The Relationship between an Organization and Its Environment – Mastering Strategic Management
Business Environment and Strategic Management - Download as Powerpoint . Mission and Objectives The business domain of the company. business Internal Power Relationship Factors like the amount of support the top management. From this angle, business environment refers to all external factors which Company”, “Best Investor relations, ” Best Financial Management “. Strategic management involves working out the organizational responses to the changes in the business environment, by assessing strengths & weaknesses of.
Companies enforcing analyzer strategic practices also monitor environmental changes, develop new products, and penetrate new market segments but only if they identify viable conditions to minimize risks; consequently, they first observe their competitors in their respective operating market segments.
Business And Its Environment
Companies enforcing defender strategies would rather focus their operations in a market segment where they will introduce few products, and consequently they will monitor changes in their market segment to compete on pricing, and in sales and post-sale efficiencies.
An uncertain environment is positively related to the prospectors business strategy due to the assumption that new market opportunities may arise, continuously.
An uncertain environment is positively related to the analyzers business strategy due to the possibility to continuously identify new but proven market opportunities. An uncertain environment is positively related to the defenders business strategy due the ambition compete others with decisions based on superior monitoring results. For this reason, business environment studies should be differentiated and companiesinturnhavetoimplement different strategies and organizational designs Tidd, Miller also looks into organizational characteristics and relates them to the business environment.
In a subsequent study, Miller identifies that an uncertain environment has a negative relationship with centralization of decision-making meaning that a centralized decision making processes may result in underperformance due to a lack of timely reactions on changes in the market.
The studies under review show evidence of the relationship between the environment and the way organizational characteristics are designed adequately. In this respect, Aragon-Correa and Sharma remark that organizational design decisions are related to organizational resources and capacities. The discussion suggests that companies should take into account the behavior of the business environment to establish business strategies. Nevertheless, they also need to consider suitable organizational characteristics to ensure the implementation of appropriate business strategies.
In other words, firms that take into account the business environment might not be able to generate appropriate business strategies without possessing the specific organizational characteristics. Based on the above discussion, we propose the following hypothesis: Organizational characteristics strengthen the relationship between the business environment and business strategies.
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These companies are allocated in the banking, insurance, commerce, transportation, technology, telecommunications, education, tourism and few other industries. All the sampled companies employed over 50 workers. The reason to select companies with such number of workers is the importance of company size to reach comparative findings. Consequently, in this study, the selected sample is comprised only of intermediate and large companies. Information from small and micro-companies would have introduced excessive answer dispersal.
This fact indicates that this industry is very likely to provide results with a strong significance not only restricted to the region chosen as sample area. To obtain the data, we interviewed in person workers from various service companies based in Lima, Peru. Poorly filled out and incomplete surveys were discarded, resulting in 99 valid surveys, representing an equal number of individual companies, i. Respondents filled positions at various hierarchies within their organizations: The information was gathered over four weeks with attention paid to avoid significant differences between the answers provided by the first and last respondents.
The use of perceptive answers is important because it allows comparing findings regarding different subsectors.
The use of perceptive response questionnaires is based on applications by Olson, Slater and HultTegarden, Saranson, Childers and Hatfieldand Gopalakrishnan One single questionnaire was designed to evaluate all the study variables: Questions were presented using a five-point Likert response scale, as also used by Tegarden, Saranson, Childers and Hatfield Questions on the uncertain and complex environment variables were prepared exclusively for this research. Concepts proposed by Olson, Slater and Hult et al.
As regards organizational characteristics, this paper used the tool prepared by Olson, Slater and Hult et al. The following steps were used: Environment is defined as the behavior of the external variables clients, competitors, and technology having an impact on organizations.
Organizational characteristics are defined as the types of work coordination within an organization Fredricksonsuch as formalization, specialization and centralization.
