D2: Social Trends

Strategic Management: Theory and Practice

The External Environment: Social and Technological Forces

Contributors: By: John A. Parnell

Book Title: Strategic Management: Theory and Practice

Chapter Title: "The External Environment: Social and Technological Forces"

Pub. Date: 2014

Access Date: July 2, 2018

Publishing Company: SAGE Publications, Ltd

City: 55 City Road

Print ISBN: 9781452234984

Online ISBN: 9781506374598

DOI: http://dx.doi.org/10.4135/9781506374598.n4

Print pages: 78-115

©2014 SAGE Publications, Ltd. All Rights Reserved.

This PDF has been generated from SAGE Knowledge. Please note that the pagination of

the online version will vary from the pagination of the print book.

The External Environment: Social and Technological Forces

Chapter Outline

Social Forces Case #1: Eating Habits

Case #2: Automobiles

Global Concerns

Technological Forces

The Internet

Strategic Dimensions of the Internet Movement Toward Information Symmetry

Internet as Distribution Channel

Speed

Interactivity

Potential for Cost Reductions and Cost Shifting

Forms of Electronic Commerce Business-to-Business

Business-to-Consumer

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Business-to-Government

Consumer-to-Consumer

Consumer-to-Business

Commoditization and Mass Customization

Environmental Scanning

Summary

Key Terms

Review Questions and Exercises

Practice Quiz

Student Study Site

Notes

The previous chapter discussed two components of the macroenvironment: (1) politi-cal-legal forces and (2) economic forces. This chapter continues our examination of external influences on the industry by addressing the other two elements of the PEST (political-legal, economic, social, and technological): social and technological forces.

As previously mentioned, each external force embodies a number of key issues that vary across industries. Some issues are specific to a single force whereas others are related to more than one force. Automobile safety, for example, has political-legal (e.g., legislation requiring that safety standards be met), social (e.g., consumer demands for safe vehicles), and technological (e.g., innovations that may improve safety) dimensions. In such situations, it is important to understand how the various forces combine to influence industry behavior and performance.

Social Forces

Social forces include such factors as societal values, trends, traditions, and religious practices. Societal values refer to concepts and beliefs that members of a society tend to hold in high esteem. In the United States, traditional societal values include individual freedom, fairness, free enterprise, and equality of opportunity. In a business sense, these values translate into an emphasis on entrepreneurship and the belief that one's success is limited only by one's ambition, energy, and ability. Interestingly, these values have attracted millions of immigrants to the United States and Canada during the past centuries in search of religious, economic, and political freedom, resulting in a business environment that is more

vibrant than in countries that do not hold similar values.1.

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Even imbedded cultural forces such as religion can shift over time. Christianity, for example, has influenced social and economic development in the United States throughout the nation's history. In recent years, however, the number of American adults who depart the faith of their upbringing has increased. About one-quarter of Americans identify themselves as Roman Catholic. Although this percentage has remained fairly stable over the years, one-third of adults raised as Catholics have left the faith and have been replaced by a wave of Catholic Latino immigration. Protestants have declined from about two-thirds of the population just two decades earlier to about one-half. The number of Americans reporting no religious affiliation has risen to 16%. Overall, the fluidity of religious preference has changed markedly in the

United States.2.

Convenience is a core value for American consumers. The average Wal-Mart shopper spends only 21 minutes in the store but finds only 7 of the 10 items on the shopping list. Historically, big-box stores like Wal-Mart and Home Depot have focused on more products and larger stores. Now they are searching for ways to help their customers locate more of what they

need in less time.3.

Restaurants in the United States have expanded rapidly as the percentage of working women climbed from 33% in 1948 to around 60% throughout the 2000s and early 2010s. With higher incomes and less disposable time, families with two working adults instead of one tend to eat out more often. The number of restaurant meals purchased per person annually seems to

have peaked at around 210, a substantial increase from decades earlier.4.

Many firms have recognized the importance of marketing their products and services to women. Facing increased competition from Wal-Mart and Amazon, Best Buy embarked on a concentrated effort to attract more female shoppers in 2010. Best Buy controlled 22% of the U.S. consumer electronics market in 2010, but only 16% of its sales were to women. Redesigned showrooms and smaller “Best Buy Mobile” locations—discussed later in this

chapter—have been part of the strategy.5.

Increases in costs and inconveniences associated with health care have also created opportunities for retailers. Since the mid-2000s, Wal-Mart, Target, and CVS Caremark have launched medical clinics in select stores, whereby consumers can pay between $25 and $60 and receive fast access to basic medical services without an appointment. Costs are trimmed by staffing the clinics with nurse practitioners who are permitted to treat patients and write

prescriptions in most states.6.

Societal trends can have a keen influence on the rise and fall of industries. Today, the average American is older, busier, better educated, less likely to be a member of the Caucasian race than in previous years, more bargain conscious, and more technologically astute and Internet

savvy.7. The latter trend has had a profound effect on the demand for personal computers and educational services and has led firms operating in the broad middle-age market to modify their strategic approaches to include either younger or older adults. Cosmetics maker Avon, confronted with a shrinking clientele, launched a major effort in 2002 to expand its

appeal to the trendier 16- to 24-year-old market.8. In 2005, Gap launched 10 test stores designed to target boomer women (currently in their 40s and 50s), a category that typically

spends less on apparel than younger adults.9. In the mid- to late 2000s, retailers like J.C. Penney, May Department Stores, and Sears have begun to open stand-alone locations to provide easier access to customers too busy to plan a day at the mall, a trend that has

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continued well into the 2010s.10.

Even casket makers can be affected by social forces. An increasing preference for cremation throughout the 2000s into the early 2010s has stymied the casket industry. Casket sales in the United States declined from 1.9 million per year in 2000 to about 1.7 million in 2009. As a result, casket makers have begun to emphasize less expensive models, move into the cremation business, and even invest in unrelated businesses altogether. In one diversification effort, Hillenbrand, parent of Batesville Casket, spent $435 million in 2010 to acquire K-Tron

International, a factory equipment manufacturer.11.

Societal trends also include demographic changes that can dramatically affect business opportunities. The U.S. baby boom, which lasted from 1945 through the mid-1960s, initially provided opportunities for businesses such as clothing, baby apparel, and diaper manufacturers, private schools, and candy and snack makers. Later, as the baby boomers entered the job market, universities and businesses were blessed with a tremendous pool of applicants. As they have continued to age, the baby boomers have begun shopping at home more and are spending heavily for health care needs, leisure activities, and vacation

alternatives.12. Moreover, this population segment may not be as brand loyal as previous generations of Americans and represents a key group of purchasers of goods and services on

the Internet.13.

By 2010, ethnic minorities accounted for 49% of the children born in the United States. In Hawaii, New Mexico, California, Texas, and the District of Columbia, the percentage had

climbed to 65.14. The Hispanic population in the United States surged from 35.3 million in 2000 to 50.5 million in 2010. Latinos accounted for 16% of the nation's total population of 308.7 million according to 2010 census figures, more than half of the overall gain from

2000.15. Moreover, Hispanics tend to spend more on cleaning and beauty products and typically have more brand loyalty than the average U.S. consumer. Firms have taken notice, tailoring advertisements to Hispanic audiences and providing English and Spanish on their product labels. In the 2000s, consumer products firm Colgate-Palmolive leveraged its strength in Latin American markets to establish a dominant position in the United States. In 2011, Procter & Gamble (P&G)—using insights from its team of researchers—followed suit and instituted a number of changes specifically designed to attract Latino consumers. P&G tweaked a number of its products and began to feature Latino celebrities in many of its

advertisements.16.

Demographic changes have taken a toll on American Express. Long known for catering to older, more affluent executives, American Express is having a difficult time reaching members of a new generation to whom the prestige of having an American Express card means little or nothing. Between 1984 and 2004, the number of credit cards in circulation in the United States rose from fewer than 200 million to over 600 million, while the number of debit cards grew from 0 to over 200 million. In an effort to permeate the credit and debit card fog among young consumers, American Express even began offering some unusual perks targeted to young prospective cardholders like free chocolate martinis and discounts at trendy

nightspots.17.

Firms in the United States are pursuing the growing Hispanic and immigrant populations, not only with Spanish advertisements and websites but also with products and services tailored to cultural differences. Firms such as Kraft and Anheuser-Busch InBev have invested large

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sums in Spanish advertising campaigns. Some financial institutions began offering checking accounts and mortgages to immigrants lacking documentation in the 2000s. In 2007, Bank of America even began offering credit cards to customers without Social Security numbers— typically illegal immigrants—a decision based on what executives called a large untapped

group of potential customers.18.

Attempting to target multiple cultural groups can be a challenge. Pizza Patron is a 100-unit Hispanic-focused restaurant chain based in Dallas. Featuring toppings such as chorizo sausage and jalapeno peppers, Pizza Patron has targeted Hispanic-American consumers since its inception in 1986, billing itself as the number one Latin pizza brand. The company shifted its emphasis in the early 2010s to a bilingual, bicultural audience. As brand director, Andrew Gamm noted, “Hispanics born in the U.S. have one foot in each culture. They are very into adopting American culture without fully letting go of their Hispanic roots. In [the past], we

focused on these peoples' parents.”19.

Social forces are often intertwined with forces in other areas of the external environment. For example, the global recession of the late 2000s and early 2010s—and economic force— has spawned a greater emphasis on frugality. As cautious consumers spent less, retailers like Wal-Mart and Home Depot responded by cutting costs through reductions in work hours and inventories. Lower costs often translate into lower prices, better positioning these retailers to

compete for consumer spending.20.

Societal trends present various opportunities and threats to businesses. For example, the health and fitness trend that emerged in the 1990s has spawned growth in a number of manufacturers of fitness equipment, as well as producers of healthy drinks, while hurting a number of businesses in less health-friendly industries such as tobacco and liquor. In the 2000s, Anheuser-Busch launched Michelob Ultra, a low-carbohydrate beer, in an effort to tap

the health-conscious market.21. PepsiCo has increased its sales of healthy snacks, including

baked and low-fat offerings, substantially in the past decade.22.

A number of consumer-related trends have been sparked by development of the Internet. Online retail sales in the United States have risen rapidly in recent years. Purchases of big- ticket items such as furniture and appliances have also grown as consumers have become more comfortable making large purchases via the Internet, creating opportunities for big-box

retailers.23. Online shopping has also received a boost from rising fuel prices. For example, after gas prices spiked in April 2011, online sales in the United States rose by 19.2% over the

April 2010 figures, the fastest pace in nearly 4 years.24.

The Internet has also facilitated the use of social media such as Facebook and Twitter. Consumers use social media to rapidly exchange information and ideas about products and services. Firms and industries can benefit when a video featuring a product “goes viral” on a site such as YouTube. Alternatively, they can suffer when troublesome information—accurate or not—spreads quickly among customers. For example, meat processor AFA Foods filed for bankruptcy in 2012 a few months after consumers rejected the lean finely textured beef (LFTB) added to the firm's beef products. Rivals Beef Products and Cargill also scaled back production substantially. Concern about the filler—termed pink slime by detractors—became widespread in part because of social media. LFTB actually refers to trimmings of lean, low-fat beef separated from fat through an innovative process that raises the temperature to about 100 degrees Fahrenheit. Some media outlets erroneously tagged LFTB as an additive unfit for

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human consumption, and many consumers changed their demand patterns immediately. Several major supermarket chains in the United States, including Kroger, Safeway, and Supervalu, responded by discontinuing products with LFTB, thereby placing an immediate

strain on meat processors.25.

Buyer behavior is a key concern, especially for retailers (see Strategy at Work 4.1). Many traditional retailers have struggled to keep pace with their online rivals, most of which translate their lower overhead costs into lower prices. Traditional department stores such as Sears, J.C. Penney, and Dillards suffered revenue declines in the late 1990s and early 2000s as a result of changes in consumer buying habits that favor discounters such as Target and Wal-Mart and e-tailers such as Amazon. Department stores have responded by streamlining stores to facilitate faster service, modifying product lines to target specific consumer groups,

and even increasing their reliance on private label brands.26.

Strategy at Work 4.1. Angry Birds and Hasbro27.

Hasbro, Inc., is the largest seller of traditional board games in the United States and is known for classics like Monopoly, Operation, and Scrabble. But the world's largest toymaker is experiencing difficult challenges.

Although Hasbro has been a favorite of Christmas shoppers for years, sales plummeted during the 2010 season, resulting in a 15% decline in profits for the first quarter of 2011. Its stock price declined almost 30% in 2011 amidst fear that the company appears unable to recover. While Hasbro has emphasized traditional games, rivals like Mattel and Lego have capitalized on changes in consumer preferences. Mattel shares rose by almost 10% in 2011, sparked by innovative board games like Angry Birds.

The largest share of Hasbro's $4 billion annual revenue comes from boy toys such as Nerf foam weaponry, followed by games. Many analysts believe that the company has been too slow to adapt to online social gaming trends. Zygna's Words with Friends has 13 million active monthly users on Facebook compared to only 1 million for Scrabble.

Hasbro remains the leader in board games, but recent declines underscore the importance of comprehending and addressing changing social forces, especially consumer tastes. Technology also plays a role in this instance, as the shift toward online gaming leverages advances in computer and Internet speed and graphics. As chief marketing officer John Frascotti put it, “The U.S. market has been challenged in terms of gaming, but clearly we need to do better.”

Increases in online sales have caused traditional retailers to develop new ways to attract prospective buyers to their stores. They discovered that many consumers were less likely to frequent a traditional retailer unless it also provided some form of entertainment value. Bass Pro Shops, for example, increased its store traffic substantially by including such amenities as a large fish tank, live baits, and even a rock-climbing wall. Mall developers began to include

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“activity zones” in their facilities for such attractions as skating and fitness centers. This trend

of mixing retailing with entertainment is expected to continue in the coming years.28.

Trends toward socially responsible manufacturing and waste management practices, as well

as concerns for saving private wetlands from business development, should be noted too.29.

