Using the company your Instructor approved from week 1 assignment, complete the following: 1. Identify the company's domestic environment and discuss how the government regulations affect its domestic environment it must operate in. 2. Identify a global environment for the company and discuss how the government regulations affect its global environment it must operate in. 3. Identify the hard and soft technology and interpret the characteristics the company should have/use to be successful in its domestic and global environment. 4. Identify the political-legal barriers for the company in both the domestic and global environments. Use business theory/theorists to illustrate how the company can operate successfully in its domestic and global environment. 5. Identify, compare, and contrast sociocultural factors of the domestic and global environments of the company. 6. Compare and contrast two economic theories for both the domestic and global environments of the company. 7. Develop a strategy of success based on your evaluation of steps 1-6 by assessing what you've learned through your research and readings and compare what the company has been doing to what you recommend they should be doing. You cannot state that you would not change anything. 8. You must incorporate critical thinking (see resources below). 9. Research requirement: minimum 5 scholarly sources PLUS the text/readings and Geert Hofstede. SEE BELOW RESOURCES 10. Page requirement: 5 pages in APA format (does not count cover page and reference page). 11. Assignment MUST be submitted to turnitin.com and here (see turnitin.com forum for more important information). Readings based on your chosen environment to discuss; you are not limited to the below: Sociocultural: 1. Geert Hofstede: http://geert-hofstede.com/ Economic: 2. Rostow's Economic Development: http://www.nvcc.edu/home/nvfordc/econdev/introduction/stages.html 3. Galbraith and Economics: http://economistsview.typepad.com/economistsview/2006/04/john_kenneth_ga.html 4. The Leontief Paradox: http://www2.econ.iastate.edu/classes/econ355/choi/leo.htm Domestic: 5. Michael Porter's Five Forces Model: http://www.businessballs.com/portersfiveforcesofcompetition.htm Global: 6. Global Agricultural Marketing Management: http://www.fao.org/docrep/W5973E/w5973e00.htm#Contents 7. Platzek, B. P., Winzker, D., & Pretorius, L. (2011, January). Global business environment: Holistic intrapreneurship. SCMS Journal of Indian Management, 8(1), 96-114 located in BUSN310 campus guide. 8. Elekdağ, S. (2008). How does the global economic environment influence the demand for IMF resources? IMF Staff Papers, 55(4), 624-653. doi:10.1057/imfsp.2008.4 located in BUSN310 campus guide. Technology: 9. Goedhuys, M., Janz, N., & Mohnen, P. (2008, June). What drives productivity in Tanzanian manufacturing firms: technology or business environment? European Journal of Development Research, 20(2), 199-218. doi:10.1080/09578810802060785 located in BUSN310 campus guide. Political/Legal 10. Wu, Q. (2007, November). The making of a market economy in China: Transformation of government regulation of market development. European Law Journal, 13(6), 750-771. doi:10.1111/j.1468-0386.2007.00394.x located in What Do We Mean by the "Domestic Environment"? Most of you will choose US-based companies as the focus of your Week 2 analyses, although this is not a requirement. So in simplest terms the "Domestic Environment" is the country where your selected companies are headquartered. For purposes of this course, discussion of the Domestic Environment will focus on the most important government regulations effecting your chosen companies' business operations. In addition, we'll consider demographic trends, consumer trends, and business trends such as outsourcing, The Domestic Regulatory Environment Not so long ago I would have said the major Domestic Environment challenges facing large US corporations were foreign competition, rapidly changing consumer tastes, managing sales and logistics channels, implementing new technologies and dealing with globalization and outsourcing (among others). Today I would add managing "regulatory compliance" from all levels of government to the top Domestic Environment challenges. This has become a "core competency" that every business, large and small, must master in order to survive and prosper. Unfortunately these compliance processes are largely unproductive, burdensome and add another expensive layer of administration on corporate organizations. In some large companies "compliance departments" (legal, lobbying, etc.) have become the largest, most visible and most expensive in the company and often become the distracting focus of discussion at Board and Executive meetings. Managing local compliance (including permitting, licensing, zoning, etc.) also encourages corruption, such as bribery, illegal campaign contributions, etc. Managing compliance with State and Federal regulations such as minimum wage, healthcare, labor laws, food safety and packaging, etc. cannot be ignored as a result of serious penalties including jail time for executives in some cases (for example Dodd Frank bank regulations). From the perspective of small and/or start-up businesses regulatory compliance (usually referred to as "red tape") has become so burdensome as to seriously discourage entrepreneurs' appetite for starting new businesses. This is especially concerning in light of the fact that new and small businesses in the US create the vast majority of new jobs and tax receipts. Many proposed start-ups have been discontinued when faced with mountains of red tape and a lack of resources to cope with these. Other new businesses simply ignore regulatory requirements and often live (or die) to regret it. And if that's not enough, many, if not most, US companies are global to some extent and must comply with government regulations in every country where they do business. And don't expect those foreign regulations to resemble US regulations in any way. Enough to make you want to just live in your parents' basement, isn't it? Other Factors Businesses Must Consider in the Domestic Environment I mentioned some other major Domestic Environment challenges facing large US corporations: foreign competition, rapidly changing consumer tastes, managing sales and logistics channels, implementing new technologies and dealing with globalization and outsourcing (among others). With respect to increased foreign competition in the US market, just look around. Japanese electronics and autos are everywhere. Many of our cell phones come from Europe. We fly on "airbuses" manufactured in France. Clothing sold by US retailers is almost 100% supplied by offshore manufacturers in China and Malaysia. And the list goes on. Is it any wonder that large US companies known as multi-nationals have globalized seeking new markets and new suppliers abroad? At the same time the US domestic consumer market is changing rapidly in terms of wants, needs, and demographics. US consumerism has become largely dominated by "millennials", who are younger, hipper and more upwardly mobile than the "baby boomers" that preceded them. US companies are constantly struggling to determine what millennials want to buy and how much they'll pay for it. This creates a marketing conundrum since most millennials are struggling with college debt, underemployment