Lesson 5

THE EXTERNAL ENVIRONMENT

AND ORGANIZATIONAL
CULTURE

Management Information Systems

Mrs. Rosemarie M. Coronejo
Math-IT Dept, IAS, FEU

1
 Learning Objectives
Describe how environmental forces influence organizations
and how organizations can influence these environments

Distinguish between the macroenvironment and the

competitive environment

Explain why managers and organizations should attend to

economic and social developments

Identify elements of the competitive environment

2
 Learning Objectives
Summarize how organizations respond to environmental
uncertainty

Define elements of an organizations culture

Discuss how an organizations culture affects its response to

its external environment

3
 The External Environment
The external environment refers to all relevant forces outside a firms
boundaries such as competitors, customers, the government, and the
economy

Open systems Organizations that are affected by, and that affect, their
environment

Inputs Goods and services

Outputs The products and services organizations create

The External Environment

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 The External Environment
The competitive environment and the macroenvironment are components
of the external environment

Competitive The firm and its rivals, suppliers, customers

environment (buyers), new entrants, and substitute or
complementary products

Macroenvironment The general environment; includes governments,

economic conditions, and other fundamental
factors that generally affect all organizations
 The Macroenvironment
Laws & Regulations
The Economy
Technology
Demographics
Social Issues/ Natural Environment

7
 Laws and Regulations
Regulators include agencies such as
Department of Trade and Industry (DTI)
Department of Finance (DOF)
Department of Labor and Employment (DOLE)
Board of Investments (BI)
Bureau of Internal Revenue (BIR)
Philippine Chambers of Commerce
National Labor Relations Commission (NLRC)
and many others

8
 The Economy
Complex interconnections among economies
of different countries

External pressure of stock markets

Periods of growth and recession

9
 Technology
Strategies developed around new
technologies can create a competitive
advantage

Strategies that ignore or lag competitors

technology can lead to obsolescence and
extinction

10
 Demographics
Measures of characteristics of the people who
make up groups or other social units

Demographic trends
Growth of the labor force
Increasing education and skill levels
Immigration
Increased numbers of women in the workforce
Increasingly diverse workforce
11
 Social Issues and the Natural
Environment

Social trends include

Delaying having children to focus on careers
Domestic partners covered under employee
benefit programs

Natural environmental issues affect

organizations reputations; reputations in
turn can affect competitiveness

12
The Competitive Environment

13
 The Competitive Environment
Competitors
New Entrants
Substitutes/ Complements
Suppliers
Customers

14
 Competitors
Who is the competition?

How do they compete? For example:

Price
New products
Advertising campaigns

Competition is most intense when

There are many direct competitors
Industry growth is slow
Product/service is not easily differentiated

15
 New Entrants
New entrants compete with established
companies

Barriers to entry are conditions that prevent

new companies from entering an industry

Barriers to entry make the threat of new

entrants less serious
16
 Substitutes and Complements
Substitutes are alternative products or
services
For example, video games are substitutes for
watching television

Complements are products or services that

increase purchases of other products
For example, car insurance is a complement to
automobile purchases
17
 Suppliers
Suppliers provide resources or inputs needed
for production

Switching costs are fixed costs buyer face if they

change suppliers

Supply chain management is managing the

network of facilities and people that
Obtain materials from outside the organization
Transform them into products
Distribute them to customers

18
 Customers
Customers purchase the goods or services and
organization offers.

Final customers purchase products in their

finished form

Intermediate customers purchase raw material

or wholesale products before selling them to
final customers
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 Environmental Analysis
Managers must understand their environment
to identify opportunities and threats

Environmental analysis is important when:

Designing new products
Scheduling production
Developing marketing plans

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 Environmental Analysis
Information not always easily available
When the environment is relatively unpredictable, managers
face environmental uncertainty
Uncertainty arises from complexity and dynamism

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 Environmental Uncertainty
Environmental complexity
The number of issues to which a manager must
attend as well as the interconnectedness of these
issues

Environmental dynamism
The degree of discontinuous change that occurs
within an industry

22
 Environmental Scanning
Environmental scanning means searching for
and sorting through information about the
environment

Competitive intelligence is information that

helps managers determine how to compete
better

23
 Competitive Intelligence
Managers can begin developing competitive
intelligence by asking five questions
1) Who are our current competitors?
2) Are there few or many entry barriers to our industry?
3) What substitutes exist for our product or service?
4) Is the company too dependent on powerful suppliers?
5) Is the company too dependent on powerful customers?