The last decade of the 20th century witnessed a heightened interest in both consumer recycling and the production of recyclable products by manufacturers in the United States and other parts of the world. Some leisure travelers are even demanding more economically friendly vacations and wish to patronize providers that limit carbon emissions or even provide

a “carbon-neutral” vacation.30. However, many consumers are often unwilling to pay the

higher prices typically associated with environmentally friendly products and services.31.

In 2009, Wal-Mart unveiled an environmental labeling program designed to disclose the full environmental costs associated with its products, enabling consumers to consider this rating alongside price when making their purchases. Although the program will take years to fully implement, it reflects the increased interest in providing accurate environmental information to

consumers at the level of purchase.32.

The tragic events of 9/11 have engendered social changes that affect a variety of industries. For example, concerns over air travel safety have greatly influenced everything from routes to marketing strategies of major airlines. Broadly speaking, Americans are more willing to accept inconveniences associated with their transactions if they believe that safety and security are heightened as a result. Studies also suggest that investment and personal life strategies have

become more conservative and reflective as a result of the tragedy.33. Even churches are taking notice, as the 25% increase in national attendance immediately following the events of

9/11 had all but disappeared by early 2002.34.

The following two subsections develop in detail the changes in two key social forces: (1) eating habits and (2) automobiles. These examples illustrate both the richness and the complexity of social change and how it affects firms. The final subsection elaborates on global concerns.

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Case #1: Eating Habits

A key social force affecting a number of industries in the United States and across the globe is the changing of eating habits. One can argue that some firms in food-related industries have achieved success primarily on the basis of a single social force. Since its founding in 1980, Whole Foods Markets grew to 189 stores and $5.6 billion annual sales in 25 years as the largest organic and natural foods grocer in the United States. John Mackey, chief executive officer (CEO), has demonstrated that the natural and organic food movement is not merely a fad but constitutes a movement substantial enough to support a national grocer. Of course, Whole Foods faces a number of potential threats associated with this movement. If it declines, the grocer will most likely suffer. Alternatively, if it becomes mainstream, traditional grocers will continue to expand their natural and organic food product lines, increasing

competition for the firm.35. During the economic downturn of the late 2000s, many consumers were not willing to spend more on organic food products. In 2009, grocers like Safeway and Supervalu expanded their private label organic brands in order to provide lower priced organic foods to their customers. The expansion of generic product offerings tends to trim margins

across the board, which is not beneficial to high-end retailers like Whole Foods.36.

During the late 2000s, many consumers also shifted from brand-name products to less expensive store brands. Food producers like Kraft and Kellogg's responded by cutting costs and trimming prices to narrow the gap between their offerings and store brands. By 2010,

U.S. shoppers began to shift back to national brands.37.

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Food producers understand the value of staying abreast of changes in consumer tastes, especially in terms of diet fads and health trends. While food sales have grown at a modest pace of about 2% annually, sales related to diet fads rise and fall rapidly, rewarding firms with the right array of products at the right time. In the mid-2000s, companies like Nestle, Unilever, and Kraft began experimenting with special starches and fibers to create foods that make people feel full for a longer period of time. The success and failure of such products has been

mixed.38.

Interestingly, American consumers have been sending a mixed message of the celery stick and the double chocolate peanut swirl for the past decade, further complicating the task of identifying demand patterns for restaurants and packaged food producers alike. In the late 1990s and early 2000s, fast-food consumers began eating less at traditional giants such as Burger King, Pizza Hut, and Taco Bell in favor of more healthy alternatives such as Subway and Panera Bread. Traditionally synonymous with hamburgers, McDonald's has since responded with more salads, expanded advertising campaigns, a rotation of temporary items, revamped dollar menus, and even credit card service, but the company's “fried” image

remains intact and sales increases have been difficult to muster.39. In 2010, McDonald's began testing a wider variety of menu items at some of its restaurants, including flatbread sandwiches, garden snack wraps (chicken and vegetables wrapped in a tortilla), oatmeal,

caramel-mocha, vegetables, and frozen strawberry lemonade.40.

In the fast-food business, rapid and effective adaptation to changes in taste can spell the difference between profit and loss. In the mid-2000s, tastes shifted from hamburgers and chicken to toasted sandwiches. Subway equipped its stores with high-tech ovens and began offering consumers the option of toasting their sandwiches. Rivals took similar measures as

the sale of sandwiches grew at twice the pace of burgers.41. Even as U.S. fast-food icons continue to expand abroad, restaurant chains from other parts of the world, such as Guatemala's Pollo Campero and Mexico's El Tizoncito, are expanding into the United

States.42.

During the past decade, many fast-food restaurants have been “supersizing” their meal combinations by adding extra fries and larger drinks (a practice McDonald's later discontinued), while at the same time expanding alternatives for items such as grilled chicken

sandwiches and salads.43. In 2004, Coca-Cola and PepsiCo began to emphasize smaller

cans and bottles (at higher per-ounce prices),44. while McDonald's introduced low-carb menu

items.45. Eating habits even changed markedly after the U.S.-led war with Iraq began as Americans consumed large quantities of high-calorie takeout food while watching war

coverage on television.46.

In early 2005, the U.S. government released a revised design of the food pyramid, a graphical depiction reflecting food choices the U.S. Dietary Guidelines Advisory Committee believe to be appropriate; interest in regulating food products with healthy considerations increased further with the election of President Obama. In the early 2010s, First Lady Michelle Obama

spearheaded a campaign to promote healthy eating habits, particularly among children.47.

With the success and longevity of products like Hardee's Monster Thickburger with 107 fat grams and 1,418 calories, the extent to which many American consumers consider health

factors when purchasing fast food is not clear.48.

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Food consumption patterns often vary across borders. Traditionally, food in China has been viewed as something to be savored, not rushed. Only about 10% of business at fast-food restaurants in China is takeout. KFC (Yum Brands) opened its first drive-thru in China in 2002 and added a second in 2005. Response was slow at first, but drive-thrus became more common in the late 2000s. McDonald's opened its first drive-thru in China in 2005 and partnered the following year with Sinopec, China's largest gasoline retailer, to build a large number of additional units in Sinopec service stations. With the faster pace of Chinese life and more cars on the road, McDonald's has banked on acceptance of the drive-thru concept (in Chinese, De Lai Su, which translates into “come and get it fast”). Encouraged by success, McDonald's had introduced 105 drive-thrus by 2010, with plans to introduce 300 more by 2013.

This move also reflects an increased effort by McDonald's to tailor its offerings more to local tastes, an approach more common at rivals like KFC and Pizza Hut. Chicken outsells beef at McDonald's in China, where the fast-food giant blends traditional favorites like Big Macs and fries with local favorites like corn, spicy chicken wings, and triangle wraps—chicken or beef

mixed with rice and vegetables in a tortilla-type wrapper.49.

Chinese consumers have become more interested in healthy eating as well. In 2010, Nestle and PepsiCo began introducing health food products in China that include wolfberry plants, chrysanthemum teas, and tremella, which are natural ingredients associated with wellness among consumers there. Sales of wellness foods and beverages increased 28% over 5 years to $1.5 billion in 2009. Nestle hopes to capitalize on this heightened awareness in China and throughout the world by investing $500 million globally over the next 10 years to develop foods with health benefits. For example, with an estimated 92 million Chinese suffering from diabetes, Nestle began testing in 2010 a mulberry yogurt that is designed to naturally

regulate blood sugar levels.50.

American and British females between the drinking age of 21 and 24, for example, consumed 33% more alcoholic beverages in 2004 than they did just 5 years earlier, a trend likely connected to the fact that women are starting families later in life and therefore have more

disposable income at the age.51. Concern about obesity in the United States, the United Kingdom, and other developed nations has become more pronounced in recent years. Critics charge that sedentary lifestyles and unhealthy foods have led to increases in diabetes, heart disease, and other medical problems associated with obesity. Many charged that food processors and fast-food restaurants such as McDonald's have contributed to this

phenomenon by encouraging individuals to consume larger quantities of unhealthy foods.52.

At the same time, however, a number of food producers and restaurants began catering to consumer interest in low-carb regiments as dieter concern shifted from fat content in foods to carbohydrate content. Unilever, for example, began promoting low-carb Skippy peanut butter,

Wishbone dressing, and Ragu spaghetti sauce.53. In 2006, Kraft Foods, Campbell Soup, and PepsiCo agreed to set guidelines for fat, sugar, sodium, and calories for snacks sold in stores,

snack bars, and school vending machines.54.

Alcoholic beverage producers are responding with new alternatives targeted to the taste preferences of young females. Responding to shifts in alcoholic beverage consumption patterns is not always easy, however. In late 2005, Anheuser-Busch teamed up with notable Harvard epidemiologist Meir Stampfer to tout the potential medical benefits of beer consumption. Stampfer cites a number of studies suggesting that moderate consumption of

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alcohol may reduce the risk of heart attack, diabetes, and other ailments. Beer's share of the overall consumption of alcoholic beverages in the United States declined in the 2000s while wine's share increased. Although Anheuser-Busch attributes some of this shift to the preference for beverages low in carbohydrates, the firm believes that a key factor is a misconception that moderate wine consumption can be healthy whereas moderate beer

consumption is not.55.

In 2011, the Obama administration attempted to address the marketing side of the equation by releasing voluntary standards designed to govern how McDonald's, Coca-Cola, General Mills, and others advertise their products to children. For example, under the guidelines, food marketed to children under 17 must provide a “meaningful contribution” to a healthy diet by including specified amounts of fruits, vegetables, whole grains, or other health foods. Although the guidelines are “voluntary,” many are concerned that regulations will follow if they are not met. As Dan Jaffe, executive at the Association of National Advertisers, put it, “There's

clearly a veiled threat here that if they don't act, someone's going to step further.”56.

Case #2: Automobiles

Social trends have been key factors in the automobile industry. The 1990s experienced the rise of the sport utility vehicles (SUVs) on the American automotive landscape. By the end of the decade, SUVs were the vehicle of choice for many suburban families, and the minivan was passé. Auto manufacturers realized, however, that the new breed of SUV patrons was willing to give up some of the rugged features associated with the SUV in exchange for the additional space and softer ride associated with the minivan. One General Motors (GM) executive said, “The sport utility today is kind of becoming like the minivan, a family vehicle.” In early 2001, Ford responded to the shift in consumer preferences by introducing a

redesigned Explorer with three rows of seats, additional safety gadgets, and a softer ride.57.

By 2003, Ford, GM, and Nissan had begun to shift attention away from large SUVs to the

hybrid vehicles they termed crossovers or active lifestyle wagons58. Ford executives even

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called 2004 “the year of the car” in anticipation of a consumer move away from SUVs, trucks,

and minivans.59.

The evolution of the SUV continued in the mid-2000s, as demand for traditional SUVs like the Ford Explorer and the Chevrolet Tahoe leveled off in the United States. In 2005 and 2006, sales of crossover vehicles began to surpass those of SUVs in the United States. Crossovers are typically smaller and more fuel-efficient than SUVs, but many got wider and longer during this time, adding such features as a third row of seats, more cargo space, and greater towing

capacity.60. New models in 2006 boasted designs that resembled a combination of SUV and sports car, station wagon, or minivan. Experts attributed the changes to both a greater interest

in practicality and the reality of higher fuel prices.61. Ford discontinued production of

minivans in 2007 and GM followed suit in 2008.62.

Meanwhile, the spikes in fuel prices in the mid-2000s took a heavy toll on sales of less fuel- efficient vehicles, including SUVs. When gasoline prices in the United States approached $3 per gallon in 2004, GM reported a monthly sales decline of 24%, while Ford sales dropped 19.5%. Meanwhile, sales at Chrysler, which is less dependent on SUVs, rose 4%. Sales at Toyota, makers of more fuel-efficient vehicles, rose 10% during the same period, led by a 23%

increase in sales of the gas-electric hybrid Prius.63. Fuel prices eventually tapered off but rose abruptly again the following year. By mid-2006, American automobile manufacturers and retailers were forced to respond with incentives worth thousands of dollars to move its less

fuel-efficient vehicles from inventories.64. Carmakers began to incorporate high-end features

and a more luxury feel into their smaller, more fuel-efficient vehicles.65. Toyota passed Ford in

total revenues in 2006.66. In 2008, Chrysler introduced its tiny, two-seat Smart Fortwo in the United States. The Smart Fortwo enjoyed some success in Europe and is only 106 inches

long—44 inches shorter than Toyota's subcompact Yaris.67.

By 2007, Ford, GM, and Chrysler were struggling to cut costs. Their attempts to extract price concessions from suppliers that had already been squeezed by the global economy were

largely unsuccessful.68. Even Toyota, concerned that upcoming demand would not justify the additional capacity that the firm had been adding in the United States over the past 5 years,

decided to scale back.69. In 2008, gas prices in the United States spiked again, this time at the $4 per gallon level, rekindling concerns about fuel efficiency. Sales of low-mileage recreational vehicles plummeted, as producers like Coachmen Industries and Fleetwood

Enterprises struggled to remain afloat.70. With the economy entering a recession, Chrysler and GM warned of potential insolvency. Although gas prices dropped again to the $2 range,

government assistance was required in late 2008 to stave off bankruptcy.71.

The popularity of the SUV in the United States has also been attacked on the grounds of another social force—environmental responsibility. Opponents charge that SUVs are simply too large and fuel-inefficient, increasing the nation's dependence on external sources of oil and potentially compromising the nation's ability to broker a lasting peace in the oil-rich Middle East. SUV manufacturers still face a daunting task of balancing environmental concerns and their desire to produce a vehicle still in demand.

There are a number of additional social changes related to automobile preferences. Led by European automakers, manufacturers began developing smaller premium vehicles for sale in

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the United States in the mid-2000s. Interestingly, the role of the “Big Three” American carmakers in the development of these vehicles was indirect rather than direct, with primary

activity coming from GM's Saab, Ford's Volvo, and Daimler's Mercedes divisions.72.

