Chapter 2: The Environment and External Stakeholders PDF

CHAPTER 2 The Environment and External Stakeholders  Copyright © 2005 John Wiley & Sons, Inc. All rights rese ed. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner...

CHAPTER 2 The Environment and External Stakeholders  Copyright © 2005 John Wiley & Sons, Inc. All rights rese ed. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. Request for fu her information should be addressed to the Permissions Depa ment, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.  The Organization, Its Prima Stakeholders & the Broad Environment The Broad Environment Socio-cultural In uences Technological In uences The Operating Environment Activist Competitors Local Groups Communities Suppliers The Organization Customers Owners/Board of Directors Managers The Media Unions Employees Financial Government Agencies Intermediaries and Administrators Economic In uences Political/Legal In uences  Major Sociocultural Issues in the U.S. Role of Government in Health Care and Child Care Declining Quality of Education Legality of Abo ion and Stem-Cell Research Terrorism and Levels of Crime in General Security of Travel and Public Places Impo ance and Role of the Milita Levels of Foreign Investment/Ownership in the U.S. Social Costs of Restructuring, Especially Layo s  Major Sociocultural Issues in the U.S. Pollution and Disposal of Toxic and Non-Toxic Wastes General Increase in Environmental Awareness Drug Addiction and Drug Tra c Continued Migration Toward the Sun Belt States Graying of America AIDS and Other Health Problems Major Global Issues Immigration Restrictions and Programs  Why Monitor Society? Change = oppo unities Avoid being called a “bad corporate citizen” A good reputation can lead to increased demand or business oppo unities Accurate assessment can sometimes help rms avoid restrictive legislation  Global Economic Forces to Monitor and Predict Economic Growth In uences consumer demand, cost of factors of production, availability of factors of production (especially labor and scarce resources) Interest Rates In uences cost of capital for new projects, cost of re nancing existing debt, consumer demand (due to customer ability to nance purchases) In ation In uences interest rates, cost of factors of production, optimism or pessimism of stakeholders  Global Economic Forces to Monitor and Predict Exchange Rates In uences ability to pro tably remove pro ts from foreign ventures, government policies towards business Trade De cits In uences government policies, incentives, trade barriers  Political/legal Forces New Laws New Regulations Current Administrative Policies Government Stability Wars International Pacts and Treaties  Government In uences on Organizations in the U.S. Federal, State and Local Regulators (enforce regulations) Federal, State and Federal, State and Local Local Revenue The Law Makers Collectors Organization (create laws, regulations, (collect taxes and fees, taxes, agencies, grant licenses) incentives) Federal, State and Local Cou s (enforce laws and regulations, impose nes and penalties, settle disputes, restructure, protect  Technological Forces Technology is knowledge about products and se ices and the way they are made and delivered Organizations should monitor New Production Processes New Products/Product Ideas Current Process Research E o s Current Product Research E o s Scienti c Discoveries that May Have an Impact Characteristics of innovation New innovations often emerge from existing technologies A dominant design will eventually be widely adopted Radical innovations often come from outside the indust  From Analysis of the Broad Environment to Development of Alternative Strategies For each key in uence found during analysis of the broad environment, determine whether it is: An oppo unity A threat Neutral Then determine which strategies the rm might pursue in response to each in uence, if action should be taken at all This is one way to generate ideas regarding future strategies the rm might pursue The Organization and Its Operating Environment The Operating Environment Activist Competitors Local Groups Communities Suppliers The Organization Customers Unions The Media Financial Government Agencies Intermediaries and Administrators  Five Forces of Indust Competition Potential Entrants Threat of new entrants Indust Bargaining power of suppliers Competitors Bargaining power of customers Suppliers Customers Rival Among Existing Firms Threat of substitute products or se ices Substitutes Source: Adapted with the permission of the Free Press, an imprint of Simon & Schuster Adult Publishing Group (see text for complete reference)  Economic Power of Customers Customers are more powe ul if: They are few in number They make high-volume purchases They are buying undi erentiated products They are highly motivated to get good deals (i.e., earn low pro ts or buy a lot from the indust ) They can easily ve ically integrate backward and become their own suppliers They are not ve concerned about quality They have an information advantage over the suppliers They are well organized  Economic Power of Suppliers