In this discussion address the following:
What factors in Morton’s external environment were affecting its business?
How did these factors impact Morton’s business strategy?
How do demographic shifts and technological developments create both challenges and new opportunities for business?
Justine Wood is the top salesperson for Morton Paper Company. She also leads the sales team that supports MortonÃ¢â‚¬â„¢s largest client, Allied Office Supplies headquarters is located in Barcelona, Spain. Allied is an international office supply chain that is growing rapidly in the global market. During the month of May, Justine and her team members, Andy Griffith and Ronnie Howard underwent intense negotiations with AlliedÃ¢â‚¬â„¢s purchasing agent, Jack Black, and AlliedÃ¢â‚¬â„¢s CEO, Cary Grant, to restructure the current sales contracts.
The new contract spelled out AlliedÃ¢â‚¬â„¢s yearly paper requirements (contracted sales amounts) as well as payment and credit terms. The negotiations had been particularly hard for several reasons:
AlliedÃ¢â‚¬â„¢s sales had increased internationally causing shipping and customs duties to increase the cost to Morton, resulting in an increase in sales price to AlliedÃ¢â‚¬â„¢s;
Morton’s sales have deceased domestically due to technological advances such as e-records, e-contracts, etc.
The volume of sales for Allied required Morton to offer a volume sales discount to remain competitive with other paper companies, though tariffs and other taxes impact profits for the company.
MortonÃ¢â‚¬â„¢s CEO (Jimmy Cricket) was reluctant to tie so much of the company’s future success to Allied. The concern was raised because in the last six months, Allied was paying down the credit line every 60 days rather than in the 30 days that had been agreed to in the current contract. Allied did not appear to have credit issues but Morton was not able to give interest-free loans for 60 days.
The world market has been challenging for their products and the executives have been talking about diversifying their products.
This week, in time for the Labor Day holiday vacation, the final agreement was reached between Morton and Allied.
On Friday evening, Justine was packing her belongings readying to leave the office for the holiday, when her cell phone pinged. The caller was Jack Black, the Purchasing Agent for Allied. It appeared that a recent deal with UMGC tripled its need for copy paper from Morton. This deal would raise the total contract sales to $2.5 million. Black also made it clear to Justine that if the new terms were not agreed on by the end of that Friday evening, he would be prepared to look at an offer supplied to him by MortonÃ¢â‚¬â„¢s biggest competitor, King Paper. Black further stated that, while Allied is pleased with MortonÃ¢â‚¬â„¢s work, money is always the most important factor in purchasing. AlliedÃ¢â‚¬â„¢s president wanted an immediate answer so he could go on vacation with a clear mind. Justine was aware that most of JackÃ¢â‚¬â„¢s talk was a negotiating technique but did not doubt that there is competition waiting in the background. Images of last monthÃ¢â‚¬â„¢s teamwork ran through JustineÃ¢â‚¬â„¢s mind as she listened to Black talk.
Overall, the monthÃ¢â‚¬â„¢s negotiation process had been long and difficult. The thought of going over it all again to make the changes seemed mind-numbing to Justine. Yet, making the decision on her own would mean obligating the company to an even greater cash flow commitment. Her boss would not be happy with this obligation because he specifically warned her when they started that there was nothing to prevent AlliedÃ¢â‚¬â„¢s from continuing to pay its bills every 60 days despite the new contract agreement. Justine rationalized and thought to herself, Ã¢â‚¬Å“Allied knows we are not likely to cut them off easily. They are too big a customer to us. However, the extra sales volume should offset the lost interest due for ten days in late invoices.”
Justine told Black that she could tell the CEO about the proposal. When Justine hung up the phone, she thought about all the work that went into the external environmental analysis they did prior to the negotiations taking into consideration strengths, opportunities, and some of the concerns that came up in the world market.
This discussions needs citing.
Ã¢â‚¬Â¢ The advent of blockchain technologies that are interrupting new industry practices. Blockchain is not a single technology; it is an architecture that allows disparate users to
make transactions and then creates an unchangeable record of those transactions.” It is a public electronic ledger-similar to a relational database that can be openly
shared among disparate users and that creates an unchangeable record of their transactions, each one time-stamped and linked to the previous one.”2 These technological
inventions will continue to affect almost every business process from procurement to legal management. The banking industry is already using it. It increases speed, security,
and accuracy of transactions.
