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Chapter 2 The External and Internal Environments LEARNING OBJECTIVES 1 Describe how environmental forces influence organizations and how organizations can influence their environments. 2 Distinguish between the macroenvironment and the competitive environment. 3 Explain why managers and organizations should pay attention to economic and social developments. 4 Identify elements of the competitive environment. 5 Summarize how organizations respond to environmental uncertainty. 6 Define elements of an organization’s culture. 7 Discuss how an organization’s culture and climate affect its response to its external environment. CHAPTER OUTLINE The Macroenvironment The Economy Technology Laws and Regulations Demographics Social Issues Sustainability and the Natural Environment The Competitive Environment Competitors New Entrants Substitutes and Complements Suppliers Customers Environmental Analysis Environmental Scanning Scenario Development Forecasting Benchmarking Actively Managing the External Environment Changing the Environment You Are In Influencing Your Environment Adapting to the Environment: Changing the Organization Choosing an Approach The Internal Environment of Organizations Organization Culture Organizational Climate CHAPTER RESOURCES Experiential Exercises 2.1 External environment analysis 2.2 Corporate culture preference scale Cases Tata Motors: From Cheap to Awesome? Social Enterprise Combating Climate Change Lecturettes LECTURETTE 2.1 Operations and Human Resources: IBM’s Workforce Management Initiative Connect Click and Drag: Open Systems: Outputs of an Organization Culture Connect Comprehension Case: Rubio’s Competitive Environment Connect Click and Drag: Elements of Organizational Culture Connect Video Case: Organization Culture at Zappos KEY STUDENT QUESTIONS The two questions that come up most often for this chapter are: 1. “Can you explain the difference between the macroenvironment and the task environment?” (Or request to explain a particular element of either environment.) 2. “As a manager, what should I do to respond to a changing environment?” Fortunately, the text has tools to help you deal with both of these questions more effectively. •The first question is best addressed with examples, and students often find it useful to go through an example or two for a specific company. Start by discussing the high-tech industry, asking students to name a company with which they are familiar, and have them identify examples of each of the different environmental factors for that organization. If your students can’t think of an organization, try using Apple or Management in Action: How Jeff Bezos Creates Amazon’s Environment as an example. •The second question is best addressed by having students work together to complete the concluding case study “Tata Motors: From Cheap to Awesome?” The brainstorming activity that students complete for the third discussion question on the case also serves as an excellent introduction to Chapter 3, Managerial Decision Making. •“Now, create a plan for Tata. In your plan, describe what changes the organization needs to make to its culture to meet the upcoming challenges in the external environment. Then describe steps that Tata can take to compete successfully against the new amusement park. How can the Salernos keep their loyal customers happy while attracting new ones?” CLASS ROADMAPS The Class Roadmap, along with giving Learning Objectives at appropriate states along the way, also lists PowerPoints, the boxes Management in Action, Connect, Multiple Generations at Work, as well as Teaching Tips and Examples. POWERPOINTS Slide 1 The External and Internal Environment Slide 2 Chapter Opening Quote Slide 3 Learning Objectives Slide 4 Open Systems Slide 6 Exhibit 2.1 Open-System Perspective of an Organization MANAGEMENT IN ACTION How Jeff Bezos Creates Amazon’s Environment Most managers strive to cope with their organization’s environment, but Jeff Bezos, CEO of the e-commerce and cloud computing giant Amazon.com, is busy creating one. The company Bezos founded in 1994 as an online discount bookseller is now in the business of selling virtually everything, to the tune of $100 billion in sales a year. Amazon’s success was hard-won; when it finally posted a profit in 2003, the Wall Street Journal called it “one of the most powerful survivors on the Internet.” Since then it has surpassed expectations. Many other companies now offer one or more of the services Amazon provides, but none does so with the kind of market power that has made Bezos’s company a constant threat to competitors in so many industries. Bezos seems to possess an uncanny ability to make use of environmental forces that others can only react to. His intuition about the unrealized potential of the Internet is what led him to found an online bookstore in the first place, and he has been quick to capitalize on other tech, and it seems likely that his company will continue to dominate its present environment and move into still more new ones. Introduction LO 1: Describe how environmental forces influence organizations, and how organizations can influence their environments A. Organizations are open systems 1. Receive raw materials, services, and financial, human, and information resources from the environment called inputs 2. Transform resources into finished goods and services 3. Send outputs back into the environment B. External Environment Influences 1. When resources