Following the 2005 hike in gasoline prices in the United States, GM and Ford began to promote their “flex fuel” vehicles that can operate either on gasoline or E85, a mix of 15% gasoline and 85% ethanol. The automakers announced plans to produce 650,000 flex fuel vehicles annually and push for more service stations that carry the alternative fuel. In 2005, five million such vehicles— mostly GM and Ford products—were in operation in the United States, but E85 was not easy to find, especially outside of the Midwest. Not only are flex fuel vehicles attractive to environmentally friendly consumers, but they also represent a competitive advantage for the giant American automakers. When GM and Ford launched its new focus in 2006, Nissan was the only Japanese carmaker with a compatible product on the

market, a version of its large Titan pickup.73.

Luxury carmakers began to experience an acute challenge in the late 2000s and early 2010s: the aging population. Historically, vehicles produced by such manufacturers as Daimler and BMW have been popular with older consumers. In nations like India and China where

automobile demand is growing rapidly, car buyers tend to be younger.74.

Interestingly, consumer preferences can often conflict, creating uncertainty for firms in an industry. The automobile industry provides an acute example, where consumers in 2009 reported increasing concern for both auto safety—as defined by crash test performance—and fuel economy. Because vehicle weight is a key factor in fuel economy, small, lightweight vehicles tend to be both the most efficient and problematic from a safety standpoint. In addition, some drivers believe small cars are more vulnerable on the road because too many

SUVs and other large vehicles are on the road.75. Sorting out these differences in social forces can be a serious challenge.

Automobile sales dipped during the economic downturn of 2009 but recovered in 2010, fueled by gains in more fuel-efficient vehicles. The rise in gasoline prices has created long-term challenges for manufacturers that rely on trucks, large vehicles, and SUVs. Small cars accounted for about one-third of new vehicle sales globally in the early 2010s, but forecasting fuel prices is very difficult, especially in the short term. The trend reversed temporarily in the 2010s when average fuel prices in the United States consistently remained below $4 per gallon, as sales of SUVs and pickup trucks increased and even exceeded car sales at many automakers. When $4 gasoline returned in 2012, however, consumer demand shifted back to automobiles boasting 30 or more miles per gallon, as well as updated SUVs engineered for

better fuel economy.76.

The British Petroleum (BP) oil spill in 2010 has influenced the energy debate as well. Although thousands of oil rigs function properly every day, the BP spill was catastrophic from economic and ecological perspectives, causing some Americans to call for an end to offshore drilling. As BP's stock price declined following the spill, shares of firms involved in the production of electric cars rose. California-based Tesla Motors—maker of the $109,000 battery-powered Roadster—received a lot of positive interest from investors and the press as a

result.77.

The increased demand for cars in China has affected a number of industries besides those involved in automobile production. China Petroleum and Chemical has added nonfuel

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sections in many of its 95,000 stores because consumers are interested in purchasing more than gasoline. Large big-box retailers like Carrefour and Home Depot have benefited at the expense of smaller stores as consumers with automobiles are shopping less frequently but purchasing more each trip. Commercial radio is booming as middle-class drivers like to tune in on the road. Hotel chains are also benefiting as more consumers with automobiles desire to

leave the crowded cities on holidays.78.

Global Concerns

It is difficult to separate domestic social forces from global forces. Indeed, the analysis of

social forces can be quite complex for firms operating in several countries.79. Each of the world's nations has its own distinctive culture—its generally accepted values, traditions, and patterns of behavior. These cultural differences can interfere with the efforts of managers to understand and communicate with those in other societies. The unconscious reference to one's own cultural values as a standard of judgment—the self-reference criterion—has been suggested as the cause of many international business problems. Individuals, regardless of culture, become so accustomed to their own ways of looking at the world that they often cannot comprehend any significant deviation from their perspective. However, companies that

can adjust to the culture of a host country can compete successfully.80. For instance, by adapting to local tastes rather than rigidly adhering to those of its U.S. customers, Domino's has found profitable business overseas by selling tuna and sweet corn pizzas in Japan and

prawn and pineapple pizzas in Australia.81.

Cultural differences across borders can create opportunities for firms—especially in overlooked emerging markets. In 2009, Coca-Cola announced plans to double the number of bottling plants in China in an effort to triple sales in the nation during the 2010s. Although China was already Coke's third largest national market by revenues, the soft drink giant is

banking on even stronger growth in the coming years.82.

Demand patterns can vary markedly across borders. Mexican per-capital consumption of ketchup is very high, resulting in a number seven world ranking. In early 2007, U.S. ketchup producer H.J. Heinz had fewer than 10 sales representatives in Mexico and held less than 1% of the Mexican market. The American producer decided to change course, and by late 2009, Heinz had increased its sales force to about 150, while its market share grew to 12%, securing

contracts with Domino's, Burger King, and KFC.83.

Cultural acceptance across borders is not always easy to predict, however. Yum Brands' Taco Bell experienced considerable consumer rejection in Mexico in the 2000s. Its first store in India opened in early 2010 in Bangalore and has enjoyed a warm reception from Indian consumers. Although consumers are unfamiliar with most of its products, Taco Bell hopes to capitalize on a growing middle class in a nation whose consumers are open to new ideas and tastes. Yum

Brands' KFC unit already operates more than 70 stores in India.84.

Consider auto demand in China. By the early 2010s, demand for larger, more expensive vehicles was on the rise, as prosperous consumers became less satisfied with the basic transportation offered by no-frills vehicles common to the Chinese market. Flaunting a luxury

car such as a Ferrari or Mercedes was no longer taboo.85. Chinese automakers were focusing more on exports to both established markets like the United States and undeveloped ones

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1.

2.

3.

4.

5.

6.

7.

8.

like those in Africa.86.

Consider the demand for paper in China. Because developing markets often lack hearty forests and a healthy recycling culture, they often turn to developed nations like the United States to meet their paper needs. Hence, after Chinese imports are unloaded in U.S. ports, recyclable paper—newspapers, cardboard, telephone books, and the like—is shipped back to China as raw materials to produce more boxes and packaging needed for future rounds of exports. This phenomenon has created profitable business opportunities for recycling

companies, particularly those located near the U.S. ports.87.

Fast-food chains experienced considerable growth in the late 2000s and early 2010s due in great part to a confluence of macroenvironmental trends. Fast-food brands like McDonald's and KFC and American food like hamburgers and French fries have become more popular in China. Chinese cities have become more crowded as rural residents have relocated there seeking employment. More Chinese consumers are purchasing automobiles, making fast food a more frequent option. With additional cars on the roads and few places to park, many are attracted to drive-thru service. All of these factors have converged to spark industry growth in

the region.88.

Cross-cultural differences in norms and values also require modifications in managerial behavior. For example, business negotiations may take months or even years in countries such as Egypt, China, Mexico, and much of Latin America. Until personal friendships and trust develop between the parties, negotiators are unwilling to commit themselves to major

business transactions.89. In addition, Japanese business executives invite and even expect their clients or suppliers to interact socially with them after working hours, for up to 3 or 4 hours an evening, several times a week. Westerners who decline to attend such social gatherings regularly may be unsuccessful in their negotiations because these social settings create a foundation for serious business relationships (see Case Analysis 4.1).

Step 7: What Social Forces Affect the Industry?

Some key issues include (but are not limited to) the following:

Societal traditions

Societal trends

Prevailing values

Consumer psychology

Society's expectations of business and consumer activism

Concern with quality of life

Expectations from the workplace

Religious trends and values

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9.

10.

11.

12.

13.

14.

Population and demographics

Birthrates and life expectancies

Women in the workforce

Health consciousness

Attitudes about career and family

Concern for the natural environment

As with other macroenvironmental forces-but especially with social forces-it is important to outline how each key force has affected the industry and organization to date and to address how each will likely influence the industry in the future. For example, health consciousness and dual-career couples have spawned the demand for Healthy Choice microwavable dinners. Will these two social forces change in the upcoming years? If so, how?

Societal trends can vary widely among nations, especially as they are related to other factors. For example, smaller cars have been preferred in Europe, where roads are often narrow, gasoline is heavily taxed, and fuel economy is a greater concern. In contrast, U.S. consumers traditionally have demanded relatively larger vehicles in a country where roads are wider, gasoline is less expensive, and fuel consumption does not play as strong a role in the

purchase decision.90. Fashion in China also illustrates how social trends vary across borders.

In China, preferences reflect a mix of Asian, American, and European tastes.91.

Societal traditions define societal practices that have lasted for decades or even centuries, but changes can occur. For example, the celebration of Christmas in the Western Hemisphere provides significant financial opportunities for card companies, toy retailers, turkey processors, tree growers, mail-order catalog firms, and other related businesses. Many retailers hope to break even during the year and generate their profits during the Christmas shopping season. Holiday sales at Amazon, Best Buy, Gap, and Target represent 38%, 32%, 30%, and 31% of

annual sales respectively.92. The popularity of Christmas is even increasing in China. Although Chinese celebrations are typically devoid of religious significance, opportunities have emerged for marketers and merchandisers seeking to cash in on the popularity of gifts,

consumption, and Santa Claus.93.

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Strategic managers in American corporations should remember that their firms have exceptionally high visibility because of their American origins. As such, citizens of other countries may disrupt the business operations of American corporations as a form of anti- American activity. Only 2 months after Disneyland Paris opened in France, many French citizens decried the venture. Hundreds of French farmers blocked entrances to the theme park with their tractors to express their displeasure with cuts in European farm subsidies that had been encouraged by the United States, even though 90% of the food sold at the park

was produced in France.94.

Technological Forces

The world is flat. New York Times foreign affairs correspondent Thomas Friedman's 2005 bestseller presents his spin on a phenomenon that has changed the world forever: globalization. In The World Is Flat, Friedman argued that the period of American world economic domination has ended because technological changes during the past two decades have leveled or “flattened” the economic playing field for those in other countries, most

notably India and China.95. Today his claim is self-evident, marked by increased global business activity in even smaller nations like Ghana and Vietnam.

The dot-com boom and subsequent bust around the turn of the century contributed s i g n i f i c a n t l y t o t h e e m e r g e n c e o f F r i e d m a n ' s “ f l a t w o r l d . ” D u r i n g t h e b u b b l e , telecommunications companies were replete with cash and invested hundreds of millions of dollars to lay fiberoptic cables across the ocean floors, cables that currently and inexpensively connect countries like India and China to the United States. The dot-com bust resulted in significant stock market losses, forcing companies to cut spending wherever possible. Hence, many turned to opportunities for cost cutting created by the fiber-optic cables and began to offshore jobs as a means of addressing a new economic reality. As Indian entrepreneur Jerry

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Rao explained in Friedman's book, any work that can be digitized and moved from one

location to another will be moved.96.

Technological change can decimate existing businesses and even entire industries because it shifts demand from one product to another. The flattening of the world described by Friedman is only one of many major transformations in technology. Prior historical examples include the shifts from vacuum tubes to transistors, from steam locomotives to diesel and electric engines, from fountain pens to ballpoints, from propeller airplanes to jets, and from typewriters to

computers.97. Business applications of technology are not always smooth, however. For example, Internet icon Shawn Fanning spawned an “online music swapping” industry with his launch of Napster, a service whereby patrons could exchange music files via the Internet.

However, copyright and legal complications forced a shutdown and sale of the business.98.

The pace of adoption of a technological change is not always easy to predict and can even be influenced by competing technologies. For example, high-definition radio technology became pervasive in the early 2000s, and about 200 U.S. radio stations were broadcasting digital radio by the end of 2004. However, the first radios capable of using the new standard were originally priced as much as $1,000 at a time when demand for lower-priced satellite radios

was growing rapidly.99.

The effect of an advance in technology can be dramatic but need not be detrimental. The advent of the e-book, for example, has begun to change the way many consumers purchase and read books. Mega-bookseller Amazon has promoted the shift rather than resisting it by

developing its own reader, Kindle, and selling many of its books in Kindle format.100.

Once commercialized, advances in technology can quickly become dated, however. Many firms struggle when it comes to applying new technology to their existing business models.

Large, established firms can be particularly vulnerable to such changes.101. The automobile industry, for example, is affected by technological changes associated with efforts to build cars that consume less or no gasoline. Industry giants like Toyota, Daimler AG, and GM are developing new-generation electric vehicles. Chevrolet's turnaround effort hinges in part on its development of the $41,000-per-unit hybrid Volt. Nissan hopes to sell 200,000 of its plug-in

Leafs annually at a price in the $33,000 range by the mid-2010s.102. Venture-capital- supported upstarts are also racing to produce cars with efficient gasoline, electric, or hybrid engines. In an industry that places a premium on size and experience, a major technological shift could propel one or more of these young entrepreneurial firms into a strong market

position over the next decade.103.

The pursuit of electric vehicles demonstrates the risk and complexity associated with attempting to stay on top of technological change. The first generation of battery-powered vehicles has a limited range. Although they are touted as green alternatives to gasoline- powered vehicles, they must be recharged with electricity typically produced from coal- and

gas-fired power plants.104. Moreover, battery packs are very expensive—about $16,000 for the Nissan Leaf. Costs typically decline as technology advances, but there is considerable

uncertainty about the long-term cost effectiveness and performance of electric vehicles.105.

Technological forces are often linked to other changes elsewhere in the external environment. A growing preference for a diet lower in sodium prompted PepsiCo to develop a “designer

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salt” whose crystals are shaped and sized in a way that reduced the amount of salt consumers ingest when consuming snack foods. PepsiCo is reducing the sodium level in its

Lay's Classic potato chips in the early 2010s.106.

Advances in technology can substantially influence production costs associated with a product or service. Television manufacturer limitations in sizes of glass sheets they can handle, for example, kept prices for flat-screen TVs high throughout 2004 when many

analysts had predicted production costs to drop.107. Food and meat producers like ConAgra Foods, Hormel Foods, and Perdue Farms are dunking prewrapped foods into tanks of pressurized water, a technique that enables vendors to keep deli meats in the pipeline for as

long as 100 days.108.

Many retailers are beginning to utilize technology to better understand how buyers shop. Consumer research firm ShopperTrak RCT, for example, keeps track of shoppers nationwide using 40,000 hidden cameras in stores and shopping malls. The firm sells the data it collects

to retailers, economists, and banks, all of which desire more insight into purchase trends.109.

