research paper- Cathay Pacific airways

CHAPTER 2: THE ENVIRONMENT AND EXTERNAL STAKEHOLDERS

§Dr. Aday

§HTM 590

LEARNING OBJECTIVES

§Identify the most important elements of the broad environment, including the sociocultural, economic, political, and technological contexts.

§Know the difference between a trend and a fad.

§Understand Porter's five forces model, and the nature of industry structure.

§Explain the difference between the operating environment and the broad environment.

§List and explain the various tactics managers can use to influence stakeholders.

THE ORGANIZATION, ITS PRIMARY STAKEHOLDERS & THE BROAD ENVIRONMENT

The Organization Owners/Board of Directors

Managers Employees

The Operating Environment

The Broad Environment

Financial intermediaries

Government agencies And administrators

Local communities

Competitors

Suppliers Customers

Activist groups

Unions

Socio-cultural Influences Technological Influences

Economic Influences Political Influences

The Media

WHY MONITOR SOCIETY?

§Change = opportunities

§Avoid being called a “bad corporate citizen”

§A good reputation can lead to increased demand or business opportunities

§Accurate assessment can sometimes help firms avoid restrictive legislation

Socio-cultural Influences Economic Influences

Technological Influences Political Influences

Broad Environment

SOCIO-CULTURAL INFLUENCES

MAJOR SOCIO-CULTURAL ISSUES IN THE U.S.

§Role of government in health care and elder care

§Terrorism and levels of violent crime

§Security of travel and public places

§Global warming

§War and role of the military

§Declining quality of education

§Illegal immigration

§Quality and health levels of various imported and manufactured food products

§Pollution and disposal of toxic and nontoxic waste

ECONOMIC INFLUENCES

GLOBAL ECONOMIC FORCES TO MONITOR AND PREDICT §Economic Growth §Influences consumer demand, cost of factors of production, availability of factors of production (especially labor and scarce resources)

§Interest Rates §Influences cost of capital for new projects, cost of refinancing existing debt, consumer demand (due to customer ability to finance purchases)

§Inflation §Influences interest rates, cost of factors of production, optimism or pessimism of stakeholders

GLOBAL ECONOMIC FORCES TO MONITOR AND PREDICT

§Exchange Rates §Influences ability to profitably remove profits from foreign ventures, government policies towards business

§Trade Deficits §Influences government policies, incentives, trade barriers

POLITICAL INFLUENCES

POLITICAL FORCES

§New Laws

§New Regulations

§Current Administrative Policies

§Government Stability

§Wars

§International Pacts and Treaties

TECHNOLOGICAL INFLUENCES

TECHNOLOGICAL FORCES §Technology is knowledge about products and services and the way they are made and delivered §Organizations should monitor

§New Production Processes §New Products/Product Ideas §Current Process Research Efforts §Current Product Research Efforts §Scientific Discoveries that May Have an Impact

§Characteristics of innovation §New innovations often emerge from existing technologies §A dominant design will eventually be widely adopted §Radical innovations often come from outside the industry

FROM ANALYSIS OF THE BROAD ENVIRONMENT TO DEVELOPMENT OF ALTERNATIVE STRATEGIES §For each key influence found during analysis of the broad environment, determine whether it is: §An opportunity §A threat §Neutral

§Then determine which strategies the firm might pursue in response to each influence, if action should be taken at all §This is one way to generate ideas regarding future strategies the firm might pursue

THE ORGANIZATION AND ITS OPERATING ENVIRONMENT

The Organization

The Operating Environment

Financial Intermediaries

Government Agencies and Administrators

Local Communities

Competitors

Suppliers Customers

Activist Groups

Unions The Media

FIVE FORCES OF INDUSTRY COMPETITION Potential Entrants

Suppliers Customers

Industry Competitors

Rivalry Among Existing Firms

Bargaining power of suppliers

Threat of new entrants

Bargaining power of customers

Substitutes

Threat of substitute products or services Source: Adapted with the permission

of the Free Press, an imprint of Simon & Schuster Adult Publishing Group (see text for complete reference)

ECONOMIC POWER OF CUSTOMERS §Customers are more powerful if: §They are few in number §They make high-volume purchases §They are buying undifferentiated products §They are highly motivated to get good deals (i.e., earn low profits or buy a lot from the industry) §They can easily vertically integrate backward and become their own suppliers §They are not very concerned about quality §They have an information advantage over the suppliers §They are well organized

ECONOMIC POWER OF SUPPLIERS §Suppliers are more powerful if: §They are few in number §They sell products/services that are not easily substituted §They do not sell a large percentage of their products/services to the buying industry §They have a dependent customer §They sell products/services that are differentiated §They can easily vertically integrate forward and become their own customers §They have an information advantage relative to their buyers §They are well organized

ENTRY BARRIERS

§Some common entry barriers include: §Economies of scale §High capital requirements §High levels of product/service differentiation §Limited access to distribution channels §Inimitable resources §Government policies or regulations that discourage new entry

SUBSTITUTE PRODUCTS

§Substitutes are products or services provided by another industry that can be readily substituted for an industry’s own products or services

§Substitutes place a ceiling on the price that can be charged

§They can also set new performance standards

INDUSTRY COMPETITION

§A high level of competition is expected when: §There are many competitors and none of them is dominant §Slow industry growth §Hard to differentiate products §High fixed costs exist §High exit barriers exist (what is lost if you leave the industry)

§Terms to describe industry competition: §A monopoly is a situation in which one firm is the only significant provider of a good or service §An oligopoly exists when an industry contains a few very large firms (very common in established industries) §Hypercompetition is a condition of rapidly escalating competition

MANAGING THE OPERATING ENVIRONMENT

§Economic Actions §Erect new entry barriers §Competitive tactics such as advertising, new- product launches, cost-reduction efforts, new distribution methods or quality improvements (to name a few) §Competitive benchmarking

COMMON FORMS OF INTERORGANIZATIONAL RELATIONSHIPS §Joint Venture §An entity that is created when two or more firms pool a portion of their resources to create a separate jointly owned entity

§Network §A hub and wheel configuration with a local firm at the hub organizing the interdependencies of a complex array of firms

§Consortia §Specialized joint ventures encompassing many different arrangements. Consortia are often a group of firms – Travel Agents

COMMON FORMS OF INTERORGANIZATIONAL RELATIONSHIPS

§Alliance §An arrangement between two or more firms that establishes an exchange relationship but has no joint ownership involved