Chapter TWO
THE ORGANIZATIONAL ENVIRONMENT

CHAPTER CONTENTS

Overview of the Chapter 2
Learning Objectives 2
Key Terms 2
Lecture Outline 3
Learning Objectives Revisited 9
Lecture Enhancers 10
Notes for Topics for Discussion and Action 12
Notes for Building Management Skills 16
Notes for Management For You 17
Notes for Small Group Breakout Exercise 17
Notes For Managing Ethically 19
Notes For Web Exercises 19
Notes for You’re the Management Consultant 19
Notes for Management Case 20
Notes for Management Case in the News from the pages of Business Week 21

Overview of the Chapter

This chapter examines the organizational environment in detail. It identifies the principal forces—both task and general—that create pressure and influence management and thus affect the way organizations operate. It concludes with a study of several methods that managers can use to help organizations adjust and respond to forces in the organizational environment.

Learning Objectives

1. Explain why being able to perceive, interpret, and respond appropriately to the organizational environment is crucial for managers’ success. 1. Identify the main forces in an organization’s general and task environments, and describe the challenges that each force presents to managers. 1. Discuss the main ways in which managers can manage the organizational environment.

Key Terms

barriers to entry brand loyalty command economy competitors customers demographic forces distributors economic forces economies of scale environmental change external environment free-market economy general environment global forces internal environment mixed economy organizational environment political and legal forces potential competitors representative democracy suppliers task environment technological forces technology totalitarian regime

Lecture Outline

A CASE IN CONTRAST: “From Crown Corporation to Privatization.”

I. WHAT IS THE ORGANIZATIONAL ENVIRONMENT?

A. The organizational environment is a set of forces and conditions, such as technology and competition, that are outside the organization’s boundaries and have the potential to affect the way the organization operates and the way managers engage in planning and organizing.

B. The internal environment, consists of the forces operating within an organization and stemming from the organization’s structure and culture.

C. An organization’s external environment can generally be divided into two major categories: the task environment and the general environment.

1. The task environment is the set of forces that affect an organization’s ability to obtain inputs and dispose of its outputs.

2. The general environment is the wide-ranging economic, technological, sociocultural, demographic, political and legal, and global forces that affect the organization and its task environment.

D. Changes in the environment create opportunities for managers to strengthen their organizations. However, other changes pose a threat if organizations are unable to adapt.

Figure 2.1: “Forces in the Organizational Environment” shows how the organization interacts with the task and general environment.

II. THE TASK ENVIRONMENT.

Forces in the task environment result from the actions of suppliers, distributors, customers, and competitors, and have a significant impact on short-term decision-making.

Suppliers.

1. Suppliers are the individuals and organizations that provide the input resources that an organization needs to produce goods and services.

a. In return, the supplier receives compensation for those goods and services.

b. An important part of a manager’s job is to ensure a reliable supply of input resources.

2. Changes in the nature or types of any supplier result in forces that produce opportunities and threats to which managers must respond.

3. Another supplier-related threat arises when suppliers’ bargaining position is so strong that they can raise the prices of inputs they supply.

4. Suppliers can make operations difficult by restricting access to important inputs.

C. Distributors.

1. Distributors are organizations that help other organizations sell their goods or services to customers.

2. The changing nature of distributors and distribution methods can also bring opportunities and threats for managers.

3. The power of a distributor may be weakened if there are many distribution options.

D. Customers.

1. Customers are individuals and groups that buy goods and services that an organization produces.

2. Changes in the number and types of customers or changes in customers’ tastes and needs also result in opportunities and threats.

3. An organization’s success depends on its response to customers.

E. Competitors.

1. Competitors are organizations that produce goods and services that are similar to a particular organization’s goods and services.,

2. The rivalry between competitors is potentially the most threatening force that managers must deal with.

3. The potential for new competitors to enter a task environment is a function of barriers to entry.

a. Barriers to entry are factors that make it difficult and costly for an organization to enter a particular task environment.

b. The higher the barriers to entry, the smaller the number of competitors.

4. Barriers to entry result from two sources:

a. Economies of scale are the cost advantages associated with large operations.

i. If organizations already in the task environment enjoy significant economies of scale, then their costs are lower.

ii. Newcomers find it expensive to enter the industry.

b. Brand loyalty is a customers’ preference for the products of organizations currently existing.

i. If established organizations enjoy significant brand loyalty, then a new entrant will find it difficult and costly to obtain market share.

ii. Newcomers must bear huge advertising costs to build customer awareness.

c. In some cases, government regulations function as a barrier to entry.

Figure 2.2: “Barriers to Entry and Competition” shows how economies of scale and brand loyalty create barriers to entry.

5. A high level of rivalry among competitors creates a task environment that is highly threatening and causes difficulty for managers trying to gain access to resources.

6. Not-for-profit organizations also have customers, suppliers, and competitors that influence and pressure managers.

III. THE GENERAL ENVIRONMENT.

A. Forces in an organization’s general environment have profound effects on its task environment.

1. Managers must constantly analyze forces in the general environment because these forces affect long-term decision making.

B. Economic Forces.

1. Economic forces, such as interest rates, inflation, unemployment, and economic growth, affect the general health and well-being of a nation.