P&G began selling products—Pantene shampoo, Pampers diapers, Cover Girl cosmetics, and Gillette razors, among others—directly to consumers online through its eStore in 2010. Although traditional retailers were not receptive to the news because of the increased competition, P&G made the move because of the ever-expanding interactive role of the Internet. As chief executive Bob McDonald put it, “We want to maximize our sales through

retailers but we also want to be where the consumer wants to shop.”110.

Technology has enabled major changes in the customer service arena. Many of the touch- tone consumer hotlines of the 1990s were replaced in the early 2000s by “virtual agents” that answer calls and use speech recognition technology to either resolve a question or transfer the customer to a real person who can. Studies suggest that these systems improve response time by as much as 40%. Whereas some consumers appreciate the increased speed and are enamored by many agents' use of accents and even flirtatious personalities, others feel awkward about “talking to a computer pretending to be a person.” Interestingly, some U.S. companies have addressed this frustration by utilizing fewer technology-based systems and transferring incoming calls to their consumer hotlines and technical support centers directly to

representatives in countries such as India, where labor costs are much lower.111.

Technology also affects global business operations. For example, by 2003, roughly 40% of the vehicles sold in Europe were powered by more fuel-efficient, cleaner, and more advanced diesel engines. In contrast, most transfer trucks in the United States consumed diesel fuel. Following renewed concerns over the political situation in the Middle East where much of the world's oil is produced, America's Big Three carmakers began to apply this technology to

SUVs produced in the United States.112.

Technology's influence on global business can also be viewed from a development perspective. For years, manufacturers in technologically advanced nations established operations in developing countries with low labor and/or raw material costs. These expansions have generally been welcomed because they bring financial resources, opportunities for workforce training and development, and the chance for the host country to acquire new technologies. In many cases, this interaction has benefited the developing country over the long term, most notably in the cases of emerging nations such as Mexico, Brazil, India, and

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China.113.

However, leaders in emerging nations are not always satisfied with the results of global business expansion because anticipated economic and social benefits do not always materialize, such as specialized business development assistance, the establishment of research and development (R & D) facilities, and the hiring of locals in managerial and other

professional positions.114. On-the-job training notwithstanding, the overall long-term contribution to the host country is sometimes questioned by leaders in the developing nations.

The notion of expanding technology and a level economic playing field has created a number of challenges for Western firms and societies as well—one of which is the debate over “free trade.” Supporters contend that a flatter world is the natural order and that efforts to thwart it will only stifle growth in economic powers like the United States, an argument Friedman echoes. Proponents charge that the unbridled global trade drives down wages and will ultimately result in a reduced standard of living in developed nations.

The Internet

The widespread use of the Internet over the past decade is arguably the most pervasive technological force affecting business organizations since the dissemination of the personal computer. The effects are most profound in select industries, such as brokerage houses, where online companies have demonstrated huge gains in the market, or the travel industry, where the number of flights, hotels, and travel packages booked over the past decade has skyrocketed. The Internet has also facilitated the advent of online banking, a much less costly means of managing transactions. Indeed, the Internet has had a major effect on virtually every industry in the developed world.

In the early years of its inception, economic activity on the web was dominated by “e- businesses” whose success and failure was almost solely dependent on the Internet. Today,

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most large, traditional firms utilize the Internet to keep track of customers, increase sales, and

enhance visibility.115.

Initially, Internet growth occurred in the most developed nations, but the rest of the world is catching up. In North America, Internet penetration is highest at 78% of the population accounting for 272 million users. Penetration is only 24% in Asia, but the continent boasts the

largest number of Internet users at 922 million.116. China passed the 500 million mark in

Internet users in 2011, with a disproportionately high percentage below 30 years of age.117.

The Internet has changed the way news and information is disseminated (see Strategy at Work 4.2). In the past two decades, the proliferation of segmented television networks and the emergence of the Internet have led to a decline in newspaper readership—particularly among younger readers—as busier professionals pursue information outlets in the “new media,” including those facilitated by the Internet and talk radio. Many advertisers in newspaper classifieds have shifted to Internet sites or eBay. Daily newspaper readers in the United States peaked at 63 million in 1985 but declined to about 50 million by the early 2010s. With the exception of USA Today and select publications like the Wall Street Journal, newspapers have struggled to retain readership, and the successful ones are leveraging Internet-oriented

business models.118. As a result, many newspapers have launched targeted youth-oriented publications and have begun to leverage the power of the Internet in an effort to regain

readers.119.

Strategy at Work 4.2. Leveraging Technological and Social Forces at Knight-Ridder &

McClatchy120.

Founded in 1903, Knight-Ridder was originally a traditional print newspaper company, publishing such newspapers as the Miami Herald and the Akron Beacon Journal. I t later purchased numerous newspapers including the Detroit Free Press, t h e Philadelphia Inquirer, and the San Jose Mercury News. Knight-Ridder was at one time the nation's second-largest newspaper publisher, with 32 daily newspapers in 28 U.S. markets and a readership of 8.5 million daily and 12 million on Sundays. Like other U.S. newspapers, however, Knight-Ridder faced readership declines as consumers obtain information from other media outlets, most notably the Internet.

As the Internet developed, Knight-Ridder took advantage of technological innovations to expand its information network. The company's Internet operation, Knight-Ridder Digital, was created as a separate business unit in 2000 to create and maintain a variety of innovative online services, including Real Cities, a major national network of city and regional destination sites in 58 U.S. markets. Knight-Ridder Digital was launched to provide local information on the web, including regional searchable hubs, city resource websites, online newspapers, vertical channels, directories, online shopping, entertainment and recreation sources, merchant storefront building, classified services and archives, and special interest websites. Knight-Ridder also acquired CareerBuilder, Inc., and CareerPath.com, Inc., to create a powerful local and national online recruitment network.

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The company was also cognizant of changing social forces, successfully capitalizing on an opportunity provided by demographic changes in Miami several years ago. Observing the ever-increasing number of Cuban-Americans in the Miami market, Knight-Ridder launched a Spanish language paper, El Nuevo Herald, w h i c h immediately became a success and is now one of the largest of its kind in the United States.

Adjusting to these changes was not easy, however, and Knight-Ridder struggled to remain competitive. In 2006, rival McClatchy acquired Knight-Ridder and later sold some of its papers. Like Knight-Ridder, McClatchy also seeks to respond to changes in technology, working closely with Yahoo in a partnership that includes content sharing and cross-advertising.

Consider the airline industry. Sparked by Internet applications, a number of consumers began to purchase their airline tickets online instead of utilizing the traditional intermediary, a travel agency. As airlines began investing in this much more efficient means of ticketing in the 1990s, they started to trim commissions paid to travel agencies for booking their flights. In 2003, the major U.S.-based airlines followed Delta's lead and eliminated commissions altogether for tickets sold in the United States, except where specially negotiated arrangements existed between the airline and the agency. Travel agencies have moved aggressively to the Internet to expand volume. A number of agencies were dissolved during

this period.121.

Interestingly, Internet travel agencies such as Orbitz, Travelocity, and Expedia thrived during this time. These sites invest heavily in promotion and emphasize convenience, ease of use, and access to the “best deals.” Unlike traditional travel agents, these online competitors aggressively target hotel reservations and have sparked a number of feuds with large hotel chains that attempt to lure customers to their own websites for bookings. Hotel chains charge that online travel agents inflate room rates by as much as 30%, thereby discouraging potential customers and cutting into hotel profits. Online agents contend that they offer value to

customers by increasing choices.122.

A key fundamental strategic change, however, concerns the dramatic shifts in organizational structure and their influences on viable business models. Put simply, many organizations are modifying their business models to augment their revenues through sources other than sales. As John Magretta put it, “A good business model begins with an insight into human

motivations and ends in a rich stream of profits.”123.

The Internet has unleashed a number of alternative business models, some successful and some not. Consider the business model of one short-lived dot-com. By early 2001, CyberRebate had become a very popular website, offering rebates with every product, some for the full purchase price. Critics charged that such a business could not sustain itself by giving away merchandise. However, a small percentage (less than 10%, according to CEOgiving away merchandise. However, a small percentage (less than 10%, according to CEO Joel Granik) of customers failed to collect their rebates for merchandise typically priced

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several times the retail level, and many others converted to products whose rebates

constituted only part of the purchase prices.124. CyberRebate filed for Chapter 11 bankruptcy

protection in May 2001.125.

A more recent alternative model is Groupon. Launched in 2008, Groupon—named by combining the words group and coupon—is a deal-of-the-day website that informs consumers in select major geographical markets about short-term bargains. Millions of members give Groupon the leverage to negotiate better deals with retailers, which in turn helps attract even more members. Of course, such a business would not be possible without the Internet, Facebook, e-mail, and other means of electronic communication. Groupon became a major market success in only a few years, but time ultimately determines the viability of such alternative business models.

Critics have challenged the notion that new business models are needed to compete in the “new economy.” Michael Porter noted the following:

Many of the pioneers of Internet business … have competed in ways that violate nearly every precept of good strategy. … By ignoring strategy, many companies have undermined the structure of their industries … and reduced the likelihood that they

or anyone else will gain a competitive advantage.126.

In essence, Porter and others have argued that the market forces that governed the traditional economy have not disappeared in the Internet economy. Hence, many of the dotcoms that failed in 2000 did not succeed because they discarded these rules, set out to write their own, and built business models that simply did not work. Even today some firms have been slow to learn this lesson.

Interestingly, the success or failure of a business model may be a function of factors such as time, technology, or problems with execution, not the quality of the idea itself. As such, some business models may not prove successful at first but with minor changes may become successful in a future period. For example, the concept of purchasing groceries online was originally unsuccessful, due to such factors as web design, inefficient warehousing, and relatively high prices. By the mid-2000s, improvements in these areas, as well as technological advances and a more Internet-savvy consumer, sparked a turnaround among online grocers. Hence, the original model has been enhanced and is yielding positive

results.127.

The failure of many dot-coms notwithstanding, the Internet has spawned a key change in the structure of business. During the past two decades, organizations have engaged in a process

economists refer to as “disaggregation and reaggregation.”128. The economic basis for this transformation was proposed by Nobel Laureate Ronald Coase in what is called Coase's law: A firm will tend to expand until the costs of organizing an extra transaction within the firm

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1.

2.

3.

4.

5.

become equal to the costs of carrying out the same transaction on the open market.129. In other words, large firms exist because they can perform most tasks—raw material procurement, production, human resource management, sales, and so forth—more efficiently than they would otherwise be performed if they were “outsourced” to the open market.

However, advances in the 2000s in Internet and related technologies—coupled with rapid economic development in parts of Asia and Eastern Europe—enabled firms to reorganize work processes and improve efficiency. As a result, it is much easier now to share and exchange information, and to “farm out” specific tasks to the most efficient parties across the globe. Today, there are more than a quarter of a million Indians managing call centers and performing telemarketing functions primarily for firms in the United States because they can perform the tasks—with the assistance of technology—more efficiently than their American counterparts. This fast-growing service industry in India was virtually nonexistent just a

decade ago.130.

As a result of this change, many progressive firms have placed less emphasis on performing all of the required activities themselves and have formed partnerships—contractual relationships with enterprises outside the organization—to manage many of the functions that were previously handled in-house. Whereas outsourcing refers to specific agreements associated with a single task, partnering implies a longer-term commitment associated with more complex activities.

It is difficult to overstate the effects that disaggregation and reaggregation have had on business enterprises and—more specifically—the effort to manage them strategically. In many respects, a partner can be viewed as an extension of the organization. Partner capabilities and limitations are fast becoming as important as internal strengths and weaknesses. Although these changes are more pronounced in some markets than in others, the development of the Internet economy has significantly changed the nature of business in all industries (see Case Analysis 4.2).

Step 8: What Technological Forces Affect the Industry?

Some key issues include (but are not limited to) the following:

Effect of the Internet and social media

Scientific improvements

Inventions

Technology affecting production

Expenditures on R & D

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6.

7.

8.

Focus on R & D expenditures

Rate of new product introductions

Automation

Strategic Dimensions of the Internet

In addition to the shift toward disaggregation and reaggregation, the expansion of the Internet has changed how strategic managers assess their environments and ultimately make strategic decisions. Five key interrelated strategic factors are discussed in this section: (1) movement toward information symmetry, (2) the Internet as distribution channel, (3) speed, (4) interactivity, and (5) the potential for cost reductions and cost shifting.

Movement toward Information Symmetry

Information symmetry occurs when all parties to a transaction share the same information concerning that transaction. Information symmetry is an underlying assumption of the economics-based models of “pure competition.” Information asymmetry—when one party to a transaction has information that another does not—is the primary reason why many markets are less competitive than they otherwise would be. Firms have a distinct advantage when they possess information not available to their prospective buyers. Businesses often seek to promote information asymmetry and utilize the information edge to their own advantage. Automobile retailers, for example, rarely post their absolute bottom line prices on their vehicles. Consumers are generally left to “haggle” with a number of dealers to estimate the true wholesale cost of the vehicle and the value of various options and accessories. The lack of consumer knowledge, as well as the lack of time and expertise required to obtain the information desired, results in higher selling prices for many of the retailers.

On the other hand, buyers gain an advantage when they obtain access to this information. Comparison shopping for term life insurance used to be a complicated endeavor but has been made simple by numerous websites. In addition, independent vehicle test results, retailer websites, wholesale costs for new vehicles, and estimated trade-in values are only a few mouse clicks away. Some consumers may end up purchasing a vehicle from a sponsor of an informational site, and even educated consumers who do not complete part or all of the transaction process online will likely force their traditional retailer of choice to negotiate in a more competitive manner.

Smartphones use Internet technology to provide real-time information to buyers at the point of sale. Aided by smartphone apps, consumers can easily and quickly compare prices before they purchase a product they evaluate in a brick-and-mortar store, a process known as show- rooming. Downloads like RedLaser and The Find enable users to scan barcodes in stores and obtain real-time price comparisons at brick-and-mortar and online rivals. In a 2011 survey, 40% of shoppers used an in-store shopping app or search engine to compare prices and ultimately decided to purchase the desired item from an online retailer. As of 2012, about half of shoppers in the United States own smartphones, and consumers use The Find to make about 20 million price checks per month.

