Chapter 2

SURVIVAL STRATEGIES IN UNCERTAIN ENVIRONMENTS

1. Application of Coping Strategies - Coping strategies refer to the transformation of a part or all of the organization to make its activities more compatible with existing environmental conditions. 2. Adaptation of Environmental Control Measures. - Environmental. control refers to management actions to identify and influence environmental factors to obtain more positive effects on organizational activities

Objectives of Business

1. creation and distribution of a product or service; 2. satisfaction of personal objectives like profits for owners, salaries and other compensation for executives, wages and other compensation for employees, psychic income for all, including pride in work, security, recognition, and acceptance; 3. protection and enhancement of the human and physical resources of society; and 4. economy and effectiveness of operation,

Changing Elements

A business organization may seek to manipulate its environment by changing one or more environmental elements in which it operates

MATCHING THE ORGANIZATION WITH THE ENVIRONMENT

may be derived from determining whether the organization in question is fitted to the environment where it operates. Not all environments are similar in terms of business considerations. One environment may be friendly to one particular type of business, while another may be hostile to that business type

Customers

patronage is very vital to the existence of the business firm. The manager must continuously strive to keep old customers and attract new ones The differences among customers and market situations will require varied approaches in selling. The modern manager makes careful analysis of the market and based on his findings; he makes decisions on the appropriate marketing strategy

Technological Variables

refers to the tools and ideas that may be used by an organization to pursue its goals. A business firm, for instance, may use a new invention or an innovation to increase its market share, or to develop a new market for its products

Pure Competition

when there are many producers or sellers of similar products.

Oligopoly

whenthereareonlyafewproducersorsellersofsimilarproducts

Monopoly

where there is only a single producer or seller

Services

which sells service to the buyer.

ENVIRONMENTAL CONTROLLING

Creating Favorable Linkages Manipulating the Environment

The Direct-Action Components of the External Environment

Customers Suppliers Labor Supply Competitors Financial Institutions Government agencies

Executive Succession

One way of adapting to uncertainty in the environment is the adoption of an effective executive succession

Forming Trade Associations

One way of manipulating the environment is through trade associations, which are composed of member organizations that share a common interest

The External Environment

consists of elements outside an organization that are relevant to business operations.

Environmental Uncertainty

defined as a lack of complete information regarding what exists and what developments may occur in the environment This uncertainty makes it difficult for managers to perform the following: 1. analyze constituencies and their needs; 2. predict future state of affairs; and 3. understand their potential implications for the organization.

Mechanistic Design

design is deemed appropriate for a task that is routine and unchanging. This design is characterized by a vertical structure that typically operates with: a. more centralized authority; b. many rules and procedures; c. a precise division of labor; d. narrow spans of control; and e. formal means of coordination Such a design is more or less appropriate for static environments. Since decision making is centralized, communication flows from top to bottom levels and vice versa

Competitors

determining the appropriate marketing strategy, the manager of a business firm will have to consider not only the target customers, but also the competitors.

Commerce

engaged in buying and selling of goods and services

Labor Supply

he services of managers and employees are indispensable requirements of business operations. These services are in a way procured through recruitment and hiring by the human resource specialists of business firms. As the need for worker skills and experiences vary, different means are used in locating qualified workers.

Organic Design

is appropriate for a task that is non-routine and changing. It is characterized by the following: a. decentralized authority; b. fewer rules and procedures; c. less precise division of labor; d. wider spans of control; and e. more personal means of coordination. Tasks in organic organizations are completed through group efforts and are adjusted and redefined to cope with demands made by the changing environment. Those close to the task are vested with authority to make decisions since they have a more immediate understanding of problems. Organization members exchange information about adjustments in tasks and changes that have occurred in the environment making communication as primarily horizontal

Industry

mainly engaged in production. Goods produced, which are intended for ultimate consumption, are called consumer goods, while goods intended for use of business and industry are called producer's goods.

Suppliers

Business firms achieve their objectives through a combination of activities. First and foremost is the transformation of production inputs like raw materials, services, energy, equipment, and labor into usable products or services.

Financial Institutions

Business firms are concerned with maintaining or expanding their operations. In either case, the company will need funds. banks, development banks, and other lending institutions. Notwithstanding goodwill, however, —— change policies without warning and without regard to the effect of such change in the operations of business firms.

Socio-Cultural Variables

Business organizations can only flourish if they consider society's customs and values in the planning and implementation of their activities. For instance, employers in the Philippines must integrate in their annual financial plan the tradition of cash advances required by employees in times of need like enrolment in school of children, baptism of child, marriage, etc

ExecutiveRecruitment

Companieshireexecutiveswhohavepriorexperience in the industry. For instance, it is not hard to determine the benefits that may be derived by a local university which recruits as president a recently retired regional director of a government agency which oversees the operation of local colleges and universities

Dimensions of Environmental Uncertainty

Complexity and Rate of Change in these Factors

Types of Elements in the External Environment

Direct Action Elements. Indirect Action Elements.

