week 2 notes

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


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


o Supplies of oil and gas cannot keep pace with rising

demands for energy

o Environmental stresses are growing

2-5

Figure 2.1 - Nine Deep Historical

Forces

2-6

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

2-7


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

2-8


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

2-9


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

2-10

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

2-11

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)

2-12

Figure 2.2 - World GDP Growth in 50- Year

Intervals

2-13

Figure 2.3 - World Poverty

and Income Inequality since 1820

2-14

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

2-15

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

2-16

Figure 2.4 – Historical World Population Growth

and Projections: 1 A.D. to 2300

2-17

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

2-18

Figure 2.5 - Waves of Innovation since the

Beginning of the Industrial Revolution

2-19

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

2-20

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

2-21

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

2-22

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

2-23

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

2-24

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

2-25

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

2-26

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

2-27

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.

2-28

Figure 2.6 - Six Key External

Environments

2-29

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

2-30

The Economic Environment

o Two basic subtrends underlying economic growth:

o Rising trade

o Major expansion of foreign direct investment by

transnational corporations

2-31

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

2-33

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

2-34

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

2-35

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

2-36

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

2-37

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

2-38

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

2-40

The Legal Environment

o Ethical behavior and corporate social responsibility

often become codified in laws

o The law is constantly evolving

2-41

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

2-42

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

2-43

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

2-45

Figure 2.10 - The Internal Environment

2-46

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