and downsizing/layoffs at major employers. US domestic companies are also faced with challenges implementing newly emerging technologies. Retailers are experimenting with self-checkout, online ordering and other consumer-facing technologies. Financial institutions are struggling to deploy mobile apps demanded by consumers. Manufacturers struggle with automated production and distribution technologies that increase productivity and lower unit costs. Information security, identity theft, and other computer crimes keep CEO's awake at night where in the past they left these concerns to their managers. New technology in the Domestic Environment may be a significant competitive advantage to some US companies, but it comes with enormous costs and risks. Globalization and outsourcing continue to be major changes occurring in the Domestic Environment. US companies have been globalizing and outsourcing offshore for decades now, and have become very effective at both. Large US multi-nationals like Coke, McDonald's, Ford, Boeing and others have been pursuing new markets and new suppliers in foreign countries for many years. Domestic outsourcing has become an accepted way of doing business too, allowing US companies to focus on their "core competencies" and let domestic business partners handle the other processes. A good example would be Federal Express and UPS who handle almost all of the "package delivery" that companies used to do for themselves. And the great part is they do it faster and cheaper. As you can see, between complying with domestic regulation and meeting the challenges of other fast moving business trends, US companies both large and small, have their hands full. Best Companies You probably selected a wide range of diverse and very interesting companies from the "Best" list. These may have included Disney, Apple, Nike, McDonald's, United Health, Nordstrom, Starbucks, Coca Cola, GE, Procter & Gamble, Google, Amazon and others. It can be hard to account for why these Best companies have achieved such success. Was it because they were better at handling compliance? I'd say no, but I would perhaps agree that they might have been engaged in activities where less regulation and compliance reporting were required. Retailing and fast food, for example, were not exposed to as much environmental, energy and other regulation as are some industries like auto manufacturing where regulation is rampant. Many retailers have also managed to avoid union concerns by using seasonal and part time employees. But certainly healthcare, entertainment and other industries represented on the Best list have a significant exposure to regulators and have managed to prosper anyway. Successful product innovation accounts for some of these successes. So called "first movers" always gain at least a temporary competitive advantage over less nimble competitors (e.g. Apple vs. Blackberry and Nike vs. Converse). Successful business process innovation is different from product innovation and also accounts for many business success stories (e.g. Blockbuster vs. Netflix – Netflix created a better business process for movie rentals - or Amazon vs. JC Penny – Amazon invented a whole new retailing process). This leads me to think it's all about management, innovation, and nimbleness as well as awareness of the importance of dealing with regulation. Worst Companies Some of the Worst companies clearly became Worst by failing to navigate the regulatory compliance and obstacle course. Enron and Bernie Madoff's enterprise are obvious examples of Worst companies that intentionally attempted to sidestep compliance issues and got caught, with disastrous results for everyone involved (including customers, shareholders and employees). Many of you may select an airline as your "Worst" company (hard to pick which one is worst). Who doesn't hate airlines? Is their Worst status the result of failing at compliance with regulations? IMHO, not entirely, but it's certainly been a contributing factor. Airlines were "deregulated" years ago, which was intended to foster increased competition, and achieve, as a result, better customer service, lower prices, more efficiency, increased safety, etc.. How has this worked out? Not so well. Why not? Airlines were deregulated, but only in some sense of the word. They are now more regulated than ever, through an extensive tangle of regulations and regulators at every level of government, domestic and foreign. It seems that management believed they were truly deregulated and took their eye off the ball when it came to effectively dealing with compliance issues. Many of the other Worst companies you may have selected were clearly undone at least in part by failure to cope effectively with increased compliance requirements. But some, like auto companies, would probably cite unions and foreign competition as being more of a barrier to success than obvious regulation. Not many would cite mismanagement, but surely that is also a contributor (remember New Coke and the Edsel?). However, even unionism has become subject to a form of not so obvious regulation through a NLRB packed with union advocates. Compliance is a big issue for all companies, it's not going away, and those who fail to recognize this and deal with it will not be very successful Conclusion Regulation is here to stay, and will likely continue to grow in importance to business managers. As a business student and hopefully a future CEO of a Fortune 500 corporation it will behoove you (yes, that is a real word) you to learn as much as you can about these issues. You might even decide to select a career in compliance which I believe will insure a secure future. Or if you must, you might become a regulator yourself and work for the EPA, DOE, FDA, etc. I guess somebody has to do it . Many people work as regulators for a few years then switch sides and become compliance advocates for corporations. So maybe it's not such a bad career track after all? The Global Environment This week we are looking at our "Best" and "Worst" companies in light of the Global Environment. The global environment has been invigorated by the internet and global communications, increases in consumer income, appeal of US culture and products, especially to young consumers, and other forces. Virtually all big multinational US companies have a global strategy/presence, some modest, some extremely ambitious. These companies have decades of experience doing business in well-developed markets like Western and Eastern Europe and Russia, and are now placing big bets in emerging markets, most notably in China. Most small to medium sized US enterprises are also thinking globally, but many lack the resources (both capital and expertise) required to move into global markets very quickly. What do Business Theorists Say About the Globalization? Globalization has been a hot topic among economic and business theorists for decades. We could discuss many of them, they are easy to find by simply Googling Business Theorists on Globalization. A personal favorite is W. Edwards Deming, who was very involved in remaking the Japanese economy for many years after WWII when it had been virtually destroyed. Japan at the time and before the war was known for making cheap knockoffs of other (mostly American) products and what is often referred to as "trinkets". Deming saw there was little future