MGMT 110 Introduction to Management

• Lecture 4

• The External Environment of

Management

• The International Environment

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 Learning Objectives

• Learning Objectives:
– Discuss the nature of the organizational
environment and identify the
environments of interest to most
organizations.
– Describe the external environment of
organizations, identify the components
of the general and task environments,
and discuss their impact on
organizations.

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 Learning Objectives

• Learning Objectives (Cont.):

– Identify the components of the internal
environment and discuss their impact
on organizations
– Identify and describe how the
environment affects organizations and
how organizations adapt to their
environment.

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 The Organization's Environment

• External environment: Everything outside an

organization that might affect it.
– General environment: The set of broad
dimensions and forces in an organization's
surroundings that create its overall
context.
– Task environment: Specific organizations
or groups that affect the organization.
• Internal environment: The conditions and
forces within an organization.

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 The Organization
and Its Environments

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 The General Environment

• Economic dimension
• Technological dimension
• Socio-cultural dimension
• Political-legal dimension
• International dimension
• Impacts are often vague, imprecise and
long term.
• On the whole organizations cannot
influence their general environment.

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The Task Environment

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 The Task Environment

• The task environment is complex but can

readily provide useful information
• Influences are more readily identifiable in
the task environment
• Task environment influence include:
– Competitors
– Customers
– Suppliers
– Regulators
– Strategic allies
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 Organisation-Environment
Relationships
• Organizations are open systems and they
interact with their environment in different
ways. In years past, many were closed
systems.
• Three perspectives describe the way that
the environment influences organizations:
– Environmental change and uncertainty
– Competitive forces
– Environmental turbulence

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 Environmental Change and
Complexity
• Organizations can be described along two
dimensions
– their degree of change
– their degree of homogeneity
• These two dimensions combine to create
uncertainty
• Uncertainty – A driving force caused by change
and complexity.

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Stable vs uncertain environments

Many
elements

uncertain turbulent

Little Much
change change

stable uncertain

few
elements

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Environmental Change and Complexity
• There are four levels of uncertainty:
– Organizations with stable, simple environments
face least environmental uncertainty
– Organizations with dynamic but simple
environments face moderate degree of uncertainty
– Organizations of stability and complexity face a
moderate amount of uncertainty.
– Highly dynamic and complex environmental
conditions yield a high degree of uncertainty

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 Competitive Forces

• Michael Porter identified five competitive

forces in the environment:
– The threat of new entrants
– Competitive rivalry
– The threat of substitutes
– The power of buyers
– The power of suppliers

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 Environmental Turbulence

• Managers need to plan how to respond to

their organization's external environment.
• The sophistication and effort involved in
the planning will depend in part upon the
relative uncertainty in the environment.
• Managers can utilize Porter’s five forces to
better understand and react to the task
environment.
• Crises can still happen arising from
unpredictable events.

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How Organizations Adapt
to Their Environments

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 How Organizations Adapt
to Their Environments
• Information management:
– Recognise the importance of boundary
spanners
– Environmental scanning
– Management information systems
• Strategic response:
– Maintain the status quo
– Small, incremental change
– Radical new strategy

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 How Organizations Adapt
to Their Environments
• Mergers, takeovers, acquisitions and
alliances are some strategic responses to
the environment.
– Mergers occur when two or more
companies combine
– In an alliances a company undertakes a
new venture with another company.

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 How Organizations Adapt
to Their Environments
• Organizational design and flexibility
– Adapting organizational design to suit
environmental conditions
• Direct influence
– Generating consumer demand
– Lobbying
– Bargaining

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 Organizational Effectiveness

• Effectiveness is doing the right things.

• There is no consensus about what
amounts to organizational effectiveness.
• Different models:
– Systems resource approach
– Internal process approach
– Goal approach
– Strategic constituency approach

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 Model of Organization Effectiveness
See diagram p160 text

Facilitate goal
Acquire resources Combine resources
achievement

INPUTS PROCESSES OUTPUTS

feedback

Obtain future resources Satisfy constituents

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 Dinte Brothers
Adapting to the external environment
(Wiley, 2008)
• 1 Have any elements of the general environment
influenced the Dinte organisation in important ways?
How did they do this?
• 2 Which dimensions of the task environment would be
of most importance to the golf products manufactured
by the Dinte Group? How can the group deal
successfully with these dimensions?
• 3 What strategy does the group presently use to
manage the process of internationalisation?

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 Learning Objectives Chapter 6
• Learning Objectives:
– Describe the nature of international
business, including its meaning, recent
trends, managing internationalization, and
managing in an international market.
– Discuss the structure of the global economy
and how it affects international
management.
– Identify and discuss the environmental
challenges inherent in international
management.

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 Learning Objectives

• Learning Objectives (Cont.)

