Management Study Guide: The External Environment

Technological, Economic, Political and Legal, Socio-Cultural, Global
Five dimensions of the General Environment
Technological Dimension
The means that a firm uses to produce outputs or the systems or processes that a firm uses to achieve the output
Economic Dimension
The means that a firm uses to produce outputs or the systems or processes that a firm uses to achieve the output; can be affected by anemic GDP growth, increasing umeployment, a tightened credit market, and rising interest rates
Political Dimension
Political dimension refers to the political events and activities in a market that affects a firm
Legal Dimension
Refers to the regulations and laws that a firm encounters in its markets. In some industries, laws and regulations dictate the way a firm must process its products or market to consumers. Governing bodies can pass legislation to modify standards
Socio-Cultural Dimension
Refers to demographic characteristics as well as the values and customs of a society. Some of the more prominent demographic forces that can impact a firm are the aging and changing racial composition of a population. An aging demographic has implications for firms in the future and increasing diversity must be addressed
Global Dimension
Refers to the extent that a company affects or is affected by firms or other entities in foreign countries. This dimension can affect all of the elements of the firm’s general and task environments. The reducing of borders also offers firms greater opportunities in terms of developing new customer bases.
Competitors, Suppliers, Customers
Three elements of the Task Environment
Competitors
Any organization that creates goods or services targeted at a similar group of customers. The proliferation of technology, the rapid pace of globalization, and the speed of innovation has resulted in a vastly changed landscape; India and China
Suppliers
Provides resources or services for a firm to help in its creation of products and service
Customers
The people or other organizations that buy the firm’s products and services
Task Environment
Includes entities that directly affect the firm in a more immediate way including competitors, suppliers, and customer
Owners
The people or institutions that maintain legal control of the organization
Board of Directors
Group of individuals elected by the shareholders and charged with overseeing the general direction of the firm; main functions is to provide oversight of the firm’s strategies and management practices
Employees
The people who make the products and provide the services that allow the firm to exist. Without a capable and motivated base, a firm cannot expect to generate a competitive advantage in the marketplace
Culture
Pattern of basic assumptions about the way an organization should work and the manner in which individuals in an organization should interact with each other; regulates behavior and sets expectations for interaction, performance, and communication
Complexity, Dynamism
Two elements of uncertainty
Complexity
Multiple components and interconnected components
Dynamism
Frequency/speed of change as well as the magnitude of change
Incremental, Discontinuous
Two types of change in dynamism
Incremental Change
Changes that do not alter the basic nature of competition in the task environment
Discontinuous Change
Changes that fundamentally transform the nature of competition in the task environment
Moderate/High Uncertainty
High Dynamism + Low Complexity =
High Uncertainty
High Dynamism + High Complexity =
Low Uncertainty
Low Dynamism + Low Complexity =
Moderate/Low Uncertainty
Low Dynamism + High Complexity =
Market Forces
Typically influence but do not directly control forces in the environment;a dvertising and public relations, executive mobility (hiring key personnel from suppliers, competitors, customers), and boundary spanner positions (e.g., supply chain managers, customer relationship managers) are all influence the external environment
Systematic Data Collection
Market research, competitive intelligence
Brand Loyalty
Exerting influence through market forces
Non-Market Forces
Often control forces in the environment, often by changing the rules of engagement or participants in markets. Lobbying for favorable legislation or regulation, strategic alliances or joint ventures, mergers/acquisitions are all forces that influence the external environment