For the environment, uncertain environment and complex environment, the results were 0. In all cases, figures are above the typically accepted 0. The uncertain environment was comprised of four items, with the following factor loadings: The complex environment was also comprised of four items showing the following factor loadings: These items show a high reasonable factor loading, both confirming the uni-dimensionality of the two components and warranting the two resulting groups.
Organizational characteristics are comprised of five items, with factor loadings of: Business strategies are also comprised of five items, with the following factor loadings: In line with the above, companies enforcing prospectors strategies were those with averages on the Likert scale equal to or higher than the average, plus one standard deviation.
Companies enforcing analyzers strategies were those whose results fell between the average less and plus one standard deviation. Defenders strategy companies are those with results equal to or lower than the average less one standard deviation.
Based on these premises, data was tallied and then run through SPSS application. Business strategies yielded a 3. This data helped to classify strategy types. Table 3 shows the average of these groups on the Likert scale and the frequency; Fig.
Prospectors strategies were reflected by averages equal to or higher than 4. Analyzers strategies were reflected in averages above 2.
In line with the calculation method, analyzers strategies were found to be more frequent than prospectors and defenders strategies. Frequency of companies by type of business strategy Source: Table 4 shows these relationships are fully supported.
Consequently, hypotheses H1a, H1b and H1c are positively supported. Hypotheses H2a, H2b and H2c posit environmental uncertainty is positively related to companies enforcing prospectors, analyzing and defenders strategies, respectively. Consequently, H2a is supported while H2b and H2 care not. Organizational Characteristics as a Moderating Variable of the Relationship Between the Environment and Business Strategies A conceptual explanation of the moderating variable is found in Baron and Kenywhile Quiles et al.
Before engaging in statistical computing, the variables were standardized i. Statistical results are shown in Table 5. Three-step hierarchical regression analyses of organizational characteristics as moderator dependent variable: Hypothesis H4a proposes the organizational characteristics variable moderates the relationship between the environment and business strategies.
To obtain results, we defined a product of the environmental variables independent variable and organizational characteristics proposed moderating variable that would represent the interaction between the two variables. Athree-step hierarchical regression was run through SPSS, taking the business strategies as dependent variables. In step 2, we added the organizational characteristics variable. Consequently, hypothesis H3 is not demonstrated. Theoretical Contributions and Implications With the purpose of examining the relationship between the environment and the various types of business strategies and analyzing the behavior of organizational characteristics as a moderator variable of this relationship, we analyzed empirical data and confirmed the existence of evidence of the positive influence of the environment on business strategies, but not of the moderating influence of organizational characteristics on the relationship between the environment and business strategies.
With regard to complex environments, statistical results are significant for the three types of business strategies: For companies resorting to prospectors strategies, the greater the number of clients, competitors and technological activities they perceive as their characterizing markets, the more enticing will be the environment and the greater the opportunities to explore and develop new products and market segments. An organization cannot survive without the support of its environment.
Second, the environment is a source of opportunities and threats for an organization. Subway faces a threat from some upstart restaurant chains. Saladworks, for example, offers a variety of salads that contain fewer than five hundred calories. Noodles and Company offers a variety of sandwiches, pasta dishes, and salads that contain fewer than four hundred calories. Executives must also realize that virtually any environmental trend or event is likely to create opportunities for some organizations and threats for others.
This is true even in extreme cases. In addition to horrible human death and suffering, the March earthquake and tsunami in Japan devastated many organizations, ranging from small businesses that were simply wiped out to corporate giants such as Toyota whose manufacturing capabilities were undermined.
As odd as it may seem, however, these tragic events also opened up significant opportunities for other organizations. The rebuilding of infrastructure and dwellings requires concrete, steel, and other materials. Japanese concrete manufacturers, steelmakers, and construction companies are likely to be very busy in the years ahead. Natural disasters devastate many organizations.
Third, the environment shapes the various strategic decisions that executives make as they attempt to lead their organizations to success. 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. 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.