in pursuing this economic model for rebuilding Japan. He noted that Japan lacked natural resources and land, but did have an industrious and relatively well-educated workforce. Deming created new manufacturing processes around the idea of statistical quality control, self-directed work teams, continuous improvement and other concepts (i.e. TQM and Sigma 7) still used in Japanese as well as American manufacturing today. Many other modern economic and business theorists have noted and written on the close correlation between technology/communications advancements and the rise of globalization. Well-known American business leaders/theorists like Warren Buffett, Bill Gates, Steve Jobs, Sergey Brin/Larry Page, Jack Welsh, and others quickly realized that global networks (i.e. the internet and the Worldwide Web) were the enablers of a global system of interconnected business partnerships and new consumer markets. They also noted the saturation of US markets with commodity products (i.e. TVs) , fast food, etc. which suggests that long-term prosperity, even survival, depends on globalization, especially into emerging markets like Asia. US Consumer Companies' Globalization Motives and Strategies Why have so many major US consumer companies sought to expand globally? Consumer companies, like Coke, Starbucks, Wal-Mart and McDonalds, have pretty much saturated the US market. They can only grow revenues and profits (and grow they must, or watch their stocks tank), by diversifying their product lines, which they often do by buying competitors with successful, non-competing products (external growth, regarded by investors as less desirable than internal growth). For example, Pepsi, unlike Coke who has mostly chosen to stay focused on their traditional product lines, has become a major player (domestically and globally) in the fast food and snack food businesses. Another example, McDonalds has tried to compete domestically, but not very successfully, with Starbucks with their McCafe (and in a counter-move Starbucks is opening drive-thrus). In addition, McDonalds is now serving breakfast all day, all in a somewhat desperate effort to increase domestic revenue. Therefore, what's left – globalization of course! In addition, somewhat surprisingly, some US retailers, most notably Wal-Mart, in another tip of the hat to globalization, are buying or creating foreign manufacturers to supply their stores in the US and worldwide, cutting out the middleman (known as disintermediation). US Industrial Companies' Globalization Motives and Strategies Major US industrials like Boeing, Caterpillar and GE, are also seeking new markets for their products globally. Recently US industrials have sought partnerships with foreign governments to lower tariffs and other barriers erected to limit foreign (i.e. US) competition. A good example is Boeing's deal to build its 777 wing assemblies in Japan in exchange for orders from JAL. Ford has been assembling it's vehicles in many foreign countries for years. Moreover, US multi-national industrials are busily searching for foreign suppliers, usually referred to as outsourcing or offshoring. We are all familiar with offshore outsourcing; it's been going on for decades and is now a well-established and mature business practice. Call centers are probably the largest and most familiar (and possibly the most disliked) segment of the international offshoring industry, almost every US company has jumped on that bandwagon. Industrials outsource for many reasons, often to exploit lower wage workforces, avoid unions, escape government regulation, avoid confiscatory US corporate taxes, access foreign natural resources, etc. Tax Inversions – Another Global Strategy In the latest globalization maneuver, some major US companies are involved in so-called tax inversions. The US corporate income tax rate is the highest in the world, about 40%, whereas, in many cases, 20 or 30 percent higher than in places like Ireland. The corporate tax code is almost as complex as the individual tax code, so major US companies spend millions, if not billions, on high priced legal talent to minimize their taxes. However, in a tax inversion, the US company allows itself to be acquired by a foreign (usually much smaller) foreign company in a corporate tax haven, Ireland seemingly the most popular. Google and Pfizer are recent examples, you will note Google's new corporate umbrella company named "Alphabet". Mature vs. Emerging Global Markets The EU, Japan and Russia have long been targeted by US companies and are well understood in terms of what it takes to succeed there (well understood, but not exactly easy to execute). In addition, in many cases US and domestic participants (i.e. companies native to that country) have already saturated those markets similar to markets in the US (fast food, soft drinks, adult beverages, etc.). That means these mature markets are not perceived as big growth opportunities by US multinationals. The big growth is expected to take place in "emerging markets" like China, India and eventually Africa (maybe the Middle East in another 10 centuries?). The populations in those places are just beginning to have some disposable income that will eventually lead to consumer driven economies like we "enjoy" here. The good part is their governments understand that rapid economic development requires massive assistance from foreign (US and others) partners, so they are not placing too many barriers in the way of US multinationals willing to place big bets and make big investments in terms of both capital and expertise. The downside is most emerging markets have ideologies (religious or just simple nationalism) that demand they limit the cultural influence of multinationals. They do not wish to loose political control and they do not wish to lose their own unique cultural, religious and traditional identity. Starbucks, Google and McDonalds have not exactly been welcomed in China with open arms. That places a premium on US multinationals' understanding of these cultures and adopting their products, services and marketing to local/foreign markets. Coke for example has formulated soft drinks that are unique to every foreign market they've entered (100s of formulas) relying on foreign national business partners to guide their efforts. These companies are very good at what they do and will have a massive advantage over new entrants as these emerging markets continue to develop. Best and Worst Companies in the Global Market The Best Company you choose for your Forums is almost certainly global in some respect, and quite possibly a "US multi-national", that is to say a global leader. Some companies have been successful and have made the decision to stay domestic. Should these companies change course and decide to "go global"—then success would be dependent on many factors. Some tried and succeeded, some have failed. Each company must understand the challenge, cost and risks and step up or stay home. Your "Worst Company" may be a worst company because they tried to go global, didn't understand or prepare for the challenge, and failed. Or maybe they are a Worst because they didn't try, thought it was too scary/risky, and the rest of their industry went for it and some succeeded. Consider K-mart and Wal-Mart. Did K-mart lose out and get devoured by Sears Holding because they weren't global and Walmart