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Chapter 3 Environmental Forces. MGT 301. Learning Goals. 1. Explain how economic, demographic, and cultural factors affect organizations. 2. State the five competitive forces in an industry. 3. Describe the political and legal strategies managers use to cope with changes in the environment.

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Learning Goals

1. Explain how economic, demographic, and cultural factors affect organizations

2. State the five competitive forces in an industry

3. Describe the political and legal strategies managers use to cope with changes in the environment

4. Explain how technology changes the structure of industries


The Environment:

General Environment

General Environment—sometimes called themacroenvironment, includes the external factors that usually affect all or

most organizations

the economy
The Economy
  • Economics is the discipline that focuses on understanding how people or people or nations produce, distribute, and consume various goods and services.
trends in the new versus the old economy adapted from table 3 1

Value matters – information is key

New markets – distance vanished

Customers buy activities not products – a click away

Human capital – rise of knowledge worker


Size of organization matters – manufacturing is key

Defined market segments – demographics

Customers for a lifetime – loyalty, repeat business

Physical and capital assets – tangible assets

Trends in the New Versus the Old Economy(adapted from Table 3.1)

The Economy (cont’d)

The New Age of Competition



Low-cost manufacturing

Value-added services



Made in U.S.A.

Borderless competition

Local knowledge

Customer convenience

Physical labor

Human capital, software,

knowledge management

Smoke-stack industries

Environmental stewardship

Source: Adapted from Friedman, T.L. The World is Flat. New York: Farrar, Straus & Giroux, 2005, 48-172.



“Our assets leave on the elevator every night. Organizations do not own human capital; they can only rent them. In today’s world, human capital will have greater power than other resources because it is the people who create knowledge.”

Andy Grove, Founder and CEO

Intel Corporation

  • Demographics are the characteristics of a work group, an organization, a specific market, or various populations.
  • Some current demographic changes include:
    • Increasing Diversity
    • Education and Skills
    • Managerial Challenges

Impact of Changing Demographics on Organizations

  • Increasing diversity
  • Women participation rate increasing
  • Hispanic men rate increasing
  • People of color rate increasing
  • Managerial challenges
  • Multicultural awareness programs
  • Language offerings
  • Career challenges
  • Lifestyle issues
  • Illegal immigration

Why is Culture Important to Managers?

  • Culture:refers to the unique pattern of shared

characteristics, such as values, that distinguish the

Members of one group of people from those of


  • Value:a basic belief about a condition that has considerable importance and meaning to individuals and is relatively stable over time
  • Value system:comprises multiple beliefs that are compatible and supportive of one another

Why is Culture Important to Managers?


How values can effect a manager?

Perceives situations and problems

Goes about solving problems

Views otherpeople andgroups

Determines what isand is notethical behavior


and controls



Why is Culture Important to Management:

Overview of Cultural Factors





Gender RoleOrientation




Why is Culture Important to Management:

Hofstede’s Framework

  • Power Distance—the degree to which less powerful members of society accept that influence is unequally divided
  • Uncertainty Avoidance—the extent to which members of a culture feel threatened by risky or unknown situations
  • Individualism—a combination of the degree to which society expects to take care of themselves and their immediate family and the degree to which people believe they are masters of their own destinies

Why is Culture Important to Management:

Hofstede’s Framework (cont’d)

  • The opposite of individualism is collectivism—a tight social framework in which group (family, clan, organization, and nation) members focus on the common welfare and feel strongly toward one another
  • Gender Role Orientation— refers to the extent to which a society reinforces traditional norms of masculinity versus femininity
  • Long-Term Orientation—reflects the extent to which a culture stresses that its members accept delayed gratification of material, social, and emotional needs
competitive forces in the task environment adapted from figure 3 3
Competitive Forces in the Task Environment(adapted from Figure 3.3)




Threat of

substitute goods

or services


of new





Rivalry among

existing firms in




“For virtually all organizations,the critical environment constraint is their actionsin relation to competitors. Therefore, any change inthe environment that affects any competitor will have consequences that require some degree of adaptation. This requires continual change and adaptation by all competitors merely to maintainrelative position.”

Bruce D. Henderson, founder and chairman of the Boston Consulting Group

key influences on new entrants
Key Influences on New Entrants
  • High versus low barriers to entry
  • Economies of scale: achieved when increased volume lowers the unit cost of a good or service produced by a firm
  • Product differentiation: the uniqueness in quality, price, design, brand image, or customer service that gives one firm’s product an edge over another firm’s
  • Capital requirements: the dollars needed to finance equipment, purchase supplies, purchase or lease land, hire staff, and the like
  • Government regulation: barrier to entry if it bars or severely restricts potential new entrants to an industry

Substitute Goods and Services

  • In a general sense, all competitors produce substitute goods or services, or goods or services that can easily replace another’s goods or services
  • Movie rental versus movie theatres
  • Books versus TV versus newspapers
  • Purchase versus rental
  • Cell phone versus hard lines
  • Customer bargaining power may be relatively great when:
  • Customer purchases a large volume relative to the supplier’s total sales
  • Product or service represents a significant expenditure by the customer
  • Large customers pose a threat of backward integration
  • Customers have readily available alternatives for the same services or products


  • Bargaining power of suppliers often controls:

1. how much they can raise prices above their costs or

2. reduce the quality of goods and services they provide before losing customers


Political-Legal Forces: Managerial

Political Strategies

Political Strategies

Political-Legal Forces

  • Political actioncommittees (PACs)
  • Laws
  • Government
  • Labor unions
  • Others
  • Negotiation
  • Lobbying
  • Alliance
  • Representation
  • Socialization
technology forces technology impacts on organizations
Technology Forces: TechnologyImpacts on Organizations






technology impacts on organizations
Technology Impacts on Organizations


“With 135 million users selling goods in more than 45,000 categories in 27 international markets, eBay has left all competitors in the dust. Technology has really changed people’s lives for the better.”

Meg Whitman, CEO, eBay

technology s impact in the workplace
Technology's Impact in the Workplace
  • Workers need greater problem-solving skills
  • Outsourcing routine tasks
  • Virtual organizations

Technology's Impact on Strategy

  • Faster new product introductions to market
  • Entrance of “electronic” competitors
  • Formation of “electronic shopping malls”
  • Wider choice of suppliers for company
  • More substitute goods and services available to company
  • Product differentiation based on technological sophistication

Technology's Impact on Manufacturing


Reduction inManufacturing time

Outsourcing of routine jobs


Technology's Impact on Distribution

Internetaccess forshopping


Information superhighwayfor global competition