change, environment influences the organization 2. When outputs differ, organization influences the environment 3. The organization operates in a competitive environment. CONNECT Click and Drag: Open Systems. Outputs of an Organization Culture (This exercise is also available in a multiple-choice version.) SUMMARY Organizations transform raw materials into sellable products and services and operate as open systems. As open systems, they are affected by, and affect, their environments. In this activity, students consider different organizations, their products, and the inputs used in making those products. ACTIVITY Students match notable organizations with their inputs. CLASS DISCUSSION IDEAS Expanding upon the exercise, ask students to offer inputs to the products they just saw as organizational inputs. Example 2.1 Environment Influences In August of 2013, Jeff Bezos, Amazon founder, and CEO purchased The Washington Post. The newspaper industry has been suffering over the past decade due to customers increasingly relying on the Internet for news coverage. The Post’s newspaper division’s revenue declined by 44 percent in the preceding six years. Some are optimistic, while others remain skeptical about Bezos’ ability to turn the newspaper or its industry around. Bezos stated, “I don’t want to imply that I have a worked-out plan. This will be uncharted terrain, and it will require experimentation.” I. THE MACROENVIRONMENT POWERPOINTS Slide 6 External Environment Slide 7 Exhibit 2.2 The External and Internal Environments Slide 8 The Economy Slide 9 Managers and the Economy Slide 10 Technology Slide 11 Laws and Regulations Slide 12 Demographics Slide 13 Social Issues Slide 14 Social Enterprise Macroenvironment is defined by the most general elements in the external environment that can potentially influence strategic decisions LO 2: Distinguish between the macroenvironment and the competitive environment A. The economy a. The economic environment dramatically affects companies’ ability to function effectively and influences their strategic choices. b. Interest and inflation rates affect the availability and cost of capital, the ability to expand, prices, costs, and consumer demand for products. c. Unemployment rates affect labor availability and the wages the firm must pass, as well as product demand. B. Technology a. Technological advances create new products. As technology evolves, new industries, markets, and competitive niches develop. b. New technologies provide new production techniques. Sophisticated robots perform jobs without suffering fatigue. c. New technologies also provide new ways to manage and communicate. Computerized management information systems (MIS) make information available when needed. C. Laws and regulations (Exhibit 2.3) 1. U.S. government policies both impose strategic constraints and provide opportunities. 2. Government can affect business opportunities through tax laws, economic policies, and international trade rulings. 3. Regulators are specific government organizations in a firm’s environment. 4. Regulatory agencies have the power to investigate company practices and take legal actions to ensure compliance with the laws are: a. Securities & Exchange Commission (SEC) b. Occupational Safety and Health Administration (OSHA) c. Food & Drug Administration (FDA) d. Federal Aviation Administration (FAA) e. Equal Employment Opportunity Commission (EEOC) f. National Labor Relations Board (NLRB) g. Office of Federal Contract Compliance Programs (OFCCP) h. Environmental Protection Agency (EPA) Example 2.2 Laws and Regulations The macroenvironment is composed of international, legal and political, economic, technological and social forces that influence strategic decisions. Many of these factors affect a manager’s ability to function effectively and influence their strategic choices—interest and inflation rates, unemployment rates, rising energy costs, rising health care costs and changes in the value of the dollar to name a few. In Malaysia when the cost of doing business is artificially inflated, the customer bears the charge without any real gain in value. One such example was The Private Healthcare Facilities and Services Act (1998) and Regulations (2006). This act stipulates higher charges by private medical practitioners to which must be added the cost of registration. D. Demographics 1. Demographics measures of various characteristics of the people comprising groups or other social units. 2. Workgroups, organizations, countries, markets, or societies can be described statistically by referring to their members’ age, gender, family size, income, education, occupation, and so forth. CONNECT Comprehension Case: Rubio’s Competitive Environment SUMMARY Firms operate in a competitive environment that is unique to their industry. Five main factors determine the attractiveness of the environment. These factors are competitors, threat of entry, substitutes, suppliers, and customers. This comprehensive case presents Rubio’s. The firm is a fast-food Mexican restaurant with 180 locations based in the western United States. ACTIVITY The activity will have students conduct a competitive analysis of Rubio’s environment and determine if it is operating in an attractive or unattractive environment CLASS DISCUSSION IDEAS Ask students if their answers would be the same for a specific actual fast-food restaurant chain. Can the case concepts be applied to the school? MULTIPLE GENERATIONS AT WORK Are “Portfolio Careers” the New