2. Economic forces produce many opportunities and threats for managers.

3. Low levels of unemployment and falling interest rates mean a change in the customer base.

4. Worsening macroeconomic conditions pose a threat, because they limit managers’ ability to gain access to needed resources.

5. Poor economic conditions make the environment more complex and managers’ jobs more difficult.

6. Managers and workers alike may need to identify ways to acquire and utilize resources more efficiently.

C. Technological Forces.

1. Technology is the combination of skills and equipment that managers use in the design, production, and distribution of goods and services.

2. Technological forces are the outcomes of changes in the technology that managers use to design, produce, or distribute goods and services.

3. Technological change can make established products obsolete overnight, but it can also create a host of new opportunities.

4. Managers must move quickly to respond to such changes if their organizations are to survive and prosper.

5. Changes in information technology are also changing the very nature of work itself.

D. Demographic Forces.

1. Demographic forces are outcomes of changes in, or changing attitudes toward, the characteristics of a population, such as age, gender, ethnic origin, race, sexual orientation, and social class.

2. Demographic forces present managers with opportunities and threats and can have major implications for organizations, such as the increase in the number of working women.

3. Changes in the age distribution of a population affect organizations.

a. The aging of the population is increasing opportunities for organizations that cater to older people.

The aging of the population also has several implications for the workplace, such as the relative decline in the number of young people joining the workforce.

Lecture Enhancer 2.1: “House Calls for Pets”

E. Political-Legal Forces.

1. Political and legal forces are outcomes of changes in laws and regulations.

2. Political processes shape a society’s laws, which constrain the actions of organizations and managers, creating opportunities and threats.

3. Deregulation and privatization are examples of political and legal forces that can create challenges for organizations.

4. Successful managers carefully monitor changes in laws and regulations to take advantage of the opportunities and counter the threats they pose.

5. The Competition Act of 1986 provides more legislation that affects how companies may operate. Under this Act, the Bureau of Competition Policy acts to maintain and encourage competition in Canada.

F. Global Forces.

1. Global forces are outcomes of changes in international relationships, changes in nations economic, political, and legal systems, and changes in technology.

a. An important global force affecting managers is the increasing economic integration of countries around the world.

b. Free trade agreements such as the North American Free Trade Agreement (NAFTA) and the agreements under the World Treaty Organization (WTO) and the growth of the European Union (EU) have led to a lowering of barriers between nations.

c. Falling trade barriers have created opportunities for organizations to sell goods and services in other countries.

d. Falling trade barriers also increase competition in the task environment.

2. Impact of Political and Legal and Economic Forces.

a. In recent years, two shifts in political and economic forces have occurred globally.

i. The shift away from totalitarian regimes (where a single political party, individual, or group holds all political power) has been dramatic in eastern Europe.

ii. The shift toward representative democracy (where citizens periodically elect individuals to represent their interests) has occurred from Latin America to Africa.

b. There has also been a worldwide shift away from command economies (where the goods and services that a country produces, the quality produced, and the prices charged are all planned by the government) and mixed economies (where certain sectors of the economy are left to private ownership and other sectors are characterized by significant government ownership) and toward free-market economies (where the production of goods and services is left in the hands of private enterprise).

c. These trends result in the expansion of opportunities for exporting and investment abroad.

3. The Impact of National Culture

a. Because of cultural differences, management practices that are effective in one country might be troublesome in another.

b. Managers doing business with individuals from another country must be sensitive to the value systems and norms of that country.

c. A culturally diverse management team can be a source of strength for a global organization.

IV. MANAGING THE EXTERNAL ENVIRONMENT.

A. Forces in the Task and General Environments.

1. To analyze the importance of opportunities and threats in the organizational environment, managers must measure:

a. The level of complexity in the environment.

b. The rate at which the environment is changing.

2. The complexity of the organizational environment is a function of the number and potential impact of forces in both the task and general environments.

a. A force that seems likely to have a significant negative impact is a potential threat.

b. A force likely to have a marginal impact poses little threat.

3. The larger an organization is, the greater is the number of environmental forces that managers must respond to.

4. Environmental change is the degree to which forces in the task and general environments change and evolve over time.

a. The consequences of change can be difficult to predict.

b. Managers can attempt to forecast future conditions in the task environment, but cannot be sure that decisions made today will be appropriate in the future.

5. Steps in managing the organization environment:

a. List the number and relative strength of the forces that affect their organization the most.

b. Analyze the way changes may result in opportunities or threats for their organizations.

c. Draw up a plan indicating how to take advantage of those opportunities or counter those threats.

B. Reducing the Impact of Environmental Forces.

1. The CEO and top management’s task is to devise strategies that take advantage of opportunities and counter threats.

2. Middle managers collect relevant information about the task environment.

3. First-line managers find ways to use resources more efficiently to hold down costs.

Figure 2.4: “How Managers Manage the Task and General Environment” shows how management handles pressures in the task environment.

C. Managers as Agents of Change.

1. A significant amount of environmental change is the direct consequence of actions taken by managers within organizations.

2. An organization is an open system: It takes in inputs from the environment and converts them to goods that are sent back to the environment.

3. The choices managers make affect the environment in many ways.

Figure 2.5: “Change in the Environment as a Two-Way Process” shows how changes in the environment affect the organization, and how managerial actions impact the environment.

