Knowing the Unknown about the Broad Environment University of Tampa MGT 431 Practical Strategic Assessment Dr. George Bud Wynn June 09, 2009 Abstract In “Foundations in Strategic Management”, pages 21 to 27, author Harrison discusses the influence that the external environment has on a particular company’s operations and how its managers can adapt to environmental uncertainties to sustain their competitive advantages. Harrison also points out why it is important for firm to analyze and evaluate its broad environment.
He also mentions how managers can analyze and evaluate external forces and devise strategies to complement the rapid-changing environment in order for their company to be competitive throughout and take advantage of its strengths and minimize its threats. He further divides the broad environment into four sub-headings (socio-cultural, economical, technological and political/legal) and states why each is important and the effect each have on a company’s operations.
The purpose of the paper focuses more on informing the reader of the importance of evaluating a particular company’s broad environment. The paper also includes a review of and my opinion on what I think firms and their managers should be aware of when it comes to their company’s broad environment. The Importance of the Broad Environment to Managers Before the 1990’s, if a business had a competitive advantage and opened its doors to the general public, it was almost guaranteed success. However, such cases no longer exist.
In modern times, companies with competitive advantages such as sufficient resources, skilled workers, superior technologies and the like can still go under due to the ever-changing environment. Nowadays, successful businesses are shifting focus from just having a competitive advantage in one or two areas, to maximizing on the relevant information that its managers have about its operation environment; including the broad and task environment. In order to operate a successful business, it is important for managers to have a comprehensive understanding of its broad environment in which it plans to operate.
The broad environment includes socio-cultural, economical, technological, and political/legal forces which have an effect on how the company plans to gain a profitable market share. Such comprehensive understanding allows managers to save valuable time and money; subsequently making their business profitable. Due to the uncertainties of the rapidly changing economy, it is almost required by top performing firms to research the broad environment; even if its plan to merge or joint venture with another firm elsewhere.
In addition, such research is also highly recommended for companies that plan to do business globally; if the company wishes to create a buffer from potential losses. Also, companies that analyze the broad environment effectively are able to maximize its advantages and opportunities while limiting weaknesses and threats. In conclusion, successful firms must recognize the importance of the broad environment in order to take advantage of its strengths and opportunities while minimizing its weaknesses and threats.
Well-defined researches coupled with a complete understanding of a company’s broad environment are always important because, when done properly, it can enable companies to seize potential market areas and dominate a particular geographical location. Maintaining a complete understanding of the broad environment is vital to a company’s success. Understanding the broad environment is important for many reasons. Socio-cultural forces occur randomly and without warning. Many firms experience difficulties with these forces many times during operations.
Examples of socio-cultural forces range from the influence of terrorism on the economy to the legality of abortion. Proper socio-cultural assessment enables firms to minimize its threats from potential restrictive legislation. Firms which are aware of pending restrictive law changes can avoid huge fines and penalties. In addition, managers should spend ample time researching law changes in order to save their company from falling intothese traps. Managers who are aware of demographic and economic changes in society can take advantage of opportunities that their competition fails to recognize.
For example, a careful study of a firm’s social environment can gather information on what products/services or lifestyles people from a particular neighborhood purchase or prefer. In conclusion, a thorough understanding of socio-cultural forces can enable managers to gain from their knowledge about its societal operations and make it work to the best interest of their business. This will enable them to take advantage of strengths while also minimizing their threats. Economic forces play a critical part in the understanding of a firm’s broad environment.
Factors such as interest rates, economic growth and inflation are important variables which managers must be aware of in order to process their broad environment effectively. Without such knowledge, it would be almost impossible to run an effective and efficient business and establish a competitive advantage. Furthermore, information gained from economic forces enables managers to allocate resources while allowing time to seek other investment opportunities. For example, multinational firms can benefit from favorable exchange rates.
In order words, an understanding of fluctuations in exchange rates can lead such firms to purchase raw materials in countries where their own currency is superior to that of the foreign country. On the other hand, without knowledge of inflation, companies can suffer huge losses when investing in these countries. As a result, managers must be aware of such economical changes beforehand in order to make educated decisions that can assist their company’s growth and production.
Another broad environment which managers should be aware of is technology. Nowadays, technology is changing the ways individuals and firms do business. New innovations such as the internet, handheld computers, and direct satellite systems are making it much easier for firms to purchase, deliver, and sell its products/services. Firms must be aware of and adapt to new technological changes in order to stay ahead of its competition in the fight for market shares and profits.
If not, these companies are bound to fail or file for bankruptcy. Most firms are pumping millions of dollars into research and development in order to find new ways of improving its product’s life cycle which will in turn, generate more revenue and satisfy customer. One of the world leaders in electronic supply, the Sony Corporation of America, has developed new ideas to save its customer time and money. As a result, Sony is one of the main leaders in its industry and continues to see profits soar in 2008.
According to one official, one of its newest inventions, “Eye on Education”, “[e]ducation educators receive competitive pricing, exclusive service and support capabilities, financing options, and trade-in opportunities for Sony professional display products. ” Technology awareness and continuous improvement in its research and department hasled the company to success over the years. In modern times, in order for any one company to be effective, managers must be aware of the technological forces that can assist their companies to save money, andtime; subsequently improving the business purpose and values.
Finally, close attention must be geared towards political/legal forces which can change the company’s focus or purpose in one way or another. Government regulations can alter the ways in which companies wish to perform its business in terms of locally or globally. Therefore, managers must pay attention to different types of changes that their companies might undertake if there is a desire to join multiple or particular industries. Government normally provides advantages to some businesses in the form of tax incentives which promote ethical behavior and remind firms of its responsibilities.
Managers who are vigilant can take advantage of these incentives. Overall, a comprehensive understanding of a company’s broad environment such as socio-cultural, economical, technological, and political/legal forces are an essential assessment that needs to be considered before a merger, joint venture, acquisition, or even to successfully run a business. On the other hand, trained personnel must carry out such researches in order to avoid huge losses and business failure.
Also, integrated understanding coupled with awareness can provide managers with information on what types of products/services to offer, sell, customers, delivery, and the like to enable their business to accomplish its goals. Assessments are highly recommended for starting up and strugglingcompanies and businesses which wish to operate globally. If somehow a particular set of managers can make a reasonable assessment of its company’s broad environment, they are almost guaranteed to run an effective and efficient company.