Normal? Only a decade or two ago, people who changed jobs frequently or took a few months off from work to travel were often perceived as unreliable or lacking dedication. The career model back then was to begin a career immediately after graduating from college, do similar work for two or three different employers, take a couple of weeks of vacation during the summer, and try to retire with a pension. Now, this traditional career model is increasingly being replaced the portfolio career. Instead of climbing a traditional career ladder, someone pursuing a portfolio career works multiple jobs (full-time, part-time, freelance, or contract) at a time over the course of one’s lifetime. Millennials aren’t the only ones who like portfolio work. Some organizations are turning to seasoned Boomers who want to continue working on a part-time, flexible basis to coach and mentor the next generation of leaders LO 3: Explain why managers and organizations should attend to economic and social developments E. Social Issues 1. Societal trends regarding how people think and behave have major implications for management of the labor force, corporate social actions, and strategic decisions about products and markets. 2. Companies have introduced more supportive policies, including family leave, flexible working hours, and childcare assistance. F. Sustainability and the Natural Environment 1. Prominent issues in today’s press pertain to natural resources. 2. The protection of the natural environment is important to managerial decisions. II. THE COMPETITIVE ENVIRONMENT POWERPOINTS Slide 15 Exhibit 2.4 The Competitive Environment Slide 16 Competitors Slide 17 New Entrants Slide 18 Substitutes and Complements Slide 19 Exhibit 2.5 Potential Substitutes for and Complements of Products Slide 20 Suppliers Slide 21 Customers LO 4: Identify elements of the competitive environment A. Competitors 1. As a first step in understanding their competitive environment, organizations must identify their competitors, which may include: a. small domestic firms b. overseas firms c. new domestic companies exploring new markets d. strong regional competitors e. unusual entries, such as Internet shopping 2. The next step is to analyze how they compete. B. New Entrants 1. Barriers to entry are conditions that prevent new companies from entering an industry. 2. Some major barriers to entry are government policy, capital requirements, brand identification, cost disadvantages, and distribution channels. C. Substitutes and Complements (Exhibit 2.5) 1. Technological advances and economic efficiencies are among the ways that firms can develop substitutes for existing products. D. Suppliers 1. Suppliers provide the resources needed for production and may come in the form of people, raw materials, information, and financial capital. 2. Suppliers can raise their prices or provide poor quality goods and services. 3. Labor unions can go on strike or demand higher wages. 4. Workers may produce defective work. E. Customers 1. Customers purchase the products or services the organization offers. 2. Final consumers are those who purchase products in their finished form. 3. Intermediate consumers are customers who purchase raw materials or wholesale products before selling them to final customers. a. Customer service means giving customers what they want or need, the way they want it, the first time. b. Actions and attitudes that mean excellent customer service include: i. Speed of filling and delivering normal orders. ii. Willingness to meet emergency needs. iii. Merchandise delivered in good condition. iv. Readiness to take back defective goods and re-supply quickly. v. Availability of installation and repair services and parts. vi. Service charges (that is, whether services are “free” or priced separately). MANAGEMENT IN ACTION Progress Report Amazon Reinvents the Competitive Environment Amazon.com is known for its focus on the customer, and it’s easy to see that focus in its online retail operations. However, Amazon’s view of its “customer set” is much broader than just consumers who buy things. It also includes about 2 million individuals and small companies that sell a huge array of new and used products in Amazon’s famous third-party Marketplace. Rather than competing with these sellers, Amazon has made them part of the family. Founder and CEO Jeff Bezos proudly credits Amazon’s success in large part to the contribution these third-party sellers make to the vast number and variety of products it can offer. The company has also designed Amazon Web Services (AWS), the cloud-computing software that powers the site, to supply unbeatable speed and capacity even during the peak holiday shopping season. Are Amazon, Apple, and Google competitors in Facebook’s competitive environment or sellers of complements? Explain. •These firms are competitors in the market for advertising dollars. Facebook has two major kinds of customers: the users of its site and the advertisers on its site. What challenges does Facebook face from Google in serving each customer group competitors? •Google may have an advantage for advertising dollars as it is a general tool. The shopping tool within Google, while not as significant force, may also directly siphon retail customers and the Google search function may allow these customers to find alternatives to those offered by Amazon. TEACHING TIP Have students review and give feedback on each other’s responses to the pre-class assignment (Experiential Exercise 2.1) at