V. SUMMARY AND REVIEW.

Learning Objectives Revisited

Learning Objective 1. Explain why being able to perceive, interpret, and respond appropriately to the organizational environment is crucial for managers’ success.
The organizational environment is a set of forces outside the organization’s boundaries that have the potential to affect the way the organization operates.
Changes in the environment create opportunities for managers to strengthen their organizations.
Other changes pose a threat if organizations are unable to adapt.

Learning Objective 2. Identify the main forces in an organization’s general and task environments, and describe the challenges that each force presents to managers.
The task environment is the set of forces that affect an organization’s ability to obtain inputs and dispose of its outputs.
Suppliers are the individuals and organizations that provide the input resources that an organization needs to produce goods and services.
Distributors are organizations that help other organizations sell their goods or services to customers.
Customers are individuals and groups that buy the goods and services that an organization produces.
Competitors are organizations that produce goods and services that are similar to a particular organization’s goods and services.
Efficient managers must understand the way forces in the task environment change as a result of changes in the industry environment.
The general environment is the wide-ranging economic, technological, sociocultural, demographic, political and legal, and global forces that affect the organization and its task environment.
Economic forces, such as interest rates, inflation, unemployment, and economic growth, affect the general health and well-being of a nation.
Technological forces are the outcomes of changes in the technology that managers use to design, produce, or distribute goods and services.
Demographic forces are the outcomes of changes in, or changing attitudes toward, the characteristics of a population, such as age, gender, ethnic origin, race, sexual orientation, and social class.
Global forces are the outcomes of changes in international relationships, changes in nations’ economic, political and legal systems, and changes in technology.

Learning Objective 3. Discuss the main ways in which managers can manage the organizational environment.
To analyze the importance of opportunities and threats in the organizational environment, managers can:
List the number and relative strength of the forces that affect their organizations the most.
Analyze the way changes may result in opportunities or threats for their organizations.
Draw up a plan indicating how to take advantage of those opportunities or counter those threats.
Managers can counter threats in the task environment by reducing the potential impact of forces in that environment.
Managers can also function as the agents of change.

Lecture Enhancers

Lecture Enhancer 2.1

HOUSE CALLS FOR PETS

One change in our society in recent years has been the increasing attention people pay to their household pets. This, coupled with the aging of the population, has created a unique opportunity for veterinarians. Veterinarian M. Christine Foster and her administrator, Michelle Ward, run Companion Paws, a mobile veterinary service. Pet owners can schedule appointments as early as 7:30 a.m. on some mornings and as late as 8 p.m. on most evenings. “There are so many good standard practices in the area already… I wanted something that would serve a different need,” Foster said. Her town house doubles as home and a base for the mobile operation. Outside sits a 24-foot customized blue and white Companion Paws van. The mobile veterinary unit is equipped to provide services ranging from routine dental care and shots to surgery. There is even a pharmacy, X-ray, and electrocardiogram equipment. Companion Paws is limited to small animals—mostly dogs and cats. Fees are comparable to those charged in regular veterinary offices, Foster said. There is a discount if Foster treats more than one animal during the same visit, and in some cases, neighbors have joined together to schedule appointments. In a typical day Foster and Ward may visit a cat with “behaviour problems,” give an insulin injection to a diabetic cat whose owner is out of town, remove the sutures from a dog that recently had surgery, or give annual vaccinations. Foster, who worked at a Reston, Virginia veterinary clinic before striking out on her own, said that she always liked the idea of a house call practice but that until recently, the scope of such a service was too limited. Those limits were lifted when Foster’s operation became the first mobile veterinary unit in Virginia to be licensed as a full service unit—meaning she can perform surgery on site. Many of Foster’s patients belong to owners who are too busy to make regular visits to a veterinary office. Others are elderly or disabled pet owners for whom getting around is difficult, if not impossible. Some simply have too many animals to make office visits practical. One of Foster’s clients, for example, has nine dogs and three cats. Foster said house calls also can benefit the animals—particularly those that are old or sickly. With a mobile service, pets can be cared for and pampered in the comfort of their own homes, she said.

