What makes environments complex Product demand is difficult to predict Customer needs keep changing Critical underlying technologies are complex and keep changing New products constantly enter the market o Designing and introducing new products is risky and Firms require money A lot of competition for finances o Maintaining a competitive stance in the capital market A talented work force is required Competition is good producing battle among people for industry leadership New players with alternative products and ways of doing business may enter the industry Federal and local regulations affect all firms o Monitoring responding and trying to influence them is difficult is hard hard New technologies and new products are often incompatible with existing products and services o Being able to overlay technical standards usually yields great advantages to the successful firm Managing supply chains so that the firm has the right amount of raw material and finished goods at the right time in the right place given global sourcing and multiple distribution points is difficult to accomplish effectively and efficiently Earning and keeping public credibility is important and difficult Business is global opportunity and threat Anticipating and reacting the changing economic conditions is hard Another way of saying all this is to observe the following The future isn t predictable and random events happen Firms must continuously estimate many different critical future conditions room for error Based on estimates firms make decisions once done they might be hard to undo o Decisions involve investments o Investment a long term commitment of resources such as time and money o Investments are risky because estimation of the future always has error The more complex the environment the more likely estimates are incorrect and investments are incorrect inappropriate and firm will not be successful To be successful firms must simultaneously attend to anticipate understand respond to and lead developments in many areas each one of which is difficult to do Doing all this while efficiently using resources and making a profit and being a decent corporate citizen and operating within the law is an example of what we mean by managing in complex environments Organizations firms and environments Organizations have four features Social inventions people and other resources External boundary separates them from everything else in the world o Internal boundary separates various units of the org Goals they want to accomplish o Economics goal wealth maximization for their owners o Orgs have atleast one goal and generally more Firms Deliberately structured tasks Everyone in the organization does different things and the distribution of tasks to people isn t random o A position is a particular set of deliberately structured tasks people fill positions o Job put a person in a position people do jobs Firms are either for profit or not for profit They have all features of an org plus a few more legal existence and identity certain rights and obligations creation of economic wealth to provide benefit to owners Everything not within the firm s boundary is in its environment o Firms have employees they are in the boundary and environment because they are also consumers Stockholders owners of the firm if the firm is a corp Bring suit against the firms in which they hold stock to protest certain decisions by the firms management shareholder action Employees Withhold labor strike Consumers Boycott the products of a firm These actions cause CEOs and other managers to loose their jobs Firms must interact with their environments to survive and thrive firms are not closed systems open system hypothesis o Interactions between the firm and environment are called transactions o What happens in the environment affects the firm and the firm affects its environment one system Complex environment rapid large scale and uncertain change in many underlying business drivers each with a different set of dynamics Change o The faster the rate of change the more complex the environment o The greater the magnitude of change the more complex the environment Putting it all together o The greater the uncertainty of change the more complex the environment Drivers sources of change effect business and profit o All things equal the greater the number of potential sources of change the greater the number of drivers the more complex the environment o Dynamics nature of the change for a given driver What causes a source of change to change The more varied and complicated the dynamics of the drivers the more complex is the environment First all business environments are complex The only real issue is how complex Attending to anticipating understanding responding to and leading development in complex environments is critical to the success of the firm o Environmental complexity has increased Old policies may not be useful today o Reasons for complexity increase Economic conditions and technological advances Trends that affect industries and firms Shift toward deregulation Trend toward market driven economies Breakup of traditional monopolies and oligopolies Globalism Technology Return by households and firms to a greater level of savings reduce use of debt Increasing tendency to better asses the risk inherent in investments Trends involved with increased environmental complexity o Deregulation airline and banking industry Deregulation is one important cause of the increase in environmental complexity Governments can and do control the parameters affecting business Politics shape regulation many parties lobby to regulate or deregulate certain aspects of the environment consistent with their personal views of expected outcomes Special interests extracting undue influence on individual lawmakers leaving the impression that lobbying is inappropriate unethical or illegal Lobbying is protected under the first amendment Shift toward market driven economies o Market or market driven economies from centrally planned ones Centrally planned economy government sets prices determines products and controls distribution Market economy functions are substantially influenced by the actions of the firms and consumers Capitalistic market driven economies Capitalism determines by the degree to which regulation allows market forces to operate Globalization Contributed to increasing environmental uncertainty o Trade between countries and extensive investment by firms from one