strategy (RBV)
ü “...The resource-based view emphasizes the
internal capabilities of the organisation in
formulating strategy to achieve a sustainable
competitive advantage.” A Henry, pp. 126
ü Strategic capability is based on the resources
available to the organisation and the competencies
it develops in order to make use of the resources
(Chief Advocates: Hamel & Prahalad(1990);
Rumelt(1991); Barney(1991); Grant(1991)).
Definition of Resources and Capability
v Resource
ü Is a productive input or competitive asset that is
owned or controlled by a company (e.g., a fleet of
oil tankers).
v Capability
ü Is the capacity of a firm to perform some activity
proficiently (e.g., superior skills in marketing). It is a
“firm’s capacity to deploy resources for a desired
end result”.
Resources
40
Source: Based on the discussion in Michael E. Porter, Competitive Advantage (New York: Free Press, 1985), pp. 37–43.
Source: Based on the discussion in Michael E. Porter, Competitive Advantage (New York: Free Press, 1985), pp. 37–43.
44
45
The
Competency
framework
Resources
v THRESHOLD RESOURCES – “needed to play”
Those resources that an organisation needs to have in order
to meet the minimum requirements of its customers
ü For example, an airline needs more than a fleet of planes, it
will also need all the supporting structure, including landing
and fly-over rights
v DISTINCTIVE RESOURCES – “needed to win”
“...those resources that criPcally underpin competitive
advantage and that others cannot easily imitate or obtain.”
ü For example, a strong brand name or reputation

47
Competencies
v THRESHOLD COMPETENCIES – “needed to play”
Those minimum competences an organisation requires in
order to ensure that resources are deployed efficiently
enough to meet minimum customer requirements
ü For example, an airline will need to ensure its operations
conform to minimum safety standards
v DISTINCTIVE (CORE) COMPETENCIES - “needed to win”
“...the linked set of skills, activities and resources that,
together, deliver customer value, differentiate a business
from its competitors and, potentially, can be extended or
developed .”
ü For example, a high level of marketing expertise 48
3.3 Internal Environment
ü Organizational culture
ü A system of shared meanings and common beliefs held
by organizational members that determines, in a large
degree, how they act towards each other.
ü “The way we do things around here.”: Values, symbols, rituals,
myths, and practices

ü Implications:
v Culture is a perception.
v Culture is shared.
v Culture is descriptive.
Exhibit 3-5 Organizational Culture
How Culture Affects Managers

Cultural Constraints on Managers

Ø Whatever managerial actions the organization
recognizes as proper or improper on its behalf
Ø Whatever organizational activities the organization
values and encourages
Ø The overall strength or weakness of the
organizational culture
 Exhibit 3–6 Managerial Decisions Affected by Culture
• Planning
• The degree of risk that plans should contain
• Whether plans should be developed by individuals or teams
• The degree of environmental scanning in which
management will engage
• Organizing
• How much autonomy should be designed into employees’
jobs
• Whether tasks should be done by individuals or in teams
• The degree to which department managers interact with
each other
 Exhibit 3–6 Managerial Decisions Affected by Culture
• Leading
• The degree to which managers are concerned with increasing
employee job satisfaction
• What leadership styles are appropriate
• Whether all disagreements—even constructive ones—should
be eliminated
• Controlling
• Whether to impose external controls or to allow employees to
control their own actions
• What criteria should be emphasized in employee
performance evaluations
• What repercussions will occur from exceeding one’s budget
Organization Culture Issues
v Creating an Ethical Culture v Creating an Innovative Culture
ü High in risk tolerance
ü Low to moderate
aggressiveness
ü Focus on means as well
as outcomes
ü Challenge and involvement
ü Freedom
ü Trust and openness
ü Idea time
ü Playfulness/humor
ü Conflict resolution
ü Debates
ü Risk-taking
 Exhibit 3–7 Creating a More Ethical Culture

• Be a visible role model.

• Communicate ethical expectations.
• Provide ethics training.
• Visibly reward ethical acts and punish unethical
ones.
• Provide protective mechanisms so employees
can discuss ethical dilemmas and report
unethical behavior without fear.
Organization Culture Issues
v Creating a Customer-Responsive Culture
ü Hiring the right type of employees (those with a strong
interest in serving customers)
ü Having few rigid rules, procedures, and regulations
ü Using widespread empowerment of employees
ü Having good listening skills in relating to customers’
messages
ü Providing role clarity to employees to reduce
ambiguity and conflict and increase job satisfaction
ü Having conscientious, caring employees willing to take
initiative
Exhibit 3–8 Creating a Customer-Responsive Culture