Relationship between business environment and strategic management

Strategic Management In Business Environment - Assignment Point

relationship between business environment and strategic management

Contingency theory contends that there is no universal or one best way to manage or design an organization and its subsystems must 'fit' with the environment. Mastering Strategic Management- 1st Canadian Edition Define the environment in the context of business. For any organization, the environment consists of the set of external Third, the environment shapes the various strategic decisions that executives make as they attempt to lead their organizations to success. The characteristics of strategic management decisions vary with the level of strategic management activity. Organization-environment relationships.

FedEx is now accessible via America Online, a national computer information service, and through the internet World Wide Web, making it possible for subscribers to brack packages from their home or office computers and send E-mail feedback to FedEx about its products and service.

This technology enables FedEx to gather marketing research information about company services directly from consumers. Second, marketing environment forces help determine whether and how a marketing manager can perform certain marketing activities.

relationship between business environment and strategic management

Marketing environment forces can fluctuate quickly and dramatically, which is one reason why marketing is so interesting and challenging. Because these forces are closely interrelated, changes in one may cause changes in others. For example, after starkest, a unit of H.

Relationship between Environment and Business

Heinz, received letters objecting to dolphin slaughter and faced an organized boycott of its canned tuna, the company announced a dolphin-safe policy and stopped buying tuna from fishing vessels that net dolphins.

How environments affect organizations: Three basic perspectives can be used to describe how environments affect organizations: Here he discuss in below how changing the political and ecnomic environment and their effects on strategic mangement decision making.

Environmental Change and complexity: Thompson suggests that the environment can be described along two dimensions: The degree of change is the extent to which the environment is relatively stable or relatively dynamic. The degree of homogeneity is the extent to which the environment is relatively simple few elements, little segmentation or relatively complex many elements, much segmentation. These two dimensions interact to determine the level of uncertainty faced by the organization.

Uncertainty, in turn, is a driving force that influences many organizational decisions. Kind of clothing buyer but sensitive to fashion-induced changes and compact disc CD producers catering to certain kinds of record buyers but alert to changing tastes in music.

Levi Strauss faces few competitors Wrangler and Leehas few suppliers and few regulators, and used limited distribution channels. This relatively simple task environment, however, also changes quite rapidly as competitors adjust prices and styles, consumer tastes change, and new fabrics become available.

The external environment is everything outside an organization that might affect it.

Relationship between Environment and Business

Of course, the boundary that separates the organization from its external environment is not always clear and precise. In one sense, for example, stockholders are part of the organization, but in another sense they are part of its environment. That environment presents firms with opportunities, threats, and constraints, but farely does a single firm exert any meaningful reciprocal influence. The trade agreements that resulted from improved relations between the United States and China and the United States and Russia are examples of political factors that impact individual firms.

The agreements provided individual U. Economic factors concern the nature and direction of the economy in which a firm operates. Because consumption patterns are affected by teh relative affluence of various market segments, each firm must consider economic trends in the segments that affect its industry.

On both the national and international level, managers must consider the general availability of credit, the level of disposable income, and the propensity of people to spend. Prime interest rates, inflation rates, and trends in the growth of the gross national product are otehr economic factors they should monitor. The down market had caused its stock price to be too low to raise each as it normally would.

Therefore, Crown cork managers turned to issuing bonds to refinance its debt. With the slow market, investors were taking advantage of such bonds because they could safely gain higher returns over stocks.

Not only were investors getting a deal, but Crown Cork and other companies were seeing the lowest interest rates on bonds in years and by issuing bonds could reorganize their balance sheets. For more details on this example, read ExhibitStrategy in Action. The emergence of new international power brokers has changed the focus of economic environmental forecasting. Among the most prominent of these power brokers are the European Economic Community EEC, or common marketthe organization of petroleum exporting countries OPECand coalitions of developing countries.

The EEC, whose members include most of the West European countries, eliminated quotas and established a tariff-free trade area for industrial products among its members.

By fostering intra-European economic cooperation, it has helped its member countries compete more effectively in non-European international markets. The direction and stability of political factors are a major consideration for managers on formulating company strategy.

Political factors define the legal and regulatory parameters within which firms must operate. Political constraints are placed on firms through fair-trade decisions, antitrust laws, tax programs, minimum wage legislation, pollution and pricing policies, administrative jawboning, and many other actions aimed at protecting employees, consumers, the general public, and the environment.

Since such laws and regulations are most commonly restrictive, they tend to reduce the potential profits of firms. However, some political actions are designed to benefit and protect firms. Such actions include patent laws, government subsidies, and product research grant.

Thus, political factors either may limit or benefit the firms they influence. Markets require buying power as well as people. The economic environment consists of factors that affect consumer purchasing power and spending patterns.

Nations vary greatly in their levels and distribution of income. Some countries have subsistence economics-they consume most of their own agricultural and industrial output. These countries offer few market opportunities. At the other extreme are industrial economics, which constitute rich markets for many different kinds of goods.

Marketers must pay close attention to major trends and consumer spending patterns both across and within their world markets. Following are some of the major economic trends in the United Stats. General Economic conditions The overall state of the economy fluctuates in all countries.

Changes in general economic conditions affect and are affected by supply and demand, buying power, willingness to spend, consumer expenditure levels, and the intensity of competitive behavior. Fluctuations in the U. In the traditional view, the business cycle consists of four stages: During prosperity, unemployment is low and total income is relatively high.

Assuming a low inflation rate, this combination causes buying power to be high. If the economic outlook remains prosperous, consumers generally are willing to buy. In the prosperity stage, marketers often expand their product offerings to take advantage of increased buying power. They can sometimes capture a larger market share by intensifying distribution and promotion efforts.

