2-1

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2003 The McGraw-Hill Companies, Inc. All rights reserved.

2-2

Chapter

2
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The External
Environment

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2-3

Learning Objectives
After

studying Chapter 2, you will know:

how

environmental forces influence organizations, as well as

how organizations can influence their environments
how to make a distinction between the macroenvironment and
the competitive environment
why organizations should attend to economic and social
developments in the environments
how to analyze the competitive environment
how organizations respond to environmental uncertainty

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2003 The McGraw-Hill Companies, Inc. All rights reserved.

2-4

The External Environment

Laws and
politics
New
Entrants

Suppliers

Organization

Rivals

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Economy

Buyers

Competitive
Environment

Macroenvironment

Technology

Demographics

Substitutes
Social
values

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2-5

Competitive Environment
New
entrants

Suppliers

Rival firms

Customers

Substitutes
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2003 The McGraw-Hill Companies, Inc. All rights reserved.

2-6

Environmental Analysis

Environmental
Scanning

Scenario
Development

Benchmarking

Forecasting

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2003 The McGraw-Hill Companies, Inc. All rights reserved.

2-7

Independent Action
Strategy

Definition

Competitive
aggression

Exploiting a distinctive competence or improving

internal efficiency for competitive advantage

Competitive
pacification

Independent action to improve relations with

competitors

Public relations

Establishing and maintaining favorable images in the

minds of those making up the environment

Voluntary action

Voluntary commitment to various interest groups,

causes, and social problems

Legal action

Company engages in private legal battle with

competition

Political action

Efforts to influence elected representatives to create a

more favorable business environment

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2003 The McGraw-Hill Companies, Inc. All rights reserved.

2-8

Strategic Maneuvering
Strategy

Definition

Domain
selection

Entering industries or markets with limited

competition or regulation and ample suppliers and
customers; entering high growth markets

Diversification

Investing in different types of business, manufacturing

different types of products or geographic expansion
to reduce dependence on single market or technology

Merger and
acquisition

Combining two or more firms into a single enterprise;

gaining possession of an ongoing enterprise

Divestiture

Selling one or more businesses

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2003 The McGraw-Hill Companies, Inc. All rights reserved.