– Describe the basic issues involved in
competing in a global economy,
including organizational size and the
management challenges in a global
economy

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 The Nature of International
Business
• Our daily lives are strongly influenced by
business from around the world.
• No organisation is insulated from the
effects of foreign markets and competition.
• There are opportunities that arise from
new markets opening…there are also risks

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Capilano expands internationally

Dial-Up Broadband

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 The Meaning of
International Business

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 Origins of International Business

• There have been merchants since there

have been:
– Recognisable countries and frontiers;
– Manufacturing or raw material
extraction technologies;
– Transportation technologies; and
– The means of communicating the need
for products between countries

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 Trends in International Business
• After WWII many countries needed to
rebuild infrastructure and economies
almost from scratch.
• Over the same period the US and to some
extent Australia and New Zealand became
complacent.
• 1980 – 1995 saw a rapid rise in the
economies of South-East Asia.
• 1995 – 2000 saw the information
technology boom.

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 Managing the Process of
Internationalisation
• Two related but distinct sets of challenges:
– When an organisation chooses to
change its level of international
involvement it must manage the
transition.
– When an organisation has achieved its
desired level of international
involvement it must function effectively
at that level.

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 Increasing International
Involvement
• Pure domestic
• Importing/exporting
• Licensing
• Strategic alliances
• Mergers and acquisitions
• Direct investment
• These approaches are not mutually
exclusive and most large corporations use
them all when required.

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Challenges of international franchising

Dial-Up Broadband

Subway

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International expansion plans via
franchising

Dial-Up Broadband

Fernwood Women’s Health Clubs

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Advantages and Disadvantages of
Internationalisation Approaches

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 Managing in an International Market

• Managers in domestic and international

businesses undertake the same type of
activities.
• Complexity of these activities is likely to be
much greater for international businesses.
• The most important question is to focus
globally or regionally.

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 Thinking globally — implications for a
manager at Skyrail Rainforest Cableway

Dial-Up Broadband

Footage courtesy John Campling

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 The Technologically
Super-empowered Company
• Technology, especially communication and
data handling technology, allows efficient
interaction within organisations and with
global environments.
• Intranet technology is scalable and fast.
• Internet technologies such as the web
pages, email and FTP (file transfer
protocol) servers provide communication
possibilities that have been particularly
embraced for marketing purposes.

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 The Structure of the Global
Economy
• Three different elements in the global
environment:
– Mature market economies and systems
– Developing economies
– Other economies

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 Mature Market Economies
and Systems
• Market economy: An economy based on
the private ownership of business, which
allows market factors such as supply and
demand to determine business strategy.
• Market systems: Clusters of countries that
engage in high levels of trade with each
other.
– NAFTA
– EU
– Asia-Pacific region

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Mature Market Economies
and Systems

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 Developing Economies

• Developing economies: Underdeveloped,

immature economies, characterised by
weak industry, weak currency and poor
consumers.
• Governments of developing countries
actively seek to strengthen their
economies by opening the door to foreign
investment.
• A number of the members of the Asia-
Pacific region are developing economies.

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 Other Economies

• Some systems cannot be classified as

either mature markets or developing
economies.
• Oil exporting regions of the Middle East
• Countries troubled by political and/or
ethnic violence.

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Environmental Challenges of
International Management

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 The Economic Environment

• Economic system
– Move to market economies
– Mix of ownership (public and private)
• Natural resources
– Countries vary in their supply of natural
resources
– Restrictions for some on use
• Infrastructure
– Countries differ in their hard and soft
infrastructure
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 The Political-legal Environment
• Government stability
– Stability of government can affect business
• Incentives for international trade
– Countries, states and often cities offer
incentives
• Controls on international trade
– Countries may protect their own industries
• Economic communities
– Different countries have trade agreements with
some others that facilitate trade between them

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 The Cultural Environment
• A country’s culture affects an individual’s
behaviour.
• Culture is less likely to cause problems for
international managers when the home
culture and foreign culture are similar.
• Culture encompasses:
– Values
– Symbols
– Beliefs
– Language

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 Competing in a Global Economy-
Globalisation and Organisation
Size
• Multinational organisations (MNEs).
• Medium-sized organisations
• Small organisations.

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 Managing Challenges
in a Global Economy
• Planning in a global economy
– Managers need to understand the differences in
environments
• Organising in a global economy
– Managers need to determine how they will structure
their operations and allocate resources
• Leading in a global economy
– Managers need competence in managing people in
different cultures
• Controlling in a global economy
– Distance, time and culture all play a role in control

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 Economic challenges of conducting
international business as an importer in
SME manufacturing

Dial-Up Broadband

Simon Bottomley, General Manager, HaveStock Manufacturing

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 Next Lecture

Tuesday 22/12/09
35G-45 10.30am – 12.30pm
Last one before the session break

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