Ã¢â‚¬Â¢ Sharing-economy cultural and economic value-added business models that use information technologies to gain competitive advantage. Companies such as Airbnb and Uber
have ushered in new business models that have already disrupted real estate, hotel, taxi, and other industries. Taking out the middle layer of management in transactions to
increase efficiencies and customer satisfaction while cutting costs through the use of information and social media technologies will continue. This trend has already had both
positive and disruptive effects on companies. Many customers are likely benefitted; businesses with outdated and ineffective business models have either failed or struggle to
Ã¢â‚¬Â¢ Shifts in learning and learning credentials. Identifying, recruiting, and retaining talent is crucial to organizations. An evolving crisis for the current generation- future talent
– is the continued rise in higher educational institutions’ tuitions, student debt, and the changing nature of jobs. With the advent of online resources, prospective students’
inability to pay creates both a crisis and opportunity for traditional higher educational institutions. While bachelor’s degrees remain a requirement for many companies hiring
needed higher-level talent, online resources such as Khan Academy, Udacity, and Coursera are gaining recognition and legitimacy toward providing financially challenged
students opportunities for entry-level jobs. While many higher-skilled students and professionals may not presently be included in this trend, companies seeking to pay lower
wages while offering flexible working conditions are attracting students. Again, how higher educational private, not-for-profit, and even for-profit educational institutions
adapt, innovate, and manage their external environments is yet to be seen.
Ethics, corporate social responsibility (CSR), and sustainability. Corruption, lying, and fraud have been and continue to be part of the landscape of governments and public-
and private sector corporations. However, public awareness through social and online media has awakened consumers and corporations to the impending dangers and
drawbacks of illegal and unethical activities of certain large corporations. And external environmental problems, created in part by humans, such as pollution and climate
change pressure companies to be responsible for their share of the costs associated with these problems.
This small sample of powerful external forces illustrates the continuing pressure companies encounter to innovate in their industries. Basic theories, concepts, and principles are
presented in this chapter to help explain elements of external environments and how organizations and corporations can organize and are organizing to survive and thrive in the 21st
Contemporary External Forces Pressuring Organizations
Industry and organizational leaders monitor environments to identify, predict, and manage trends, issues, and opportunities that their organizations and industries face. Some
corporations, such as Amazon, anticipate and even create trends in their environments. Most, however, must adapt. External environments, as identified in the previous section, can
be understood by identifying the uncertainty of the environmental forces. Exhibit 15.4 illustrates a classic and relevant depiction of how scholars portray environment industry-
organization “fit,” that is, how well industries and organizations align with and perform in different types of environments.
Simple + Stable = 1
1. Small number of external elements, and
elements are similar
2. Elements remain the same or change
Examples: soft drink bottlers, container
manufacturers, food processors
Complex + Stable = 2
Low to Moderate Uncertainty
1. Large number of external elements, and
elements are dissimilar
2. Elements remain the same or change slowly.
Examples: universities, appliance
manufacturers, chemical companies, insurance
The two dimensions of this figure represent “environmental complexityÃ¢â‚¬Â (i.e., the number of elements in the environment, such a competitors, suppliers, and customers), which
characterized as either simple or complex, and environmental change,” described as stable or unstable. How available monetary and financial resources are to support an
organization’s growth is also an important element in this framework. Certain industries – soft drink bottlers, beer distributors, food processors, and container manufacturers
would, hypothetically, fit and align more effectively in a stable (i.e., relative unchanging), simple, and low-uncertainty (i.e., has mostly similar elements) external environment-
cell 1 in Exhibit 15.4. This is referred to when organizations are in a simple-stable environment. Of course, unpredicted conditions, such as global and international turmoil,
economic downturns, and so on, could affect these industries, but generally, these alignments have served as an ideal type and starting point for understanding the “fit” between
environment and industries. In a stable but complex, low- to moderate-uncertainty environment, cell 2 in Exhibit 15.4, universities, appliance manufacturers, chemical compani
and insurances companies would generally prosper. This is referred to when organizations are in a complex-stable environment. When the external environment has simple but
to moderate uncertainty, cell 3 of Exhibit 15.4, e-commerce, music, and fashion clothing industries would operate effectively. This is referred to when organizations are in a
simple-unstable environment. Whereas in cell 4 of Exhibit 15.4, an environment characterized by a high degree of uncertainty with complex and unstable elements, industries
firms such as computer, aerospace, airlines, and telecommunications firms would operate more effectively. This is referred to when organizations are in a complex-unstable
Exhibit 15.4 is a starting point for diagnosing the “fit” between types of external environments and industries. As conditions change, industries and organizations must adapt or
face consequences. For example, educational institutions that traditionally have been seen to operate best in low- to moderate-uncertainty environments, cell 4 of Exhibit 15.4,
have during this past decade experienced more high to moderate uncertainty (cell 2)Ã¢â‚¬â€and even high uncertainty (cell 1). For example, for-profit educational institutions such th
University of Phoenix and others – as compared to not-for-profit universities and colleges, such as public state institutions, community colleges, and private nonprofit ones-ha
undergone more unstable and complex forces in the external environment over the past decade. Under the Obama administration, for-profit universities faced greater scrutiny
regarding questionable advertising, graduation rates, and accreditation issues; lawsuits and claims against several of these institutions went forward, and a few of the colleges ha
to close. The Trump administration has shown signs of alleviating aggressive governmental control and monitoring in this sector. Still, higher educational institutions in general
currently face increasingly complex and unstable environments given higher tuition rates, increased competition from less-expensive and online programs, fewer student
enrollments, and an overabundance of such institutions. Several private, not-for-profit higher educational institutions have merged and also ceased to exist. Adapting to increasi
rapid external change has become a rallying call for most industries and organizations as the 21st century evolves.
