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Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin
Chapter 2
The Dynamic Environment
2-2
Royal Dutch Shell PLC
o One of the world’s largest companies
o Each year it makes capital investments of between
$30 billion and $40 billion
o In the 1970s pioneered the use of scenarios in
corporate planning
2-3
Royal Dutch Shell PLC
o When an oil embargo surprised the world in 1973
Shell was the only major oil firm prepared for the
supply interruption
o Shell sees an emerging drama in the global energy
system, with tensions building at the intersection of
three powerful trends
o Developing nations with expanding populations are
using policies of economic growth to alleviate poverty
2-4
Royal Dutch Shell PLC
o Supplies of oil and gas cannot keep pace with rising
demands for energy
o Environmental stresses are growing
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Figure 2.1 - Nine Deep Historical
Forces
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The Industrial Revolution
o Historical force: An environmental force of
unknown origin and mysterious action that provides
the energy for events
o The discussion divides this force, somewhat
artificially, into nine separate but related forces
causing distinct chains of events
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The Industrial Revolution
o The Industrial Revolution: An economic
metamorphosis in England in the late 1700s
o It occurred when certain necessary conditions were
present and shifted the country from a simple agrarian
economy into a growing industrial economy
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The Industrial Revolution
o Requirements for industrial growth:
o Sufficiency of capital, labor, natural resources and
fuels
o Adequate transportation
o Strong markets
o Ideas and institutions that support the productive blend
of all the above ingredients
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The Industrial Revolution
o Industrial growth remakes societies in positive ways,
but also generates strains in the social fabric
o The total amount of goods and services produced in
the twentieth century exceeds all that produced in
recorded human history
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Inequality
o The basic political conflict in every nation, and often
between nations, is the antagonism between rich and
poor
o The industrial revolution accelerated the
accumulation of wealth and widened the persistent
problem of its uneven distribution
o Global income inequality is measured by the Gini
index
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Inequality
o Gini index: A statistical measure of inequality in
which zero is perfect equality (everyone has the same
amount of wealth and 100 is absolute inequality (a
single person has all wealth)
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Figure 2.2 - World GDP Growth in 50- Year
Intervals
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Figure 2.3 - World Poverty
and Income Inequality since 1820
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Population Growth
o The basic population trend throughout human history
is upward
o Accelerated growth after 1825 due to:
o Advances in water sanitation and medicine, reduced
the number of deaths from infectious disease
o Mechanized farming, expanded the food supply
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Population Growth
o Rapid growth now declining due to declining fertility
o Implications of current population trends:
o The wealth gap between high- and low-income
countries will widen
o Growth will continue to strain the earth’s ecosystems
o The West is in demographic decline compared with
other peoples
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Figure 2.4 – Historical World Population Growth
and Projections: 1 A.D. to 2300
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Technology
o Throughout history new technologies and devices
have fueled commerce and reshaped societies o Printing press
o Steam engine
o New technologies: o Foster the productivity gains that sustain long-term
economic progress
o Promote human welfare
o Can agitate societies
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Figure 2.5 - Waves of Innovation since the
Beginning of the Industrial Revolution
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Globalization
o Globalization: The creation of networks of human
interaction that span worldwide distances
o Consequences of globalization:
o Increased economic activity
o Changed cultures
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Globalization
o Globalization has been accelerated by new
technologies, and sometimes slowed by national
rivalries and wars
o Transnational corporations are the central forces of
current economic globalization
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Nation-States
o Nation-state: An international actor having a ruling
authority, citizens, and a territory with fixed borders
o Arose out of the wreckage of the Roman Empire
o In the past, nations increased their power by seizing
territory from other nations
o Today, nations use trade to increase their power
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Nation-States
o Trade through world markets is a new source of
power, but it also limits the ability of regimes to
control their economies
o Other forces such as epidemics, climate change,
terrorism and international norms also limit a nation-
state’s autonomy
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Dominant Ideologies
o Ideology: A set of reinforcing beliefs and values that
constructs a worldview
o The industrial revolution was facilitated by several
ideologies:
o Capitalism
o Constitutional democracy – protection of individuals’
rights
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Dominant Ideologies
o Progress – the idea that humanity was in upward
motion toward material betterment
o Darwinism – constant improvement characterized the
biological world
o Social Darwinism – evolutionary competition in
human society weeds out the unfit and advances
humanity
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Dominant Ideologies
o Protestant ethic – hard work, saving, thrift and
honesty lead to salvation
o Many doctrines have perished as a result of
globalization
o The capitalism ideology accelerated in the 20th
century due to rising literacy and innovations that
spread information
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Great Leadership
o Leaders have brought both beneficial and disastrous
changes to societies and businesses
o Two views of historic leaders:
o Leaders simply ride the wave of history
o Leaders themselves change history
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Chance
o Some changes in the business environment may be
best explained as the product of unknown and
unpredictable causes.
