Chapter 2 Organizational Environments and Culture External Environments and Changes External environment the forces and events outside a company that have the potential to influence or affect it Environmental Change o The rate at which a company s general and specific environment changes Stable environment The rate environmental changes is slow Dynamic environment The rate the environment change is fast Punctuated equilibrium theory Companies go through long periods of stability equilibrium during which incremental changes occur followed by short complex periods of dynamic fundamental change revolutionary periods finished with a return to stability new equilibrium Environmental Complexity o The number and the intensity of external factors in the environment that affect organizations Simple environment Have few environmental factors Complex environment Have many environmental factors Resource Scarcity Uncertainty o The abundance or shortage of critical organizational resources in an organization s external environment o Affected by environmental change environmental complexity and resource scarcity o How well managers can understand or predict the external changes and trends affecting their businesses Punctuated Equilibrium Theory Stability Dynamic Change Dynamic Change Dynamic Change Stability General Environment Consists of the economy and the technological sociocultural and political legal trend that indirectly affect all organizations Changes in any sector of the general environment eventually affect most organizations Specific Environment Economy growth o The customers competitors suppliers industry regulations and advisory groups that are unique to an industry and directly affect how a company does business A growing economy provides a favorable environment for business A growing economy more people are working and wages are growing and consumers have relatively more money to spend More products are bought and sold in a growing economy than in a static or shrinking economy Growing economy provides an environment favorable for business growth A shrinking economy consumers have less money to spend and relatively fewer products are bought and sold Shrinking economy makes growth for businesses more difficult Influences basic business decisions such as whether to hire more employees expand production or take out a loan to purchase equipment managers scan their economic environments for signs of significant change Unfortunately the economic statistics that manager rely on when making decisions are notoriously poor predictors of future economic activity Business Confidence indices o Shows how confident managers are about future business growth o Managers often prefer business Technological Component Technology o The knowledge tools and techniques used to transform input raw material information etc into outputs products and service o Change in technology can help companies provide better products or produce their products more efficiently Small shops can now accept credit cards through a card reader on a smartphone square o The demographic characteristics general behavior attitudes and beliefs of people in a particular society Sociocultural Component o Changes and trends influence organizations in two important ways Demographic o Number of people with particular skills or growth or decline in particular population segments marital status age gender ethnicity affected how companies staff their businesses Sociocultural changes o Behaviors attitudes and beliefs also affect the demand for a business s products and service Increased acceptance of gay marriage has changed many industries Political Legal Component o The general environment includes the legislation regulations and court decisions that govern and regulate business behavior o New laws and regulations continue to impose additional responsibilities on companies o Many managers are unaware of these new responsibilities on companies o Increasingly businesses and managers are being sued for negligent hiring and supervision defamation invasion of privacy emotional distress fraud and misrepresentation during employee recruitment o Many believe that the government should do more to regulate and restrict business behavior and that it should be easier for average citizens to sue dishonest and negligent corporations Specific Environment Customers Consumers purchase products and services Companies cannot exist without customer support Monitoring customers changing wants and needs is critical to business success Reactive Customer Monitoring o Involves identifying and addressing customer trends and problems after they occur o Listen closely to customer complaints and respond to customer concerns o Companies that respond quickly to customer complaints are viewed much more favorably than companies that are slow to respond or never respond o Proactive Monitoring o Identifying and addressing customer needs trends and issue before they occur Competitors Companies in the same industry that sell similar products or service Difference between success and failure in business comes down to whether the company is doing a better job of satisfying customer wants and needs than the competition Competition Analysis o A process for monitoring the competition that involves identifying competition anticipating their moves and determining their strengths and weaknesses o Managers often do a poor job of identifying potential competitor because they tend to focus only two or three well known competitors with similar goals and resources o Analyzing the competition is to underestimate potential competitors capabilities o Managers don t take the steps they should to continue to improve their products or service o Result in significant decreases in both market share and profit Supplier Companies that provide material human financial and informational resources to companies Supplier Dependence o The degree to which company relies on a supplier because of the importance of the supplier s product to the company and the difficulty of finding other sources for the product Buyer dependence o The degree to which a supplier relies on a buyer because of the importance of that buyer to supplier s sales and the difficulty of finding other buyers of its products Opportunistic behavior o When one party benefits at the expense of another o Although opportunistic behavior between buyers and suppliers will never be completely eliminated many companies believe that both buyers