P



The Dynamic Environment
This chapter:
 6 entifies eep historical forces that create change an
risk in the business environment.
 Discusses key imensions of the business environment,
escribing major tren s an challenges.

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 moyal Dutch Shell PLC Opening Case
 The worl
s secon largest private energy company.
 6n the 1970
s pioneere a metho of analyzing its
environment using „
„to challenge managers
to think in original ways.
 ÷uccess: prepare for the 1973 OPEC oil embargo.
 Failures: 1997 oil rilling platform isposal, allege
abuse by troops guar ing Nigerian oil fiel s, ÷ir
Philip Watts lying about oil an gas reserve sizes.



 












 


















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ñistorical forces that create change n risk in business
environment
 Volatility in business environment
 6n ustrial revolution
 6nequality
 Population growth


 Technology  

 Globalization
 Nation states
 Dominant i eologies
 Great lea ership n chance
 ½olatility in the Business Environment
 From ancient to mo ern times, environments have
been volatile an generally unpre ictable.
 Black Death
 6n ustrial Revolution
 Bal win Locomotive blin si e by the iesel engine
 To ay:
 Worl wi e markets exist for the first time in many
markets
 Pro uct innovations quickly copie making
competitive a vantage ifficult
 ÷ocietal ethical expectations ictating new, elevate
performance stan ar s
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 The Industrial mevolution
 Requirements for in ustrial growth:
 ÷ufficiency of capital, labor, natural resources an fuels
 Transportation
 ÷trong markets
 6 eas an institutions to effectively combine all of these
requirements
 6n ustrialization generates huge strains in the social
fabric.
 The total amount of goo s an services pro uce in
the twentieth century


„ all that pro uce in
recor e human history.

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 Inequality
 The basic political conflict in every nation, an often
between nations, is the 
„ between  an
.
 The in ustrial revolution accelerate the
accumulation of Ã

without solving the
persistent problem of its 

 „

.
 Global income inequality is measure by the ¬
in ex.
 {{ in 2000, an extreme level of inequality, cause by
the iverging economic fortune of nations.

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 Inequality (continued)
 Economic growth oes not itself increase income
inequity within mo ernizing nations.
 To ay about 2.8 billion people live in poverty
(< $2.00 a ay income).
 6f worl istribution of income ha not become more
unequal after 1820, economic growth woul have
re uce the number of people living in poverty
to ay by 80 .
 As the wealth ivi e among nations increase , the
istribution of income grew even more unequal.
 6f corporations are harnesse to create economic
growth, the poor will benefit.
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 £orld Poverty and Income Inequality
Since 1820

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 Population Growth
 The basic population tren throughout human history is
à .
 Accelerate growth after 1825 ue to:
 A vances in water sanitation an me icine, re uce the
number of eaths from infectious isease
 Mechanize farming, expan e the foo supply
 Rapi growth now eclining ue to eclining fertility.
 6mplications of current population tren s:
 The wealth gap between high an lowincome countries will
wi en
 Growth will continue to strain the earth
s ecosystems
 The West is in emographic ecline compare with other
peoples
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 Technology
 Throughout history new technologies an evices
have fuele commerce an reshape societies.
 Printing press
 ÷team engine
 New technologies:
 Foster the pro uctivity gains that sustain longterm
economic progress
 Promote human welfare
 Can agitate societies

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 Globalization
 6n the economic realm, globalization refers to the
evelopment of an increasingly 



system
base on 



„ in which nations are 
 to
foreign tra e an investment.
 Consequences of globalization:
 6ncrease economic activity
 Change cultures
 Globalization has been 



by 
Ã



„, an sometimes „Ã
by 


„ an Ä.

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 Œation-States
 Arose out of the wreckage of the 
 
Roman Empire 






 6n the past, nations increase 
#




their power by „



  
$






from other nations 





 

 To ay, nations use








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 Dominant Ideologies
 An i eology is a set of 
 

„ an 
s that
constructs a à 
Ã.
 wÄ · constant improvement characterize the
biological worl .
 ÷ wÄ · evolutionary competition in human
society wee s out the unfit an a vances humanity.
 9

„



 · har work, saving, thrift an honesty lea
to salvation.
 Many octrines have perishe as a result of globalization.
 Accelerate in the 20th century by rising literacy an
innovations that sprea information.

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 Great Leadership and Chance
 Lea ers have brought both beneficial an isastrous
changes to societies an businesses.
 Two views of historic lea ers:
 Lea ers simply ri e the wave of history
 Lea ers themselves change history
 ÷ome changes in the business environment may be
best explaine as the pro uct of à an



causes.
 Machiavelli observe that 

etermines about
half the course of human events an 
„
the other half.

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 Seven Key Environments of Business




 
 


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 The Economic Environment
 The economic environment consists of forces that
influence market operations, inclu ing:
 Overall economic activity  Wages
 Commo ity prices  Competitor
s actions
 6nterest rates  Technology change
 Currency fluctuations  Government policies

 Two basic subtren s un erlying economic growth:

 Rising tra e
 Major expansion of foreign irect investment by
transnational corporations

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 The Technological Environment
 New technologies create both threats an
opportunities.
 New technologies have 
„

 „


„ for
society when they are put into wi esprea use for
commercial gain.
 Businesses must carefully weigh not only the
„


 
of technologies on their „
„„

„, but also the „

„„
„ an „
„ they may
impose on 

.

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 The Government Environment
 There are currently two longterm global tren s in
the government environment of major importance to
business:
 Government activity has greatly expan e
 Larger social welfare roles
 Expan e regulation of omestic in ustries
 More governments are becoming open an emocratic
 Governments increasingly respon to public eman s for
corporate social performance

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 The Legal Environment
 The legal environment consists of:
 Legislation
 Regulation
 Litigation
 Five en uring tren s:
 Laws an regulations have stea ily grown in number an
complexity
 Corporations have expan ing uties to protect rights of
stakehol ers
 Globalization has increase the complexity of the legal
environment
 Laws are now enacte to gui e ethical behavior an
corporate social responsibility
 The law is constantly evolving

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 The Cultural Environment
 The environment of a transnational corporation
inclu es a 

 of cultures.
 This variation causes conflicts of business customs.
 There is a fun amental ivi e between the culture of
Western economic evelopment an the rest of the
worl
s cultural groupings.
 The rise of „


„ has uniformly shifte
the social, political, economic, an sexual norms of
wealthy countries.
 Postmo ern norms are a strong influence in the
operating environments of multinational
corporations.
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 The Œatural Environment
 Economic activity is a 
 „ 
with power
to change the natural environment.
 Economic pro uctivity in the 20th century has:
 Deplete mineral resources
 Re uce forest cover
 Kille species
 Release molecules not foun in nature
 Unbalance the nitrogen cycle
 Possibly triggere climate change
 Managers must a apt to change thinking, towar
preservation of nature.
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 The Internal Environment
 6n a corporation, the internal environment
consists of four groups:
 Objectives
 Beliefs
 Nee s
 Functions
 Forces in


 environments have
recently re uce the power of these internal
groups.
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 The Dynamic Interaction of Historical Forces,
Business Environments, and Corporate Actions

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