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 Scenario Development
Scenarios
Narratives that describe a particular set of future
outcomes

Effective managers regard scenarios as living

documents, not prepared once then put aside

25
 Forecasting
Forecasting is used to predict exactly how
some variable or variables will change in the
future

For example, firms may forecast

How interest rates might change
Demand for goods and services
Labor supply and demand

26
 Using Forecasting
Use multiple forecasts and perhaps average their
predictions
Remember that accuracy decreases the further into the
future you area trying to predict
Forecasts are no better than the data used to construct
them
Use simple forecasts (rather than complicated ones) where
possible
Keep in mind that the important events often are surprises
and represent a departure from predictions

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 Benchmarking
Benchmarking
The process of comparing an organizations
practices and technologies with those of other
companies

In other words, benchmarking attempts to

identify the best-in-class performance and
compare your organization to the best-in-class
organization

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 Responding to the Environment
Three categories of options in responding to
the environment
Adapting to the environment
Influencing the environment
Selecting a new environment

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 Responding to Environmental
Uncertainty
When uncertainty arises from environmental
complexity, organizations tend to adapt by
decentralizing decision making

Decentralization requires empowerment

Sharing power with employees, thereby enhancing
their confidence to perform their jobs and their
belief that they are influential contributors to the
organization

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 Responding to Environmental
Dynamism
Change from bureaucratic to organic
organizational structures

Bureaucratic structures tend to be less

flexible; organic structures tend to be more
flexible

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 Adapting at the Boundaries
Buffering creates supplies of excess resources
to meet unpredictable needs

Smoothing levels out normal fluctuations at

the boundaries of the environment

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 Adapting at the Core
Flexible processes allow for adaptation in
organizations technical core

Firms sometimes will customize their goods

and services to meet the varied and changing
demands of customers.

33
 Independent Action
Independent strategies
Strategies that an organization acting on its own
uses to change some aspect of its current
environment

A company uses independent strategies when

it acts on its own to change some aspect of its
current environment

34
 Cooperative Action
Cooperative action is opposite independent
action.

Cooperative strategies are strategies used by

two or more organizations working together
to manage the external environment

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Changing the Environment You are In

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 Changing the Environment You are In
Strategic maneuvering
An organizations conscious efforts to change the
boundaries of its task environment.

Domain selection
Entrance to a new market or industry with an existing
expertise

Diversification
Occurs when a firm invests in a different product,
business, or geographic area
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 Changing the Environment You are In
Mergers
One or more companies combine with another
Acquisitions
One firm buys another
Divestiture
A firm sells one or more businesses
Prospectors
Continuously change the boundaries or their task environment by
seeking new products and markets, diversifying and merging, or
acquiring new enterprises
Defenders
Stay within a stable product domain as a strategic maneuver

38
Culture and the Internal Environment
of the Organization
Organizational culture
The set of important assumptions about the organization and its
goals and practices that members of the company share

In strong cultures, the majority of people within the

organization agree on organizational goals

In weak cultures, the majority of people within the

organization disagree on organizational goals

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 Managing Culture
Top managers should espouse lofty ideas

Give constant attention to new initiatives

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 Diagnosing Culture
Corporate mission statements and official
goals

Business practices

Symbols, rites, and ceremonies

The stories people tell

41
 Types of Culture
Culture Definition
Clan Family-like, focus on mentoring, nurturing and doing
things together

Hierarchy Structured and controlled, focus on efficiency,

stability and doing things right

Market Results-oriented, focus on competition, achievement

and getting the job done

Adhocracy Dynamic and entrepreneurial, focus on risk-taking,

innovation and doing things first