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What is organizational environment?

What is organizational context?

Questions for Strategic Assessment to address

What are our chances of survival if we continue as we are? What are the best opportunities for growth given our existing capabilities? What are our competitive advantages and disadvantages? Where can we invest to improve our capabilities most efficiently? What changes can we realistically implement?

What do we mean by Context?

The environment in which the enterprise operates

The characteristics of the enterprise itself Realities and perspectives

Why is context important?

The background for strategy Each context is unique Sets the agenda for strategic management Context poses problems and dilemmas Unique context Unique strategies

Diversity of Context
normal business Knowledge intensive enterprises Mature businesses and declining industries Turnaround, recovery and endgame Public sector e.g., education, health, local government, executive agencies, police etc.

Normal Business Context

Privately owned Moderately large Significant investment in tangible assets Growing or intending to grow

Knowledge-intensive Enterprises
Knowledge as key to wealth creation Examples:
Professional service firms Creative businesses Educational services Publishing of all kinds

Knowledge management becomes a part of strategic management

The Organization and the Environment

The Broad Environment Socio-cultural Influences The Operating Environment Activist Groups Suppliers Unions Competitors The Organization Owners/Board of Directors Managers Employees Financial Intermediaries Economic Influences Local Communities Customers The Media Technological Influences

Government Agencies and Administrators Political/Legal Influences


Purpose of External Analysis

To understand the external environment as it affects the enterprise

Features of Environment Complex Dynamic


External Analysis: Key points

Important to achieving long term and annual objectives

Applicable to all competing firm

Hierarchical applicable to whole company and to lower levels

External Analysis
Levels of analysis: General changes in business environment Changes within the industry (Industry Analysis) Activities of competitors and other specifics (Competitive Analysis)

General Environment: Key External Forces

Economic forces Social cultural,demographic environmental forces

Political, legal and governmental forces

Technological forces Competitive forces

Economic: Trends and Events

Interest rates Unemployment Consumer price Index Trends in GDP Changes in stock market valuations

Two income households Trade Deficit Exchange Rates

Demographics: trends and issues

Population size

Aging population
Rising affluence Changes in ethnic composition Geographic distribution of population

Greater disparities in income levels

Major Socio cultural Issues

More women in the workforce Increase in temporary workers

Greater concern for fitness

Greater concern for environment Delays in family formation Role of Government in Health Care and Child Care

Declining Quality of Education Terrorism and Levels of Crime in General

Major Socio cultural Issues

Security of Travel and Public Places Importance and Role of the Military Levels of Foreign Investment/Ownership. Social Costs of Restructuring, Especially Layoffs

Technological Trends and Issues

Technology is knowledge about products and services and the way they are made and delivered

Organizations should monitor

New Production Processes New Products/Product Ideas Current Process Research Efforts Scientific Discoveries that May Have an Impact

Technological Trends and Issues

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 industry

Technological Trends and Issues

Genetic engineering Emergence of Internet technology Computer Aided Design / Computer-Aided Manufacturing Systems Pollution/Global warming Miniaturization of computing technologies Wireless communications

Political/legal Forces
New Laws New Regulations Current Administrative Policies Government Stability Wars International Pacts and Treaties

Political/legal Forces
Governments provincial and federal major regulators, deregulators, subsidizers, employers and customers and are key opportunities. Patent laws, tax rates, NAB factor, lobbying ,example sugar prices

Special Tariffs
Anti trust legislation

Increasing Global trade
Currency Exchange Rates Emergence of the Indian and Chinese Economies Trade Agreements among regional blocs (e.g. NAFTA, EC, ASIAN) GATT Agreement (leading to decreasing tariffs)

Components of the General Environment

Demographic Segment Population size Age structure Geographic distribution Inflation rates Interest rates Trade deficits or surpluses Budget deficits or surpluses Ethnic mix Income distribution Personal savings rate Business savings rates Gross domestic product Labor training laws Educational philosophies and policies Concerns about the environment Shifts in work and career preferences Shifts in preferences regarding product and service characteristics Focus of private and government-supported R&D expenditures New communication technologies Newly industrialized countries Different cultural and institutional attributes Economic Segment

Political/Legal Segment

Antitrust laws Taxation laws Deregulation philosophies Women in the workforce Workforce diversity Attitudes about work life quality

Sociocultural Segment

Technological Segment

Product innovations Applications of knowledge

Global Segment

Important political events Critical global markets

External Environmental Analysis

The external environmental analysis process should be conducted on a continuous basis. This process includes four activities: Scanning
Identifying early signals of environmental changes and trends

Monitoring Detecting meaning through ongoing observations

of environmental changes and trends

Forecasting Developing projections of anticipated outcomes

based on monitored changes and trends


Determining the timing and importance of environmental changes and trends for firms' strategies and their management