Chapter 2

The Dynamic
Environment

McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
 Royal Dutch Shell PLC
o One of the world’s largest companies
o Each year it makes capital investments of between $30 billion and $40 billion
o In the 1970s pioneered the use of scenarios in corporate planning
o When an oil embargo surprised the world in 1973 Shell was the only major oil firm
prepared for the supply interruption
o Shell sees an emerging drama in the global energy system, with tensions building at
the intersection of three powerful trends:
1. Developing nations with expanding populations are using policies of economic growth to
alleviate poverty
2. Supplies of oil and gas cannot keep pace with rising demands for energy
3. Environmental stresses are growing

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Harga Minyak Dunia

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 Underlying Historical Forces Changing the Business
Environment
o Shell had taken certain steps to diversify its energy portfolio and reduce its dependence on Middle Eastern oil
sources, which helped them better navigate the crisis. Here are some reasons why Shell was considered more
prepared:
1. Diversification of Supplies: Unlike some of its competitors that heavily relied on oil from the Middle East, Shell
had diversified its sources of crude oil from various regions around the world. This diversification allowed
them to have access to alternative oil sources when the traditional supplies were disrupted due to the embargo.
2. Investment in Non-Oil Businesses: Shell had already been investing in non-oil businesses such as chemicals,
petrochemicals, and other energy-related industries. This diversification enabled Shell to offset some of the
negative impacts of the oil embargo on their overall revenue and profitability.
3. Vertical Integration: Shell's vertically integrated operations, which involved owning and controlling
various stages of the oil supply chain (exploration, production, refining, distribution), gave them more
flexibility in adjusting their operations to the changing market conditions.
4. Efforts in Energy Efficiency: Shell had been focusing on energy efficiency and conservation efforts, which
allowed them to make the most out of available resources and better manage supply disruptions.
5. Geographical Spread: Shell's global presence and operations across different regions allowed them to access a
wider range of oil sources and markets, reducing their vulnerability to supply disruptions in a single region.
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Nine Deep Historical Forces

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 The Industrial Revolution

o The Industrial Revolution: An economic metamorphosis in England in

the late 1700s
o It occurred when certain necessary conditions were present and shifted the
country from a simple agrarian economy into a growing industrial economy
o Requirements for industrial growth:
o Sufficiency of capital, labor, natural resources and fuels
o Adequate transportation
o Strong markets
o Ideas and institutions that support the productive blend of all the above
ingredients
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 The Industrial Revolution
o Industrial growth remakes societies in positive ways, but also generates strains in
the social fabric
o The Industrial Revolution was a period of profound economic, technological, and
social transformation that occurred primarily in England during the late 18th and
early 19th centuries. It marked a shift from agrarian and manual labor-based
economies to industrial and mechanized ones. The Industrial Revolution had a
significant impact on various aspects of society, including manufacturing,
agriculture, transportation, and urbanization.
o The use of machinery and technological innovations played a pivotal role in the
Industrial Revolution. Inventions such as the spinning jenny, steam engine, power
loom, and mechanized cotton gin revolutionized production processes, leading to
increased efficiency and productivity.
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2-8
 Inequality

o The basic political conflict in every nation, and often between nations, is
the antagonism between rich and poor
o The industrial revolution accelerated the accumulation of wealth and
widened the persistent problem of its uneven distribution
o Global income inequality is measured by the Gini index
o Gini index: A statistical measure of inequality in which zero is perfect
equality (everyone has the same amount of wealth and 100 is absolute
inequality (a single person has all wealth)

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World Poverty and Income Inequality since 1820
Poverty USD3.67 percapita a day

Gini Index

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 Population Growth
o The basic population trend throughout human history is upward
o Accelerated growth after 1825 due to:
o Advances in water sanitation and medicine, reduced the number of deaths from
infectious disease
o Mechanized farming, expanded the food supply
o Rapid growth now declining due to declining fertility
o Implications of current population trends:
o The wealth gap between high- and low-income countries will widen
o Growth will continue to strain the earth’s ecosystems
o The West is in demographic decline compared with other peoples

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Historical World Population Growth and Projections: 1 A.D. to 2300

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 Technology

o Throughout history new technologies and devices have fueled commerce

and reshaped societies
o Printing press
o Steam engine
o New technologies:
o Foster the productivity gains that sustain long-term economic progress
o Promote human welfare
o Can agitate societies

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Waves of Innovation since the Beginning of the Industrial Revolution

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 Globalization

o Globalization: The creation of networks of human interaction that span

worldwide distances
o Consequences of globalization:
o Increased economic activity
o Changed cultures
o Globalization has been accelerated by new technologies, and sometimes
slowed by national rivalries and wars
o Transnational corporations are the central forces of current economic
globalization

