Professional Documents
Culture Documents
Chapter 2
10/2/2018
McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Royal Dutch Shell PLC
Opening Case
The world’s second-largest private energy company.
Has annual capital investments of between $15-19B, many of
which have a very long-term perspective.
In the 1970’s pioneered a method of analyzing its
environment using scenarios to challenge managers to think
in original ways.
Success: prepared for the 1973 OPEC oil embargo.
Current scenarios include issues of trust and security:
Low trust globalization
Open doors
“Flags”
10/2/2018
2-4
The Industrial Revolution
10/2/2018
2-7
World Poverty and Income
Inequality Since 1820
10/2/2018
2-8
Population Growth
The basic population trend throughout human history is
upward.
Accelerated growth after 1825 due to:
Advances in water sanitation and medicine, reduced
the number of deaths from infectious disease
Mechanized farming, expanded the food supply
Rapid growth now declining due to declining fertility.
Implications of current population trends:
The wealth gap between high- and low-income
countries will widen
Growth will continue to strain the earth’s ecosystems
The West is in demographic decline compared with
other peoples
10/2/2018
2-9
Technology
Throughout history new technologies and
devices have fueled commerce and
reshaped societies.
Printing press
Steam engine
New technologies:
Foster the productivity gains that sustain
long-term economic progress
Promote human welfare
Can agitate societies
10/2/2018
2-10
Globalization
In the economic realm, globalization refers to the
development of an increasingly integrated system
based on free markets in which nations are open
to foreign trade and investment.
Consequences of globalization:
Increased economic activity
Changed cultures
Globalization has been accelerated by new
technologies, and sometimes slowed by national
rivalries and wars.
Transnational corporations are the central forces of
current economic globalization.
10/2/2018
2-11
Nation-States
A nation-state is an actor formed of three elements:
a ruling authority, citizens, and a territory with fixed
borders.
Arose out of the wreckage of the Roman Empire.
In the past, nations increased their power by
seizing territory from other nations.
Today, nations use trade to increase their power.
Trade through world markets is a new source of
power, but it also limits the ability of regimes to
control their economies.
Other forces such as epidemics, climate change,
terrorism and international norms also limit a
nation-state’s autonomy.
10/2/2018
2-12
Dominant Ideologies
An ideology is a set of reinforcing beliefs and values that
constructs a world view.
The industrial revolution was facilitated by several ideologies:
Capitalism
Constitutional democracy – protection of individuals’
rights.
Progress – the idea that humanity was in upward motion
toward material betterment.
Darwinism – constant improvement characterized the
biological world.
Social Darwinism – evolutionary competition in human
society weeds out the unfit and advances humanity.
Protestant ethic – hard work, saving, thrift and honesty
lead to salvation.
Many doctrines have perished as a result of globalization.
The capitalism ideology accelerated in the 20th century due to
rising literacy and innovations that spread information.
10/2/2018
2-13
Great Leadership
Leaders have brought both beneficial
and disastrous changes to societies
and businesses.
Two views of historic leaders:
Leaders simply ride the wave of history
Leaders themselves change history
10/2/2018
2-14
Chance
Some changes in the business
environment may be best explained
as the product of unknown and
unpredictable causes.
Machiavelli observed that fortune
determines about half the course of
human events and human beings the
other half.
10/2/2018
2-15
Seven Key Environments
of Business
10/2/2018
2-16
The Economic Environment
The economic environment consists of forces
that influence market operations, including:
10/2/2018
2-18
The Cultural Environment
Culture – a system of shared knowledge, values,
norms, customs, and rituals acquired by social learning.
The environment of a transnational corporation includes
a variety of cultures.
This variation causes conflicts of business customs.
There is a fundamental divide between the culture of
Western economic development and the rest of the
world’s cultural groupings.
The rise of postmodern values has uniformly shifted
the social, political, economic, and sexual norms of
wealthy countries.
Postmodern norms are a strong influence in the
operating environments of multinational corporations.
10/2/2018
2-19
The Government
Environment
There are currently two long-term global trends in
the government environment of major importance
to business:
Government activity has greatly expanded
Larger social welfare roles
Expanded regulation of domestic industries
More governments are becoming open and
democratic
Governments increasingly respond to public demands
for corporate social performance
These demands reflect postmodern vales promoting
human rights, the environment, aesthetics, and ethics
10/2/2018
2-20
The Legal Environment
The legal environment consists of legislation,
regulation, and litigation.
Five enduring trends:
Laws and regulations have steadily grown in
number and complexity.
Corporations have expanding duties to protect
rights of stakeholders.
Globalization has increased the complexity of
the legal environment and expanded the
application of voluntary codes of conduct.
Ethical behavior and corporate social
responsibility often become codified in laws.
The law is constantly evolving.
10/2/2018
2-21
The Natural Environment
Economic activity is a geophysical force with power
to change the natural environment.
Economic productivity in the 20th century has:
Depleted mineral resources
Reduced forest cover
Killed species
Released molecules not found in nature
Unbalanced the nitrogen cycle
Possibly triggered climate change
The human ecological footprint moved beyond the
earth’s carrying capacity in the 1980s and is now
unsustainable.
Managers must adapt to changed thinking, toward
preservation of nature.
10/2/2018
2-22
The Internal Environment
In a corporation, the internal environment
consists of four groups: employees,
managers, the board of directors, and
owners.
Each of these groups has different
objective, beliefs, needs, and functions that
must be coordinated.
Forces in external environments have
recently reduced the power of these internal
groups.
10/2/2018
2-23
The Dynamic Interaction of Historical
Forces, Business Environments, and
Corporate Actions
10/2/2018
2-24
Concluding Observations
The environments of business have profound
implications for managers.
The deep historical forces act to shape the
seven key environments.
The actions of business constantly influence
not only current environments but, in addition,
the deeper course of history.
Although strongly constrained by its
environment, business has a powerful capacity
to shape society and change history in ways
large and small.
10/2/2018
2-25