Changing Organizational Environment

Forces in the Organizational Environment
Market environment consist of all factors that in one way or another affect or affected by the organization decision. There are external and internal factors. Internal factor are: (5M's) • • • • • Management Manpower Machine Material and Money

Forces in the Organizational Environment
External factors include are: Micro factors: are those which affect the organization directly Macro factors: are the one that affect the organization indirectly.

The Task Environment
• Suppliers
Individuals and organizations that provide an organization with the input resources that it needs to produce goods and services
• Raw materials, component parts, labor (employees)

Relationships with suppliers can be difficult due to materials shortages, unions, and lack of substitutes.
• Suppliers that are the sole source of a critical item are in a strong bargaining position to raise their prices.

Managers can reduce these supplier effects by increasing the number of suppliers of an input.

The Task Environment (cont’d)
• Distributors
Organizations that help other organizations sell their goods or services to customers
• Powerful distributors can limit access to markets through its control of customers in those markets.

• Managers can counter the effects of distributors by seeking alternative distribution channels.

The Task Environment (cont’d)
• Customers
Individuals and groups that buy goods and services that an organization produces
• Identifying an organization’s main customers and producing the goods and services they want is crucial to organizational and managerial success.

The Task Environment (cont’d)
• Competitors
Organizations that produce goods and services that are similar to a particular organization’s goods and services Potential Competitors
• Organizations that presently are not in the task environment but could enter if they so chose

Strong competitive rivalry results in price competition, and falling prices reduce access to resources and lower profits.

The General Environment
• Economic Forces
Interest rates, inflation, unemployment, economic growth, and other factors that affect the general health and well-being of a nation or the regional economy of an organization

Managers usually cannot impact or control these.
Forces have profound impact on the firm.

The General Environment
• Technological Forces
Technological developments can significantly alter the demand for an organization's or industry's products or services. Technological change can decimate existing businesses and even entire industries, since its shifts demand from one product to another.

The General Environment (cont’d)
• Sociocultural Forces
Pressures emanating from the social structure of a country or society.
• Social structure: the arrangement of relationships between individuals and groups in society • National culture: the set of values that a society considers important and the norms of behavior that are approved or sanctioned in that society.

Cultures and their associated social structures, values, and norms differ widely throughout the world.
Example: male dominant or women empowered society, drinking & smoking in office / public areas,, regional languages, etc.

The General Environment (cont’d)
• Demographic Forces
Outcomes of change in, or changing attitudes toward, the characteristics of a population, such as age, gender, ethnic origin, race and social class
• During the past two decades, women have entered the workforce in increasing numbers and most industrial countries’ populations are aging. • This will change the opportunities for firms competing in these areas as demands for child care and health care are forecast to increase dramatically.

The General Environment (cont’d)
• Political Forces
Outcomes of changes in laws and regulations, such as the deregulation of industries, the privatization of organizations, and increased emphasis on environmental protection
• Increases in laws and regulations increase the costs of resources and limit the uses of resources that managers are responsible for acquiring and using effectively and efficiently.

The General Environment (cont’d)
• Global Forces
Outcomes of changes in international relationships; changes in nations’ economic, political, and legal systems; such as falling trade barriers, the growth of representative democracies, and reliable and instantaneous communication Important opportunities and threats to managers:
• The economic integration of countries through freetrade agreements (GATT, NAFTA, EU) that decrease the barriers to trade.

Porter’s Five Forces
Assessing the Balance of Power in a Business Situation

The Porter's 5 Forces tool is a simple but powerful tool for understanding where power lies in a business situation. With a clear understanding of where power lies, you can take fair advantage of a situation of strength, improve a situation of weakness, and avoid taking wrong steps.

Porter’s Five Forces

A way of examining the attractiveness of an industry

Competitive Rivalry: What is important here is the number and capability of your competitors. If you have many competitors, and they offer equally attractive products and services, then you'll most likely have little power in the situation, because suppliers and buyers will go elsewhere if they don't get a good deal from you. On the other hand, if no-one else can do what you do, then you can often have tremendous strength. Supplier Power: Here you assess how easy it is for suppliers to drive up prices. This is driven by the number of suppliers of each key input, the uniqueness of their product or service, their strength and control over you, the cost of switching from one to another, and so on. The fewer the supplier choices you have, and the more you need suppliers' help, the more powerful your suppliers are.

Porter’s Five Forces

A way of examining the attractiveness of an industry

Buyer Power: Here you ask yourself how easy it is for buyers to drive prices down. Again, this is driven by the number of buyers, the importance of each individual buyer to your business, the cost to them of switching from your products and services to those of someone else, and so on. If you deal with few, powerful buyers, then they are often able to dictate terms to you. Threat of Substitution: This is affected by the ability of your customers to find a different way of doing what you do – for example, if you supply a unique software product that automates an important process, people may substitute by doing the process manually or by outsourcing it. If substitution is easy and substitution is viable, then this weakens your power.

Porter’s Five Forces
Assessing the Balance of Power in a Business Situation

Threat of New Entry: Power is also affected by the ability of people to enter your market. If it costs little in time or money to enter your market and compete effectively, or if you have little protection for your key technologies like patents or proprietary rights, then new competitors can quickly enter your market and weaken your position. If you have strong and durable barriers to entry, then you can preserve a favorable position and take fair advantage of it.

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