Prodded by lost sales to online rivals, Best Buy closed about 50 of its big-box stores in 2012

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and launched an effort to add hundreds of new Best Buy Mobile stores, emphasizing cellular phones and related merchandise. Best Buy Mobile outlets average 1,420 square feet, compared to 38,570 for traditional Best Buy stores. Gap, Sears, and other retailers have

downsized their stores as well.131. Barry Judge, chief marketing officer of Best Buy, put it this way: “Our pricing has to be very competitive. We know what Amazon's price is on everything

they sell.”132.

Internet as Distribution Channel

The Internet acts as a distribution channel for nontangible goods and services. Consumers can purchase items such as airline tickets, insurance, music, stocks, and computer software online without the necessity of physical delivery. For largely tangible goods and services, businesses can often distribute the intangible portion online, such as product and warranty information. Whenever physical distribution can be replaced completely or in part by electronic distribution, transactions are likely to occur more rapidly and at lower costs.

Speed

The Internet offers numerous opportunities to improve the speed of the actual transaction, as well as the process that leads up to and follows it. Consumers and businesses alike can research information 24 hours a day. Orders placed online may be processed immediately. Software engineers in the United States can work on projects during the day and then pass their work along to their counterparts in India who can continue work while the Americans sleep. The pace of business has increased and has been accompanied by heightened expectations for speed by consumers.

Interactivity

The Internet provides extensive opportunities for interactivity that would otherwise not be available. Consumers can discuss their experiences with products and services on bulletin boards or in chat rooms. Firms can readily exchange information with trade associations that represent their industries. Users can share files with relative ease. Rumors and “bad news” spread rapidly.

Potential for Cost Reductions and Cost Shifting

The Internet provides many businesses with opportunities to minimize their costs—both fixed and variable—and thereby enhance flexibility. Information can be distributed to thousands or millions of recipients without either the expense associated with the mail system or the equipment required to do so. The “virtual storefront,” for example, does not necessarily require an actual facility and may reduce transaction costs through automated online ordering systems, although this is not always the case.

Forms of Electronic Commerce

Electronic commerce activities can be classified into five basic categories by identifying businesses and consumers as initiators and recipients of the offer (see Figure 4.1). Business- to-business (B2B) and business-to-consumer (B2C) categories account for most global e- commerce activity. Businesses are commonly involved in more than one of these segments

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simultaneously and/or involved in both electronic (i.e., “clicks”) and traditional (i.e., “bricks”) forms of commerce, often referred to as clicks and bricks. Many successful retail firms have adopted this approach. In 2009, for example, WalMart.com leveraged its extensive retail network of stores by offering free delivery to any of its retail outlets. Online-only retailer

Amazon.com cannot offer this option because it lacks the retail infrastructure.133.

Figure 4.1 E-Commerce Matrix

Business-to-Business

B2B is the largest classification of Internet business, with global transactions estimated to be

$6.8 trillion in 2007.134. Because the Internet reduces transaction costs (i.e., costs associated with searching for suppliers, negotiating terms), the Internet provides exceptional opportunities for streamlining B2B operations. B2B is widely used as a means of increasing the efficiency of transactions. B2B firms seek to profit on the transactions among firms. Many consumers are unaware of the size of B2B relative to other forms.

Business-to-Consumer

The B2C segment is the second largest and fastest growing segment, including such competitors as Amazon and 1800flowers.com. Often referred to as e-tailing, B2C successes are often associated with advances in consumer acceptance of the Internet as a retail alternative. In the United States, B2C revenues were estimated to be $192 billion in 2011, nearly 7% of all retail expenditures. More than 70% of Americans purchased something online in that year, with computers, apparel, and consumer electronics accounting for almost one-

half of total online sales.135. Moreover, mobile commerce (m-commerce)—transactions conducted in an entirely wireless environment—is accounting for a growing percentage of B2C revenues each year. B2C offers retailers with a number of advantages over traditional forms of retailing, one of which is the potential for a larger average transaction. For example, when consumers read the description of a book on Amazon, they also see what others who ordered the same book also purchased, resulting in opportunities for increased business.

B2C can reduce transaction costs by eliminating the need for much of the overhead associated with traditional retailing. However, it is easy to overestimate the extent to which overhead can be reduced. Many analysts believe that the “dot-com debacle” of 2000 and 2001, during which time a number of Internet businesses filed for bankruptcy, was due to expected efficiencies and overhead reductions that never fully materialized.

B2C can offer exceptional convenience for consumers by enabling them to search large catalogs in only a few seconds, build an order over several days, and configure various products and view actual prices. Frequently asked questions (FAQs) pages can provide

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customers with clear, accurate answers to their most common questions instantaneously and at virtually no cost to the business. In the United Kingdom, about one-half of Domino's pizza

deliveries were ordered online.136.

The challenges associated with successful e-tailing operations are simple to identify but can be difficult to resolve. Simply stated, e-tailers must persuade consumers to frequent their sites, stay there long enough to evaluate the offerings (i.e., e-tailers must create a site high in “stickiness”), and complete their purchases. Needless to say, e-tailers must be able to fulfill these orders as advertised.

Business-to-Government

The segment of electronic commerce whereby businesses utilize the Internet to solicit transactions from government entities is known as business-to-government (B2G). This segment has emerged as government agencies have realized that purchases can be handled in a more efficient manner when facilitated by the Internet.

Consumer-to-Consumer

The consumer-to-consumer (C2C) segment involves utilization of the Internet as a facilitator of transactions involving only consumers. Because transaction costs can be very high, intermediaries such as eBay are often required to manage the exchange of information and PayPal to facilitate payments. Many C2C businesses were established solely to take advantage of technological advantages of the Internet and/or to meet consumer needs specifically created by the existence of the Internet. Although companies like eBay are widely recognized, the C2C category is very small relative to B2B and B2C.

Consumer-to-Business

In the consumer-to-business (C2B) segment, consumers generate the offer and businesses accept or decline it. This form of electronic commerce is the least developed of the five and includes competitors such as Priceline.com. Under the Priceline “reverse auction” model, consumers name their prices for goods and services such as airline tickets, hotel rooms, and long-distance phone service, and businesses are free to accept or reject them. Unlike traditional models, the reverse auction allows for price discrimination because any given buyer

does not know how much other buyers are paying for the same good or service.137. Like C2C, the C2B category is very small when compared to B2B and B2C.

Commoditization and Mass Customization

Two recent trends reflecting the confluence of social and technological forces have created a number of strategic challenges. Commoditization and mass customization illustrate how different environmental forces can interact in complex ways to influence entire industries.

From a strategy perspective, commoditization refers to the increasing difficulty firms have distinguishing their products and services from those of their rivals. Rapid advances in technology have created numerous opportunities for firms to differentiate their products from those of their competitors—differentiation that can exceed the needs of buyers and even confuse them. Buyers become inundated with an excessive number of options and little time

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to investigate or comprehend most of them. In an effort to simplify their choices, buyers view products as commodities and tend to reduce purchase decisions to a few key factors, such as a major product feature, reliability, or convenience. If buyers are unable to readily distinguish among the competitors along these factors, they may view the product as a commodity and base their final purchase decision on price. Hence, while firms may be doing all they can to set themselves and their products apart from the competition, customers may not see them quite as distinguishable.

Commoditization can create serious problems for firms that end up spending more to enhance product features only to be met with buyers who are inexorably price-conscious. In a relatively short period of time, for example, digital cameras have overtaken film cameras as the product of choice. Whereas most film cameras had only a limited number of options, digital cameras can be complex to evaluate, and many come with thick manuals describing all of the features and controls. While camera aficionados appreciate all of the bells and whistles, many consumers may be confused by all of the features or simply may not wish to invest much time into learning how to use what they perceive as a low-involvement product. Unless camera producers or retailers can break through this confusion, such buyers may limit their product consideration set on the basis of only one or two key features such as brand, size, or the number of megapixels and then base a final purchase decision on price.

A second trend, mass customization, refers to the ability to individualize product and service offerings to meet specific buyer needs. Like commoditization, the prevalence of mass customization has also been fostered by advances in technology. It occurs when Amazon and other e-tailers suggest top-selling books or other products for individual customers based on their previous purchase behavior. In this way, companies like Amazon take a commodity—the same product that could be readily purchased by other retailers—and customize its presentation to individual consumers.

Mass customization is important because it enables firms to personalize offerings while building economies of scale—the decline in unit costs of a product or service that occurs as the absolute volume of production increases. In a general sense, customization and economies of scale are inversely related. Scale economies develop when a firm produces a large quantity of a product, thereby eliminating its ability to satisfy individual needs with specialized products. Although not easy to achieve, mass customization—via technology and creative approaches— enables firms to achieve both customization and economies of scale.

Commoditization and mass customization are related to some extent. In some respects, technology enabling mass customization can enable firms to combat encroaching commoditization. When both trends are considered in concert, it becomes clear that successful firms must find a way to cut through all of the confusion and reach buyers in meaningful, personalized ways while maintaining production efficiencies.

Environmental Scanning

Given the rapid pace of change, maintaining currency in macroenvironmental forces affecting one's industry can be a daunting task. Environmental scanning refers to the systematic collection and analysis of information about relevant trends in the external environment. Surveys of Fortune 500 firms generally indicate major payoffs associated with their environmental-scanning activities, including an increased general awareness of environmental c h a n g e s , b e t t e r s t r a t e g i c p l a n n i n g a n d d e c i s i o n m a k i n g , g r e a t e r e f f e c t i v e n e s s i n governmental matters, and proper diversification and resource allocation decisions. However,

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the respondents often indicate that the results of their environmental analysis are typically too

general or uncertain for specific interpretation.138. H e n c e , t h e n e e d f o r effective

environmental scanning to produce relevant information is critical.139.

Britain's leading retailer, Tesco, uses a Clubcard to collect data on its customers and tailor products and promotions specifically for individual customers. Tesco has leveraged this approach to increase its share of the grocery market in the United Kingdom to 31% in 2011, compared to 17% by Wal-Mart's Asda chain. Asda, with locations only in the United Kingdom, accounts for about 10% of Wal-Mart's overall revenues and almost half of its international sales. Tesco is using its knowledge of shoppers and customer preferences to combat Wal-

Mart's emphasis on low prices.140.

A number of specialized firms presently offer environmental scanning services to strategic managers by providing them with real-time searches of published material associated with their industries. Top managers at many smaller firms rely on publications such as the Wall Street Journal to remain abreast of changes that may affect their firms.

Top managers often have difficulty maintaining objectivity when they evaluate information because they selectively perceive their environment through the lens of their own experiences and organizational strategy. One study concluded that the heads of financial institutions that emphasize cost minimization tend to focus their monitoring activities on competitors and regulators. By contrast, scanning activities in financial institutions that seek to differentiate themselves from their competitors are more likely to focus on opportunities for growth and

customer satisfaction.141.

Interestingly, environmental scanning often identifies relationships among key industry influences in two or more forces. For example, technological advances in the early to mid- 2000s enabled manufacturers to produce hand-held devices for viewing DVDs at a price level suitable to a significant number of consumers. Interest in the product was further enhanced by heightened consumer interest in both DVDs and portable electronic products in general. When French firm Archos began producing such a product, however, it ignored an anti- copying code found on a majority of prerecorded DVDs, enabling consumers to use the product to make illegal DVDs. Although there were no laws in place prohibiting Archos from ignoring the code, filmmakers began to exert political pressure to lobby for legislation to

protect their copyrights.142. This occurred at a time when Time Warner's HBO began to emphasize the sale of DVDs in addition to subscription fees as a means of enhancing

revenues.143. With music and video distribution shifting to Internet-mediated forms, copyright battles are focusing more on illegal downloads.

Consider also the link between a recession—an economic force—and consumer buying patterns—a social force. When a recession hits, many consumers become more cautious and “trade down” from brand-name products to less expensive generics or store brands. Grocery shopping surveys in the United States comparing pre-recession habits in 2008 and mid- recession habits in 2011 illustrate this phenomenon. During this time, the percentage of consumers shopping with lists increased from 45% to 75%, while private brand sales as a percentage of grocery sales grew from 15% to 20%. In addition, 44% of Americans increased

their shopping at bulk stores.144. This shift created challenges for both consumer goods manufacturers and grocery stores, as more organized and frugal shopping translates into lower margins across the board.

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Today, the main problem created by environmental scanning is often one of determining which information available warrants attention. For example, it is not uncommon for a major American firm to be referenced in over 1,000 news stories in a given week. For small organizations and for those competing in global markets, however, it may be difficult to obtain reliable information on environmental conditions and trends. In China, for example, research house Euromonitor International reported that 23 billion liters of soft drinks were consumed in 2002 whereas a Coca-Cola study concluded the level to be 39 billion liters. Discrepancies such as this create great difficulties for managers attempting to make informed strategic

decisions.145.

Summary

Four macroenvironmental forces affect every industry, two of which are discussed in this chapter. Social forces include traditions, values, societal trends, and a society's expectations of business. Technological forces include such factors as the Internet, as well as scientific improvements and innovations that affect firm operations and/or products and services in a given industry. Although each industry is affected by all four sets of environmental forces, the relative influence of the four forces can vary substantially by industry. Environmental scanning —staying abreast of environmental changes that affect the industry—is a key challenge for executives.