was. Certainly not the whole story by any means. But it is an indication of K-mart management's lack of ambition and insight into what was happening all around them. Barriers to Globalization and Strategies to Overcome Them Significant barriers exist for any US company hoping to "go global" in a big way, vs. "dipping a toe in the water", likely by some kind of internet eCommerce play, or a foray into a less challenging "friendly" like Canada (still our largest trading partner), Mexico, the UK or Australia. The more obvious barriers to entry into foreign markets are: cost, which can be significant, human resources with the "know-how "needed to be successful; and governmental regulations like tariffs, usually erected to prohibit or at least limit foreign competition (in some cases the government owns or controls major domestic companies, like Airbus and French Telecom in France, Alibaba - China's eCommerce company, Rosneft - largest oil and gas company in Russia and Citgo - oil and gas producer in Venezuela). Other significant barriers to entry are of the socio-cultural type. The more obvious are language, currency, taxes, holidays, work rules, cultural norms (no burgers in India!), business norms (bribes are required to do in many places), and many, many more. Many attempted global market entries by US multi-nationals have failed because of lack of attention to these cultural differences. Disney open a US styled theme park near Paris and it was initially a big flop. This was surprising because they did the same thing near Tokyo and it was a hit. Could it be the French are very nationalistic and not fans of US culture whereas the opposite is true in Japan? So what strategies are available to new global market entrants to lower the cost of entry and increase the odds of success? Well, I've already mentioned a couple. Use the internet to sell into foreign markets without having to go there, and to locate foreign suppliers you can work with. This will solve many problems. Second, take baby steps; start with friendlies—locations where the language, culture and acceptance of things American are highest. However, if your goal is to be a "player" in the global marketplace—then you really want to be in China! Some of the more tried and true strategies include hiring foreign nationals (Coke's long-time CEO was Cuban), partnering with local companies and consultants, buying an established foreign company, joint venturing (JVs) with other companies to share costs, local knowledge and contacts, and similar strategies. Many US companies have gained "toeholds" in global markets this way, and later ventured forth on their own, properly armed and prepared (doesn't always make us popular, but can work). Conclusion The take-away here is that globalization is fast becoming the way the business game is played, and if you aren't doing it your competitors probably are. The challenges associated with globalization are not to be underestimated, but the rewards can be significant too. Setting up a website and hoping to get a lot of orders from Japan or China is not realistic. It takes money, expertise, time and a willingness to work with an array of partners you can't really trust. That's the way it is IMHO. The Technology Environment In Week 4, we continue to look at our "Best" and "Worst" companies in light of the Technology Environment. We all love technology, so it's a subject most of us are probably very familiar with and comfortable discussing, but hopefully you'll discover a few new ideas this week. The application of Technology to business has become one of the most critical success factors (core competencies) and has a huge impact on the success every enterprise (including the military). Having said that, you might conclude that the "Worst" companies are not applying Technology very well, and the "Best" companies are doing it right. This might be true as a generalization, but I believe you can find some counter examples where you'll find a "Worst" company doing Technology very well and a "Best" company that doesn't really emphasize Technology to a great degree. Netflix is an interesting example; they are really selling a service, not a product (until recently when they began to develop "content" – under contract with studios). Initially they developed a very clever, but low tech (OMG, based in part on the USPS – "snail mail") business model to blow their competition away! Blockbuster may have been a Best company until Netflix showed up, but they ignored technology improvements that might have made their customers happier and more loyal. For example, Blockbuster made you return the DVD to the same store where you rented it. Redbox, a later competitor, said "just drop it in any "Redbox". Made a big difference if you travel a lot. But Blockbuster was indifferent to customer wants and needs because they weren't looking over their shoulder. Shame on them! So what is the "lesson learned" from the Netflix/Blockbuster story? I'd say it suggests Best companies, in general, are applying emerging technologies that are critical to their particular business model, quickly (AKA nimbleness) and cost effectively to lower costs and increase customer/employee satisfaction. They might not be the "Best" in every Environment, or perhaps even in any one Environment, but are pretty good in all six Environments. Likewise the "Worst" companies may do well in some Environments, but are missing the boat in at least one critical Environment (e.g. customer service in the case of Blockbuster and the airline industry). If it's the Technology Environment where they are failing, it might overwhelm everything else they are doing right. What do Business Theorists Say About the Technology Environment? Most business theorists see the Technology Environment as an enabler to all the others, especially the globalization of business. The true business experts, could be viewed as theorists, in the Technology Environment are not academicians (although of course there are some), but business leaders/practitioners. John Chambers, CEO of Cisco, a successful developer and manufacturer of chips for pc's and networks, was also a noted technology theorist, inventing the axiom that the capacity and speed of pc chips doubles every 3 years. He also said (way back in the early 1990's "voice communication will be free" and the "internet will change the way we do everything". All of his predictions have already come true. It's worth noting that technology breakthroughs often are the result of academic research, for example the "search engine" and the Windows interface. Other breakthroughs have been made in "garages" by dropouts (e.g. Gates and Allen – DOS, Brin and Page – Google, Zuckerberg – Facebook, Alan Emtage – search engines). In addition, collaboration between academia and the military was the initial creator of the internet. Equally as important as the creators of breakthrough technologies are the practitioners who have further developed and deployed new technology. We'll discuss the developers like Microsoft and Apple in the next section when we discuss "hard technology" companies. We'll also discuss "soft technology" companies, i.e. all the other companies that don't develop the new technologies directly but deploy/implement them to increase productivity, customer/employee satisfaction, etc. Hard and Soft Technology Companies The