Management Exam 2 (Ch. 3, 6, 7)
External environments - answer the forces and events outside a company that have the
potential to influence or affect it
-All the events outside your company that have the potential to influence or affect how
well you do
Environmental change - answer the rate at which a company's general and specific
environments change
-Factors include the employee behavior, the organization's culture, mission and vision
statements, and leadership styles
-Rate at which a company's general and specific environments change
Stable environment - answer an environment in which the rate of change is slow
- The funeral business changes little from year to year.
Dynamic environment - answeran environment in which the rate of change is fast. Ex.
cell phones, game consoles, network marketing, lumberyards
Punctuated equilibrium theory - answerthe theory that companies go through long
periods of stability (equilibrium), followed by short periods of dynamic, fundamental
change (revolutionary periods), and then a new equilibrium
- Example: The US airline industry is a classic example of punctuated equilibrium, as
four times in the past 40 years it has experienced revolutionary periods followed by a
temporary return to stability.
Environmentally complexity - answerthe number and the intensity of external factors in
the environment that affect organizations
Simple environments - answeran environment with few environmental factors
- The recreational boating industry is an excellent example of a relatively simple
external environment. The number of boats in use has held steady between 12 million
and 13 million vessels for two decades. Sales of fishing boats, jet skis, pontoon boats,
and wake sport boats (for water skiing and wakeboarding) rise and fall with changes in
the economy. Ninety-five percent of boats in use are less than 26 feet long. Likewise,
international competition matters little, as 95 percent of recreational boats are made in
the United States. While highly competitive (sales are split among 10 brands), the
industry has few key environmental factors
Complex environments - answeran environment with many environmental factors
- "less-than-truckload" (LTL) distribution companies with surprisingly complex
environments. Order a sofa or other items too big or too heavy for United Parcel
Service, FedEx, or the United States Postal Service (USPS), and they'll be delivered to
,your home by LTL trucking companies that traditionally deliver to businesses' loading
docks. With LTL deliveries up 20 percent thanks to e-commerce and industry revenues
now $9 billion a year, LTL firms are struggling with how to quickly and cheaply deliver
heavy, bulky items via full-sized trucks that are too large for small neighborhood streets.
Paul Dugent, vice president of Estes Express Lines says, "Chances are, we're going to
take out a mailbox." Steven Gast, president of Wilson trucking says, "If you're the
[online] seller, you're happy. If you're the guy delivering it, you're pulling your hair out."
Wilson says, "Nobody's figured out the cost side. Everyone is scrambling." Paul
Thompson, chairman of Transportation Insight LLC, agrees, saying, "Home delivery is
more finicky, more risky, and more costly."
Resource scarcity - answerthe abundance or shortage of critical organizational
resources in an organization's external environment
-Shortage of critical organizational resources in an external environment
- Beyond Meat's vegetarian Impossible Burger gets rave reviews because many people
think that it feels, looks, and tastes like real beef. Chelsea Donovan said, "Every single
time I order it, I think they must have made a mistake and given me beef instead." After
customer visits increased by 17 percent when Burger King added Impossible Whoppers
to its menu at 7,000 restaurants, Beyond Meat couldn't keep up. Tim Sykes, group
operations manager at Ruby's, said people left restaurants when told the Impossible
Burger wasn't in stock. Said Sykes, "(It's) super frustrating. I've never had a product
where I can't get it anywhere... We can normally source something creatively but it's
(not available) nationwide." Impossible Burger's CFO, David Lee, explained, "It will take
us some time to get back into that synchronization of supply and demand."
Uncertainty - answerextent to which managers can understand or predict which
environmental changes and trends will affect their businesses
- Starting at the left side of the exhibit, environmental uncertainty is lowest when
environmental change and environmental complexity are at low levels, and resource
scarcity is low (i.e., resources are plentiful). In these environments, managers feel
confident that they can understand, predict, and react to the external forces that affect
their businesses.
- By contrast, the right side of the exhibit shows that environmental uncertainty is
highest when environmental change and complexity are extensive, and resource
scarcity is a problem. In these environments, managers may not be confident that they
can understand, predict, and handle the external forces affecting their businesses.
General environment - answerthe economic, technological, sociocultural, and
political/legal trends that indirectly affect all organizations
- For example, when the Federal Reserve lowers its prime lending rate, most
businesses benefit because banks and credit card companies often lower the interest
rates they charge for loans. Consumers, who can then borrow money more cheaply,
might borrow more to buy homes, cars, refrigerators, and large-screen TVs.