Because unemployment rises during a recession, total buying power declines, pessimism accompanying a recession often stifles both consumer and business spending. As buying power decreases, many consumers become more price-and value-conscious, looking for basic and functional products. During a recession, some firms make the mistake of drastically reducing their marketing efforts, thus damaging their ability to survive.

Obviously, marketers should consider some A depression is a period in which unemployment is extremely high, wages are very low, total disposable income is at a minimum, and consumers lack confidence in the economy.

The federal government has used both monetary and fiscal policies to offset the effects of recession and depression. Monetary policies control the money supply, which in turn affects spending, saving, and investment by both individuals and businesses. Through fiscal policies, the government influences the amount of savings and expenditures by altering the tax structure and changing the levels of government spending.

Some experts believe that effective use of monetary and fiscal policies can eliminate depressions from the business cycle. Recovery is the stage of the business cycle in which the economy moves from depression or recession to prosperity. Both the ability and willingness to buy rise. Marketers face some problems during recovery-for example, difficulty in ascertaining how quickly and to what level prosperity will return.

In this stage, marketers should maintain as much flexibility in their marketing strategies as possible to be able t make needed adjustments as the economy moves from recession to prosperity. Types of Economic Environment: The four types of industrial structures are as follows: In a subsistence economy, the vast majority of people engage in simple agriculture.

They consume most of their output and barter the rest of simple goods and services. They offer few market opportunities. Raw material exporting economies: These economics are rich in one or more natural resources but poor in other ways. Much of their revenue comes from exporting these resources.

Examples are Chile tin and copperZaire copper, cobalt, and coffeeand Saudi Arabia oil. These countries are good markets for large equipment, tools and supplies, and trucks. If these are many foreign residents and a wealthy upper class, they are also a market for luxury goods. Examples include Egypt, the Philippines, India, and Brazil.

As manufacturing increases, the country needs more imports of raw textile materials, steel, and heavy machinery, and fewer imports of finished textiles, paper products, and automobiles. Industrialization typically creates a new rich class and a small but growing middle class, both demanding new types of imported goods. Strategic mangement decisions are strongly affected by developments in the political environment.

The political environment consists of laws, government agencies, and pressure groups that influence or limit various organizations and individuals in a given society. In its broadest terms, politics is the art or science of public influence and control. Laws are an outcome of the political process that differentiate good and bad conduct. An orderly political process is necessary because modern society is the Product of an Evolving consensus among diverse individuals and groups, often with conflicting interests and objectives.

Although the list of special-interest groups is long and still growing not everyone can have his or her own way. The political system tries to balance competing interests in a generally acceptable manner. Factors of Political-legal environment: Nations differ greatly in their political-legal environments. At least four political-legal factors should be considered in deciding whether to do business in a given country, attitudes toward international buying, government bureaucracy, political stability, and monetary regulations.

In their attitudes toward international buying, some nations are quite receptive to foreign firms and others are quite hostile. For example, India has bothered foreign businesses with import quotas, currency restrictions, and limits on the percentage of the management team that can be monnationals. As a result, many U. In contrast, neighboring Asian shower them with incentives had favorable operating conditions. A second factor is government bureaucracy the extent to which the host government runs an efficient system for helping foreign companies: A common shock to Americans is how quickly barriers to trade disappear in some countries if a suitable payment bribe is made to some official.

Political stability is another issue, Governments change hands, sometimes violently. Even without a change, a government may decide to respond to new popular feelings. International marketers may find it profitable to do business in an unstable country, but the unstable situation will affect how they handle business and financial matters.

relationship between business environment and strategic management

Whether acting reactively or proactively, managers can employ four major strategies. Campaign financing, Although federal law prohibits U. Corporations can form political action committees PACs to solicit volunteer contributions from employees biamnually for the support of preferred candidates and parties. Importantly, PACs are registered with the Federal Election Commission and are required to keep detailed and accurate records of receipts and expenditures. Some criticize corporate PACs for having too great an influence over federal politics.

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But legislators are reluctant to tamper with a funding mechanism that tends to favor those already in office. Secret and informal meetings between hired representatives and key legislators in smoke-filled rooms have largely been replaced by a more forth right approach.

Today, formal presentations by well-prepared company representatives are the preferred approach to lobbying for political support.

relationship between business environment and strategic management

Despite lobbying reform legislation from the U. Congress in response to abuses, loopholes, and weak penalties for inappropriate gifts, it is pretty much business as usual for corporate lobbyists. During recessionary conditions, for example, firms reduce the production or pile their inventories to sell during normal or boom conditions. Business, on the other hand, can create artificial scarcity of goods by piling inventories and force the economic conditions to show signs of adversity while it is not actually so.

Both business and environment, thus, affect and are affected by each other. When financial institutions increase the lending rates, firms may resort to other sources of funds, like bank loans or internal savings reserves. This may force the financial institutions to lower the interest rates.

relationship between business environment and strategic management

The financial environment and the business system, thus, act and interact with each other. Workers demand high wages, suppliers demand high prices and shareholders demand high dividends. Firms reconcile the interests of diverse groups and satisfy their demands.

If management resolves these demands, it will be positively affected by the environmental forces but if it fails to satisfy these demands, it becomes a victim of the environment.

Growing firms pay high wages and dividends to their workers and shareholders to maintain harmonious industrial relations and a positive business-environment interface.

This information is transmitted to environment through annual reports as a requirement of disclosure practices. The basic function of a business enterprise, input-output conversion, is carried through active interaction with the environment. It receives inputs from the environment, converts them into outputs through productive facilities which are also received from the environment and sends them back to the environment.

A constant feedback is received from the environment to improve its performance. The environment offers threats and opportunities to business systems which they overcome and exploit through their strengths and weaknesses. SWOT analysis helps in integrating external environment with the internal environment.