Lecture Enhancer 2.3

THE CHALLENGE OF DISTRIBUTION

Outside a corner candy stand in Shanghai, a 10-year-old girl folds a piece of Wrigley’s Doublemint gum into her mouth—one of 400 million sticks that Wm. Wrigley Jr. Co. sells each year in China. To reach this blue plywood stand, the stick traveled a thousand miles by truck, rusting freighter, tricycle cart, and bicycle—and is still soft and sugar-dusted at the time it is sold. That’s something of a wonder, given the daunting scale and obstacles in the world’s largest developing country. Western goods can now reach about 200 million of China’s 1.2 billion people, more than double a few years ago. And many of those people are ready and willing to buy Western products. But in a land where roads are poor, rivers are jammed, and railways are clogged, delivering the goods isn’t easy. “Distribution is the biggest problem” companies now face, says W.J. Du, head of Wrigley’s China operations. Finding reliable distributors—usually by word-of-mouth—is the first challenge, but seldom the last. Distributors are mainly state-owned and have little incentive, nor understanding, of how to position a brand. At Beijing’s airport, for example, bags of Mars Inc. products lie jumbled and neglected in a dim display case alongside packages of dried mushrooms. Wrigley wants its gum consumed within eight months of manufacture. Otherwise, the gum dries out or the sugar bleeds through the packaging. Getting it to consumers before then is a logistical nightmare. Each stick of Doublemint starts out, like all Wrigley’s gum, as a large block of brown gum base. At a factory in Guangzhou, just north of Hong Kong, huge machines stir a mixture of gum, glycerin, and glucose into a heated goo. It’s mixed with sugar and flavorings, stamped into sticks, packaged, and loaded on a truck. Shanghai is on China’s coast, so Wrigley ships the gum by coastal freighter. Off the coast a marine patrol seizes the ship; besides 960,000 packs of gum, it turns out, the ship is loaded with smuggled cars. Wrigley waits nearly two months before the shipment is released—and frets the whole time about it aging. In Shanghai’s river port, the gum is loaded onto a truck—and runs another gauntlet of corruption. Wrigley-hired trucks are often stopped not only by bandits but by provincial police demanding exorbitant fees before they let the vehicles pass. Once the gum gets into Shanghai, it leaves Wrigley’s control. Each industry has its own distribution network, usually made up of firms spun off from China’s state-owned trading companies and smaller private wholesalers. Few distributors or wholesalers want to waste time delivering goods to customers. Most, like Wrigley wholesaler Chen Tuping, sit in their warehouses waiting for buyers to arrive. Mr. Chen’s tiny stockroom, crammed with cardboard cartons of foreign-made goods, opens onto a muddy Shanghai lane lined with identical wholesalers. He keeps a few cases of Wrigley’s gum stacked beside his desk and sells them to smaller whole sale-retail outlets, whose owners shop the lane. “The gum business is going great,” he says with a smile. That’s largely thanks to Wrigley’s legwork. Teams of Wrigley representatives walk the streets, talking to shopowners, handing out free Wrigley posters and plastic display stands. Among the targets is Xu Meili, who runs a booth at the Beautiful & Rich Wholesale Market; after a successful sales call, she began to stock Wrigley’s gum, which she fetches with a tricycle cart from Mr. Chen or one of his competitors. She also stocks competing products. Hanging in her booth is a foot-long mockup box of Chiclets gum, delivered by Warner-Lambert Co. salesmen who are blitzing Shanghai. Wrigley salesmen even visit small kiosks, like the blue plywood stand in Shanghai, run by a young woman who calls herself Little Yan. When stocks run low, she rides her bike the few blocks to Ms. Xu’s booth to buy more gum or candy. Wrigley’s gum sells for about 22 cents a pack at the Shanghai kiosk. “The [profit] margin isn’t great,” says Wrigley’s international business chief, Doug Barrie, in Chicago. But for now, he says, the company is content to build up market share. He adds: “We’re a very patient company.”

Notes for Topics for Discussion and Action

1. Why is it important for managers to understand the nature of the environmental forces that are acting upon them and their organization?

The text defines an organization’s environment as the forces outside of its boundaries that have the potential to affect the way it operates. These forces change over time and thus present managers with opportunities and threats. The organization’s environment includes the task environment and the general environment (some theorists include the internal environment as another kind of environment.) The task environment consists of forces from suppliers, distributors, customers, and competitors. The general environment refers to the wider economic, technological, sociocultural, demographic, legal-political, and global forces. The general environment affects the way an organization operates. Managers must constantly analyze forces in the general environment because these forces affect long-term decision making and planning. Furthermore, these forces in an organization’s general environment can have profound effects on an organization’s task environment. It is important to understand the forces in the task environment because they have the ability to pressure and influence managers on an ongoing, daily basis and have a significant impact on short-term decision making. These forces affect an organization’s ability to obtain inputs and dispose of its outputs, which is critical to the success of any organization. For example, it would be important for managers to understand the economic forces present in their general environment because they could affect their organization in both a positive and negative manner. Low levels of unemployment and falling interest rates provide opportunities for an organization. This could result in a change in their customer base since people have more money to spend on goods and services. A decline in the economy could result in a threat to the financial health of an organization. Declining economic conditions limit managers’ ability to gain access to the resources their organizations need to survive. Furthermore, customers would have less money to spend on goods and services.
2. Choose an organization, and ask a manager in that organization to list the number and strengths of forces in the organization’s task environment. Ask the management to pay particular attention to identifying opportunities and threats that result from pressures and changes in customers, competitors, and suppliers. The text defines the task environment as consisting of forces from suppliers, distributors, customers, and competitors that pressure and influence managers on an ongoing, daily basis because they affect an organization’s ability to obtain inputs and dispose of its outputs. Since suppliers provide input resources that the organization needs to produce goods and services, they are very critical to the success of the organization. Input resources include raw materials, component parts, employees, financing and funding. Suppliers are a threat to an organization when they are in a strong bargaining position and are capable of determining the availability of the necessary input resources. This is especially evident when they are the sole producers of the input resources needed by the organization and/or the resources they provide are crucial to the organization. The presence of low cost foreign suppliers provides both an opportunity and threat to an organization. They are an opportunity if the organization is able to purchase lower cost input resources from them which could result in higher profits or competitive pricing for the organization. They are a threat to the organization if the organization’s competitors take advantage of the lower cost suppliers while they do not or are not able to due to union contracts that prohibit the use of foreign suppliers. This could result in competitors providing the same goods and services at lower prices resulting in a decline in sales for the organization that did not take advantage of lower cost foreign suppliers. Change in the number and types of customers or changes in customers tastes and needs result in opportunities and threats in the task environment. It is critical for an organization to identify the needs of their customers, the people who buy the goods and services that they produce, and respond to any changes in customer needs. If customers require a lower priced or higher quality product, it is essential for an organization to respond to this in order to keep their customers happy and continually buying their products. Competitors are other organizations that produce goods and services that are similar to a particular organization’s goods and services. Since they are vying for the same customers, competitors are potentially the most threatening force that a manager must deal with. They provide a threat to organizations when they engage in price competition. If an organization is forced to lower their prices to compete with a competitor, this could result in lower profits which limits their ability to access further resources in the future. Besides existing competitors, potential competitors also provide a threat in the task environment. Potential competitors are those organizations that are not presently in a task environment but could be if they chose to be. The fewer competitors in an organization’s task environment the lower the threat of competition. With fewer competitors, it is easier to obtain customers and keep prices high, which results in greater profits and success for the organization.