,Specific environment - answerthe customers, competitors, suppliers, industry
regulations, and advocacy groups that are unique to an industry and directly affect how
a company does business
Business confidence indices - answerindices that show managers' level of confidence
about future business growth
- For example, the Conference Board's CEO Confidence Index is a quarterly survey of
100 CEOs in large companies across a variety of different industries that examines
attitudes regarding future growth in the economy or particular industries.
Technology - answerthe knowledge, tools, and techniques used to transform inputs into
outputs
- For example, the inputs of optometrists, eyeglass designers, and optical engineers
(knowledge) and the use of equipment such as lensometers and grinders for making
prescription lenses (technology) transform metal, glass, and plastic (raw materials) into
eyeglasses (the finished product).
- In the case of a service company such as an airline, the technology consists of
equipment, including airplanes, repair tools, and computers, as well as the knowledge of
mechanics, ticketers, and flight crews. The output is the service of transporting people
from one place to another.
Competitors - answercompanies in the same industry that sell similar products or
services to customers
- GM, Toyota, Honda, Volkswagen, Hyundai, and Ford all compete for automobile
customers.
- Netflix, (Amazon) Prime Video, Disney+, HBO Max and Hulu (along with hundreds of
cable channels) compete for TV viewers' attention
- McDonald's, Burger King, Wendy's, Taco Bell, Chick-fil-A, and a host of others
compete for fast-food customers' dollars
Competitive analysis - answera process for monitoring the competition that involves
identifying competitors, anticipating their moves, and determining their strengths and
weaknesses
Suppliers - answercompanies that provide material, human, financial, and informational
resources to other companies
- US Steel buys iron ore from suppliers to make steel products.
- When IBM sells a mainframe computer, it also provides support staff, engineers, and
other technical consultants to the company that bought the computer
Supplier dependence - answerthe degree to which a company relies on a supplier
because of the importance of the supplier's product to the company and the difficulty of
finding other sources of that product
-How much power do your supplier(s) have over you? (Think China's monopoly of rare
earths, or Chile's monopoly of copper) -->
, - Over the last decade, China has produced 75 to 95 percent of all rare-earth metals.
That dominance made automotive companies almost exclusively dependent on Chinese
suppliers for heavy rare-earth metals used to manufacture the magnets used in hybrid
car engines.
Buyer dependence - answerthe degree to which a supplier relies on a buyer because of
the importance of that buyer to the supplier and the difficulty of finding other buyers for
its products
-How important is a customer to a supplier? Imagine 95% of your sales go to Samsung,
the largest mobile phone seller in the world. What if they want a 25% lower price
starting today?
- While South Korea-based Samsung dominates the OLED market for smartphone
screens (that is, supplier dependence), it's also the case that Samsung's growing OLED
business is highly dependent on its largest customer, Apple, which purchased an
estimated 82 million OLED screens for iPhones in 2019. Apple, however, has added
two new OLED suppliers in the last 18 months, Korea's LG Display and China's BOE
Technology Group, which could lead to fewer OLED orders for Samsung
Opportunistic behavior - answera transaction in which one party in the relationship
benefits at the expense of the other
- Because of its online market dominance, Amazon pressures the suppliers (who sell
products on Amazon.com) to cut prices. For example, if Amazon's search algorithms
detect that an Amazon supplier is selling the same product for a penny less on another
website, it removes the "Buy Now" and "Add to Cart" buttons for those products, often
plunging sales by 75 percent. Amazon chief executive of consumer sales, Jeff Wilke,
responds, "If sellers weren't succeeding, they wouldn't be here." Former Amazon Vice
President David Glick says, "The secret of Amazon is we're happy to help you be very
successful," but he admits, "You just have to kiss the ring." Bernie Thompson, founder
of Plugables, a popular brand of computer accessories, says, "Every year it's been a
ratchet tighter. We are dealing with a partner [Amazon] who can and will disrupt us for
unpredictable reasons at any time." And while we "built the company on Amazon...
today our focus has to be getting diversification off Amazon."
Relationship behavior - answerthe establishment of mutually beneficial, long-term
exchanges between buyers and suppliers
- General Motors has a well-earned reputation for opportunistic behavior toward its
suppliers. Steve Kiefer, GM's purchasing chief, admits that GM's supplier relationships
have been one sided in GM's favor. If material costs or currency exchange rates
changed, significantly raising suppliers' costs, GM expected them to absorb the losses
because they previously agreed to lower prices. But Kiefer, who used to work for Delphi
Automotive PLC, one of GM's largest suppliers, is encouraging a mutually beneficial
relationship by allowing suppliers to renegotiate their contracts when market conditions
change significantly. Kiefer says that with GM's new relationship behavior is, " ...
adopting a simple formula that is more predictable and allows both sides to share in the
ups and downs of those costs." Scott Paradise, of Magna International, a GM supplier,
External environments - answer the forces and events outside a company that have the
potential to influence or affect it
-All the events outside your company that have the potential to influence or affect how
well you do
Environmental change - answer the rate at which a company's general and specific
environments change
-Factors include the employee behavior, the organization's culture, mission and vision
statements, and leadership styles
-Rate at which a company's general and specific environments change
Stable environment - answer an environment in which the rate of change is slow
- The funeral business changes little from year to year.
