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External Environmental Analysis. A continuous process which includes. Scanning: Identifying early signals of environmental changes and trends Monitoring: Detecting meaning through ongoing observations of environmental changes and trends

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External Environmental Analysis

A continuous process which includes

  • Scanning:Identifying early signals of environmental changes and trends

  • Monitoring: Detecting meaning through ongoing observations of environmental changes and trends

  • Forecasting: Developing projections of anticipated outcomes based on monitored changes and trends

  • Assessing: Determining the timing and importance of environmental changes and trends for firms’ strategies and their management


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Three Component Relationship of the Firm to the Business Environment

  • Deterministic - Regulatory, legal and market structures taken as givens

  • Probabilistic – Areas where the firm has the ability to increase its odds of success.

  • Random – Uncontrollable and uncertain elements from which the firm can attempt to protect itself


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AN ORGANIZATION’S ENVIRONMENT Environment

Task Environment

Raw Materials Sector

Suppliers, Manufacturers, Real Estate

Industry Sector

Competitors,

Industry size and Characteristics, Related Industries

Human Resources Sector

Socio-Cultural sector

Labor Market, Employment Agencies, Universities, Training Schools, Employees in Other Companies, Unionization

Age, Values, Beliefs, Education, Religion, Work Ethic, Urban vs. Rural, Birth Rate

DOMAIN

Financial Resources Sector

Government Sector

City, State, Federal Laws and Regulations, Taxes, Services, Court System, Political Processes

Stock Markets, Banks,

Savings and Loans,

Private Investors

ORGANIZATION

Market Sector

Economic Conditions Sector

Technology Sector

Customers, Clients, Potential Users of Products and Services

Techniques of Production, Science, Research Centers, Automation, New Materials

Recession, Unemployment Rate, Inflation rate, Rate of Investment, Economics, Growth

Macro Environment


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External Environmental Analysis Environment

Analysis of macro/general environment

Analysis of task environment

Analysis of competitor environment

The External

Environment

The External

Environment

Strategic Intent

Strategic Mission


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Organizational uncertainty Environment

Complex + Stable =

LOW MODERATE UNCERTAINTY

1. Large number of external elements

2. Elements remain the same or change slowly or relatively predictably

Examples: Universities, hospitals, insurance companies

Simple + Stable = LOW UNCERTAINTY

1. Small number of external elements

2. Elements remain the same or change slowly or relatively predictably

Examples: Soft drink bottlers, beer distributors, container manufacturers,

local utilities

Stable

Uncertainty

Simple + Unstable =

HIGH MODERATE UNCERTAINTY

1. Small number of external elements

2. Elements change frequently, more unpredictably and reactively

Examples: Fashion clothing, music industry, toy manufacturers

Complex + Unstable =

HIGH UNCERTAINTY

1. Large number of external elements

2. Elements change frequently, more unpredictably and reactively

Examples: American airlines, oil companies, electronic firms, aerospace firms, personal computers

Unstable

Simple

Complex


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Key Steps in an External Analysis Environment

  • Determine which questions you are trying to answer.

    • What do you want to know?

    • Why do you need to know it?

  • Determine the Scope and Scale of the Analysis.

    • What is the appropriate level of analysis?

    • What trends do you need to investigate?

    • What segments are involved?

    • How would classify the issues?

    • How important are they to the firm?


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    Enactment of different parts of the environment Environment

    ( Selection of the boundary)

    Standard operating proceduresWorking capital

    • Standard operating procedures Working Capital

    Raw materials inventory

    WIP inventory

    Maintenance programs

    Excess capacity

    Project scheduling

    Labor scheduling

    Finished Goods Inventory

    Negotiated lead times

    Monopsony - captive suppliers, futures contracts

    Monopoly

    Technical core

    Interconnections, i.e. interlocking boards, vertical integration, etc. Boundary spanning activities, i.e. marketing, purchasing, etc.

    Administrative Level

    ORGANIZATIONAL RESPONSES TO ENVIRONMENTAL UNCERTAINTY


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    Key Steps Continued Environment.

    • Determine information needs

      • What types and amounts of information are needed?

      • Where is that information located?

      • How can you get the required information?

      • How can we get the data to the people that need it?

  • Understanding the Data

    • What do the data mean?

    • How might the data benefit the firm?

    • What threats do the data represent?

    • How can you use the data to your firm’s advantage?


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