Public informationPrivate informationBuyersKnow all sellers and all prices of each sellerKnow their own preferences and budget constraintsSellersKnow all sellers and all prices of each sellerKnow their own preferences and budget-constraintsCompetive Advantage to exploit the industry situation?YESNOAttractive Industry?YES>High economic performance potential>Make investments to build competitive advantagesNO>Higher potential economic performance>Possibility of failure due to unattractiveness of industry>High probability of failure or exit from the industryOrganizations:Four characteristicsSocial inventionsExternal and Internal boundariesExternal boundaries separate the firm from everything around itInternal boundaries separate distinct units within the firmMultiple goalsDeliberately structured tasksPosition – set of tasksJob - Position filled by a personFirms: subset of organizationsHave all the same set of characteristicsLegal existence and identityCorporations, partnerships, sole proprietorships, limited liability corporationRights and obligations (dependent on their legal existence)Ex: right to hire employeesEx: obligation to pay taxesOne of their goals is the creation of wealthA firm’s environment:Open system hypothesis: The idea that firms must interact with their environments to surviveTransactions – interactions between a firm and its environmentThe environment of one firm contains all other firmsThe environment of each firm is uniqueComplex Environments: an environment marked by rapid, large scale, and uncertain change in many underlying business drivers each with a different set of dynamicsChange in complex environments:Rate of change – the speed at which change is occurringThe faster the rate of change, the more complex the environmentMagnitude of change – the size of the changeThe greater the magnitude of change, the more complex the environmentUncertainty of changeChange is difficult to predict. The sources of change keep changing creating uncertainty of changeThe greater the uncertainty of change, the more complex the environmentDrivers of change in complex environments:Number of Drivers – drivers are sources of changeThe greater the number of sources of change, the more complex the environmentDynamics – the nature of change for a given driver/the cause of changeDynamics for one driver can be very different than the driver for anotherThe more varied and complicated the dynamics of the drivers, the more complex the environmentRate of change, Magnitude of change, uncertainty of change, number of driers, and driver dynamics are independent of each otherKnowing something about one does not tell us about the othersDRIVERSFewer and less varied dynamicsMany and more varied dynamicsCHANGESlower, smaller, more predictableLEAST COMPLEXINTERMEDIATEFaster, greater, less predictableINTERMEDIATEMOST COMPLEXEnvironmental complexity has been increasing over the last two decadesGeneral trend from least complex to most complex (see table)Trends that affect complexityGeneral shift towards deregulationPrevious regulation made it unnecessary for many firms to compete on prices or develop new products or use marketing strategiesDeregulation caused a major change requiring these things to be added to a firm’s business – increasing its complexityDeregulation shows that governments can and do affect businessCreates lobbying and special interests groupsGeneral trend toward market-driven economiesMarket driven economies=capitalistic=practicing capitalismFunctions of price, product mix, and distribution are influenced by the actions of firms and consumers – not the governmentAs countries adopt market-driven economies, firms now have the freedom and the incentive to make decisions they didn’t have beforeAn increased number of decisions increases the complexity of their environmentBreakup of traditional monopolies and oligopoliesGlobalismIncludes trade between countries and investment from one country into manufacturing and distribution activities in other countriesTechnologyReducing in the use of debt as a financing optionTrend in better assessing the risks to investmentsManaging part:Management – set of employees with particular types of responsibilitiesManaging – actions used to satisfy these responsibilitiesResponsibility – obligation or duty that must be accomplished or dischargedPersonal accomplishmentsAccomplishments of othersTactical business issues (current operations)Strategic business issues (future/long-term responsibilities)Authority- the rights built into a positionRights to make decisionsRights to commit resources of the firmAuthority is scare (authority wanted/needed by personnel > firm’s resources)This scarcity forces individuals to be innovative in order to satisfy their own responsibilitiesCould be negative (illegal/unethical)Could also be positive (better/more efficient way)Management ActivitiesAs environments become more complex managing has changedEmpowerment – expansion of responsibility of non-managers/a pushing down of powers through the ranks of a firms bureaucracyHeuristics-routine solution techniques for solving “routine” problemsAs environments become more complex, firms see less routine problem and more new problemsThey must continuously develop new heuristicsManaging: The standard application of standard tools to standard problems using standard criteria to evaluate the effectiveness of proposed solutions and the efficiency of resource utilization within an individual domain of responsibility subject to the constraints of authority given that new problems may require fundamentally new approaches.+Complex Environments: an environment marked by rapid, large scale, and uncertain change in many underlying business drivers each with a different set of dynamics=Managing in Complex environments:Knowing, understanding and discharging one’s work place responsibilities within the authority granted by the firm, in business environments characterized by many complex drivers that are subject o rapid, large-scale and hard to predict changesGoals of a firm:A single goal of profit maximization can be difficult to accomplishIn complex environments, critical decision may depend on future estimates, which are not easily predictableOther parties may have input into decision makingEx: Lender will want entrepreneur to be conservative to increase repayment likeliness; while entrepreneur will be less conservative b/c it is not his own moneyCan result