Key Terms

Business-to-Business (B2B): The segment of electronic commerce whereby businesses utilize the Internet to solicit transactions from each other. Business-to-Consumer (B2C): T h e s e g m e n t o f e l e c t r o n i c c o m m e r c e w h e r e b y businesses utilize the Internet to solicit transactions from consumers, also known as e- tailing. Business-to-Government (B2G): T h e s e g m e n t o f e l e c t r o n i c c o m m e r c e w h e r e b y businesses utilize the Internet to solicit transactions from government entities. Clicks and Bricks: The simultaneous application of both electronic (“clicks”) and traditional (“bricks”) forms of commerce. Commoditization: A process whereby firms are having a more difficult time distinguishing their products and services from those of their rivals. Consumer-to-Business (C2B): The segment of electronic commerce whereby consumers utilize the Internet to solicit transactions from businesses. Consumer-to-Consumer (C2C): T h e s e g m e n t o f e l e c t r o n i c c o m m e r c e w h e r e b y consumers utilize the Internet to solicit transactions from each other. Culture: A society's generally accepted values, traditions, and patterns of behavior. E-tailing: Another term for B2C. Economies of Scale: The decline in unit costs of a product or service that occurs as the absolute volume of production increases. Environmental Scanning: The systematic collection and analysis of information about relevant macroenvironmental trends. Information Asymmetry: When one party has information that another does not. Information Symmetry: When all parties to a transaction share the same information concerning that transaction. Mass Customization: The ability to individualize product and service offerings to meet

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1.

2.

3.

4.

A. B. C. D.

specific buyer needs. Mobile Commerce (M-Commerce): Transactions conducted in an entirely wireless environment, such as using a smartphone to both purchase and download an airline ticket or piece of music. Outsourcing: Contracting out a firm's noncore, non-revenue-producing activities to other organizations primarily to reduce costs. Partnerships: Contractual relationships with enterprises outside the organization. Self-Reference Criterion: The unconscious reference to one's own cultural values as a standard of judgment. Societal Values: Concepts and beliefs that members of a society tend to hold in high esteem.

Review Questions and Exercises

Give an example illustrating how social trends present both opportunities and threats to businesses in high-tech industries. Give an example illustrating how the Internet has presented an opportunity or a threat to a particular industry or business organization. Using your college or university as an example, explain how social and technological forces have affected its operations over the past decade. Select a large firm with which you are at least somewhat familiar. Utilize the search engines at www.findarticles.com, and identify some of the important social and technological influences on the firm's industry.

Practice Quiz

True or False?

1. In many respects, social forces are the drivers of consumer markets. 2. The expansion of a religion in an emerging country is an example of a social force. 3. The unconscious reference to one's own cultural values as a standard of judgment is known as cultural bias. 4. Commoditization refers to the ability to individualize product and service offerings to meet specific buyer needs. 5. Reading business publications can serve as a means of environmental scanning. 6. Environmental scanning can be difficult for large firms because of the availability of too much information.

Multiple Choice

7.

Which of the following is not an example of a social force?

trends values industrial change all of the above

8.

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A. B. C. D.

A. B. C. D.

A. B. C. D.

A. B. C. D.

A. B. C. D.

When a recession occurs________.

all industries benefit some industries benefit no industries benefit none of the above

9.

Technological forces often________.

decimate an entire industry spawn new industries vary substantially among industries all of the above

10.

How has the Internet changed strategic management?

It promotes information symmetry. It can often be used as a distribution channel. It often reduces costs. all of the above

11.

E-tailing is synonymous with___________.

B2B B2C C2C C2B

12.

The systematic collection and analysis of information about relevant macroenvironmental trends is known as___________.

strategic planning strategic management environmental scanning none of the above

Student Study Site

Visit the student study site at www.sagepub.com/parnell4e to access these additional materials:

Answers to Chapter 4 practice quiz questions Web quizzes SAGE journal articles Web resources eFlashcards

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Notes

1. P. Wright, M. Kroll, and J. A. Parnell, Strategic Management: Concepts (Upper Saddle River, NJ: Prentice Hall, 1998).

2. S. Sataline, “The Changing Faiths of America,” Watt Street Journal, February 26, 2008, D1.

3. K. Hudson and A. Zimmerman, “Big Boxes Aim to Speed Up Shopping,” Wall Street Journal, June 27, 2007, B1.

4. J. Adamy, “Restaurants Feel the Bite of Stay-at-Home Moms,” Wall Street Journal, March 14, 2008, B1.

5. M. Bustillo and M. E. Lloyd, “Best Buy Seeks Female Shoppers,” Wall Street Journal, June 16, 2010, B5.

6. J. Spencer, “Getting Your Health Care at Wal-Mart,” Wall Street Journal, October 5, 2005, D1, D5.

7. A. Zimmerman, “Behind the Dollar-Store Boom: A Nation of Bargain Hunters,” Wall Street Journal, December 13, 2004, A1, A10.

8. S. Beatty, “Avon Is Set to Call on Teens,” Wall Street Journal, October 17, 2002, B1, B3.

9. A. Merrick, “Gap's Greatest Generation,” Wall Street Journal, September 15, 2004, B1, B3.

10. K. Stringer, “Abandoning the Mall,” Wall Street Journal, March 24, 2004, B1, B6.

11. D. Mattioli, “Casket Makers Dig In as Sales Take Hit,” Wall Street Journal, February 24, 2010, B1.

12. K. J. Marchetti, “Customer Information Should Drive Retail Direct Mail,” Marketing News, February 28, 1994, 7.

13. S. Ratan, “Why Busters Hate Boomers,” Fortune, October 4, 1993, 56-69; B. W. Morgan, “It's the Myth of the 90s: The Value Customer,” Brandweek, February 28, 1994, 17.

14. C. Dougherty, “U.S. Nears Racial Milestone,” Wall Street Journal, June 11, 2010, A3.

15. S. Reddy, “Latinos Fuel Growth in Decade,” Wall Street Journal, March 25, 2011, A2.

16. E. Byron, “Hola: P&G Seeks Latino Shoppers,” Wall Street Journal, September 15, 2011, B1, B2.

17. R Sidel, “American Express Tries to Find Its Place With a Younger Crowd,” Wall Street Journal, September 22, 2005, A1, A5.

18. M. Jordan and V. Bauerlein, “Bank of America Casts Wider Net for Hispanics,” Wall Street Journal, February 13, 2007, B1.

19. J. Jargon, “Pizza Chain Seeks Slice of Bicultural Pie,” Wall Street Journal, December 30, 2010, B1, B2.

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20. M. Bustillo and E. Holmes, “Retailers Are Sold on Frugality,” Wall Street Journal, August 18, 2010, B1, B2.

21. C. Lawton, “Anheuser Tries Low-Carb Beer to Tap Diet Buzz,” Wall Street Journal, September 13, 2002, B1, B2.

22. B. McKay, “Pepsico Challenges Itself to Concoct Healthier Snacks,” Wall Street Journal, September 23, 2002, A1, A10.

23. M. Mangalindan, “Size Doesn't Matter Anymore in Online Purchases,” Wall Street Journal, March 22, 2006, D1, D4.

24. B. Jopson, “Online Shopping Jumps in US as Cost of Fuel Curbs Trips to Malls,” Financial Times, May 5, 2011, 17.

25. S. Gleason and I. Berry, “Beef Processor Falters Amid ‘Slime,’” Wall Street Journal, April 3, 2012, B2.

26. A. Merrick, J. A. Trachtenberg, and A. Zimmerman, “Department Stores Fight an Uphill Battle Just to Stay Relevant,” Wall Street journal, March 12, 2002, A1.

27. A. Zimmerman, “Hasbro Falls Prey to ‘Angry Birds’,” Wall Street Journal, December 15, 2011, B1, B2.

28. D. Starkman, “Retail Riddle: Is Shopping Entertainment?” Wall Street journal, January 22, 2003, B1, B6.

29. J. Carlton, “Saving Private Wetlands,” Wall Street Journal, November 13, 2002, B1, B6.

30. J. Ball, “The Carbon-Neutral Vacation,” Wall Street Journal, July 28, 2007, B1-B2.

31. G. A. Fowler, “‘Green’ Sales Pitch Isn't Helping to Move Products off the Shelf,” Wall Street Jounal, March 6, 2002, B1.

32. M. Bustillo, “Wal-Mart to Assign New ‘Green’ Ratings,” Wall Street Journal, July 16, 2009, A1, A10.

33. “How September 11 Changed America,” Wall Street journal, March 8, 2002, B1.

34. K. McLaughlin, “The Religion Bubble: Churches Try to Recapture Their 9/11 Crowds,” Wall Street Journal, September 11, 2002, D1, D6.

35. S. Gray, “Natural Competitor: How Whole Foods CEO Mackey Intends to Stop Growth Slippage: Leadership on Salary of $1 a Year,” Wall Street journal, December 4, 2006, B1, B3.

36. T. W. Martin, “Organic Foods Get on Private-Label Wagon,” Wall Street Journal, July 27, 2009, B1.

37. J. Birchall, “National Grocery Brands Back in Favour,” Financial Times, March 11, 2010, 13.

38. S. Ellison and D. Ball, “Slow to Spot Atkins, Food Firms Hunt for the Next Big Diet Fad,” Wall Street Journal, February 16, 2006, A1, A9.

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39. S. Leung, “Fleeing from Fast Food,” Wall Street Journal, November 11, 2002, B1, B3; S. Leung and R. Lieber, “The New Menu Option at McDonald's: Plastic,” Wall Street Journal, November 26, 2002, D1, D2.

40. J. Jargon, “On McDonald's Menu: Variety, Caution,” Wall Street Journal, December 27, 2010, A1, A14.

41. S. Gray, “Crunch Time in Fast Food,” Wall Street Journal, August 26, 2005, B1, B3.

42. T. Bouza and G. Sama, “America Adds Salsa to Its Burgers and Fries,” Wall Street journal, January 2, 2003, A1, A12.

43. S. Ellison and B. Steinberg, “To Eat, Or Not to Eat,” Wall Street journal, June 20, 2003, B1, B4.

44. B. McKay, “Downsize This!” Wall Street journal, January 27, 2004, B1, B5.

45. S. Leung, “McDonald's Makeover,” Wall Street Journal, January 28, 2004, B1, B10.

46. K. McLaughlin, “America's Wartime Diet: Finding Comfort in Cupcakes,” Wall Street journal, April 3, 2003, D1, D2.

47. S. S. Munoz, “Rebuilding the Pyramid,” Wall Street journal, January 27, 2005, B1, B3.

48. S. Gray, “For the Health-Unconscious, Era of Mammoth Burger Is Here,” Wall Street Journal, January 27, 2005, B1, B3.

49. G. Fairclough and G. A. Fowler, “Drive-Through Tips for China,” Wall Street journal, June 20, 2006, B1, B9.

50. L. Burkitt, “Selling Health Food to China,” Wall Street journal, December 14, 2010, B1.

51. B. Ball and V O'Connell, “As Young Women Drink More, Alcohol Sales, Concerns Rise,” Wall Street Journal, February 15, 2006, A1, A14.

52. N. Buckley, “Have Fat, Will Sue,” Financial Times, December 13-14, 2003, W1-W2.

53. S. Ellison and D. Ball, “Now Low-Carb: Unilever's Skippy, Wishbone, Ragu,” Wall Street journal, January 14, 2004, B1-B2.

54. K. Dial, “Firms to Modify School Snacks,” Health Care News, November 1, 2006, www.heartland.org/publications/health%20care/article/19985/Firms_to_Modify_School_Snack s.html (accessed March 20, 2009).

55. K. Hellier and S. Ellison, “Anheuser Wants World to Know Beer is Healthy,” Wall Street Journal, December 9, 2005, B1, B4.

56. J. Adamy, “Tough New Rules Proposed on Food Advertising for Kids,” Wall Street Journal, April 29, 2011, B1.

57. J. B. White, G. L. White, and N. Shirouzu, “Drive for Lower Floors, Softer Rides Results in Domestic-Looking SUVs,” Wall Street journal Interactive Edition, January 4, 2001.

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58. J. Ball, “Detroit Revs Up the Wagon,” Wall Street journal, January 7, 2003, B1, B3.

59. J. B. White, “Remaking the American Car,” Wall Street journal, October 23, 2003, B1, B6.

60. K. Lundegaard, “A New Generation of SUVs,” Wall Street journal, January 10, 2006, D1, D6.

61. N. Shirouzu and J. B. White, “The SUV Keeps on Evolving,” Wall Street journal, January 10, 2005, B1, B5.

62. M. Vella, “The Minivan is Dead: Long Live the Minivan?” Wall Street Journal, August 7, 2007, D1.

63. G. Chon, “Sales of SUVs Fall Sharply,” Wall Street journal, October 4, 2005, D1, D5.

64. G. Chon, “Car Industry Brings Back Incentives,” Wall Street Journal, May 2, 2006, D1, D3.

65. M. Vella, “Small is Big in Luxury Cars,” Wall Street journal, August 28, 2007, D1.

66. C. Woodyard, “In a First, Toyota Outsells Ford,” USA Today, August 2, 2006, B1.

67. G. Chon and S. Power, “Can an Itsy-Bitsy Auto Survive in the Land of the SUV? Wall Street Journal, January 9, 2007, B1, B12.

68. J. Bennett, “Auto-Parts Firms Face Trouble as Car Makers Retool Production,” Wall Street Journal, June 23, 2008, B3; J. McCracken and P. Glader, “New Detroit Woe: Makers of Parts Won't Cut Prices,” Wall Street Journal, March 20, 2007, A1.

69. N. Sbirouzu, “Toyota's New U.S. Plan: Stop Building Factories,” Wall Street Journal, June 20, 2007, A1.

70. J. McCracken, “Economy Puts Tight Squeeze on RV Makers,” Wall Street Journal, May 13, 2008, B1.

71. J. B. Stewart, “Auto Makers Can Find Opportunity in $4 Gasoline,” Wall Street Journal, May 28, 2008, D3.

72. N. E. Boudette and J. B. White, “Downsized Luxury: European Auto Makers Race to Win Over Young Americans With Smaller Premium Models,” Wall Street Journal, October 14, 2003, B1, B7.

73. K. Lundegaard, “Ford, GM Make Big Push to Promote ‘Flex-Fuel’ Vehicles,” Wall Street Journal, January 10, 2006, B1, B8.