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 Nation-States

o Nation-state: An international actor having a ruling authority, citizens,

and a territory with fixed borders
o Arose out of the wreckage of the Roman Empire
o In the past, nations increased their power by seizing territory from other
nations
o Today, nations use trade to increase their power
o Trade through world markets is a new source of power, but it also limits
the ability of regimes to control their economies
o Other forces such as epidemics, climate change, terrorism and
international norms also limit a nation-state’s autonomy
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 Dominant Ideologies

o Ideology: A set of reinforcing beliefs and values that constructs a

worldview
o The industrial revolution was facilitated by several ideologies:
o Capitalism
o Constitutional democracy – protection of individuals’ rights
o Progress – the idea that humanity was in upward motion toward material
betterment
o Many doctrines have perished as a result of globalization
o The capitalism ideology accelerated in the 20th century due to rising
literacy and innovations that spread information
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 Great Leadership

o Leaders have brought both beneficial and disastrous changes to societies

and businesses
o Two views of historic leaders:
o Leaders simply ride the wave of history (leaders often find themselves in
positions of influence and power due to the broader historical trends,
circumstances, and forces that are already in motion. Ex Roosevelt became the
President of the United States in 1933, right in the midst of the crisis)
o Leaders themselves change history (leaders have the power to shape and change
history through their decisions, actions, and influence.Ex. Mahatma Gandhi, was
a leader who profoundly changed the course of history through his nonviolent
resistance and leadership during India's struggle for independence from British
colonial rule)
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 Chance

o Some changes in the business environment may be best explained as the

product of unknown and unpredictable causes.
o The business environment is complex and influenced by a multitude of
factors, some of which are unknown and unpredictable. While many
changes in the business world can be attributed to known and identifiable
causes, there are instances where unexpected and unanticipated events
play a significant role in shaping the business landscape. This concept is
often referred to as "unknown unknowns" or "black swan events (ex.
Financial crisis, natural disaster, sudden technological advancement,
sudden shift consumer behavior, public health crises such as Covid-19).

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Six Key External Environments

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 The Economic Environment
o The economic environment consists of forces that influence market operations,
including:
o Overall economic activity
o Commodity prices
o Interest rates
o Currency fluctuations
o Wages
o Competitor’s actions
o Government policies
o Two basic subtrends underlying economic growth:
o Rising trade
o Major expansion of foreign direct investment by transnational corporations
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Worldwide FDI Inflows:1980–2009

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 The Technological Environment

o New technologies create both threats and opportunities

o Technologies such as nanotechnology, open sourcing, and collaborative
computing will have a significant impact on business
o New technologies have unforeseen consequences for society when they
are put into widespread use for commercial gain
o Businesses must carefully weigh not only the strategic impact of
technologies on their business models, but also the dangers they may
impose on people

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 The Cultural Environment
o Culture: A system of shared knowledge, values, norms, customs, and rituals
acquired by social learning
o The environment of a transnational corporation includes a variety of cultures
o This variation causes conflicts of business customs
o There is a fundamental divide between the culture of Western economic development
and the rest of the world’s cultural groupings
o The rise of postmodern values has uniformly shifted the social, political, economic,
and sexual norms of wealthy countries
o Postmodern norms are a strong influence in the operating environments of
multinational corporations

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 The Government Environment

o There are currently two long-term global trends in the government

environment of major importance to business:
o Government activity has greatly expanded
o Larger social welfare roles
o Expanded regulation of domestic industries
o More governments are becoming open and democratic
o Governments increasingly respond to public demands for corporate social
performance
o These demands reflect postmodern vales promoting human rights, the
environment, aesthetics, and ethics

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The Rise of Democratic Regimes

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 The Legal Environment

o The legal environment consists of legislation, regulation, and litigation

o Five enduring trends:
o Laws and regulations have steadily grown in number and complexity
o Corporations have expanding duties to protect rights of stakeholders
o Globalization has increased the complexity of the legal environment and
expanded the application of voluntary codes of conduct
o Ethical behavior and corporate social responsibility often become codified
in laws
o The law is constantly evolving

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 The Natural Environment
o Economic activity is a geophysical force with power to change the natural
environment
o Economic productivity in the 20th century has:
o Depleted mineral resources
o Reduced forest cover
o Killed species
o Released molecules not found in nature
o Unbalanced the nitrogen cycle
o Possibly triggered climate change
o The human ecological footprint moved beyond the earth’s carrying capacity in the
1980s and is now unsustainable
o Managers must adapt to changed thinking, toward preservation of nature
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Measures of Human Impact on Nature

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 The Internal Environment

o In a corporation, the internal environment consists of four groups:

employees, managers, the board of directors, and owners
o Each of these groups has different objective, beliefs, needs, and
functions that must be coordinated
o Forces in external environments have recently reduced the power of
these internal groups

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The Internal Environment

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 Concluding Observations

o The environments of business have profound implications for managers

o The actions of business constantly influence not only current
environments but, in addition, the deeper course of history
o Although strongly constrained by its environment, business has a
powerful capacity to shape society and change history in ways large and
small

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The Dynamic Environment of Business

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