Dynamic environment - answeran environment in which the rate of change is fast. Ex.
cell phones, game consoles, network marketing, lumberyards
Punctuated equilibrium theory - answerthe theory that companies go through long
periods of stability (equilibrium), followed by short periods of dynamic, fundamental
change (revolutionary periods), and then a new equilibrium
- Example: The US airline industry is a classic example of punctuated equilibrium, as
four times in the past 40 years it has experienced revolutionary periods followed by a
temporary return to stability.
Environmentally complexity - answerthe number and the intensity of external factors in
the environment that affect organizations
Simple environments - answeran environment with few environmental factors
- The recreational boating industry is an excellent example of a relatively simple
external environment. The number of boats in use has held steady between 12 million
and 13 million vessels for two decades. Sales of fishing boats, jet skis, pontoon boats,
and wake sport boats (for water skiing and wakeboarding) rise and fall with changes in
the economy. Ninety-five percent of boats in use are less than 26 feet long. Likewise,
international competition matters little, as 95 percent of recreational boats are made in
the United States. While highly competitive (sales are split among 10 brands), the
industry has few key environmental factors
Complex environments - answeran environment with many environmental factors
- "less-than-truckload" (LTL) distribution companies with surprisingly complex
environments. Order a sofa or other items too big or too heavy for United Parcel
Service, FedEx, or the United States Postal Service (USPS), and they'll be delivered to
,your home by LTL trucking companies that traditionally deliver to businesses' loading
docks. With LTL deliveries up 20 percent thanks to e-commerce and industry revenues
now $9 billion a year, LTL firms are struggling with how to quickly and cheaply deliver
heavy, bulky items via full-sized trucks that are too large for small neighborhood streets.
Paul Dugent, vice president of Estes Express Lines says, "Chances are, we're going to
take out a mailbox." Steven Gast, president of Wilson trucking says, "If you're the
[online] seller, you're happy. If you're the guy delivering it, you're pulling your hair out."
Wilson says, "Nobody's figured out the cost side. Everyone is scrambling." Paul
Thompson, chairman of Transportation Insight LLC, agrees, saying, "Home delivery is
more finicky, more risky, and more costly."
Resource scarcity - answerthe abundance or shortage of critical organizational
resources in an organization's external environment
-Shortage of critical organizational resources in an external environment
- Beyond Meat's vegetarian Impossible Burger gets rave reviews because many people
think that it feels, looks, and tastes like real beef. Chelsea Donovan said, "Every single
time I order it, I think they must have made a mistake and given me beef instead." After
customer visits increased by 17 percent when Burger King added Impossible Whoppers
to its menu at 7,000 restaurants, Beyond Meat couldn't keep up. Tim Sykes, group
operations manager at Ruby's, said people left restaurants when told the Impossible
Burger wasn't in stock. Said Sykes, "(It's) super frustrating. I've never had a product
where I can't get it anywhere... We can normally source something creatively but it's
(not available) nationwide." Impossible Burger's CFO, David Lee, explained, "It will take
us some time to get back into that synchronization of supply and demand."
Uncertainty - answerextent to which managers can understand or predict which
environmental changes and trends will affect their businesses
- Starting at the left side of the exhibit, environmental uncertainty is lowest when
environmental change and environmental complexity are at low levels, and resource
scarcity is low (i.e., resources are plentiful). In these environments, managers feel
confident that they can understand, predict, and react to the external forces that affect
their businesses.
- By contrast, the right side of the exhibit shows that environmental uncertainty is
highest when environmental change and complexity are extensive, and resource
scarcity is a problem. In these environments, managers may not be confident that they
can understand, predict, and handle the external forces affecting their businesses.
General environment - answerthe economic, technological, sociocultural, and
political/legal trends that indirectly affect all organizations
- For example, when the Federal Reserve lowers its prime lending rate, most
businesses benefit because banks and credit card companies often lower the interest
rates they charge for loans. Consumers, who can then borrow money more cheaply,
might borrow more to buy homes, cars, refrigerators, and large-screen TVs.