74. D. Shafer, “Luxury Carmakers Face Challenge of Ageing Population,” Financial Times, September 8, 2009, 15.

75. J. B. White, “Can Small Cars Overcome Crash Fears?” Wall Street Journal, April 21, 2009, D4.

76. B. Simon, “Smaller Vehicles Take Giant Strides,” Financial Times, May 5, 2010, 16; M.

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Ramsey and S. Terlep, “Americans Embrace SUVs Again,” Wall Street Journal, December 2, 2011, A1, A2.

77. B. Simon and J. Reed, “Electric Car Industry Gets a Charge from BP Oil Spill,” Financial Times, June 23, 2010, 21.

78. L. Burkitt, “China's Car Economy Revs Up,” Wall Street Journal, October 7, 2010, B1, B11; M. Ramsey and N. E. Boudette, “U.S. Auto Sales Sizzle,” Wall Street Journal, April 4, 2012, B1, B2.

79. E. Weitz and Y. Shenhav, “A Longitudinal Analysis of Technical and Organizational Uncertainty in Management Theory,” Organization Studies 21 (2000): 243-265.

80. P. Wright et al., Strategic Management: Concepts.

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2005, B1, B3; C. Dougherty, “Exporting Christmas,” Wall Street Journal, December 23, 2006, P1, P4.

94. “World Wire: French Protest Hits Euro Disney,” Wall Street Journal, September 20, 1993, A10.

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96. Ibid.

97. P. Wright et al., Strategic Management: Concepts.

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101. H. Chesbrough, “Why Bad Things Happen to Good Technology,” Wall Street Journal, April 28, 2007, Rll.

102. J. Reed, “Rivals Jostle in Electric Car Charge,” Financial Times, August 20, 2009, 13.

103. E. Taylor, “Start-ups Race to Produce ‘Green’ Cars,” Wall Street Journal, May 6, 2008, B1.

104. M. Ramsey, “Environmental Lift of Battery Cars Is Limited,” Wall Street Journal, October 18, 2010, B6.

105. M. Ramsey, “High Battery Cost Curbs Electric Cars,” Wall Street Journal, October 19, 2010, B1, B2.

106. B. McKay, “PepsiCo Develops ‘Designer Salt’ to Chop Away at Sodium Intake,” Wall Street Journal, March 22, 2010, B1.

107. E. Ramstad, “I Want MY Flat T.V. Now!” Wall Street Journal, May 27, 2004, B1, B4.

108. J. Adamy, “High-Pressure Process Helps Keep Food Bacteria-Free,” Wall Street Journal, February 17, 2005, B1, B7.

109. J. Pereira, “Spying on the Sales Floor,” Wall Street Journal, December 21, 2004, B1, B4.

110. J. Birchall, “P&G Starts Direct Sale of Brands Online,” Financial Times, May 20, 2010, 17.

111. J. Spencer, “Virtual Phone Reps Replace the Old Touch-Tone Menus; Making Claire Less Irritating,” Wall Street Journal, January 21, 2002, D1, D4.

112. J. Ball, “Global Auto Makers Are Racing to Inject Diesel Into Mainstream,” Wall Street Journal, July 28, 2003, A1, A6.

113. B. Schofield, “Building-and-Rebuilding—A Global Company,” The McKinsey Quarterly 2

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(1994): 37-45; R. B. Reich, The Next American Frontier (New York: Times Books, 1983).

114. A. R. Negandhi, “Multinational Corporations and Host Governments' Relationships: A Comparative Study of Conflict and Conflicting Issues,” Human Relations 33 (1980): 534-535.

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117. M. Forsythe, “China Calls for Internet Crackdown After ‘Prostitute Diary’ Blog is Shut,” Bloomberg News, September 30, 2011, www.bloomberg.com/news/2011-10-01/china-calls-for- internet-crackdown-after-prostitute-diary-blog-is-shut.html (accessed October 1,2011).

118. A. Lavallee, “Newspaper-Circulation Drops Sharpen,” Wall Street Journal, April 29, 2008, B1; P. E. Steiger, “Read All About It,” Wall Street Journal, December 29, 2007, Al.

119. J. Angwin and J. Hagan, “As Market Shifts, Newspapers Try to Lure New, Young Readers,” Wall Street Journal, March 22, 2006, A1, A14.

120. P. Callahan, “Student Papers Are Resisting Gannett's Push onto Campuses,” Wall Street Journal Interactive Edition, F e b r u a r y 2 1 , 2 0 0 2 ; K n i g h t - R i d d e r C o r p o r a t e W e b s i t e , www.knightridder.com (accessed March 14, 2002); P. Wright et al., Strategic Management: Concepts.

121. N. Harris and S. Carey, “Delta Ends Commissions for Most Travel Agents,” Wall Street Journal Interactive Edition, March 15, 2002; J. Costello, “Travel Agents Blast Decision to Cut Commissions in U.S.” Wall Street Journal Interactive Edition, March 25, 2002.

122. M. Garrahan, “Big Hotels Challenge Travel Websites,” Financial Times, March 19, 2004, 31.

123. J. Magretta, “Why Business Models Matter,” Harvard Business Review 80, no. 5 (2002): 3.

124. P. Edmonston, “One Web Retailer's Watchword: ‘Free After Rebate,’” Wall Street Journal, March 5, 2001, B1, B5.

125. P. Edmonston, “Free-with-Rebate Costs Web Buyers Some Big Bucks,” Wall Street Journal, May 18, 2001, B1, B4.

126. M. E. Porter, “Strategy and the Internet,” Harvard Business Review 79, no. 3 (2001): 72.

127. K. McLaughlin, “Back From the Dead: Buying Groceries Online,” Wall Street Journal, February 25, 2003, D1-D2.

128. T. Malone and R. J. Laubaucher, “The Dawn of the E-Lance Economy,” Harvard Business Review 76, no. 5 (1998): 144-152; D. Tapscott, D. Ticoll, and A. Lowy, Digital Capital: Harnessing the Power of Business Webs (Boston: Harvard Business School Press, 2000).

129. R. Coase, The Firm, The Market, and The law (Chicago: University of Chicago Press, 1990).

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130. T. L. Friedman, The World ls Flat.

131. M. Bustillo, “As Big Boxes Shrink, They Also Rethink,” Wall Street Journal, March 3, 2011, B1, B2; M. Bustillo, “Best Buy Forced to Rethink Big Box,” Wall Street Journal, March 30, 2012, B1-B2.

132. D. Mattioli, “Retailers Try to Thwart Price Apps,” Wall Street Journal, December 23, 2011, B3.

133. M. Bustillo and G. A. Fowler, “Wal-Mart Uses Its Stores to Get an Online Edge,” Wall Street Journal, December 15, 2009, B1, B2.

134. N. L. Karmakar, “E-Business for Creating Wealth: The Hype or Reality,” Paper presented at the 2005 Information Technology in Business Conference, St. Petersburg, Russia.

135. E. Schonfeld, “Forrester Forecast: Online Retail Sales Will Grow to $250 Billion by 2014,” TechCrunch, 8 March 2010, http://techcrunch.com/2010/03/08/forrester-forecast-online-retail- sales-will-grow-to-250-billion-by-20l4 (accessed October 1. 2011).

136. C. Rigby, “Nearly Half of Domino's Deliveries Now Ordered Online,” Internet Retailing, September 28, 2011, www.internetretailing.net/2011/09/nearly-half-of-dorninos-deliveries-now- ordered-online (accessed October 1, 2011).

137. A. Cortese, “E-Commerce: Good-Bye to Fixed Pricing?” Business Week, May 4, 1998, 3576, 70-84.

138. K. Kumar, R. Subramanian, and K. Strandholm, “Competitive Strategy, Environmental Scanning, and Performance: A Context Specific Analysis of Their Relationship,” International Journal of Commerce & Management 11 (2001): 1-33.

139. J. R. Groom and F. David, “Competitive Intelligence Activity Among Small Firms,” SAM Advanced Management Journal, 66, no. 1 (2001): 12-29.

140. The Guardian, S u p e r m a r k e t s : C h a n g i n g M a r k e t S h a r e , A u g u s t 1 6 , 2 0 1 1 , www.guardian.co.uk/business/2011/aug/l6/supermarkets-market-share-kantar ( a c c e s s e d November 5, 2011); C. Rohwedder, “No. 1 Retailer in Britain Uses ‘Clubcard’ to Thwart Wal- Mart,” Wall Street Journal, June 6, 2006, A1, A16.

141. D. F. Jennings and J. R. Lumpkin, “Insights Between Environmental Scanning Activities and Porter's Generic Strategies: An Empirical Analysis,” Journal of Management 18 (1992): 791-803.

142. K. J. Delaney, “Hand-Held Device for DVD Movies Raises Legal Issues,” Wall Street Journal, January 7, 2004, B1, B3.

143. J. Flint, “HBO's Next Business Model,” Wall Street Journal, January 5, 2004, B1, B6.

144. A. Zimmerman, “Retailers Face Reality That Many People Can't Trade Back Up,” Wall Street Journal, October 4, 2011, B1, B7.

145. G. Kahn, “Chinese Puzzle: Spotty Consumer Data,” Wall Street Journal, October 15, 2003, B1, B10.

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Strategy + Business Reading: The Rise of Generation C

How to prepare for the Connected Generation's transformation of the consumer and business landscape.

by Roman Friedrich, Michael Peterson, and Alex Koster

Colin is a 20-year-old computer science student living in London with two other students in the year 2020. He enjoys backpacking, sports, music, and gaming. He has a primary digital device (PDD) that keeps him connected 24 hours a day—at home, in transit, at school. He uses it to download and record music, video, and other content, and to keep in touch with his family, friends, and an ever-widening circle of acquaintances. His apartment is equipped with the latest wireless home technology, giving him superfast download speeds of up to 100 Mbps.

Colin's parents are divorced and live in different cities, and he has one sister, who lives abroad. He is close to his family, but his physical contact with them is minimal. Instead, he prefers to stay in touch virtually through his PDD, which allows him to communicate through multiple channels via voice, text, video, data—either separately or all at once. His parents would prefer that he visit more often, of course, but they are finally beginning to get used to being a part of his digital life. Still, sometimes Colin feels he is too digitally connected. A recent surprise visit to his mother was ruined because she knew he was in town—he had forgotten to disable the location feature on his PDD. Colin's social life is also arranged via his PDD. He always knows the location of his friends—even what they are doing—and can communicate with them instantly.

Much of Colin's experience at school is mediated by his PDD. He can attend lectures, browse reading material, do research, compare notes with classmates, and take exams — a l l f r o m t h e c o m f o r t o f h i s a p a r t m e n t . W h e n h e g o e s t o c a m p u s , h i s P D D automatically connects to the school's network and downloads relevant content, notices, and bills for fees, for which he can authorize payment later, at his leisure. Although he prefers to shop online, when he visits a retail store, his PDD automatically connects to the store's network, guiding him through product choices, offering peer reviews, and automatically checking out and paying for items he purchases.

Colin's real passion is traveling, preferably with a backpack. On his recent trip to Australia, his PDD kept him occupied throughout the long plane ride with music, video, and Internet access, and helped him through customs by automatically connecting to the Australian government's network. Then he used it to pinpoint the location of the Australian friends he was planning to travel with (he had met them online through one of several social networks he uses). Once they met up, they used their PDDs to plan their route, a relatively easy task, given that with all of Australia (and most of the civilized world) mapped and modeled on the Web in 3-D, they could see every twist and turn on their path.

What Makes Gen C Special

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Who is Colin? He is a member of a new generation that will be coming into its own over the next decade. Its members are typically realists and materialists. They are culturally liberal, though not necessarily politically progressive. They are upwardly mobile, yet they live with their parents longer than earlier generations ever did. Many of their social interactions take place on the Internet, where they feel free to express their opinions and attitudes. They've grown up under the influence of Harry Potter, Barack Obama, and iEverything—iPods, iTunes, iPhones. Technology is so intimately woven into their lives that the baby boom-era concept of “early adopters” is essentially meaningless.

We call them Generation C—connected, communicating, content-centric, computerized, community-oriented, always clicking. As a rule, they were born after 1990 and lived their adolescent years after 2000. In the developed world, Generation C encompasses everyone in this age group; in the BRJC countries (Brazil, Russia, India, and China), they are primarily urban and suburban. By 2020, they will make up 40 percent of the population in the U.S., Europe, and the BRJC countries, and 10 percent of the rest of the world—and by then, they will constitute the largest single cohort of consumers worldwide.

This is the first generation that has never known any reality other than that defined and enabled by the Internet, mobile devices, and social networking. They have owned various handheld devices all their lives, so they are intimately familiar with them and use them for as much as six hours a day. They all have mobile phones, yet they prefer sending text messages to talking with people. More than 95 percent of them have computers, and more than half use instant messaging to communicate, have Facebook pages, and watch videos on YouTube. Their familiarity with technology; reliance on mobile communications; and desire to remain in contact with large networks of family members, friends, business contacts, and people with common interests will transform how we work and how we consume.

We expect that, in keeping with expectations for long-term economic development, the world that Generation C will make theirs in 2020 will be a better place, with a brighter future for a much larger proportion of the population in both the developed and the developing world. Following the lull that has taken place during the recent, persistent, worldwide recession, there is reason to believe the world will revert to the economic mean of steady growth, with globalization picking up speed again.

As populations in Western countries age, powerful new consumer segments will be created, including a relatively wealthy retirement segment and a rising young middle class. The pace of innovation will accelerate, creating an ever more digital world, even as wireless devices become the dominant tool for trade, entrepreneurship, and Internet access. Indeed, the very rise of Generation C will help create a virtuous circle that will help stimulate economic growth, which in turn will encourage both the public and private sectors to continue to invest in faster and more widespread communications infrastructure, thus enabling even greater growth.

Although climate change and energy security will remain major concerns, stable electric power will likely be available to a substantially larger part of society, and energy inefficiency will no longer represent a hurdle to progress. High-speed broadband, whether fixed or mobile, will be pervasive and affordable. Secure online identity systems will allow reliable user authentication. It is likely that increasingly rational regulatory schemes will open up commercial activity worldwide, and that companies and individuals will be able to profit fairly from the intellectual property they generate.