this point in the lecture. The best way to do this is in pairs. Each student reads the other’s paper, and then both students talk about environmental factors that have been misclassified and other environmental factors that could be added. Students should correct their own papers before turning them in, and if possible, students should get feedback from the professor or teaching assistant about both the paper and the corrections. II. ENVIRONMENTAL ANALYSIS POWERPOINTS Slide 22 Environmental Uncertainty Slide 23 Environmental Analysis Slide 24 Scenarios and Forecasting Slide 25 Benchmarking LO 5: Summarize how organizations respond to environmental uncertainty Developments outside the organization can have a profound impact on the way managers operate. Example: if little is known about customer likes and dislikes, organizations will have a difficult time designing new products, scheduling production, or developing market plans. Environmental uncertainty means that managers do not have enough information about the environment to understand or predict the future. Uncertainty arises from two related factors: o Environmental complexity, or the number of issues to which a manager must attend, as well as their interconnectedness. o Dynamism, or the degree of discontinuous change that occurs within the industry. A. Environmental scanning 1. A process that involves searching out information that is unavailable to most people and sorting through that information to interpret what is important and what is not. 2. Competitive intelligence is the information necessary to decide how best to manage in the competitive environment they have identified. (Exhibit 2.7) Example 2.3 Environmental Complexity Recently, more and more Americans are becoming aware of the environment—specifically the air that they breathe. With concerns about global warming and pollution at an all-time high, people want to be sure that they and their companies are acting in environmentally responsible ways. Americans spend 90 percent of their time indoors and much of that at work. According to the EPA, air pollution is up to five times worse inside than outside. Harsh cleaning chemicals contribute to the problem. Approximately 37 million Americans suffer from chemical sensitivity, leading to increased absenteeism and health costs. Managers who promote the use of eco-cleaners, which do not evaporate harmful materials into the air, can reduce their costs, make the workplace safer for their workers, and improve their reputation as part of the “green movement.” A. Scenario Development 1. Scenario is a narrative that describes a particular set of future conditions. 2. Best-case scenario—events occur that are favorable to the firm. 3. Worst-case scenario—events are all unfavorable. 4. Scenario development helps managers develop contingency plans for what they might do given different outcomes. Example 2.4 Competitive Intelligence Faced with declining customer-service ratings and prices higher than competitors, Michael Dell recently resumed the role of chief executive at the company he founded. His initial steps to be more competitive focused on eliminating redundancies throughout the business. He began by eliminating eight senior executives, suspending bonuses and providing limited discretionary awards to exceptional performers. Dell urged employees to work quickly to turnaround the company. He said “There is no luxury of time. The competitors are fierce.” B. Forecasting 1. Used to predict exactly how some variable or variables will change in the future. 2. The best advice for using forecasts might include the following: a. Use multiple forecasts b. Accuracy decreases the farther into the future you are trying to predict. c. Forecasts are no better than the data used to construct them d. Use simple forecasts e. Important events often are surprises and represent a departure from predictions Teaching Tip Ask students to imagine different scenarios that might impact your school, and to develop contingency plans that might address those scenarios. This can either be done as a discussion question with the entire class, or students can work in groups to answer the question, and report back. For example, a possible scenario might center around a population boom or bust. In a population boom, universities might respond by setting up satellite campuses, whereas, in a bust, universities might look for additional students by setting up international programs and/or programs targeted to meet the needs of working professionals. D. Benchmarking 1. Benchmarking is the process of comparing the organization’s practices and technologies with those of other companies. 2. Benchmarking means identifying the best-in-class performance by a company in a given area. IV. ACTIVELY MANAGING THE EXTERNAL ENVIRONMENT POWERPOINTS Slide 26 Changing the Environment You Are In (1 of 2) Slide 27 Changing the Environment You Are In (2 of 3) Slide 28 Changing the Environment You Are In (3 of 3) Slide 29 Influencing Your Environment Slide 30 Independent Action Slide 31 Cooperative Action Slide 32 Adapting to the Environment A. Changing the Environment You Are In 1. Strategic maneuvering is the organization’s conscious efforts to change the boundaries of its task environment. It can take four basic forms: a. Domain selection is the entrance by a company into another suitable market or industry. b. Diversification occurs when a firm invests in different types of businesses or products, or when it expands geographically to reduce its dependence on a single market or technology. c. A merger or acquisition takes place when two or more firms combine, or one firm buys another, to form a single company. d. Divestiture occurs when a company sells one or more businesses. 