It is important to point out here that external and internal) organizational complexity is not often as simple as it may seem. It has been defined as Ã¢â‚¬Å“…the amount of complexity
derived from the environment where the organisation operates, such as the country, the markets, suppliers, customers and stakeholders; while internal complexity is the amount
complexity that is internal to the organisation itself, i.e. products, technologies, human resources, processes and organisational structure. Therefore, different aspects compose
internal and external complexities.”
The dilemma that organizational leaders and managers sometimes face is how to deal with external, and internal, complexity? Do you grow and nurture it or reduce it? Some
strategies call for reducing and managing it at the local level while nurturing it at the global level – depending on the organization’s size, business model, and the nature of the
environments. Without going into complicated detail, it is fair to say at the beginning of the chapter that you may want to read through the chapter first, then return here afterwa
In the meantime, here are some simple rules from organizational practitioners De Toni and De Zan to keep in mind for managing high levels of complexity from the external
environment, internally, after you have diagnosed the nature of the external complexity-as we discuss throughout in this chapter: first, assemble “…a set of self-managing tean
or autonomous business units,[known as modularized units] with an entrepreneurial responsibility to the larger organization.” These focused self-organizing teams use creative
methods to deal with the diversity to the advantage of the organization. A second method when facing high external environmental complexity when you want to gain value fro
is to find and developÃ¢â‚¬Å“…simple rules to drive out creativity and innovation … to keep the infrastructure and processes simple, while permitting complex outputs and behaviour
An example offered is found in the rules of the Legos company: Ã¢â‚¬Å“(1) does the proposed product have the Lego look? (2) Will children learn while having fun? (3) Will parents
19Ã˜Â³Ã˜ÂªÃ™â€ Ã˜Â¯ Ã˜Â¹Ã™â€žÃ™â€¦Ã˜Âª Ã˜Â§Ã™â€ Ã˜Â³Ã˜Â§Ã™â€ Ã›Å’ Ã˜Â¯Ã™Ë†Ã™â€žÃ›ÂÃ›â€™ Ã™â€ Ã›â€™ Ã™â€žÃ™â€¦Ã˜Â¨Ã›Å’Ã™â€žÃ›Å’ Ã˜ÂªÃ˜Â§Ã™â€¦Ã›Å’Ã™â€ Ã˜Â§Ã˜Â¬Ã˜ÂªÃ™â€¦Ã˜Â¹Ã˜Âª Ã™â€¦Ã˜Â¹Ã™â€žÃ™Ë†Ã˜Â¹Ã˜Â§Ã˜Â¡ Ã˜Â¹Ã™â€¦Ã™Å Ã˜Â¯Ã™â€¡Ã˜Â¯
Amazon’s market value was estimated at $1 trillion USD dollars in 2018. The company was recognized as the most innovative company in Fast Company’s 2017 list, accounting
for 44 percent of all U.S. e-commerce that year, approximately 4 percent of the U.S.’s total retail sales. Amazon market value is greater than the sum of the market capitalizations
of Walmart, Target, Best Buy, Nordstrom, Kohl’s, JCPenney, Sears, and Macy’s. Jeff Bezos, founder and leader, has creatively accomplished what most large companies fail at:
meshing size, scale, and external opportunities with agility. Sales figures reached $100 billion in 2015 while the stock price climbed over 300% in the past five years. The company
plans on creating over 50,000 new jobs starting in 2018. Bezos has blended his strategy of virtually reaching unlimited numbers of online customers while maintaining land-based
distribution centers using Prime’s $99-per-year-$119 in 2018-membership. Stephenie Landry, an Amazon’s vice president, stated that Prime has reached 49 cities in seven
countries. Over 100 million people in 2018 subscribe to the Prime service. She noted that the business has only to answer two questions from customers: “Do you have what I want,
and can you get it to me when I need it?” The answer seems to be yes, especially with Bezos’s strategy of having high-tech robots already working side by side with human
employees – resembling a “factory of the future.”