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Connected Consumers

The trends outlined above will have a wide range of effects on how members of Generation C —and, by extension, other generations as well—use communications technology, how they access and consume information and entertainment, and how they interact. These effects will be determined in part by the progress of technologies over the course of the next decade.

On the grid 24/7. Being connected around the clock will be the norm in 2020—indeed, it will be a prerequisite for participation in society. Currently, there are 4.6 billion mobile users (67 percent of the world population) and 1.7 billion Internet users globally. By 2020, the number of people using mobile phones will reach 6 billion (nearly 80 percent of the world population) and 4.7 billion people will access the Internet, primarily through their mobile devices. Among younger Europeans, 52 percent already say they feel disconnected from the world if they don't have their mobile phones with them, and 91 percent of all mobile users keep their phones within arm's reach, waking or sleeping.

The Internet's power will develop not just through its online economic might, but also offline, as a result of its cultural and political influence. At the same time, personal and business activities will mingle seamlessly, as the day fragments into a flexible mix of personal and business activities — work, commuting, shopping, socializing, and entertainment. The inevitable corollary: As “off-grid” time becomes rarer, it will become more valued.

Social animal 2.0. Thanks to the popularity and performance of social collaboration technologies and mechanisms, including social networks, voice channels, online groups, blogs, and other electronic messaging systems, the size and diversity of networks of personal relationships will continue to grow. These networks will include acquaintances ranging far beyond the traditional groups of family, friends, and work colleagues to include friends of friends, online acquaintances, and anonymous members of interest groups. Already, 49 percent of 16- to 24-year-olds in Europe are savvy users of social networks.

One result will be the rapid creation of fast-moving political and business pressures—such as the tidal wave of electronic interest created by Barack Obama's 2008 presidential campaign. The average person in 2020 will live within a web of 200 to 300 contacts, maintained daily through a variety of channels. Even within the family, the need for physical proximity will be reduced through increased digital interaction. Just as Facebook's “Connect” buttons are already distributed across 80,000 websites and devices, social networks will accompany people throughout their daily activities.

Digital information osmosis. People will dramatically increase their consumption of digital information, much of which will be unverified. The vast pool of information available will allow consumers to pick and choose the information they want, as well as how they want to consume it. “Nonlinear” information consumption will become the norm. And the supply of digital information itself will explode. Walmart already handles more than 1 million sales transactions every hour, feeding databases estimated at more than 2.5 petabytes (2.5 million gigabytes), according to a recent study by the Economist. Cisco has estimated in a much- cited study that it expects Internet traffic to increase 10-fold by 2013, to 667 exabytes (that's 716 billion gigabytes). Right now, much of this information is pure exhaust—unanalyzed and unanalyzable—but it will soon be put to material economic use.

Broadcast privacy. Concerns about privacy and the security of personal data will decline as consumers come to perceive the benefits of transparency as outweighing the risks, and as

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mechanisms to secure and process personal information become more sophisticated. The result: The availability of an abundance of real-time, personalized information on people's presence, online status, physical location, preferred communication channels, friend networks, interests, passions, and shopping habits. Facebook, for instance, already hosts 40 billion photos of its members. The use of social networking increasingly will determine consumption patterns. Viral marketing and positive peer reviews will become essential to commercial success, which will in turn erode the value of traditional marketing and of bricks- and-mortar outlets, and ultimately the concept of brand value itself.

iEverywhere. As privacy concerns dwindle, people's personal data, such as identity, payment details, shopping preferences, interests, and membership in social communities, will become widely available. Members of Generation C will be able to access their digital life from a multitude of digital interfaces and devices, because they will live in a fully interconnected world in which services and data reside online—in what's known as cloud computing—rather than on those devices themselves. Today's consumer electronics already show the way: smartphones, iPads, iPods, netbooks, laptops, PCs, and watches, and the list is sure to grow in the next decade. At the same time, prices for such devices will continue to fall. Netbooks subsidized by telecom operators go for as little as a penny, and they are approaching the US$200 mark in retail outlets. Wireless broadband services, however, will still cost more than $50 per month.

Continuing generation gap. The upper age limit of the digitally literate will rise, as the 50- plus age bracket broadly migrates online. At present, the average 65-year-old spends just two to three hours online in a typical week; in 2020, 65-year-olds will spend closer to eight hours online weekly—though they will remain far below the 16- to 24-year-old group, which alreadyonline weekly—though they will remain far below the 16- to 24-year-old group, which already spends 13 hours online weekly. Older people will also continue to lag in the intensity of their digital behavior. Generation C will distance itself further, particularly in the development of its own pervasive culture of communication. That culture has led some observers to dub this group “the silent generation,” as digital communication channels have replaced much of the physical interaction typical of prior generations.

Generation C at Work

The digitization of everything will have an equally profound effect on how businesses operate, and on how work gets done. Among the changes that will be wrought by the arrival of Generation C in the workplace will be the continuing consumerization of corporate IT. More than half of the CIOs in a recent Booz & Company survey said that in the next three to five years, most employees will bring their personal computers to work rather than using corporate resources. The trend of redefining employees as resident consumers will be led by Generation C, given its familiarity with technology and its expectation of always-on communications.

This trend will, in turn, encourage the increasing virtualization of the organization. As 24/7 connectivity, social networking, and increased demands for personal freedom further penetrate the walls of the corporation, corporate life will continue to move away from traditional hierarchical structures. Instead, workers, mixing business and personal matters over the course of the day, will self-organize into agile communities of interest. By 2020, more than half of all employees at large corporations will work in virtual project groups. These virtual communities will make it easier for non-Western knowledge workers to join global teams, and to migrate to the developed world. As they do, they will bring with them the innovative ideas and working behavior developed in their home territories.

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Moreover, the proliferation and increasing sophistication of communication, interaction, and collaboration technologies and tools, and the economics of travel itself, will result in knowledge workers' traveling much less frequently. The opportunity to meet face-to-face will be accorded primarily to top management, and business travel will become a valued luxury.

The Developing World

The trends that are already transforming life and work in the developed world are beginning to be felt in emerging economies as well, although the path such countries take to digitization will be significantly shortened. As the developing world increases in connectivity and sophistication, a huge new audience of people who have not yet been exposed to the consumer economy will develop outside the already connected urban centers. Between 1990 and 2005, more than 1 billion people worldwide entered the middle class, and the rate of entry is rising quickly. Their consumption of media and other kinds of content will transform the media industry. As with prior technology adoptions, these new audiences will leapfrog years of technological development and quickly emulate the behavior of Generation C in developed economies. The experience of the rapidly developing middle class in China will become typical: A member of the Chinese urban middle class spends almost 30 hours per week online but watches TV for just 12 hours. Three out of four regularly download music, two out of three watch online videos, and almost half play games online.

This increasing technological sophistication will promote the emergence of skilled and innovative digital entrepreneurs in massive numbers throughout the developing world. The rise of these entrepreneurs has the potential to significantly disrupt traditional Western business models. And they will have the attention of a large, newly connected audience that can benefit from their new ideas. In urban China, for instance, 76 percent of people are already online, and 61 percent have broadband at home. Western countries currently lead the world in just two critical online services, e-commerce (Germany) and online advertising (the U.K.), whereas non-Western countries are ahead in several others: broadband (South Korea), s o c i a l n e t w o r k i n g ( B r a z i l ) , o n l i n e g a m i n g ( C h i n a ) , m o b i l e p a y m e n t s ( J a p a n ) , a n d microtransactions via SMS (the Philippines).

Industry Effects

As Generation C enters the workforce over the next decade, the manner in which it consumes information, communicates at work and play, and uses technology will transform many major industries. The most affected sector will be telecommunications, which is at the very center of how this new generation will live their lives; other sectors apt to greatly change include healthcare, retail, and travel. How will these industries evolve over the next decade?

Telecommunications. Just as the telecom industry is heading toward a strict separation between infrastructure and services and applications, customers are shifting their consumption patterns, and their loyalties, away from the traditional telecom operators and toward application and service providers such as Google, Apple, and Facebook, as well as any number of smaller players. In this world, telecom players that remain vertically integrated will come under substantial pressure. Indeed, it is likely that the industry will evolve to include two types of players: the efficient utility, driven by fiber-optic and wireless access technology, and the fast-moving, customer-centric software innovation provider.

At the same time, the information and communications on which the world of 2020 will

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depend, and the intelligence needed to manage that information, are moving quickly into the online computing cloud. The convergence of these technologies in the cloud will only be the start, however. As more and more services migrate online, telecom, IT, technology, and Internet service companies themselves will begin to encroach on one another's territory, as they all move toward higher-margin and differentiating applications.

The general outlines of the future created by the arrival of Generation C are clear. The question is whether telecom operators are ready for the changes already on the way and are planning now to create the strategies and business models they will need to keep growing in this more competitive future. Too many telecom operators appear to be focused on preserving sources of revenue, such as voice telephony, that are likely to decline in the future, rather than on developing new sources of revenue and opening up new markets. As a whole, telecom industry players need to rapidly change their operational and business models, the ways they interact with customers, the access and price points they establish to generate revenues, and the way they manage innovation.

We see three primary new revenue opportunities arising from the changes that the emergence of Generation C will bring about. First, the demand for ubiquitous connectivity will ultimately create the need for universal broadband access in developed economies. As a result, operators that hope to grow by offering services dependent on broadband must support national efforts to build out this next-generation infrastructure. Second, vast segments of the world's population in emerging markets are still unconnected, and operators looking to grow their customer bases thus need to expand in those markets. Third, the ways that Generation C behaves and collaborates, and the technologies it prefers, will create opportunities in other industries; telecommunications operators should be considering how to promote the use of their services to capture some of the new value created. (See “The Thought Leader Interview: Didier Lombard,” by Art Kleiner and Pierre Péladeau, s+b, Spring 2011.)

Healthcare. As information about doctors and hospitals, medical treatments, and costs floods the Internet, consumers will gain real power, performing their own research; writing reviews of physicians, hospitals, and drugs; and forcing the players to compete more actively. Online services, some featuring user-generated content, will become a primary channel for medical advice, substituting in part for traditional support channels.

Widespread connectivity will boost electronic diagnosis, helping to reduce costs; digital health monitoring will become accepted practice; medical R&D will come to rely on social media such as crowdsourcing. The personalization of medicine will lead to new insurance models, and electronic medical records and national e-health infrastructures will connect with online identity and digital passport technologies.

Retail. Ubiquitous connectivity will continue to transform the retail industry, seamlessly integrating the online and offline worlds, and ultimately leading to a form of augmented reality that allows a more elaborate presentation of retail goods. Peer reviews will become a real-time decision-making tool in physical stores as well as online, and social networks will become critical for brand awareness and customer preferences. This will lead to a winner-take-all dynamic among retailers, already typical of commerce on the Internet. Electronics retailers will lose ground as consumers purchase software and services from the cloud rather than in their current shrink-wrapped store format. Social media techniques such as crowdsourcing will be used to further product innovation, and increased connectivity will generate new monetization models driven by new partnerships among retailers and manufacturers.

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Travel. By 2020, business travel will decline in the face of costs and alternative meeting technologies. In the leisure segment, traditional intermediaries such as travel agents have already been largely cut out, and peer reviews have become a dominant form of deciding on vacation destinations. This will lead to increasingly individualized travel, online advice and information dictating travel plans in real time. The distinction between travel and home will blur (as the distinction between the office and home already has), and the off-the-grid getaway will become a luxury.

Even the concept of distance will be transformed, as the world becomes fully modeled in 3-D, and open for inspection by prospective visitors. The digital world will also further invade the car. For the driver, this will lead to better information on the roadside environment—another instance of augmented reality—along with improved safety through the presence of sensors that check for drivers' sleepiness or drunkenness, and simplified car maintenance based on remote diagnostics. It will also improve the efficiency of the street network, allowing for instant data on traffic and providing the ability to determine traffic flow.

Is Your Company Ready?

There is already evidence of some of the changes that will be brought about by the coming generation of workers and consumers, and increasing speculation about the path of future change. Few businesspeople, however, have fully grasped the implications for every industry. The arrival of Generation C will have an impact comparable to that of the Industrial Revolution, but it will take place much more quickly. For managers, it is no longer sufficient to plan for the next few quarters, or even the next few years. Companies that aren't willing to determine their strategies for the longer term—10 to 15 years out—are putting their business models and value chains at risk. Executives must begin now to develop an agenda that includes an analysis of the capabilities and workforces they will need in the next decade and beyond. A critical step will be to make sure that the organization as a whole understands the coming changes, and that there are already people within the organization who are living these changes now, who don't perceive them as a threat, and who can help integrate them into the organization's business plan.

The world of 2020 will be set and governed by the members of Generation C, as they mature and grow in numbers and power. How businesses choose to cater to this coterie will determine their success—and even their ability to survive—in the coming decades.

How the Tech Future May Unfold

It is notoriously difficult to project the future; still, the exhibit below presents a plausible chronology of the next 10 years. We see a series of “eras” triggered by the sequential rise of critical new technologies. The Era of the Smart Cloud, for instance, will enable significant portions of the Generation C lifestyle in the coming years, to be succeeded by the Era of the Sensor Economy, which the cloud will help trigger. Above the time line is a series of specific events keyed to and dependent on the arrival of the various eras; thus the Era of the Internet of Things will enable motor vehicle manufacturers to build cars with full machine-to-machine (M2M) connectivity.

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Author Profiles:

Roman Friedrich is a Booz & Company partner based in Düsseldorf and Stockholm. He specializes in strategic and technology transformation, and marketing and sales challenges in the communications, media, and technology industries. Michael Peterson is a Booz & Company partner based in Düsseldorf and London. He specializes in corporate strategy and business model transformation for communications companies and in convergence and customer-facing processes in the broader media and telecommunications environment. Alex Koster is a Booz & Company principal based in Zurich. He focuses on strategy, r e v e n u e g r o w t h , a n d b u s i n e s s m o d e l t r a n s f o r m a t i o n o p p o r t u n i t i e s a c r o s s communications, technology, and Internet companies.

http://dx.doi.org/10.4135/9781506374598.n4

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