3. Read the business section of your local newspaper to get an idea of task and general forces that affect the organizations in your community. What local conditions have a major impact on organizations in your area?

A variety of local conditions might affect organizations. In the task environment, the suppliers, distributors, customers, and competitors all may impact the organization. If the economy is experiencing a downturn, there may be fewer customers to buy one’s product or service. If a supplier’s employees are on strike, this may affect an organization’s ability to get supplies in a timely fashion. In the general environment, demographic forces affect the supply of labour for an organization. Political and legal forces determine the ways that companies might be able to operate. For instance, in the softwood lumber dispute, lumber companies are struggling with the high tariffs that have been imposed by the United States.

4. Which organization is likely to face the most complex task environment: a biotechnology company trying to develop a new cure for cancer or a large retailer like Zellers or Hudson’s Bay? Why?

A large retailer like Zellers or Hudson’s Bay’s experiences a more complex task environment. This is exhibited primarily by two forces in the task environment. First, competition is not a very strong force for a biotechnology company, while it is extremely strong for a retailer that must compete against hundreds, even thousands of other retailers. There might be other labs trying to develop a cure for cancer; but even if they do discover one first, there will still be plenty more work to do. Second, tastes and needs of customers for a cure of cancer do not change rapidly. The tastes of the customers of a retail store change each season of every year.

5. The population is aging because of a combination of declining birth rates, declining death rates, and the aging of the baby boom generation. What might be some of the implications of this demographic trend for (a) a pharmaceutical company, (b) the home construction industry, and (c) the agenda of political parties?

The aging population is an example of a demographic force in an organization’s general environment. The aging of the population has increased many opportunities for organizations that provide goods and services to the older population. The aging population will have a positive affect on the pharmaceutical industry. People are living longer due to advancements in the medical field in the form of cures for diseases and medications that alleviate the debilitating effects of old age. This results in a greater demand for prescription drugs and medical supplies, the output of the pharmaceutical industry. Furthermore, in order to effectively compete, pharmaceutical companies must spend a tremendous amount of money on research and development in order to remain competitive in their industry. The reward of inventing a much needed medication is a patent that prevents other companies from producing that medication for seventeen years. Since they are the sole producers of the medicine, in response to the demand for the product, they have the capabilities to charge high prices since they have no competition. The home construction industry will see a change in the demands of their customers. Older customers who have already raised their families will be looking for homes and apartments with less square footage. They also require easier accessibility, such as single level, few steps and buildings equipped with elevators. The older population has more time to spend on socializing. They will have more interest in amenities such as clubhouses and swimming pools. The agenda of political parties changes due to the needs of the population. The needs of an aging population include social security, Medicare and Medicaid benefits. This is in opposition to a younger population that is more concerned with legislation involving social issues, education, and taxes.
6. Currently, in most households and businesses in Canada, Great Britain, the United States, and a number of other countries do not have a choice of electricity supplier. But as a result of deregulation, within a decade the average business and household will be able to choose from among several competing electricity suppliers. How might this development alter the nature of the environment facing a manager in an electric utility? Deregulation is an example of how changes in political-legal forces can create challenges, opportunities and threats for an organization. When a household was not able to choose their electricity supplier the supplier enjoyed a monopoly position. They were the sole provider of a critical resource. Customers in all financial positions were forced to pay the price dictated by their electricity supplier. As a result of deregulation, competitors are now able to enter the market and engage in price competition for the same customers. This will force electric companies to provide higher quality service and lower prices to remain competitive.

7. The textile industry has a labour-intensive manufacturing process that utilizes unskilled and semiskilled workers. What are the implications of the shift to a more open global environment for textile companies whose manufacturing operations are based in high wage countries, such as Australia, Canada, and the United States?

The shift toward a more open global environment presents textile companies with opportunities to take advantage of the cheaper labour available in foreign countries. Not only can organizations move their production operations to foreign countries, they can also import clothes that are made by workers in foreign factories, a practice in which The Limited engages. A more open environment also makes it possible to serve entire regions from one location, rather than establishing separate operations in each country. A more open global market also means more competition for customers, sometimes prompting organizations to establish foreign subsidiaries. Managers must consider the bottom line when making decisions about manufacturing and costs. High wages in countries like Australia, Britain, the U.S., and Canada ultimately affect the prices of the clothes that are sold, and higher prices are passed to the consumer. Textile industry organizations need to be alert to opportunities for global outsourcing to lower their overall production costs and improve their quality or design of their products.