2. Prospectors are companies that continuously change the boundaries of their task environments by seeking new products and markets, diversifying and merging, or acquiring new enterprises. 3. Defenders are companies that stay within a more limited, stable product domain Example 2.5 Independent Strategies As global warming is threatening the viability of Aspen’s famed ski resort, companies there are responding by becoming pioneers in corporate environmentalism. Aspen uses biodiesel fuel in its bulldozer-sized snowcats, uses a speck of dust to seed artificial snowflake which consumes less water and energy, vehicle shop is partly heated with used motor oil, Coke machines run on motion sensors, toilets have two different flush settings—half flush and full flush, and resorts add $2 a day to the bill of every hotel guest donating it to the Aspen Valley Land Trust to preserve open space. Aspen managers must complete an environmental impact assessment for each request for capital spending. Auden Schendler, Aspen’s director of environmental affairs, wants “Aspen to be a thought leader—not just to be doing it, but talking about how we do it.” This is a good example of both the public relations and voluntary action approaches to changing the environment. B. Influencing Your Environment 1. Independent strategies are strategies that an organization is acting on its own uses to change some aspect of its current environment. (Exhibit 2.8) 2. Cooperative strategies are strategies used by two or more organizations working together to manage the external environment. (Exhibit 2.9) C. Adapting to the Environment: Changing the Organization 1. Four different approaches that organizations can take in adapting to environmental uncertainty are: a. Decentralized bureaucratic (stable, complex environment) b. Centralized bureaucratic (stable, simple environment) c. Decentralized organic (dynamic, complex environment) d. Centralized organic (dynamic, simple environment) 2. Adapting at the boundaries. a. Buffering is creating supplies of excess resources in case of unpredictable needs. b. Smoothing is leveling normal fluctuations at the boundaries of the environment. 3. Adapting at the core. a. Flexible process allows for adaptation in the technical core to meet the varied and changing demands of customers. Example 2.6 Corporate Culture Tony Hsieh, CEO of shoe retailer, Zappos, is passionate about corporate culture, “The original idea was to add a little fun.” Now companies around the world are attempting to model Zappos’ renowned corporate culture and customer service, model. Zappos employees are given the freedom to decide how best to satisfy their customers, whether that means staying on phone calls for hours at a time, sending flowers, or even redirecting a customer to a rival website with a better price. Hsieh observes, “They may only call once in their life, but that is our chance to wow them.” D. Choosing an Approach 1. Three general considerations help guide management’s response to the environment. a. Change appropriate elements of the environment. b. Choose responses that focus on pertinent elements of the environment. c. Choose responses that offer the most benefit at the lowest cost. V. THE INTERNAL ENVIRONMENT OF ORGANIZATIONS: CULTURE AND CLIMATE POWERPOINTS Slide 33 Organizational Culture Slide 34 Diagnosing Culture Slide 35 Organizational Climate Slide 36 Management in Action Slide 37 In Review LO 6: Define elements of an organization’s culture A. Organization culture is the set of important assumptions about the organization and its goals and practices that members of the company share. •Strong cultures o Everyone understands and believes in firm’s goals, priorities, and practices. o An advantage if appropriate behaviors are supported. •Weak cultures o Different people hold different values o Confusion about corporate goals o Not clear what principles should guide decisions LO 7: Discuss how an organization’s culture affects its response to its external environment 1. Diagnosing Culture a. Culture can be diagnosed through the following: i. Corporate mission statements and official goals. ii. Business practices. iii. Symbols, rites, and ceremonies. iv. The stories people tell. b. Four types of organizational culture i. Group culture — flexible, internal focus ii. Hierarchical structure — controlling, internal focus iii. Rational culture — controlling, external focus iv. Adhocracy — flexible, external focus 2. Managing Culture a. Espouse lofty ideals and visions for the company b. Give constant attention to mundane, daily details c. CEO’s need to embody the vision of the company CONNECT Click and Drag: Elements of Organizational Culture (This exercise is also available in a multiple-choice version.) SUMMARY Organizational cultures reflect the internal environment of the organization. Thus, it is important to know how to diagnose a culture, as it is one of the most important factors that influence an organization's response to its external environment. Like an individual’s personality, it can often be sensed immediately by examining four things, including (1) formal statements and goals; (2) business practices; (3) symbols, rites, and rituals; and (4) stories. This exercise helps students