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MGMT 316 Macro Environment, Industry Environment, and Internal Environment
Macro-environment: PESTLE
Political, economic, social, technological, legal…and events
dynamism, complexity, resources scarcity, and uncertainty
Industry Specific environment: Porter’s 5 forces model
Power of customers, power of suppliers, barriers to entry, availability of substitutes, nature of rivalry/competition
Regulation, pressure groups
Internal environment: structure, processes, controls, policies, culture
Organizational costs and cultural effects
Environmental Change and Strategic Response (or not)
A&P grocery chain
15,000 urban stores in 1929
ROI=20% 1920s-1950s
Low-cost leader
Lost $157 million in 1975
…what happened?
1920s USA
Densely populated cities
Multigenerational, rented city apartments
Public transportation
Men worked in offices (in town) or factories (at the edge of town)
Women managed the home
Agricultural land between cities
Newspapers…not electricity, phones, radio
The city grocery store…900 Square feet, clerk service
Walk or take the cable car between your apartment and the grocery store…
Political and Economic Change: GI Bill of Rights, 1944
Taxpayer-funded college and Vo/Tek education for veterans (90 days active service)
No-down, low interest home loans for vets
“I can go to college and trade school!”
“I can buy a home!”
Political/Economic/Physical change Interstate Highway Act, 1955
65 mph travel between cities now possible!
Multilane, no stop signs, well engineered, safe travel for cars and trucks.
World War II learning: Two front war, far from home…
Scaled, speedier production
Logistics and supply chain management in production and distribution
Optimization of resources and assets
Refrigerated transport of perishables
“Everything is higher quality, more reliable, and costs less than before!”
Convergence of Opportunity
Young families with government-guaranteed borrowing capability
Veterans increasing earning power with taxpayer-funded college education
Freeways connecting cities, running through inexpensive agricultural counties
Fast, reliable, affordable personal transportation
Packaged foods from supplying military
Logistics expertise, refrigerated trucking
Women stay in the workforce
From this (1920s)
To this (1960s)
Size, scale, selection
Self-service, large loads
Change in home cold storage capacity
Summary of changes
Taxpayer funding for education and homes
Increasing affluence car ownership
Low-cost farmlandsingle family homes
Apartment dwellerssuburban homeowners
Lower density, personal transportation, low priced land”supermarkets”
Bigger refrigerators, more packaged goodweekly grocery trip, not daily
Breakout Group Discussion: today’s challenges?
Traditionals: Stater Bros, Ralph’s, Albertson’s
How are changes today, and foreseeable tomorrow, likely to challenge the models of traditional supermarkets?
Social changes?
Technological changes?
Economic changes?
Political changes?
Competitive changes?
Events affecting?
THINK: What newer competitors do traditional supermarkets now have, and what environmental changes created the opening for these competitors?
A more modern example…
The world’s largest video rental chain…now bankrupt…BLOCKBUSTER VIDEO!
1987 – Huizenga buys BB for $120 million
Buys/builds…new store open every 24 hours!
1994 – Huizenga sells BB to Viacom for $8.4B
2000 - Blockbuster declines to buy Netflix for $50mm, BB valued at $4.6B.
2004: 9094 stores, 84K employees (59K in US)
2010 – valued at $24mm, BB files for bankruptcy.
Pre-BlockBuster video stores…
Sole proprietor
700-900 square feet stores
800-1000 video cassettes, “marginal” content
Secondary locations
“Social outcast” customers
6,000 square feet
28 day head start
12,000 tapes
power vs studios
Prime real estate
real estate expertise
MIS system
inventory optimized
VCRs and DVDs key complements needed!
1990: 70% of US homes have a VCR
2007: 81% of US homes have a DVD player
2010: 65% of US homes have broadband access
Change in medium creates opportunity
Industry Environment Elements
Do I have a few key customers, who could really hurt me if they move to a competitor or substitute product?
Do I have a few key suppliers, who control a key input I really need for my product valuable to customers?
Is it easy for new firms to enter my industry?
Are there good substitutes for my industry’s products, that customers can easily switch to?
Is demand for my industry’s products growing, stable, or shrinking?
Can customers easily switch from my product to my competitor’s product?
Do customers perceive a meaningful difference between my products and those offered by my competitor?
Are there quality, well-priced complementary goods available, which add value to my product?
The five forces and the Laptop Industry
Power of suppliers – only three CPU manufacturers; all other inputs are commodities
Power of customers – Best Buy and other powerful retailers
Barriers to new entry – scale economies and access to distribution
Threat of substitutes – chromebooks, tablets, smartphones, desktop computers
Complements – computer programs, wifi access, broadband access
Regulation, advocacy groups, boycotts, etc.
Breakout Room Discussion: Five forces and the videogame console industry
Microsoft, Sony, Nintendo
What are the inputs, and what power do suppliers have?
Who are the customers? Power?
What are the barriers to new entry?
What are the substitutes?
What is the nature of competition?
What are the key complementary goods, which add value to videogame consoles?
Environmental changes
Changes in technology can make some products obsolete very quickly!
Organizations who cannot anticipate or lead change are doomed.
Technology changes often create ecosystem opportunities.
Reviewing Environmental Analysis
Supports the Mgt Function of PLANNING
Scanning, interpretation, action, cognitive mapping
Macro Environment: Political, Economic, Social, Tech
Simple, stable, complex, dynamic uncertainty
Specific Environment
Customers, competitors, suppliers, regulation, advocacy groups (PR and boycotts)
Relationships, dependence, opportunism
Internal Environment – trends/events affecting employees, managers, culture
Organizational Culture
Mission, purpose, vision
Shared values, beliefs, attitudes
Heroes, stories, ceremonies
Consistency through time and integrity throughout the organization
CHANGING culture
Behavioral addition and substitution
Change language, symbols, ceremonies
How Culture is Created
Beliefs/passions/attitudes of the founders
History, repeated stories, “heroes”
Ceremonies, symbols, rituals,
Culture is created, intentionally or unintentionally, over time!
Culture is changed by:
Changing symbols, rituals, stories, heroes, artifacts
Behavioral addition and /or substitution
Clearly stating the new desired beliefs/attitudes
Reinforcement over time
FIT among artifacts, values, assumptions
Incentives to resist change, versus incentives to change
Features of Culture
Adaptability (reaction to changes)
Employee involvement (norms)
Clear mission/purpose (direction, goals)
Consistency: taught, over time, reinforced
Browne’s opinion: Compensation and Culture are an organization’s most effective and efficient control systems!
Elements of Culture
Selection, orientation
Training, comm norms
Symbols, rituals, language, stories, vocabulary
WHY IMPORTANT? Culture is one element of control!
Review: Organizational Culture
Our shared beliefs about:
Mission, vision, beliefs, values, right and wrong
How we communicate, coordinate, cooperate
How we treat people inside and outside the org
Artifacts
Symbols, stories, rituals, vocabulary
OD consulting: efficiently and effectively creating and sustaining the right amount of change, in the right direction, at the right pace, using the right tools, and retaining the right people!
Cortes’ solution to inertia and resistance…1519, war with Incas!