8. After the passage of the North American Free Trade Agreement, some Canadian companies shifted production operations to Mexico to take advantage of lower labour costs and lower standards for environmental and worker protection. As a result, they cut their costs and were better able to survive in an increasingly competitive global environment. Was their behaviour ethical—that is, do the ends justify the means?

The problem with the decision to shift production operations to low-wage countries, like Mexico, is that eventually the wages will increase due to increased demand for workers, and companies will be forced to again shift their production operations in pursuit of lower costs. In addition, Canadian workers feel slighted, understandably, when plants close and layoffs occur due to these shifts. Increased competition to provide low-priced, quality goods and services is indeed an issue that managers must confront in a more open global environment, but there are other alternatives to shifting production to other countries. Organizations can avoid these hazards by building efficiency and effectiveness into their existing operations. Decisions involving decentralization of management and other cost-cutting measures can replace less ethical solutions. Also, lax standards in environmental and worker protection can often hurt the organization in terms of public relations and consumer image. Nike has recently come under attack for its operations in foreign countries, and Kathy Lee Gifford experienced similar attacks for the sweatshop conditions in the factories that produce her clothing line. These disadvantages, while perhaps not as easily discerned as effects on the bottom-line, need to be considered when an organization contemplates relocation of production operations.

9. Go to the library and gather information that allows you to compare and contrast the political, economic, and cultural systems of the U.S., Mexico, and Canada. In what ways are the countries similar? How do they differ? How might the similarities and differences influence the activities of managers at an enterprise such as Wal-Mart, which does business in all three counties?

(Note to the instructor: Students should use a variety of sources to access information. Books, magazines, and on-line resources can be used to find information on the similarities and differences between these countries. Magazines such as Canadian Business and Report on Business may be helpful for answering this question.)

Notes for Building Management Skills

Analyzing an Organization’s Task and General Environments

(Note to Instructors: The answers to this exercise are based on the University as an example of an organization that the student, as a customer, interacts with on a regular basis.)

1. Describe the main forces in the task environment that are affecting the organization.

The main forces in the task environment that affect the University are its suppliers, customers and competitors. The faculty and staff of the University are its primary suppliers. They supply the necessary inputs that are needed in order to provide the service of a quality education to the customer (student.) The faculty and staff belong to a union, so that it is necessary for the University administration to negotiate a new contract every few years that is acceptable to both parties. Without professors and instructors the University would not be able to survive as an educational institution. If you are a student, then you are the customer. The purpose and goal of this organization (the University) is to provide you with a high quality education. You determine whether the services that they provide are worthy of your money. By choosing the courses that you do you are providing a demand for those type of classes that the University must provide in order to maintain your business. You have the prerogative to obtain these services from thousands of other colleges and universities. Without students the University would not make any money. Competition is an extremely powerful force in the task environment of a university. Professors (suppliers) and students (customers) may choose among many thousands of competing colleges and universities (with some limitations.) Therefore, the University must stay current with its resources and technology to remain competitive. For example today’s students are interested in such aspects as the availability of computer, laboratory and research facilities; on-campus recruiting opportunities; and the percentage of students securing jobs soon after graduation.

2. Describe the main forces in the general environment that are affecting the organization.

The main forces in the general environment of the University include the broader economic, technological, demographic and legal-political. The economy is a very powerful force to the University. When the economy is in a downturn, universities face an increase in graduate enrollment but a decrease in undergraduate enrollment. When the economy is in an upturn, universities experience an increase in undergraduate enrollment and a decrease in graduate enrollment. Additionally, during an upturn, employment opportunities increase at the university level. Since a good deal of expenses (i.e., salaries and operating costs) are fixed for the university, when enrollment decreases they might experience financial difficulty. The technological force involves the need for the University to obtain and maintain advanced technology within their facilities. This involves updated computer systems as part of the administration of the University. An example would be on-line or telephone course registration. Advances in technology can provide a means of advertising and access to University resources. An example of this is found in the Internet and world wide web. A University that does not have its own web site or provide Internet access for its students is behind the times and is not keeping competitive in their industry. Professors of the University must keep current in their research and teach their students the latest skills, techniques and knowledge in order for them to be marketable upon graduation. If this is not provided then graduating students are at a disadvantage which affects the University in a negative manner. The demographic environment is constantly changing. Universities are attended by people of many different nationalities, races, religion and ages. In addition, students with physical and mental disabilities are now welcome (or should be) as part of the campus culture. An atmosphere of tolerance and acceptability is required in any organization, especially the University. Additional services and policies for those who speak different languages, celebrate different holidays, or require physical accommodation are needed and sometimes mandated. Furthermore, Universities are filled with more non-traditional students than ever before. The non-traditional student includes those beginning or returning to their undergraduate education after the age of 25. These students have more responsibilities and commitments than most younger students. They have families, full-time jobs, and mortgages to pay. To attract this increasing market of customers, Universities need to provide more courses at nights and on weekends along with more flexible programs to meet the needs of the non-traditional student. Since many Universities receive funding from their provincial governments, the legal-political environment plays an important role in their general environment. The provinces determine how much money each university receives. This money is very important to the University and can even determine the salaries it pays to the professors (suppliers) and the tuition it charges the students (customers.) The University also relies on the province to fund capital projects such as building new classrooms, laboratories and athletic facilities.