distinction that we make between "hard" and "soft" technology companies (not the technology itself) in business is a very helpful way of thinking about the Technology Environment. Virtually every enterprise (including corporations, non-profits, government agencies, military organizations, etc.) has been implementing new technology to improve the administrative side (accounting, payroll, HR, inventory management, etc.) of their operations for 50 years. More recently (perhaps the last 20 years) technology has entered operational areas of the enterprise like customer service, supply chain management, automated manufacturing, robotics, etc. to achieve increased employee productivity and morale as well as increased customer satisfaction. This is what we mean by a Soft Technology company – a userof technology as opposed to a developer of technology. In the 60 Minutes segment entitled March of the Machines (probably available on YouTube) you can see how advanced automation (robotics, artificial intelligence, etc.) is currently helping some innovative companies (sometimes called "early adopters") reach an entirely new and perhaps unanticipated level of efficiency, productivity and quality. Manufacturers are working with hi-tech companies to develop these new technologies. Does this mean a manufacturer suddenly becomes a Hard Technology company? I'm not sure, but maybe it's not too important what it's called, as long as you know about it and apply it. Businesses that ignore new technology developments do so at their own peril. We define a Hard Technology company as one actually developing/making/selling technology products – both hardware and software - as their primary business activity. Companies like Intel (pc chips), Cisco (network chips), Microsoft (pc software), Verizon (wireless networks), Apple (smart phones), etc. are clearly in this category. Now even more traditional Soft Technology companies like Ford, GM, Boeing, GE, Frigidaire, etc. are building more and more embedded technology into their products to increase profit margins and customer appeal. A new car nowadays contains hundreds of microchips, actually small special purpose microcomputers), to implement new features customers demand. Same with a washer, dryer, refrigerator, etc.; their control panels are looking more like the flight deck on the starship Enterprise than an appliance (and they even come in colors too, whoopee!!!). In addition, we are not just talking about manufacturing companies either. Retailers and fast food companies are working feverishly to deploy wireless ordering and checkout systems to lower personnel costs. Banks and other financial institutions have deployed ATM networks and electronic banking that customers love, at the same time eliminating many jobs. Some banks, insurance and mortgage companies have gone entirely virtual, not only reducing labor costs but also expensive brick and mortar facilities. The take-away here is competency in designing and implementing technology into products and services has become another core competency in businesses where previously it wasn't seen as that important. Barriers Facing Hard and Soft Technology Companies and Strategies Used to Overcome These Barriers Hard technology companies face a myriad of challenges, notably; the cost/risk of developing new technology, attracting investment capital, recruiting and retaining world-class developers, cutthroat competition, both domestic and foreign, and legal barriers erected by foreign governments to protect their domestic developers and/or restrict their peoples' access to technology and information. Soft technology companies include everyone else, i.e. companies buying and deploying new technology from hard technology companies (i.e. developers). The more aggressive soft technology companies (AKA "first movers") all face the twin challenges of cost/risk and technology/implementation failure (see Obamacare website rollout for a good example). Those slower to adopt new technology (we've discussed Blockbuster) face the very real risk of being left behind. Most US multi-nationals, in the 1990s faced the challenge of implementing global "enterprise systems" to increase customer/supplier communications, productivity and customer service and across their global operations. Most were operating in a "smokestack" environment, where their individual operations were highly independent of each other. This works OK until you begin to deal with global customers and suppliers who were expecting them to coordinate orders, service, etc. worldwide. Did you know that the initial cost of implementing a worldwide enterprise system – like SAP or PeopleSoft/Oracle - could approach a billion dollars (that's billion, with a "B")! To make matters worse, installing a so-called "new release" of the same system every few years can easily exceed $100 million. However, technology eventually solves all problems. So-called "cloud-based systems" have begun to lower these costs and reduce the risk of implementation failure. Strategies Used by Hard and Soft Technology Companies to Develop (Hard Technology Companies), Implement (Soft technology Companies) and Protect Proprietary Technology Hard technology companies have adopted many strategies to cope with the huge challenges they face. Maybe the most successful has been partnering and collaborating with global business partners via the web. This includes involving customers and prospective customers in identifying the requirements of new technologies. Another strategy has been to build new products using core components of older systems, sometimes referred to as reusable code and "containers" (we're getting down in the weeds now!). Soft technology companies have adopted similar strategies. They rely on third party consultants to implement new technologies, and prefer to buy commercial off-the-shelf technology (referred to as COTS by the military and other government buyers) rather than be pioneers and risk technology/implementation failures, which have cost many people their jobs! It's become a balancing act deciding whether to be a nimble first mover or wait for someone else to go first. Conclusion The important take away this week is you and your organization must be focused on the future and adopting new technology as rapidly as possible. This can be risky too if it's not done carefully and professionally, many excellent business franchises (brands) have exploded by introducing a new technology prematurely or simply poorly implemented (but Microsoft seems to get away with it over and over again). Nevertheless, ignoring new technology is more dangerous than adopting too soon IMHO. So just because you're paranoid doesn't mean the enemy isn't sneaking up on you. The Political-Legal (PL) Environment – Overview The Political Environment involves government regulation of business at all levels, local, state and federal. State and local government controls all kinds of regulations that are very important to business, in particular: licensing, zoning and land use, health and safety, work rules, business taxes of many kinds (payroll, sales tax, real estate tax, fuel taxes, waste disposal fees, etc.). The PL Environment overlaps every other Environment. Recently Minimum Wage has become a very high profile issue, in part because the Feds think they control it, States think they control it and more recently