Chapter 4 -The External Environment: Social and Technological Forces

What Technological Forces Affect the Industry?

1. Effect of the Internet and social media 2. Scientific improvements 3. Inventions 4. Technology affecting production 5. Expenditures on research and development 6. Focus on research and development expenditures 7. Rate of new product introductions 8. Automation

What Social Forces Affect the Industry?

1. Societal traditions 2. Societal trends 3. Prevailing values 4. Consumer psychology 5. Society's expectations of business and consumer activism 6. Concern with quality of life 7. Expectations from the workplace 8. Religious trends and values 9. Population and demographics 10. Birth rates and life expectations 11. Women in the workforce 12. Health consciousness 13. Attitudes about career and family 14. Concern for the natural environment

Partnership

A contractual relationship with an enterprise outside the organization. contractual relationships with enterprises outside the organization—to manage many of the functions that were previously handled in-house. Whereas outsourcing refers to specific agreements associated with a single task, partnering implies a longer-term commitment associated with activities that are more complex.

showrooming

A process—typically aided by smartphone apps—whereby consumers easily and quickly compare prices before they purchase a product they evaluate in a brick-and-mortar store. Aided by smartphone apps, consumers can easily and quickly compare prices before they purchase a product they evaluate in a brick-and-mortar store, a process known as showrooming

culture

A society's generally accepted values, traditions, and patterns of behavior.

societal values

Concepts and beliefs that members of a society tend to hold in high esteem. Social forces include such factors as societal values, trends, traditions, and religious practices.

Strategic Dimensions of the Internet

In addition to the shift toward disaggregation and reaggregation, the expansion of the Internet has changed how strategic managers assess their environments and ultimately make strategic decisions. Five key interrelated strategic factors are discussed in this section.

Technological change

Technological change can decimate existing businesses and even entire industries because it shifts demand from one product to another. the flattening of the world described by Friedman is only one of many major transformations in technology. Historical examples include the shifts from vacuum tubes to transistors, from steam locomotives to diesel and electric engines, from fountain pens to ballpoints, from propeller airplanes to jets, and from typewriters to computers. Advances in technology can substantially influence production costs associated with a product or service. Television manufacturer limitations in the sizes of the glass sheets they can handle, for example, kept prices for flat-screen TVs high throughout the early 2000s until a spike in demand prompted the introduction of a more efficient manufacturing system

The Internet as Distribution Channel

The Internet acts as a distribution channel for nontangible goods and services. Consumers can purchase items such as airline tickets, insurance, music, stocks, and computer software online without the necessity of physical delivery. For largely tangible goods and services, businesses can often distribute the "intangible portion" online, such as product and warranty information. Whenever physical distribution can be replaced completely or in part by electronic distribution, transactions are likely to occur more rapidly and at lower costs.

Speed (Internet)

The Internet offers numerous opportunities to improve the speed of the actual transaction, as well as the process that leads up to and follows it. Consumers and businesses alike can research information twenty-four hours a day. Orders placed online may be processed immediately. Software engineers in the United States can work on projects during the day and then pass their work along to their counterparts in India who can continue work while the Americans sleep. The pace of business has increased and has been accompanied by heightened expectations for speed by consumers.

Interactivity

The Internet provides extensive opportunities for interactivity that would otherwise not be available. Consumers can discuss their experiences with products and services on bulletin boards or in chat rooms. Firms can readily exchange information with trade associations that represent their industries. Users can share files with relative ease. Rumors and "bad news" spread rapidly. Many firms launched aggressive social media programs in the 2000s and early 2010s, but some have begun to reassess their strategies. According to a 2014 Gallup poll, social media are not as powerful and persuasive as many analysts had originally thought. U.S. companies spent $5.1 billion on social media in 2013, but 62 percent of respondents reported that social media did not influence their buying decisions, while 30 percent reported only some influence.161

Potential for Cost Reductions and Cost Shifting

The Internet provides many businesses with opportunities to minimize their costs—both fixed and variable—and thereby enhance flexibility. Information can be distributed to thousands or millions of recipients without either the expense associated with the mail system or the equipment required to do so. The "virtual storefront," for example, does not necessarily require an actual facility and may reduce transaction costs through automated online ordering systems, although this is not always the case. This potential is not always realized in practice, however. Consider that e-mail is much cheaper to use than traditional mail, but much of it is never actually read; hence, lower per-unit costs do not necessarily translate into greater effectiveness.

mass customization

The ability to individualize product and service offerings to meet specific buyer needs. refers to the ability to individualize product and service offerings to meet specific buyer needs. Like commoditization, mass customization has also been fostered by advances in technology. It occurs when Amazon.com and other online retailers suggest top-selling books or other products for individual customers based on their previous purchase behavior. In this way, companies like Amazon.com take a commodity—the same product that could be readily purchased from other retailers—and customize its presentation to individual consumers.

economies of scale

The decline in unit costs of a product or service that occurs as the absolute volume of production increases.

environmental scanning

The systematic collection and analysis of information about relevant macroenvironmental trends. refers to the systematic collection and analysis of information about relevant trends in the external environment.

self-reference criterion

The unconscious reference to one's own cultural values as a standard of judgment. has been suggested as the cause of many international business problems. Individuals, regardless of culture, become so accustomed to their own ways of looking at the world that they often cannot comprehend any significant deviation from their perspective. However, companies that can adjust to the culture of a host country can compete successfully.

The Internet

The widespread use of the Internet over the past decade is arguably the most pervasive technological force affecting business organizations since the dissemination of the personal computer. The effects are most profound in select industries, such as brokerage houses, where online companies have demonstrated huge gains in the market, or the travel industry, where the number of flights, hotels, and travel packages booked over the past decade has skyrocketed. The Internet has also facilitated the advent of online banking, a much less costly means of managing transactions. Indeed, the Internet has had a major effect on virtually every industry in the developed world. In the early years of its inception, economic activity on the web was dominated by "e-businesses" whose success and failure was almost solely dependent on the Internet. Today, most large, traditional firms utilize the Internet to keep track of customers, increase sales, and enhance visibility. Consider the airline industry. Sparked by Internet applications two decades ago, many consumers began to purchase their airline tickets online instead of utilizing the traditional intermediary, a travel agency.

Information symmetry

occurs when all parties to a transaction share the same information concerning that transaction. Information symmetry is an underlying assumption of the economics-based models of "pure competition." When all parties to a transaction share the same information concerning that transaction.

commoditization

refers to the increasing difficulty firms have distinguishing their products and services from those of their rivals. Rapid advances in technology have created numerous opportunities for firms to differentiate their products from those of their competitors—differentiation that can exceed the needs of buyers and even confuse them. Buyers become inundated with an excessive number of options and little time to investigate or comprehend most of them. A process whereby firms are having a more difficult time distinguishing their products and services from those of their rivals.

Information asymmetry

when one party to a transaction has information that another does not—is the primary reason why many markets are less competitive than they otherwise would be. Firms have a distinct advantage when they possess information not available to their prospective buyers. Businesses often seek to promote information asymmetry and utilize the information edge to their own advantage. Automobile retailers, for example, rarely post their absolute bottom-line prices on their vehicles. Consumers are generally left to "haggle" with a number of dealers to estimate the true wholesale cost of the vehicle and the value of various options and accessories. The lack of consumer knowledge, as well as the lack of time and expertise required to obtain the information desired, results in higher selling prices for many of the retailers.