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SOM 122 (25)
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Chapter 3

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Department
School of Management
Course Code
SOM 122
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Unkown

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External Environments­ forces and events outside the company that have the potential to  influence or affect it Characteristics of Changing External Environments: 1. Environmental change • Rate at which a company’s general and specific environments change o Stable environments  Rate of environmental change is slow  • Wholesale food distribution o Dynamic environments  Rate of environmental change is fast o Punctuated Equilibrium Theory  Companies go through long periods of stability (equilibrium)  during which incremental changes occur, followed by short,  complex periods of dynamic, fundamental change, finishing with  the return to equilibrium/ stability • Ex. Airline Industry 2. Environmental Complexity • The number and intensity of external factors in the environment that affect  organizations o Simple environments­ few environmental factors  Ex. Dairy industry, milk is still produced the same way it was 100  years ago (even after machine advances have been made) o Complex environments­ many environmental factors  Ex. Newspaper industry, now a digital age as well 3. Resource Scarcity • The abundance or shortage of critical organizational resources in an organizations  external environment o Ex. Not enough LCD TV factories, so price is more expensive, more  factories made for more demand, price goes down  Manufacturing became less scarce 4. Uncertainty • How well managers can understand or predict the external changes and trends  affecting their businesses GENERAL ENVIRONMENT­ consists of the economy and the technological,  sociocultural, and political/legal trends that indirectly affect all organizations • Federal Reserve lowers lending rate, businesses benefit with lower interest rates o The Economy  Growing economy­ more people working, wages growing,  consumers spending more money, more money to spend • Favorable to business growth  Shrinking economy­ less money to spend, makes business growth  difficult  Economy influences lots of business decisions • Hiring employees, expanding production, loans  Hard to predict economic future • Keep track of business confidence indices o Show how confident actual managers are about  future business growth o Sociocultural component  Demographic characteristics, general behavior, attitudes, and  beliefs of people in a particular society • Demographic characteristics (# of people with a certain  skill) affect how businesses will staff o Ex. Working moms now vs. then o Political component  Legislation, regulations, court decisions that govern and regulate  business behavior • Sexual harassment, maternity leave Technology is the knowledge, tools and techniques used to transform inputs (raw  materials) into outputs (products and services) SPECIFIC ENVIRONMENT­ unique to the firms industry and directly affects the way it  conducts day­to­day business • Includes customers, competitors, supplies, industry regulations, advocacy groups • Unsafe toys produced= toy industry spends more money to increase safety o Customer Component  Reactive and proactive ways to react to customer needs • Reactive­ identifying and addressing customer trends and  problems after they occur o Respond quickly • Proactive­ identifying and addressing customer needs,  trends and issues before they occur o Competitor Component  Companies in the same industry that sell similar products or  services to customers • Difference between successes and failures come to down to  customer satisfaction  Competitive analysis • Deciding who your competitors are, anticipating  competitors moves, and determining competitors strengths  and weaknesses o Managers tend to focus on the big competitors and  do a poor job o
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