Suppliers are more powe ul if: They are few in number They sell products/se ices that are not easily substituted They do not sell a large percentage of their products/se ices to the buying indust They have a dependent customer They sell products/se ices that are di erentiated They can easily ve ically integrate forward and become their own customers They have an information advantage relative to their buyers They are well organized  Indust Competition A high level of competition is expected when: There are many competitors and none of them is dominant Slow indust growth Hard to di erentiate products High xed costs exist High exit barriers exist (what is lost if you leave the indust ) Terms to describe indust competition: A monopoly is a situation in which one rm is the only signi cant provider of a good or se ice An oligopoly exists when an indust contains a few ve large rms (ve common in established industries) Hypercompetition is a condition of rapidly escalating competition  Ent Barriers Some common ent barriers include: Economies of scale High capital requirements High levels of product/se ice di erentiation Limited access to distribution channels Inimitable resources Government policies or regulations that discourage new ent  Substitute Products Substitutes are products or se ices provided by another indust that can be readily substituted for an indust ’s own products or se ices Substitutes place a ceiling on the price that can be charged They can also set new pe ormance standards  Typical Roles of Various Stakeholders Managers w/stock Other companies Ownership Directors w/stock that own stock S Stockholders T Economic Managers/directors Employees Competitors A Dependence Venture pa ners Customers For. govern. K Creditors Competitors Local communities E Social Regulators Financial Activists Unpaid trustees community The media Formal Economic Political INFLUENCE ON BEHAVIOR (POWER) Managing the Operating Environment Economic Actions Erect new ent barriers Competitive tactics such as adve ising, new-product launches, cost-reduction e o s, new distribution methods or quality improvements (to name a few) Competitive benchmarking Political Strategies include all rm activities that have as one of their objectives the creation of a friendlier political climate Direct contact with legislators and government leaders Political contributions Lobbying Creation of collective institutions such as trade associations  Common Forms of Interorganizational Relationships Joint Venture An entity that is created when two or more rms pool a po ion of their resources to create a separate jointly owned entity Network A hub and wheel con guration with a local rm at the hub organizing the interdependencies of a complex array of rms Conso ia Specialized joint ventures encompassing many di erent arrangements. Conso ia are often a group of rms oriented towards problem solving and technology development, such as R&D conso ia Source: Adapted from B.B. Barringer and J.S. Harrison, “Walking a Tightrope: Creating Value Through Interorganizational Relationships,” Journal of Management 26 (2000), p. 383, used with permission.  Common Forms of Interorganizational Relationships Alliance An arrangement between two or more rms that establishes an exchange relationship but has no joint ownership involved Trade Association Organizations (typically nonpro t) that are formed by rms in the same indust to collect and disseminate trade information, o er legal and technical advice, furnish indust -related training, and provide a platform for collective lobbying Interlocking Directorate Occurs when a director or executive of one rm sits on the board of a second rm or when two rms have directors who also se e on the board of a third rm. Interlocking directorates se e as a mechanism for inte irm information sharing and cooperation  Major Concepts in Chapter 2 The most signi cant elements in the broad environment include sociocultural in uences, economic in uences, technological in uences and political in uences The broad environment can have a signi cant impact on a rm; however, most rms typically have only a marginal impact on the broad environment. Consequently, the emphasis in this pa of external analysis is more on understanding and adapting rather than t ing to in uence.  Major Concepts in Chapter 2 Innovations usually arise from existing technologies, most products and processes evolve towards a dominant design and radical innovations typically come from outside the boundaries of the indust The operating environment includes stakeholders with whom a rm interacts regularly. Elements of this environment are subject to a much higher level of in uence than the broad environment Five major forces that in uence indust competition include customers, suppliers, existing competitors, ent barriers and substitutes  Major Concepts in Chapter 2 Organizations can take economic, political, or pa nering actions in an e o to in uence their operating environments Pa nering tactics often involve interorganizational relationships such as joint ventures, networks, conso ia, alliances, trade associations, and interlocking directorates