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1 2005 Prentice Hall

The Business Environment

External environment: a set of forces and conditionsoutside the organization that can influence itsperformance Task environment: forces that have a high potential of

affecting the organization on a immediate basis

General environment: forces that typically influence theorganizations external task environment and through them,

the organization itself

Internal environment: key factors and forces insidethe organization affecting its operation

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Organization Environment

External Environment General Environment

Adapted from Exhibit 3.1: Organization Environment

GeneralEnvironment

Political-Legal

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GeneralEnvironment



Task

Environment

Political-Legal

Competitors

Strategic Partners

Task Environment


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Task

Environment

Political-Legal

Competitors

Strategic Partners

Internal

Environment

OwnersBoard of Directors

Management

Employees

Culture

Task Environment

Internal Environment


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General Environment

Sociocultural forces Demographics

Values

Technology forces Product technological changes

Process technological changes

Economic forces Current economic conditions

Economic cycles

Structural changes

General

Environment

Political-Legal

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Sociocultural Factors and

Values

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Good

economic

conditions

Poor

economicconditions

Time

Economic Cycles

Adapted from Exhibit 3.2: Overall Economic Cycles and Industry Cycles

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General Environment

Political and legal forces Laws and regulations

Government spendingGlobal forces

Impact on and interaction with the otherforces

Institutional forces

Physical forces

General

Environment

Political-Legal

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Sociocultural

General Environment of

Coca-Cola

Adapted from Exhibit 3.3: Description of the General Environment of Coca-Cola

Environmental Factor

Baby boomers drinking less soft drinks asthey age

US population growth is slowing and muchof the growth comes from immigrants whogenerally drink less soft drinks

Description

Demographics

Values Baby boomers drinking less soft drinks as

they age US population growth is slowing and much

of the growth comes from immigrants whogenerally drink less soft drinks

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Technological

General Environment of

Coca-ColaEnvironmental Factor

New canning technology makes using

recycled aluminum easier and cheaper

Internet opens up a new means of running

promotion contests and activities

Description

Economic Slow economy reduces per personconsumption due to fewer social occasionsat which soft drinks might be served

Like end of economic downturn andprospects of economic recovery

Stricter liability for illness caused bybeverage contamination


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Global

The General Environment of

Coca-ColaEnvironmental Factor

Gradual increase in acceptance ofcarbonated soft drinks in other countriessuch as India and China

Widely available electricity and increasedability to afford refrigerators in emergingcountries and economies

Description


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The General Environment of

Coca-Cola

Adapted from Exhibit 3.4: The General Environment of Coca-Cola

Sociocultural

Baby boomers drinking less

Immigrants drinking less

Concern about recycling

Concerns about health

Technological

New recycle-friendly canning

technology

New promotion opportunities

via the Internet

Political-Legal

Increased health standards

for bottling

Stricter liability legislation

Global

Increase in acceptance of

carbonated drinks in India

and China

Easier consumer access to

refrigeration

Economic

Slow economic growth

Prospect of economic

recovery

Coca-Cola

Sociocultural

Technological

Political-LegalGlobal

Economic

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Task Environment

Organizations most immediateexternal environment

Consists of Competitors

Customers

Suppliers

Task

Environment

Competitors

Strategic Partners

Strategic partners

Labor

Regulators

Typically largest influence on the organization Managers must understand the fit between the

organization and its task environment

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Lower

Profits

Higher

Profits

Profits and Industry Forces

Few competitors

Quality-based

competition

High entry barriers Few new entrants

Many customers

Fragmented

customers

Many suppliers

Many competitors

Price-based

competition

Low entry barriers Many new entrants

Many substitutes

Few customers

United customers

Few suppliers

Adapted from Exhibit 3.5: Profits and Industry Forces

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Task

Environment

Competitors

Strategic Partners

Task Environment:

How big and strong are yourcompetitors?

What are your competitors weaknesses?What is the nature of competition or

rivalry in your industry?

The Nature of Competition

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Task Environment:

New entrants increase competition

Increased competition leads to lower

profitsMore choices for customers causes

companies to increase value to

customers Entry barriers keep new entrants out

New EntrantsPotential Competitors

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Task Environment:

To what extent can alternativeproducts or services can

substitute for existing productor service

The fewer the available substitutes, the

greater the profits

Substitutes

Task

Environment

Competitors

Strategic Partners

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Task Environment:

When there are fewer andunited customers, they have

more power to demand Lower prices

Customized products or services

Attractive financing terms from producers These demands reduce profits

Customers

Task

Environment

Competitors

Strategic Partners

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Task Environment:

Strategic partners work closelywith a firm to pursue mutually

beneficial goals Limited engagements

Joint ventures

Sharing of equity interest

Strategic Partners

Task

Environment

Competitors

Strategic Partners

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Task Environment:

The balance between supply anddemand for types of workers significantly

affects a firms performanceWhen demand exceeds supply, the

imbalance can lead to high labor costs

Labor unions can exert pressure onmanagers to increase wages and offer othercostly benefits, decreasing performance

Labor

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Task Environment:

Regulators consist of bothregulatory agencies and

interest groupsRegulators can influence and sometimes

dictate organizational actions

Regulators

Task

Environment

Competitors

Strategic Partners

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Competitors

Task Environment of JetBlue

Task Environmental

Factor

Primarily price-based, hurting performance

Many established and big players

Description

Rivalry

New Entrants $35 million start-up costs, frequent failuresdiscourages new entrants

Substitutes $ Video conferencing may substitute for

face-to-face (travel) business meetingsCustomers Business travelers who want convenience

Leisure travelers who want low price

Adapted from Exhibit 3.6: Description of the Task Environment of JetBlue

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Task Environment of JetBlue

Competitors

Adapted from Exhibit 3.7: The Task Environment of JetBlue

Competitors

Rivalry: Price

New Entrants: Few

Substitutes: Video

conferencing

Customers

Business travelers

Leisure Travelers

Suppliers

Planes: Airbus

Jet Fuel: many suppliers

such as Exxon Mobil

Labor

No union representation

Ample supply of pilots and

flight attendants

Regulators

FAA

Airport Authorities

Strategic

Partners

No airline partners

Initial partnership with

satellite TV provider

Suppliers

LaborRegulators

Strategic partners

Customers

JetBlue

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The Internal Environment

Owners

Single owner can determine

objectives and distribution of profitsDiversified set of shareholders have more

difficulty agreeing on objectives and profits

Board of DirectorsSet of individuals elected by shareholders of

the company to represent their interests

Internal

EnvironmentOwners

Board of Directors

Management

Employees

Culture

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The Internal Environment

Employees

Demographics

Values

Culture

Assumptions

ValuesBeliefs

Internal

EnvironmentOwners

Board of Directors

Management

Employees

Culture

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Environmental Scanning &

Response

Know what to scan

Have a plan of how to scan

Gain advantage over competitorsBe superior in analyzing publicly available

information and anticipating how it relates to

your job, company, and industryObtain information from nonpublic sources

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What type of

information do Ineed?

Define

Environmental Scanning

What information

is relevant?

Recognition

What are the

potential and mostimportant issues?

Analyze

What impact couldthis have and whatis the response?

Respond

Adapted from Exhibit 3.8: Environmental Scanning

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Responding Effectively to

Changing Environments

Direct influence

Strategic response

Organization agility

Information management

Documents

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