Chapter 02 – The External and Internal Environments
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2
chapter
The External and Internal
Environments
Learning Objectives 2
Key Student Questions 3
Class Roadmap 4
Bottom Line 13
Social Enterprise 14
Lecturettes 15
CHAPTER CONTENTS
Chapter 02 – The External and Internal Environments
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1 Describe how environmental forces influence organizations and
how organizations can influence their environments.
2 Distinguish between the macroenvironment and the competitive
environment.
3 Explain why managers and organizations should pay attention to
economic and social developments.
LEARNING OBJECTIVES
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The two questions that come up most often for this chapter are:
1. “Can you explain the difference between the macroenvironment
and the task environment?” (Or request to explain a particular
element of either environment.)
2. “As a manager, what should I do to respond to a changing environment?”
Fortunately, the text has tools to help you deal with both of these questions more effectively.
• The first question is best addressed with examples, and students often find it useful to go
• The second question is best addressed by having students work together to complete the con-
cluding case study “Wild Water Gets Soaked.” The brainstorming activity that students
complete for the third discussion question on the case also serves as an excellent introduction
to Chapter 3 – Decision Making.
KEY STUDENT QUESTIONS
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Management in Action
Can Mark Zuckerberg Help Facebook Reach the Next Level by Outmaneuvering
the Competition and Refocusing on Its Developers?
One of the most dramatic business stories of the past decade has been how Mark Zuckerberg cre-
ated a social-networking website that helped transform how people use the Internet. Facebook,
Introduction
LO 1: Describe how environmental forces influence organizations, and how organizations can
influence their environments
A. Organizations are open systems (Figure 2.1)
1. Receive raw materials, services, and financial, human, and information resources
B. External Environment Influences
1. When resources change, environment influences the organization
E.G.
Use Example 2.1 – Environment Influences here
CLASS ROADMAP
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1. Macroenvironment is defined by the most general elements in the external environ-
ment that can potentially influence strategic decisions
LO 2: Distinguish between the macroenvironment and the competitive environment
A. The Economy (Exhibit 2.3)
a. The economic environment dramatically affects companies’ ability to function ef-
B. Technology
a. Technological advances create new products. As technology evolves, new indus-
tries, markets, and competitive niches develop.
C. Laws and Regulations
1. U.S. government policies both impose strategic constraints and provide opportunities.
4. Regulatory agencies have the power to investigate company practices and take legal
actions to ensure compliance with the laws are:
i. Securities & Exchange Commission (SEC)
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E.G.
Use Example 2.2 – Laws and Regulations here
D. Demographics
a. Demographics measures of various characteristics of the people comprising
groups or other social units.
Multiple Generations at Work
In order to address pending labor shortages over the next decade, organizations will need to find ways to
retain and fully use the talents of their experienced, older workers while competing for qualified entry-
LO 3: Explain why managers and organizations should attend to economic and social devel-
opments
E. Social Issues
a. Societal trends regarding how people think and behave have major implications
F. Sustainability and the Natural Environment
a. Prominent issues in today’s press pertain to natural resources.
LO 4: Identify elements of the competitive environment
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A. Competitors
a. As a first step in understanding their competitive environment, organizations must
identify their competitors, which may include:
i. small domestic firms
B. New Entrants
a. Barriers to entry are conditions that prevent new companies from entering an in-
dustry.
C. Substitutes and Complements (Exhibit 2.5)
a. Technological advances and economic efficiencies are among the ways that firms
can develop substitutes for existing products.
D. Suppliers
a. Suppliers provide the resources needed for production and may come in the form
E. Customers
a. Customers purchase the products or services the organization offers.
b. Final consumers are those who purchase products in their finished form.
c. Intermediate consumers are customers who purchase raw materials or wholesale
products before selling them to final customers.
i. Customer service means giving customers what they want or need, the way
they want it, the first time.
ii. Actions and attitudes that mean excellent customer service include:
a.) Speed of filling and delivering normal orders.
