Ryszard Barnat, LLM., DBA, Ph.D. (Strat. Mgmt) Economic Forces


Economic Forces

Economic forces refer to the nature and direction of the economy in which business operates. Economic factors have a tremendous impact on business firms. The general state of the economy (e.g., depression, recession, recovery, or prosperity), interest rate, stage of the economic cycle, balance of payments, monetary policy, fiscal policy, are key variables in corporate investment, employment, and pricing decisions.

The impact of growth or decline in gross national product and increases or decreases in interest rates, inflation, and the value of the dollar are considered as prime examples of significant impact on business operations.

To asses the local situation, an organization might seek information concerning the economic base and future of the region and the effects of this outlook on wage rates, disposable income, unemployment, and the transportation and commercial base. The state of world economy is most critical for organizations operating in such areas.

Technological Forces

Technological forces influence organizations in several ways. A technological innovation can have a sudden and dramatic effect on the environment of a firm. First, technological developments can significantly alter the demand for an organization's or industry's products or services.

Technological change can decimate existing businesses and even entire industries, since its shifts demand from one product to another. Moreover, changes in technology can affect a firm's operations as well its products and services.

These changes might affect processing methods, raw materials, and service delivery. In international business, one country's use of new technological developments can make another country's products overpriced and noncompetitive. In general,

Technological trends include not only the glamorous invention that revolutionizes our lives, but also the gradual painstaking improvements in methods, in materials, in design, in application, unemployment, and the transportation and commercial base. They diffusion into new industries and efficiency" (John Argenti).

The rate of technological change varies considerably from one industry to another. In electronics, for example change is rapid and constant, but in furniture manufacturing, change is slower and more gradual.

Changing technology can offer major opportunities for improving goal achievements or threaten the existence of the firm. Therefore, "the key concerns in the technological environment involve building the organizational capability to (1) forecast and identify relevant developments - both within and beyond the industry, (2) assess the impact of these developments on existing operations, and (3) define opportunities" (Mark C. Baetz and Paul W. Beamish).

These capabilities should result in the creation of a technological strategy. Technological strategy deals with "choices in technology, product design and development, sources of technology and R&D management and funding" (R. Burgeleman and M. Maidique).

The effect that changing technology can have upon the competition in an industry is also dealt with other chapters. Technological forecasting can help protect and improve the profitability of firms in growing industries.

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Business And Its Environment
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