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. 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. In a political environment of countless special interest groups, managers are finding that coalitions built around common rallying points are required for political impact.
Having learned a lesson from unions, business managers now appreciate the value of grassroots lobbying. Members of legislative bodies tend to be more responsive to the desires of their constituents than to those of individuals who vote in other districts.
Employee and consumer letter-writing, telephone, and e-mail campaigns have Political Forces: Political, legal, and regulatory forces of the marketing environment are closely interrelated.
3.2 The Relationship between an Organization and Its Environment
Legislation is enacted, legal decisions are interpreted by courts, and regulatory agencies are created and operated, for the most part, by elected or appointed officials.
Legislation and regulations or their lack reflect the current political outlook. Consequently, the political forces of the marketing environment have the potential to influence marketing decisions and strategies. Marketing organizations must maintain good relations with elected political officials for several reasons.
Political officials well disposed toward particular firms or industries are less likely to create or enforce laws and regulations unfavorable to these companies. For example, political officials who believe that oil companies are making honest efforts to control pollution are unlikely to create and enforce highly restrictive pollution control laws. In addition, governments are big buyers, and political officials can influence how much a government agency purchases and from whom.
Finally, political officials can play key roles in helping organizations secure foreign markets. Many marketers view political forces as beyond their control and simply adjust to conditions arising from those forces. Some firms, however, seek to influence political forces. IN some cases, organizations publicly protest the actions of legislative bodies.
At times, organizations help to elect to political offices individuals who regard them positively. Much of this help is in the form of campaign contributions. Although laws restrict direct corporate contributions to campaign funds, corporate money may be channeled into campaign funds as corporate executives or stockholders personal contributions.
Such actions violate the spirit of corporate campaign contribution laws. A sizable contribution to a campaign fund my carry with it an implicit understanding that the elected official will perform political favors for the contributing firm. A corporation may even contribute to the campaign funds of several candidates who seek the same office. Occasionally, some businesses find it so important to ensure favorable treatment that they make illegal corporate contributions to campaign funds.
The politicization of Management: Just ask the Walt Disney Company. In Disney abandoned plans to build a history oriented theme park in Virginia in the face of public outcry about dishonoring nearby Civil War battlefields.
Another political bombshell exploded in recent years, more and more business managers have swung away from being reactive and become proactive. In short, they view prompt action as a way to avoid additional governmental regulation.
The wisdom of choosing a proactive stance is clearly illustrated by the recent experiences of Microsoft and Intel. Both are dominant players in their respective fields of software and computer chips.
According to Harvard Business Review.
Strategic Management In Business Environment - Assignment Point
Obviously, general economic conditions and treands are critical to the success of an organization. Wages, prices charged by suppliers and competitors, and government fiscal policies affect both the costs of producing products or offering services and the market conditions under which they are sold.
Each i an economic variable. Common economic indicators measure national income and product, savings, investment, prices, wages, productivity, employment, government activities, and international transactions.
All these factors vary over time, and managers devote much of their organizations time and resources to forecasting the economy and anticipating changes. Because economic change is now the norm rather than the exception, this task has become more complicated. Will a government agency adopt a rigorous or a lenient stance toward the management of a company with which it is dealing?
These sorts of questions convern political variables, and their answers depend largely on the nature of the political process and other current political climate. The political process involves competition between different interest groups, each seeking to advance its own values and goals. Particularly important economic factors for business are inflation, interest rates, and unemployment, all of which affect demand for different products.
During times of inflation, for example, a company pays more for resources and must raise its prices to cover the higher costs. When interest rates are high, consumers are less willing to borrow money and the company itself must pay more when it borrows.
When unemployment is high, the company is able to be very se- models in order to build more Explorers. The political-legal dimension of the general environment refers to government regulation of business and the relationship between business and government.THE INTERNAL & EXTERNAL ENVIRONMENT, 2017
It is important for three basic reasons. First, the legal system partially defines what an organization can and cannot do.