Bezos’s digital commerce strategy has led the firm to become the leader of retail commerce. Amazon’s digital strategy uses Prime memberships that are supplied and supported by
land-based distribution centers; Prime takes in reaching about 60% of the total dollar value of all merchandise sold on the site. That accounts for 60 million customers in the United
States who use Prime and who spend $2,500 on Amazon annually. A study of 3,000 independent businesses, half of whom were retailers, listed competition from Amazon as their
primary concern. Industry after industry is being disrupted, some replaced by Bezos’s strategy. He has said, Ã¢â‚¬Å“Everybody wants fast delivery. Low prices. I’m serious about this.
Our job is to provide a great customer experience, and that is something that is universally desired all over the worldÃ¢â‚¬Â.
Still, Amazon faces such challenges as high shipping cost (over $11 billion annually), pressures on employees (especially those working in warehouses that have been criticized for
poor working conditions), shipping contractors who go on strike demanding higher wages and reduced workloads, and the possibilities of more governmental regulation (especially
with regard to adding drones as a delivery method), as well as pressures to pay more taxes. Bezos has countered these arguments by adding more full-time jobs in different cities,
promising to improve working conditions, supporting public spaces for the public, and most importantly, contributing to the U.S. economy.
Sources: https://www.bloomberg.com/news/articles/2018-04-26/amazon-eyes-second-biggest-market-cap-surging-past-microsoft. Noah Robischon, (2017). Why Amazon Is The
World’s Most Innovative Company Of 2017, https://www.fastcompany.com/3067455/why-amazon-is-the-worlds-most-innovative-company-of-2017; L. Thomas, (2018). Amazon
grabbed 4 percent of all US retail sales in 2017, new study says, https://www.cnbc.com/2018/01/03/amazon-grabbed-4-percent-of-all-us-retail-sales-in-2017-new-study.html
Organizations and industries are again at a crossroads when confronting new and challenging external environmental demands. Exceptional companies such as Amazon, in the
opening case, Apple, Netflix, and Google/Alphabet Inc. exemplify evolving business models that combine strategic innovation, technological prowess, and organizational cultural
agility that not only meet external environmental demands, but also shape them.
Many businesses with traditional business models, however, have failed or are not succeeding strategically, operationally, and organizationally by not realizing and/or adapting to
changing external environments. Such firms that were once successful but did not anticipate and then adapt to such changes include Blockbuster, Toys R Us, Borders, Sun
Microsystems, Motorola, Digital Equipment Corporation, Polaroid, and Kodak, to name only a few. A sample of contemporary external environmental trends and forces that
currently challenge organizations’ survival and effectiveness includes:
Ã¢â‚¬Â¢ Digital technologies and artificial intelligence (AI): Extensions of AI help automate a firm’s value chain, thus speeding up and increasing efficient operations and service to
customersÃ¢â‚¬â€as Amazon exemplifies. A current survey showed that 59% of organizations are collecting information to develop AI strategies, while others are moving forward
in piloting and/or adopting AI solutions to compete faster and at less cost. However, there are also risks that accompany firms that incorporate new digital and online
technologies without adequate security measures. For example, some newer online technologies can expose operational systems to cyberattacks and large-scale manipulation.
Hacking is now both an illegal and ongoing Ã¢â‚¬Å“professionÃ¢â‚¬Â for those who are able to paralyze organizations from accessing their data unless they pay a ransom. While hacking
is not new, it is more widespread and lethal, to the point of even threatening national security. Emerging evidence from the U.S. presidential election between Donald Trump
and Hillary Clinton suggests that international hackers affected online U.S. election processes. Still, the future of most businesses is using some type of digital and AI
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