practice identifying elements of culture as they consider the retail organization Nordstrom. Nordstrom is known for its outstanding customer service and high-quality shopping experience. Their employees are expected to abide by what they call “Our One Rule,” which simply states, “Use good judgment in all situations.” In fact, this one rule is all that exists in their employee handbook. They also state “Our number one goal is to provide outstanding customer service.” ACTIVITY After reading the mini-case, students can match up examples in this exercise (or answer multiple-choice questions) addressing elements of culture. CLASS DISCUSSION IDEAS Ask the following question to extend the discussion: If Nordstrom’s culture is the key to their success, why don’t other organizations just copy it? CONNECT Video Case: Organization Culture at Zappos SUMMARY Organization culture is the set of important assumptions about the organization and its goals and practices that its members share. It is a system of shared values about what is important and beliefs about how the world works. A company’s culture provides a framework that organizes and directs people’s behavior on the job. Online retailer Zappos.com was formed in 1999 by Nick Swinmurn. His goal was to create an online shoe store with the best selection and best customer service anywhere. Zappos has been very successful in achieving these goals. In 2009 it was acquired by Amazon.com, another leader in online service. Part of Zappos’ success is due to its unique employee- and customer-centered culture. In the seven-minute video, students learn more about that culture. ACTIVITY After viewing the video, students are asked to answer a series of multiple-choice questions. CLASS DISCUSSION IDEAS Summarize and extend the discussion by asking students what leads Zappos’ strong culture. To further illustrate the elements of a strong culture, ask students what management actions may inadvertently weaken the culture at Zappos. B. Organizational Climate 1. Patterns of attitudes and behavior that shape people’s experience of an organization 2. Organization are most effective when it has a climate that motivates and enables workers to achieve the organization’s strategy MANAGEMENT IN ACTION Onward The Culture at Amazon In his 2016 annual letter to shareholders, Amazon’s CEO Jeff Bezos noted correctly that corporate cultures are “enduring, stable, hard to change.” A recent New York Times investigation had revealed Amazon’s own culture as ruthlessly competitive and intensely stressful, often bringing white-collar employees at its Seattle headquarters to tears at their desks. Amazon recently announced changes. It is easing policies that rewarded such competitive behavior and will launch a retraining program to assign coaching and support to poor performers, who can either appeal the assignment, accept and try to improve or resign with severance. o Jeff Bezos’s shareholder letter calls Amazon a good place to fail, since “failure and invention are inseparable twins.” What do you think is the relationship between failure and invention? What suggests that Amazon’s culture is tolerant of failure? Student answers will vary; however, bringing employees to tears may indicate that failure is celebrated at Amazon. Students may also point out that if a culture produces a fear of failure, it will also limit risk-taking slowing innovation. o Is it possible for a company to be as innovative and successful as Amazon without having a particular type of culture? What type of culture would that be? Student answers will again vary. Using the adaptive strategies from the chapter, students may state that cultures that promote prospecting are more likely to promote innovation. BOTTOM LINE Does low-cost mean low-quality? Why or why not? Not necessarily. Efforts to save money can improve processes—for example, simplifying a process in a way that reduces errors along with costs. It can involve reducing waste. It can involve locating in parts of the world where equally skilled people accept lower rates of pay. Of course, cost-cutting can also involve using inferior material or untrained labor, so decisions about saving money should be made with concern for the organization’s overall strategy. What are some technologies that have given managers fast access to information? Two obvious answers are the Internet and portable computers such as laptops. Students may also be familiar with other information technologies, such as wireless computing, databases, and decision-support systems. In which of these areas would you say PepsiCo tried to create a competitive advantage? (If you aren't sure, come back to this question after you've studied this section.) PepsiCo sought to innovate by creating snacks that are more healthful, which could also be seen as competing regarding quality. It has spent less than Coca-Cola on advertising, which is in a sense a low-cost strategy that PepsiCo has tried to move away from. Would the cost be a bigger barrier for someone who opens a new bicycle shop or a developer of mobile game apps? Why? The cost would be a bigger barrier for a mobile game app because a tremendous investment in research is required to develop a competitive product. In contrast, once the software for a mobile app has been written, producing many copies is simple and fast, and the app can be distributed readily by offering downloads online, even if the app developer doesn’t have much shelf space in stores. To meet this requirement, what