Static

Few forces in the environment are changing to affect business Among the notable features of this environments are no new competitors, no new technological breakthroughs by current competitors, and little activity by public pressure groups to influence the organization

Government Agencies

From the enactment of laws to the granting of business permits, the viability of business firms could be enhanced or limited by actions of example is the passage of the Senior Citizens Law, which placed some burden on business firms because of the extra clerical and administrative work involved in its implementation.

Smoothing

Irregular demand is always a problem for many business firms. This is so because of the difficulty in making adjustments concerning manpower and equipment

Designs of Business Organizations

Mechanistic Design Organic Design

The Indirect Action Elements of the External Environment

Technological Variable Economic Variables Socio-Cultural Variables Political-Legal Variables International Variables

Joint Ventures

There are also times when a company finds it difficult to operate in a particular market, especially those located overseas. A car manufacturer, for instance, may create a favorable linkage by forming a temporary business partnership with a local distributor

Mergers

There are times when the activities of one business firm cause uncertainty to another. For instance, a certain manufacturer of grocery products failed several times in its commitment to deliver items that were purchased earlier by a big retailing firm. To reduce or eliminate this uncertainty, the big retailer decided to acquire the supplier company

Rate of Change in these Factors.

These are the factors in the external environment change from time to time. For instance, income levels and the number of qualified teachers may increase or decrease after a few years. Environmental uncertainty rises as the rate of change increases

Political-Legal Variables

These consist of laws and regulations promulgated and implemented at the local, national, and international levels. Also included in this element are individuals and organizations that attempt to influence the political- legal environment activities of lobbyists and protest groups are concentrated in Metro Manila where most of the offices of the national government are located. The latest targets of protests are the mining and logging industries, which are considered by many as responsible for the destruction of the environment. Business firms that are engaged in such industries have to contend with protest groups opposing their operations

Direct Action Element

These include the consumers, competitors, labor unions, suppliers, financial institutions, and government agencies. They are often referred to as stakeholders of the organization.

Economic Variables

This concern will touch on the health of the economy in terms of inflation, income levels, gross domestic product, employment, and job outlook business managers are required to devote time and resources to forecasting the economy and to anticipate changes in important concerns like prices

International Variables

This element includes changes occurring in various parts of the world, which may affect business organizations in various ways and degrees. For local businesses, what happens overseas may be of little concern to them, unless they plan to operate globally There are some instances when this element cannot be disregarded. For instance, a foreign government may ban the entry of products coming from countries like the Philippines. If that is the case, some of the Filipino exporters may be affected

Rationing

This happens when the organization ignores some operations and emphasizes others in order to preserve the most critical functions of the technical core

Boundary Spanning

This is the process of creating jobs or roles in which individual employees are required to "have strong communication links within their department, with people in other units, and often with the external community

Structural Complexity

This is when the business adapts to the environment by setting up departments or subsystems that will respond to specific groupings of environmental factors.

Forecasting

This refers to making predictions, projections, or estimates of future events or conditions in the environment in which the organization operates

Buffering

This refers to setting up buffers for both input and output sides of organizational activities in order 'to absorb and cope with environmental uncertainty.

Complexity

This refers to the number of different factors in the environment such as information, capital, material, people, and other organizations. For example, consider a university situated in a city about a hundred kilometers from Manila. Some environmental factors to consider would be the availability of qualified teachers in the area and the income of the people in the area. Environmental uncertainty rises as the number of factors increases

Lobbying

This term refers to the act of attempting to influence business and government to create legislation or conduct an activity that will help a particular organization

Resource Flows

This term refers to the pattern of resource exchanges between the, organization and other organizations in the environment. In the attempt to control the environment, the manager can make important decisions on the pattern of exchanges

Institutional Advertising

This type of advertising is designed to build goodwill for a company among stockholders, employees, distributors, the public, and the government

Dynamic

When significant number of environmental forces that affect business are changing are rapidly changing government regulations affecting business, new competitors, difficulties in acquiring raw materials, and continuously changing socio-cultural aspects of the population

Interlocking Directorates

When some members of the board of directors of one company are also members of the board of another company, such arrangement is called interlocking directorates

Industry business classified into:

a. Genetic industries are those involved in agriculture, forestry, and fish culture. b. Extractive industries are those involved in the extraction of goods from natural resources, which include mining, lumbering, hunting, and fishing. c. Manufacturing industries convert raw materials into finished products. Examples are firms engaged in the manufacture of drugs, plastics, food, liquor, footwear, motorcars, tools, office supplies, etc. d. Construction industries are those engaged in building infrastructures like airports, seaports, dams, and highways and dwelling units.

Service firms classified

a. Recreation—movie houses, television and radio stations, theaters for drama and stage presentations, resorts, and the like; b. Personal — restaurants, barber shops, transportation, hotels, tailoring shops, slimming salons, and the like; and c. Finance — banks, insurance companies, investment houses, financing institutions, credit unions, savings and loans associations, and the like.

Business

be defined as all profit-seeking activities and enterprises that provide goods and services necessary to an economic system.

Types of Business Environment

static and dynamic

Indirect Action Elements.

they affect the climate in which the operations of the organization take place. These are the technological, economic, socio-cultural, political-legal and international variables