municipalities have decided they control it. A true "Tower of Babel". What's the poor business owner to do? How can they possibly track all these ever changing, often conflicting, rules and regulations? What do we mean by the Legal Environment? How is that different from the Political and other Environments? One obvious aspect of the Legal Environment that must concern every business is the ever-increasing litigious nature of American society. Citizens know they have the right to sue rather than pursue other, lower cost, remedies like arbitration or Small Claims Court when they think they have a grievance against a business. Who would have thought McDonalds was responsible for someone dumping hot coffee on them? Not many, but a jury of 12 sure did. Many lawyers make a nice living by bundling citizens with similar grievances into "classes" and filing class action suites. This has cost businesses billions, rightly or wrongly (we'd probably agree that sometimes they deserve it), and even forced entire industries out of business (tobacco, asbestos, etc.). Businesses are often required to employ legal counsel to defend themselves, which, besides the actual costs involved, can be highly distracting and also destructive to a company's brand. Barriers Imposed on Businesses by the PL Environment We've already noted that dealing with the Political-Legal (P-L) Environment has become more of a core competency that US companies need to master in order to prosper. This has long been true for large, US companies, and they routinely employ law firms and lobbyists, or in some cases create in-house departments, to deal with PL issues. It is becoming more important, even for small and medium companies, even start-ups, to organize themselves and their budgets to handle these issues. This is, in part, a result of increased activism at all levels of society and government, with new regulations being issued by hundreds of agencies on an almost daily basis. So if you plan to become a manager or entrepreneur at some point in your career this is an important topic. PL issues extend beyond compliance. There are also many burdensome reporting requirements to consider. There are myriad routine reporting requirements from many authorities, not just government agencies, and failing to submit required reports in a timely and accurate manner can have devastating results (even jail time for those responsible (see Dodd – Franck Act or The Affordable Care Act – AKA ObamaCare, for examples). Benefit programs require conforming to insurance company contracts, reporting requirements and other administrative tasks. Local requirements to file sales tax collections, process garnishments and court judgments, etc. make even simple accounting processes like payroll extremely demanding. Lenders and accounting boards want periodic reports; localities require zoning and variance apps. It goes on and on, and as they say ignorance of these requirements is no excuse. If you are looking for a secure future, may be best to forget management and get a law degree! What do Business Theorists Say About the Political-Legal Environment? Michael E. Porter, Professor at Harvard Business School, is a favorite business theorist of many students. It is well worth your time to review some of his articles and publications, many of which have appeared in the Harvard Business Review journal. Porter's primary interest is how businesses develop and execute strategies to achieve competitive advantage. His perspective is largely that of the CEO of large organizations, so students might initially believe that his writings are not relevant to them at this early stage of their business careers, but this is incorrect. Strategy is rarely developed solely by a CEO, and it certainly cannot be implemented by a CEO alone. All levels of managerial and supervisory input and buy-in are necessary, or no strategy or policy will be successful. Porter seems to take the view that the PL Environment is an important consideration in all strategy and policy formulation, but not the point of these. This perspective might have been true 20-30 years ago, but not today. Consider a CEO like Donald Trump. Much of the strategy and the resultant business policy he formulates is aimed directly at solving the PL issues a real estate developer faces every day. Trump and real estate development is not a one-off example. Consider large, integrated oil and gas producers, large health care insurers, Big Pharma, etc. What keeps these CEOs awake at night? I'd guess its PL issues. Potential Business Solutions to the Issues Posed by the PL Environment I'm struggling to find a way to encapsulate, categorize, simplify this topic (the P-L Environment), and propose solutions for businesses. The only real solutions involve what I might describe as "due diligence". Every company must have a systematic process for identifying compliance issues and reporting requirements and insuring they are meeting them. In spite of the warning, many companies have fallen afoul of these requirements, some accidentally, some through simple complacency, some through outright incompetence, and some because of intentional fraud. Don't be one of those, you might wind up doing hard time like the folks from Enron and other places. The only positive aspect is that the P-L Environment is creating new opportunities for those who view compliance as a career opportunity. Most companies employ attorneys, lobbyists, PR people, benefits and payroll administrators, etc. All of these are respectable and somewhat secure careers that pay well. Many people gain experience in these areas by working for a government agency or an in-house corporate administrative/compliance department (e.g. Legal, Governmental Affairs, etc.), then leave to work for a law firm (or lobbying firm, etc.) where their experience and contacts can be very valuable and rewarding. We haven't even mentioned the litigious environment in which our companies must operate. Class action lawsuits are common and very expensive to defend, even more4 expensive to lose (that's why most are settled out of court). Product liability suits are very common and not only expensive but tend to destroy carefully developed brand equity (e.g. have you bought a Firestone tire lately? Are you still buying BP products?). Seemingly simple things like Truth in Packaging can destroy a company if it's wrong or ignored (McDonalds and others now must post the calorie count on everything they sell). Even their coffee cups now say "This coffee is hot, don't pour it on yourself"). How are we to know if we are doing everything we need to be doing? The answer may be "we don't", but you have to try. Conclusion By now, you should know that the PL Environment is important and complex. If not, go curl up with the Federal Tax code and start reading All 18,000+ pages). That should do it. I'm interested in seeing how each of you approaches the PL Environment in your Week 5 Forum and homework Assignment. It might be best to tackle one or two aspects of the P-L Environment rather than trying to cover the entire expanse as we have done here. The Socio-Cultural (S-C) Environment In Week 6 we will discuss the impact of the Socio-Cultural Environment (S-C) on our selected Best and Worst companies domestically and in "country clusters" where they choose to compete. After completing these assignments, you