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Management in Action –
Progress Report
Facebook’s seemingly dominant position among social media is under constant challenge. Increasingly,
Facebook is competing to provide services that overlap with other leading players—Amazon, Apple, and
Google. To gain an edge, Facebook relies heavily on the data it collects from its users.
• Are Amazon, Apple, and Google competitors in Facebook’s competitive environment or sellers of com-
plements? Explain.
The case describes these companies as offering some similar and some complementary services. Students
• Facebook has two major kinds of customers: the users of its site and the advertisers on its site. What
challenges does Facebook face from Google in serving each customer group?
Teaching Tip:
Have students review and give feedback on each others’ responses to the pre-class assignment (Experien-
tial Exercise 2.1) at this point in the lecture. The best way to do this is in pairs. Each student reads the
LO 5: Summarize how organizations respond to environmental uncertainty
a. Developments outside the organization can have a profound impact on the way man-
agers operate.
b. Example: if little is known about customer likes and dislikes, organizations will have
a difficult time designing new products, scheduling production, or developing market
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A. Environmental scanning
E.G.
Use Example 2.3 – Environmental Complexity here
B. Scenario Development
a. Scenario is a narrative that describes a particular set of future conditions.
b. Best-case scenario—events occur that are favorable to the firm.
E.G.
Use Example 2.4 – Competitive Intelligence here
C. Forecasting
a. Used to predict exactly how some variable or variables will change in the future.
b. The best advice for using forecasts might include the following:
Teaching Tip:
Ask students to imagine different scenarios that might impact your school, and to develop contingency
plans that might address those scenarios. This can either be done as a discussion question with the entire
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D. Benchmarking
a. Benchmarking is the process of comparing the organization’s practices and technol-
A. Changing the Environment You Are In
1. Strategic maneuvering is the organization’s conscious efforts to change the bounda-
ries of its task environment. It can take four basic forms:
a. Domain selection is the entrance by a company into another suitable market or
industry.
2. Prospectors are companies that continuously change the boundaries of their task envi-
ronments by seeking new products and markets, diversifying and merging, or acquir-
ing new enterprises.
E.G.
Use Example 2.5 Independent Strategies here
B. Influencing your environment
1. Independent strategies are strategies that an organization acting on its own uses to
1. Adapting to the Environment: Changing Yourself
1. Four different approaches that organizations can take in adapting to environmental
uncertainty are: (Exhibit 2.9)
IV. RESPONDING TO THE ENVIRONMENT
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2. Adapting at the boundaries.
3. Adapting at the core.
E.G.
Use Example 2.6 Corporate Culture here
C. Choosing a Response Approach
1. Three general considerations help guide management’s response to the environment.
LO 6: Define elements of an organization’s culture
A. Organization culture is the set of important assumptions about the organization and its
goals and practices that members of the company share.
1. Strong cultures
LO 7: Discuss how an organization’s culture affects its response to its external environment
B. Diagnosing Culture
V. THE INTERNAL ENVIRONMENT OF
ORGANIZATIONS: CULTURE AND CLIMATE
Chapter 02 – The External and Internal Environments
1. Culture can be diagnosed through the following:
a. Corporate mission statements and official goals. (Exhibit 2.9)
C. Managing Culture
1. Espouse lofty ideals and visions for the company
D. Organizational Climate
Management in Action –
Onward
During the recent Facebook–sponsored F8 conference for developers, Mark Zuckerberg made it clear that
Facebook will be developing tools for developers to grow and make more revenue from their apps on the
social networking site. In turn, this goal will “make users happier and marketers smarter, so business
owners will be able to more easily reach large audiences.”
• How well do you think Facebook has been responding to its fast-changing environment? Identify risks it
is taking that could negatively impact its future growth.
Facebook is responding well to its fast-changing environment by offering concepts such as the FBStart
• How can Mark Zuckerberg strengthen Facebook’s culture to help the company fulfill its missions?
Methods by which managers can reinforce Facebook’s culture include espousing a vision for Facebook