What makes environments complex?Product demand is difficult to predictCustomer needs keep changingCritical underlying technologies are complex and keep changingNew products constantly enter the marketDesigning and introducing new products is risky and difficultFirms require money - A lot of competition for financesMaintaining a competitive stance in the capital market is hardA talented work force is requiredCompetition is good, producing battle among people for industry leadershipNew players (with alternative products and ways of doing business) may enter the industryFederal and local regulations affect all firmsMonitoring, responding, and trying to influence them is hardNew technologies and new products are often incompatible with existing products and servicesBeing able to overlay technical standards usually yields great advantages to the successful firmManaging 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 efficientlyEarning and keeping public credibility is important and difficultBusiness is global – opportunity and threatAnticipating and reacting the changing economic conditions is hardAnother way of saying all this is to observe the following…The future isn’t predictable and random events happenFirms must continuously estimate many different critical future conditions (room for error)Based on estimates, firms make decisions – once done they might be hard to undoDecisions involve investmentsInvestment – a long term commitment of resources such as time and moneyInvestments are risky because estimation of the future always has errorThe more complex the environment, the more likely estimates are incorrect and investments are incorrect/inappropriate and firm will not be successfulTo 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 environmentsOrganizations have four featuresSocial inventions – people and other resourcesExternal boundary – separates them from everything else in the worldInternal boundary – separates various units of the orgGoals they want to accomplishEconomics goal – wealth maximization for their ownersOrgs have atleast one goal, and generally moreDeliberately structured tasks - Everyone in the organization does different things and the distribution of tasks to people isn’t randomA position is a particular set of deliberately structured tasks – people fill positionsJob – put a person in a position – people do jobsFirmsFirms are either for profit or not for profitThey 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 ownersEverything not within the firm’s boundary is in its environmentFirms have employees, they are in the boundary and environment because they are also consumersStockholders – owners of the firm if the firm is a corpBring 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 firmThese actions cause CEOs and other managers to loose their jobsFirms must interact with their environments to survive and thrive – firms are not closed systems – open system hypothesisInteractions between the firm and environment are called transactionsWhat happens in the environment affects the firm and the firm affects its environment - one systemComplex environment: rapid, large scale, and uncertain change in many underlying business drivers each with a different set of dynamicsChangeThe faster the rate of change, the more complex the environmentThe greater the magnitude of change, the more complex the environmentThe greater the uncertainty of change, the more complex the environmentDrivers – sources of change – effect business and profitAll things equal, the greater the number of potential sources of change (the greater the number of drivers), the more complex the environmentDynamics - nature of the change for a given driverWhat causes a source of change to change?The more varied and complicated the dynamics of the drivers, the more complex is the environmentPutting it all togetherFirst 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 firmEnvironmental complexity has increased. Old policies may not be useful todayReasons for complexity increaseEconomic conditions and technological advancesTrends that affect industries and firmsShift toward deregulationTrend toward market-driven economiesBreakup of traditional monopolies and oligopoliesGlobalismTechnologyReturn by households and firms to a greater level of savings – reduce use of debtIncreasing tendency to better asses the risk inherent in investmentsTrends involved with increased environmental complexityDeregulation (airline and banking industryDeregulation is one important cause of the increase in environmental complexityGovernments can and do control the parameters affecting businessPolitics 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 amendmentShift toward market-driven economiesMarket (or market driven) economies from centrally-planned onesCentrally planned economy – government sets prices, determines products, and controls distributionMarket economy – functions are substantially influenced by the actions of the firms and consumersCapitalistic – market driven economiesCapitalism – determines by the degree to which regulation allows market forces to operateGlobalization - Contributed to increasing environmental uncertaintyTrade between countries and