should have added to your repertoire as a brilliant conversationalist at cocktail parties. We all probably had an intuitive sense of what we mean by the S-C Environment, but perhaps this may have changed or become enhanced as result of our Forum discussions and researching our written assignments in previous weeks. Most US multi-nationals have developed a vast amount of corporate knowledge and expertise as a result of operating globally for years. Many US companies have addressed their concerns about navigating the S-C Environment in foreign markets by hiring foreign nationals and consultants and/or partnering with foreign companies to make entry into foreign markets more successful. Small businesses and entrepreneurs often lack this knowledge and may, unfortunately, be uninformed about such matters. The S-C Environment in Country Clusters The concept of country clusters probably took some of you by surprise. US multi-nationals tend to think (and report financial results) in terms of clusters when developing strategy, marketing plans, staffing plans, etc. and actually are required by the SEC to disclose financial results in clusters. A country cluster is a group of countries, not necessarily contiguous, where the countries and their consumers may share quite similar S-C Environments. Canada and the US are an indisputable example of a cluster, and some would argue that all, or most, of North and South America are one big cluster. The EU has tried to develop a similar homogenous S-C Environment to reduce trade barriers and thus become more prosperous. This has proven difficult, as culture, nationalism, language, currency, borders, taxes/tariffs and many other S-C differences have proven formidable obstacles. Other country clusters like South America, Asia and Eastern Europe have their own S-C Environments and issues that make working with them challenging, and IMHO they cannot be treated as homogenous clusters. For example, the S-C Environment in Japan, India and China are no way similar, even though some consider them part of an Asian cluster. It's interesting to note that most US multi-nationals report their financial results by country cluster (or perhaps just US vs non-US) rather than by individual country. It may be that regulatory bodies like the SEC and the FASB recognize that US multi-nationals consider the details of their financial results at the country level highly proprietary and competitively sensitive information and do not want it disclosed. The financial results may also be broken down to a "lines of business" level of detail in the US, but probably not for country clusters. Again, this might be considered too sensitive to disclose to the public and competitors. "Line of business" reporting breaks revenue (but usually not expenses) down by some classification that makes sense to their operations. For example, GE might report revenues by categories like Major Appliances, Jet Engines, Lighting, etc. What Classical Business Theorists Say About the S-C Environment The Assignment Instructions suggest you use Geert-Hofstede as a framework for discussing the S-C Environment with respect to the best and Worst companies you choose and the "country clusters" the operate within. Gerard Hendrik (Geert) Hofstede (born October2, 1928 in Haarlem) is a Dutch social psychologist, former IBM employee, and Professor Emeritus of Organizational Anthropology and International Management at Maastricht University in the Netherlands, well known for his pioneering research on cross-cultural groups and organizations. His most notable work has been in developing cultural dimensions theory. Here he describes national cultures as describable along six dimensions: Power Distance, Individualism, Uncertainty Avoidance, Masculinity, Long Term Orientation, and Indulgence vs. restraint. He is known for his books Culture's Consequences and Cultures and Organizations: Software of the Mind, co-authored with his son Geert Jan Hofstede. You may find Dr. Hofstede's work a little outdated. Not that his theories weren't spot on "back in the day", but they are not exactly revolutionary today. Another familiar, and even older, theorist is Abraham Maslow, creator of his "hierarchy of needs". Maslow and Hofstede together form the underpinning of how we think about societies and consumers, domestic as well as foreign. Another Classification of Theorists – the Futurists –Their Views on the S-C Environment What is a futurist and why would I choose to discuss them in the context of "business theorists"? As I stated in another lecture, most business theorists are more properly classified, in my not so humble opinion, as either economists (Galbraith) or business practitioners (Jack Welsh). I will add another classification, the futurists, notably Alvin and Heidi Toffler ("Future Shock" and "The Third Wave"), Steven Hawking ("A Brief History of Time") and Thomas Friedman ("The World is Flat"). The Toffler's shocked the world in 1970 with the publication of "Future Shock" (it rocked my world). In it, they predicted startling new developments in science, technology, society and culture, most of which have already proven true, others are on the horizon. More importantly, they advanced the viewpoint that the increasingly rapid pace of change would disorient societies and obsolete, or at least destabilize, most of what we considered "truth" in 1970. Toffler famously said "change is the only constant". How right he was. Tom Friedman is an author and op-ed columnist for the New York Times. In his book, The World is Flat, Friedman recounts a journey to Bangalore, India, when he realized globalization has changed core economic concepts.] In his opinion, this flattening is a product of a convergence of personal computers with fiber-optic micro cable with the rise of work flow software. He termed this period as Globalization 3.0, differentiating this period from the previous Globalization 1.0 (in which countries and governments were the main protagonists) and the Globalization 2.0 (in which multinational companies led the way in driving global integration). Steven Hawking may seem out of place in this list to many of you. He was best known as a theoretical physicist who wrote books that were baffling to the layman ("A Brief History of Time"). In these scientific writings he was the first to propose the existence of "black holes" in space and extensions of relativity theory. More recently, Hawking has begun writing on topics of more general interest (and more readable) regarding trends (many of them S-C trends) taking place and predictions on future developments. These writings, while theoretical, may have great practical application to business theory, strategy and policy. As business students, you should become familiar with the works of the theorists I've mentioned and many more. You may not see the practical, day-to-day application of these theories in business yet, but I would predict this knowledge will give you increased confidence as you climb the corporate ladder or help start and develop new businesses. Week 6 Take-Away The take away this week is simple. if you are involved in global business or are planning to enter a global market, plan on having to deal effectively with the S/C Environment if you hope to prosper. And the concept of "country clusters" may be a useful method of thinking about strategic issues, but