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Learning Objectives
Understanding of:
• the elements of the external environment
• the role of external environmental forces on
industry demand, cost structure, and
profitability
• the role of external environmental forces in
creating opportunities and threats
• methods that organizations can use to
influence stakeholders in the task
environment.
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Internal and External
Analysis
Strategic
Direction
Strategy Formulation
(corporate and
business level)
Strategy Implementation
and Control
Strategic Restructuring
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The Broad
Environment
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Global Socio-cultural Forces
Global Economic Forces
Global Technological Forces
Global Political/Legal Forces
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Why Consider Society?
• Stakeholders are members of society-assessment of their values and beliefs
• Good (ethical) reputation
• Avoid restrictive legislation
• Change = opportunities
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The Global Economy
Key Forces That Affect Virtually All Organizations
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Economic Growth
Interest Rates
Availability of Credit
Inflation Rates
Foreign Exchange Rates
Foreign Trade Balances
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Technological Change
“Technology is knowledge about products
and services and the way they are produced
and delivered”
• Inventions--new ideas or technologies
discovered in the laboratory
• Innovations--inventions that can be
replicated reliably on a meaningful scale
(new products or processes)
• Basic innovation--impacts much more than
one product category or industry
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Global Political and
Legal Forces
• Among the most significant determinants of organizational
success
• Governments provide and enforce the rules by which
organizations operate
• Level of interference from government varies from country
to country and industry to industry
• The worldwide trend is towards deregulation and
privatization
• In the U.S., significant political/legal influence comes from:
lawmakers, regulatory agencies, revenue collection
agencies, courts
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The Task Environment
• Customers - existing and potential
• Suppliers - of labor, materials, equipment, money
• Existing competitors - that battle for customers and
attention
• New competitors - that might enter the industry
• Indirect competitors- from other industries that offer
substitute products or services
• Communities - that are dependent on businesses for jobs,
economic activity
• Local regulators - that influence business practices and
costs
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Porter’s Five Forces of
Competition
• The Power of Customers
• The Power of Suppliers
• The Threat of Potential Entrants
• The Availability and Comparability of Substitutes
• Competition Among Existing Competitors
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When Customers Have Power
• Small number of customers
• They make high volume purchases
• Large purchases compared to purchases from other
industries
• Products they are buying are undifferentiated
• They have low profits
• They can get accurate information on the selling industry
• They can easily vertically integrate backwards
• They can easily switch from one seller to another
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When Suppliers Have Power
• Small number of suppliers
• Few substitutes exist
• Suppliers are not dependent on the buyer for a lot of
their sales
• The buying industry must have the product or service
to survive
• Suppliers have differentiated their products
• It is costly to switch suppliers
• They can easily vertically integrate forward
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When Rivalry Among Existing
Competitors Is Intense
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Slow industry growth
High fixed costs (plants, machinery, outlets)
Undifferentiated products
A large number of competitors
High exit barriers (what you lose if you leave the
business)
• Small changes in market share have a big payoff
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Barriers That Block New Entrants
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Economies of scale
Large capital requirements
Product differentiation
High switching cost
Limited access to distribution channels
Some government policies and regulations
Other advantages that are hard to duplicate such as patents,
great locations, subsidies, partnerships, etc.
• History of aggressive retaliation toward new entrants
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Indirect Competitors/Substitutes
• Substitutes are not the same as competing products and
services--they are products and services from another
industry that can substitute for the products and
services of the industry being studied
• E.g., contacts lens versus glasses versus surgery
• Close substitutes place a ceiling on the price that can be
charged for a product or service
• Close substitutes also set indirect performance
comparisons
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Strategic Importance and
Management Approach
HIGH
Increased Use of
Strategic Partnering
Tactics
Contribution of the
stakeholder to the
environmental uncertainty
facing the firm
Firm strategic choice
Ability of the
stakeholder to reduce
environmental
uncertainty for the firm
STRATEGIC
IMPORTANCE
OF STAKEHOLDER
(PRIORITY)
LOW
Primary Dependence
On Traditional
Stakeholder
Management Techniques
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Common Partnering Techniques
• Direct Stakeholder Involvement
• Design Teams/Planning (Customers, Suppliers)
• Linked Communications (Customers, Suppliers)
• Appointments to Board (Customers, Suppliers, Unions, Financial
Intermediaries, Government Contacts, Activists)
• Joint Research (Competitors, Government)
• Joint Ownership
• Joint Ventures (all stakeholders)
• Keiretsu (Customers, Suppliers, Financial Intermediaries,
Competitors)
• Consortia/Alliances
• Trade Groups (Competitors)
• Foreign Development (Competitors, Governments)
• Education (Competitors, Governments, Communities)
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