qualities would a company need in its employees? A company that can manufacture customized products quickly will need employees who are themselves flexible—skilled in performing more than one process and willing to make adjustments to satisfy customers. The company would especially benefit from employees who are able to understand work processes and think creatively about how to adapt them to meet customer needs efficiently. Name a company that has delivered good customer service to you. Answers will vary. This is a chance for students to think about what “service” means in concrete, practical terms. What might “flexible processes” mean for a fast-food restaurant? For an auto company? For a fast-food restaurant, a flexible process is any part of food production that enables the restaurant to customize its offerings, such as a selection of cheeses and condiments on sandwiches or special decorations for a children’s party in the restaurant. For an auto company, flexible processes would likely entail building cars with various options selected by customers, such as colors, entertainment systems, engine sizes, and so on. To be aligned with its environment, what values should an organic grocery store chain company have? Answers will vary. Examples might be a high value placed on sustainable practices, strategies for managing waste, and monitoring of suppliers to make sure they are implementing sound farming practices. SOCIAL ENTERPRISE Combating Climate Change Despite its far-reaching impact, the problem of climate change has struggled to gain center stage in the United States. A landmark multination pact called the Paris Agreement called on all participating countries to curb their emissions of the greenhouse gases that contribute to planet-wide warming temperatures. Arguing that controlling climate change is good for business, more than 360 U.S. companies have petitioned the White House to hold fast to former President Obama’s commitment to the Paris Agreement. Their open letter to the president says, in part, “Failure to build a low-carbon economy puts American prosperity at risk. But the right action now will create jobs and boost U.S. competitiveness. Implementing the Paris Agreement will enable and encourage businesses and investors to turn the billions of dollars in existing low-carbon investments into the trillions of dollars the world needs to bring clean energy and prosperity to all.” Questions Can most organizations really be profitable while making a positive impact on the environment and society? What challenges do they face? While there may be a diversity of opinion, students may emphasize the lower long-term cost of renewable energy sources. Students may simultaneously present the high cost of the required new technology and the uneven application of standards across country boundaries. Can you envision a world that doesn't produce waste? What changes are needed before that can happen? Student answers will vary. Answers may focus on technology and behavior changes. LECTURETTES LECTURETTE 2.1 Operations and Human Resources: IBM’s Workforce Management Initiative As the book explains, one way in which an organization can manage its competitive environment is through becoming a globally integrated enterprise. IBM has adopted a human capital management approach to better utilize its talented workforce. Considering labor as an input and IBM products as an output, the company launched its Workforce Management Initiative (WMI) to capture and effectively leverage every employee’s skill set and training. All of IBM’s approximately 330,000 employees are captured in this database. Having this database allows managers to search for employee talent within the company—around the world—rather than having to look outside to recruit talent and fill current needs. The company estimates that this initiative has saved over $500 million. In addition to saving the company money, applying this supply chain approach allows the company to estimate its talent capacity for future anticipated needs as well, and to train individuals proactively. In 2007, the IBM Institute for Business Value published seven keys to succeed in a globally integrated world of business, written by Eric Lesser, Tim Ringo, and Andrea Blumberg. The seven principles are: 1. Understanding the demographics and capabilities of the workforce. 2. Predicting the future labor supply and demand. 3. Utilizing social networks to increase visibility and application of knowledge across the organization. 4. Enabling individuals to perform work regardless of location. 5. Facilitating collaboration across traditional organizational boundaries. 6. Driving the rapid development of skills and capabilities to meet changing business conditions. 7. Evaluating employee performance and providing appropriate feedback. Sources: Boudreau, John W. IBM’s Global Talent Management Strategy: The Vision of the Globally Integrated Enterprise. Society for Human Resource Management. https://blog.shrm.org/sites/default/files/reports/IBM%20Case%20Study_partB.pdf “Transforming the workforce: Seven keys to succeeding in a globally integrated world.” IBM Institute for Business Value. https://www-05.ibm.com/services/bcs/at/bcsserv/human-capital/download_hcm/hcm-transforming-workforce-11-07.pdf Instructor Manual for Management: Leading and Collaborating in a Competitive World Thomas S. Bateman, Scott A. Snell, Robert Konopaske 9781259927645, 9781259546945

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