3. Try to determine whether the organization’s task and general environment are relatively stable, or changing rapidly.

Currently the University’s environment is changing rapidly. The University is constantly faced with funding issues, changes in the economy, competition for students and advances in technology. It is very important for the University to keep on top of these issues in order to remain competitive and successful.

4. Explain how these environmental forces affect the job of an individual manager within this organization. How do they determine the opportunities and threats that its managers must confront?

Consider the Dean of the Business School as a manager in the University. An example of how environmental forces affect the Dean’s job is apparent if we look at customers, a force in the task environment. The changing number and needs of students, the customers, are a strong force that the manager must deal with. When enrollment increases the manager must ensure that there are enough courses for the students to take and enough professors to teach those courses. Furthermore, if students are interested in International Business (in response to the larger global environment that they will face in the future), then the Dean must ensure that these courses are offered in order to remain competitive in the university environment.

Notes for Management For You

Responses to this exercise will vary.

Notes for Small Group Breakout Exercise

How to Enter the Copying Business

1. Decide what you must know about (a) your future customers, (b) your future competitors, and (c) other critical forces in the task environment if you are to be successful.

a) To enter the copy business in a college town we must know the needs of our customer, the student. We need to know where customers are located, since we should be easily accessible to them. We also need to know: how much are they willing to pay for our services and what services could we provide for them that would entice them to come to our business opposed to our competitors? b) In regard to our competitors first we need to know who they are, where are they located and what are their hours of operation. We need to position ourselves so that we are more conveniently located than they are, which would include remaining open as much or more than our competitors. Since our main competitor, Kinko’s, is open 24 hours, we must follow suit in order to attract customers and meet their needs. Also, what services are they providing and how much are they charging for their services? We would not want to charge more than they are and we need to provide the same services as long as they are in demand by our customers. c) Another critical force in our task environment is that of our suppliers. Our suppliers include the organizations that we purchase our input resources from. Our input resources include copy machines, paper, and other office supplies. In addition, our landlord and utility companies provide us with essential resources. The prices that all of our suppliers charge for their goods and services are a critical force in our environment and they determine the prices that we must charge our customers in order to make a profit.

2. Evaluate the main barriers to entry into the copying business.

The text defines barriers to entry as the factors that make it very difficult and costly for an organization to enter a particular task environment or industry. The barriers to entry result from two main sources: economies of scale and brand loyalty. In the copying business, economies of scale refer to our ability to obtain resources in bulk such as paper and copying suppliers. Obtaining these resources in bulk should enable us to pay lower prices so that we can increase our net profits. In order to purchase materials in bulk we need to do a significant amount of business so that we will be able to make use of large quantities of materials in a short period of time. Our main competitor, Kinko’s, has an advantage over us in that they probably already are able to obtain resources in bulk which keeps their prices low. In order to be competitive with our pricing it is essential that we be able to follow suit and purchases resources in bulk. Another advantage that Kinko’s has over us is brand loyalty. Since they are located throughout the country, our customers are more familiar with their name and reputation. Also, they have been in business longer than we have which could work to their advantage. If customers are happy with the service that they receive at Kinko’s they might remain loyal to them and be more apprehensive to try us out.

3. Based on this analysis, list some steps you will take to help your new copying business succeed.

Some of the steps that we will take include: 1) Conducting market research prior to opening to determine the needs of our customers 1) Ensure that we secure a location that is conveniently located to our customers 1) Purchase our inventory in bulk as much as we can in order to keep our prices competitive with Kinko’s 1) Remain open 24 hours a day so that we will always be available for our customers 1) Heavily advertise in school newspapers and radio stations 1) Offer specials and provide coupons in order to entice customers to give us a try 1) Hire experienced and/or highly motivated workers and provide extensive training to ensure top quality customer service.

Notes For Managing Ethically

Responses to this set of questions will differ, based upon the varying experiences of students.

Ethics will vary based on individual and cultural characteristics as well as in different situations. Sometimes the goals and targets are very difficult to reach, and managers feel pressured to resort to unethical behaviour to meet them. Dishonesty is unacceptable regardless of the circumstance. Employees should be careful to avoid conflicts of interest that may cause others to question their integrity. Although those involved in such unethical situations may perhaps benefit in the short run, in the long run they harm not only their customers and their companies, but also themselves.

Training in ethics raises awareness of issues and helps others to look at different aspects of an issue. Establishing an organizational code of ethics and making all employees aware of it can encourage ethical behaviour. It is also important that managers always engage in ethical conduct, so that they can lead by example.

Notes for Web Exercises

As web site information changes, it is best that each instructor check for the most current information when they assign these exercises.