beware of taking that concept too literally and ignoring major differences between individual countries within a cluster. Week 7 –the US Economic Environment In Week 7 we will discuss the impact of the Economic Environment on our selected Best and Worst companies, domestically and in a foreign market where they choose to compete. We will also research a couple of prominent business theoreticians – Rostow and Galbraith - and read some of what they had to say on this subject. The Environments are simply a construct that might be a useful way to look at business. You could come up w/many other constructs that might be even more useful, especially in a different field of study. For example, if you were looking at our military, you might choose environments like: 1) personnel 2) military intelligence (well-known oxymoron) 3) supplies 4) R&D 5) battlefield strategy 6) technology, etc. I've become a little gloomy about the Economic Environment in the US recently. Some long term trends seem to be working against the US retaining/re-acquiring global economic leadership (as measured by a return to a GNP growth rate of 3-5%, annual increases in household income, increases in the percentage of adults working full time, etc.), all of which are necessary indicators of a healthy economic environment. Some of the trends suppressing these indices include: job losses from increased automation (a "two-edged sword"), increased regulation, wage and income disparities, increased tax burdens on businesses, increases in entitlement programs, etc. With respect to automation, US companies are automating every business process they can because it increases productivity, which lowers costs and should increase profits. Automating/eliminating lower paying jobs also helps companies avoid the rapidly escalating minimum wage. Some jobs we haven't figured out how to automate effectively are being outsourced offshore because it lowers costs and avoids excessive regulation (not all regulation is "excessive" but we seem to have crossed some lines). So the prospects for more good paying "middle class jobs" don't look good to me. But then again, we have gone through many macro-economic cycles where some surprising and unexpected things emerged to make things better. Not that long ago most people worked in agriculture (and related occupations). Now almost no one does. Then everyone worked in manufacturing and mining. Now only a small percent of the workforce still works there (and No, manufacturing isn't going to return, no matter what politicians tell you). And now the "service economy" is being automated and outsourced and may soon become a thing of the past. Recently, technology and creative activities (e.g. legal, finance, entertainment, advertising, etc.) have become the drivers of our economy. But not everyone is well suited to work in those areas. What can these people do? Well, there is still a huge need for skilled trades-people (electricians, plumbers, auto mechanics, etc.) but these are not seen as prestigious jobs (however, they pay well and provide a good degree of job security). The military has been a good option, but we have seen a huge downsizing under President Obama and his new Secretary of Defense, Ash Carter. So I don't see that as a solution to lower full-time employment and wage gains. Week 7 – Foreign Economic Environments There's an old saying, "when the US economy catches a cold, the world catches pneumonia". And the US economy recently has at least had a cold, if not the flu. But the implication of the saying is that the US is responsible for the health of the worldwide Economic Environment. To some extent that implication is true because our economy is so large. But it can be argued that this time the US is not the cause of economic woes in foreign countries. The EU has created their own problems by unrestrained immigration, socialistic policies that discourage productivity, monetary and fiscal policies that do the same, and on and on. Simply look carefully at the economies of Greece, Italy and Portugal for examples. And many economists expect France and maybe even the UK (who is debating withdrawing from the EU to stave off exposure to the rest of Europe's economic problems) will follow. China has been a bright shining economic miracle for the past few decades. The Chinese government has promoted business and economic growth, especially heavy industrials, some would say "at all costs". But the growth rate of China appears to be slowing, which could portend big problems down the road. The Chinese people's aspirations have been heightened to the point where failure to live up to their expectations could spell doom. What Business Theorists Rostow and Galbraith Say About the Economic Environment? Walt W. Rostow is best known for his theory of the Stages of Economic Growth. Rostow's Stages of Economic Growth model is one of the major historical models of economic growth. It was published by American economist Walt Rostow in 1960. The model postulates that economic growth occurs in five basic stages, of varying length: 1. Traditional society 2. Preconditions for take-off 3. Take-off 4. Drive to maturity 5. Age of High mass consumption Obviously different countries are at different stages of Rostow's model and are evolving at different rates. US businesses might find this model informative when considering where to target their global ambitions. John Kenneth Galbraith is best known for his theories and writings on capitalistic societies. In his most famous work, The Affluent Society (1958), which also became a bestseller, Galbraith outlined his view that to become successful, post-World War II America should make large investments in items such as highways and education, using funds from general taxation. Galbraith also critiqued the assumption that continually increasing material production is a sign of economic and societal health. Interesting, these two seemingly obvious conclusions are entirely consistent with the final stage of Rostow's theory where what he calls "mass consumption" defines the fully developed economic environment. What can we learn from these pioneering giants of economic and business theories? The answer is, a lot! But they were so prolific we can barely scratch the surface of their ideas here. Summary The worldwide Economic Environment is currently dominated by the recession in the US and the approaching financial collapse of certain foreign countries like Greece, Spain, Italy and Ireland. Even emerging markets which have experienced phenomenal growth (primarily China and India) are currently experiencing a slowdown for the first time in recent history. Weathering this storm is now the principal concern of most US multi-nationals. What are US multi-nationals actually doing in this Economic Environment? Well, for starters, they are slowing down expansion and investment, domestically and globally. They are also shrinking their existing full-time workforce through layoffs, attrition and outsourcing. These actions, of course, result in high unemployment/underemployment and, as a result, lower family incomes. This can become a vicious downward spiral where all of this leads to less consumer demand for goods and services, and more demand for government services at exactly the same time the government experiences declining tax revenues. This what economists call "a mess" .