,Specific environment - answerthe customers, competitors, suppliers, industry
regulations, and advocacy groups that are unique to an industry and directly affect how
a company does business
Business confidence indices - answerindices that show managers' level of confidence
about future business growth
- For example, the Conference Board's CEO Confidence Index is a quarterly survey of
100 CEOs in large companies across a variety of different industries that examines
attitudes regarding future growth in the economy or particular industries.
Technology - answerthe knowledge, tools, and techniques used to transform inputs into
outputs
- For example, the inputs of optometrists, eyeglass designers, and optical engineers
(knowledge) and the use of equipment such as lensometers and grinders for making
prescription lenses (technology) transform metal, glass, and plastic (raw materials) into
eyeglasses (the finished product).
- In the case of a service company such as an airline, the technology consists of
equipment, including airplanes, repair tools, and computers, as well as the knowledge of
mechanics, ticketers, and flight crews. The output is the service of transporting people
from one place to another.
Competitors - answercompanies in the same industry that sell similar products or
services to customers
- GM, Toyota, Honda, Volkswagen, Hyundai, and Ford all compete for automobile
customers.
- Netflix, (Amazon) Prime Video, Disney+, HBO Max and Hulu (along with hundreds of
cable channels) compete for TV viewers' attention
- McDonald's, Burger King, Wendy's, Taco Bell, Chick-fil-A, and a host of others
compete for fast-food customers' dollars
Competitive analysis - answera process for monitoring the competition that involves
identifying competitors, anticipating their moves, and determining their strengths and
weaknesses
Suppliers - answercompanies that provide material, human, financial, and informational
resources to other companies
- US Steel buys iron ore from suppliers to make steel products.
- When IBM sells a mainframe computer, it also provides support staff, engineers, and
other technical consultants to the company that bought the computer
Supplier dependence - answerthe degree to which a company relies on a supplier
because of the importance of the supplier's product to the company and the difficulty of
finding other sources of that product
-How much power do your supplier(s) have over you? (Think China's monopoly of rare
earths, or Chile's monopoly of copper) -->
, - Over the last decade, China has produced 75 to 95 percent of all rare-earth metals.
That dominance made automotive companies almost exclusively dependent on Chinese
suppliers for heavy rare-earth metals used to manufacture the magnets used in hybrid
car engines.
Buyer dependence - answerthe degree to which a supplier relies on a buyer because of
the importance of that buyer to the supplier and the difficulty of finding other buyers for
its products
-How important is a customer to a supplier? Imagine 95% of your sales go to Samsung,
the largest mobile phone seller in the world. What if they want a 25% lower price
starting today?
- While South Korea-based Samsung dominates the OLED market for smartphone
screens (that is, supplier dependence), it's also the case that Samsung's growing OLED
business is highly dependent on its largest customer, Apple, which purchased an
estimated 82 million OLED screens for iPhones in 2019. Apple, however, has added
two new OLED suppliers in the last 18 months, Korea's LG Display and China's BOE
Technology Group, which could lead to fewer OLED orders for Samsung
Opportunistic behavior - answera transaction in which one party in the relationship
benefits at the expense of the other
- Because of its online market dominance, Amazon pressures the suppliers (who sell
products on Amazon.com) to cut prices. For example, if Amazon's search algorithms
detect that an Amazon supplier is selling the same product for a penny less on another
website, it removes the "Buy Now" and "Add to Cart" buttons for those products, often
plunging sales by 75 percent. Amazon chief executive of consumer sales, Jeff Wilke,
responds, "If sellers weren't succeeding, they wouldn't be here." Former Amazon Vice
President David Glick says, "The secret of Amazon is we're happy to help you be very
successful," but he admits, "You just have to kiss the ring." Bernie Thompson, founder
of Plugables, a popular brand of computer accessories, says, "Every year it's been a
ratchet tighter. We are dealing with a partner [Amazon] who can and will disrupt us for
unpredictable reasons at any time." And while we "built the company on Amazon...
today our focus has to be getting diversification off Amazon."
Relationship behavior - answerthe establishment of mutually beneficial, long-term
exchanges between buyers and suppliers
- General Motors has a well-earned reputation for opportunistic behavior toward its
suppliers. Steve Kiefer, GM's purchasing chief, admits that GM's supplier relationships
have been one sided in GM's favor. If material costs or currency exchange rates
changed, significantly raising suppliers' costs, GM expected them to absorb the losses
because they previously agreed to lower prices. But Kiefer, who used to work for Delphi
Automotive PLC, one of GM's largest suppliers, is encouraging a mutually beneficial
relationship by allowing suppliers to renegotiate their contracts when market conditions
change significantly. Kiefer says that with GM's new relationship behavior is, " ...
adopting a simple formula that is more predictable and allows both sides to share in the
ups and downs of those costs." Scott Paradise, of Magna International, a GM supplier,