Notes for You’re the Management Consultant

1. Analyze the major forces in the task environment of a retail clothing store.

Retail clothing is by definition a representation of old and new. The old is represented by those consumers who do not care about the latest fashions and purchase the same styles they always have. The new are those who love to keep up with the latest fashions that they see on TV, in the movies, in magazines, or on friends. Both can be lucrative markets, but one must first analyze the environment. This includes the competition as well as the general social, economic, political and global trends. For example, Levi Strauss responded to Casual Fridays by marketing Dockers. Levi Strauss is a good example of a company that markets a standard brand with little change and is still in demand while also responding to changing trends such as relaxed fit for the expanding waists of Baby Boomers. Many catalogue stores (Sears and L.L. Bean) have also developed websites that allow customers to shop from catalogues and order online.

2. Devise a program that will help managers and employees to better understand and respond to their store's task environment.

One approach would be to look at the web sites of online retailers such as L.L. Bean and Sears. These could be used as training tools for employees and managers to see what the competition is offering. The company could appoint a group of employees and managers from various departments within the store to keep track of trends and to compare notes. This group could devise customer surveys, read trade journals, and observe the fashions of those working and those attending school. The group could visit one or more college campuses to gather information by observing students or conducting group interviews. The company could also solicit feedback from customers concerning customer satisfaction levels and merchandise suggestions using email, phone surveys, or onsite questionnaires.

Notes for Management Case

The Brewing Industry

CASE SYNOPSIS

Canada’s two largest brewers, Labatt and Molson have encountered some competition from small regional brewing companies, particularly Sleeman Breweries, which came back to the market in 1988. While the two largest brewers together have over 90% of the market, Sleeman is viewed as a threat to the larger brewers. The success of Molson and Labatt was largely a result of their ability to take advantage of economies of scale. Due to their large size they were able to produce beer at lower prices than the competing smaller brewers who were faced with higher costs. Despite their domination of the Canadian brewing industry and record profits, the two largest brewers are still greatly impacted by a number of different forces in their environment. The sales of beer are flat in Canada due to customers’ taste preference changing from beer to wine or wine coolers. Also social attitudes toward drinking have changed due to the health concerns of Canadians, as well as, campaigns to reduce under-aged drinking and drinking and driving. In addition the minimum legal drinking age has changed to from 18 to 21 which reduces the potential customer base. Interestingly, competition from small regional beer makers has increased lately due to the demand for new tastes and higher quality beer. Local micro-breweries are gaining a presence and causing a threat in the beer industry that the larger brewers must respond to in order to remain competitive. In addition beer drinkers are now very interested in beers from European countries and Mexico that create more competition for the large American breweries.
1. What are the principal forces in the organizational environment facing the major brewers? The major forces facing the major brewers are their customers and their competitors. Customers are demanding new tastes and higher quality beer. The larger brewers must respond to this need in order to keep their market share which is being threatened by their smaller competitors. These smaller competitors are the regional micro-breweries across Canada that have seen a demand for their unusual tasting beers. These micro-breweries have established a local presence, as well as, the beginnings of a national presence. Also, customers are switching over to wine and wine coolers, which pose an additional threat to beer makers.
2. How has the level of uncertainty changed over time in the brewing industry? What is the source of these changes? In 1960 brewing companies had a loyal and stable customer base. The major brewers were not faced with the threat of losing their customers. They only needed to figure out ways to attract more customers which they did by purchasing the smaller breweries. Over time their customers became tired with the same tastes and started trying newer tasting beer, wine and wine coolers. Now customer preferences are constantly changing. Customers are always looking for higher quality products for their money—including great tasting beer.

Notes for Management Case in the News from the pages of
Business Week

Levi's is Hiking Up Its Pants

CASE SYNOPSIS

In 1990, Levi Strauss had 30.9% of the U.S. blue jean market and today this has plummeted to 18.7%. Their shrinking sales and loss of market share is mainly due to competition and their lack of focusing on teenage consumers. Because of this they have abandoned a new line of blue jeans called Special Reserve just before it's anticipated release. They were also forced to lay off one-third of their North American workforce and close down 11 of their U.S. plants. The teenage market is so important because they set fashion trends and adopt brands by the age of 24 that they will remain loyal to for the rest of their lives. This oversight occurred in the past decade while they were busy expanding their casual clothes line, Dockers, and launching its upscale cousin, Slates. They are responding to this problem by reviewing all aspects of their business in order to turn market share and profits in the upward direction.
1. What factors in its environment are giving rise to opportunities and threats for Levi Strauss? Competition is the biggest threat for Levi Strauss. They were once considered the blue jean giant, but now have lost a great deal of market share. This is due to their lack of focusing on the teen market, which is the most important consumer group to this industry. Top-end designers such as Tommy Hilfiger and Ralph Lauren and low-priced retailers such as J.C. Penney and Sears are providing competition for Levi Strauss in both directions. Opportunities to gain market share are found in the teenage population. If they can attract young consumers, their business can improve for a long time to come.

2. How are Levi's managers trying to manage these opportunities and threats? They are reviewing all aspects of their business, including products, distribution, advertising, public relations, and customer service. They are repositioning some of their products and scrapping others. In their attempts to gain a greater market share of teenagers, the determiners of the fashion trends, they are going to expand marketing aimed at teens. They are also planning to expand their Silver Tab brand, which has been the most successful with teenagers in the past. They want to bring in new management from the outside and cultivate new talent with fresh ideas. They are going to spruce up their packaging and labeling. They have closed many of their mall stores and will open up large flagship stores in big cities.