o Machiavelli observed that fortune determines about
half the course of human events and human beings
the other half.
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Figure 2.6 - Six Key External
Environments
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The Economic Environment
o The economic environment consists of forces that
influence market operations, including: o Overall economic activity
o Commodity prices
o Interest rates
o Currency fluctuations
o Wages
o Competitor’s actions
o Government policies
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The Economic Environment
o Two basic subtrends underlying economic growth:
o Rising trade
o Major expansion of foreign direct investment by
transnational corporations
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Figure 2.7 - Worldwide FDI Inflows:1980–
2009
2-32
The Technological Environment
o New technologies create both threats and
opportunities
o Technologies such as nanotechnology, open sourcing,
and collaborative computing will have a significant
impact on business
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The Technological Environment
o New technologies have unforeseen consequences for
society when they are put into widespread use for
commercial gain
o Businesses must carefully weigh not only the
strategic impact of technologies on their business
models, but also the dangers they may impose on
people
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The Cultural Environment
o Culture: A system of shared knowledge, values,
norms, customs, and rituals acquired by social
learning
o The environment of a transnational corporation
includes a variety of cultures
o This variation causes conflicts of business customs
o There is a fundamental divide between the culture of
Western economic development and the rest of the
world’s cultural groupings
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The Cultural Environment
o The rise of postmodern values has uniformly shifted
the social, political, economic, and sexual norms of
wealthy countries
o Postmodern norms are a strong influence in the
operating environments of multinational corporations
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The Government Environment
o There are currently two long-term global trends in the
government environment of major importance to
business:
o Government activity has greatly expanded
oLarger social welfare roles
oExpanded regulation of domestic industries
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The Government Environment
o More governments are becoming open and democratic
oGovernments increasingly respond to public demands
for corporate social performance
oThese demands reflect postmodern vales promoting
human rights, the environment, aesthetics, and ethics
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Figure 2.8 - The Rise of Democratic
Regimes
2-39
The Legal Environment
o The legal environment consists of legislation,
regulation, and litigation
o Five enduring trends:
o Laws and regulations have steadily grown in number
and complexity
o Corporations have expanding duties to protect rights of
stakeholders
o Globalization has increased the complexity of the legal
environment and expanded the application of
voluntary codes of conduct
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The Legal Environment
o Ethical behavior and corporate social responsibility
often become codified in laws
o The law is constantly evolving
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The Natural Environment
o Economic activity is a geophysical force with power
to change the natural environment
o Economic productivity in the 20th century has: o Depleted mineral resources
o Reduced forest cover
o Killed species
o Released molecules not found in nature
o Unbalanced the nitrogen cycle
o Possibly triggered climate change
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The Natural Environment
o The human ecological footprint moved beyond the
earth’s carrying capacity in the 1980s and is now
unsustainable
o Managers must adapt to changed thinking, toward
preservation of nature
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Figure 2.9 - Measures of Human Impact on
Nature
2-44
The Internal Environment
o In a corporation, the internal environment consists of
four groups: employees, managers, the board of
directors, and owners
o Each of these groups has different objective, beliefs,
needs, and functions that must be coordinated
o Forces in external environments have recently
reduced the power of these internal groups
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Figure 2.10 - The Internal Environment
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Concluding Observations
o The environments of business have profound
implications for managers
o The actions of business constantly influence not only
current environments but, in addition, the deeper
course of history
o Although strongly constrained by its environment,
business has a powerful capacity to shape society and
change history in ways large and small
2-47
Figure 2.11 - The Dynamic Environment of
Business
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