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Chapter 02 - The External and Internal Environments
2-1
Management Leading and Collaborating in the
Competitive World
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chapter
2
The External and Internal
Environments
CHAPTER CONTENTS
Learning Objectives 2
Key Student Questions 2
Class Roadmap 3
Key Terms Presented in This Chapter 11
Lecturettes 13
Discussion Questions 14
Concluding Case 17
Experiential Exercises 18
Examples 21
Supplemental Features 23
Chapter Video 23
Manager’s Hot Seat 23
Self Assessment 23

2-2
Test Your Knowledge 23
Expanded PowerPoint Slide Show 55

2-3
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1 Describe how environmental forces influence organizations and
how organizations can influence their environments.
2 Distinguish between the macroenvironment and the competitive
environment .
3 Explain why managers and organizations should pay attention to
economic and social developments.
4 Identify elements of the competitive environment.
5 Summarize how organizations respond to environmental uncer-
tainty.
6 Define elements of an organization’s culture.
7 Discuss how an organization’s culture and climate affect its re-
sponse to its external environment.
KEY STUDENT QUESTIONS
The two questions that come up most often for this chapter are:
1. “Can you explain the difference between the macroenvironment
and the task environment?” (Or a request to explain a particular
element of either environment.)
2. “As a manager, what should I do to respond to a changing environment?”
Fortunately, the text has tools to help you deal with both of these questions more effectively.
The first question is best addressed with examples, and students often find it useful to go
through an example or two for a specific company. Start by discussing the high tech indus-
try, using the information in the text and the “Management Connection” section called “Ap-
ple’s Rocky Relationships.” Next, ask students to name a company with which they are fa-
miliar, and have them identify examples of each of the different environmental factors for

2-4
that organization. If your students can’t think of an organization, try using something with
which they are likely to be familiar, such as Kaiser Permanente (a large national HMO.) A
completed example appears below in the instructions for Experiential Exercise 2.1, “External
Environment Analysis”.
The second question is best addressed by having students work together to complete the con-
cluding case study “Wild Water Gets Soaked.” The brainstorming activity that students
complete for the third discussion question on the case also serves as an excellent introduction
to Chapter 3 - Decision Making.
“Now, create a plan for Wild Water. In your plan, describe what changes the organization
needs to make to its culture to meet the upcoming challenges in the external environment.
Then describe steps that Wild Water can take to compete successfully against the new
amusement park. How can the Salernos keep their loyal customers happy while attracting
new ones?”
CLASS ROADMAP
Management Connection
What Makes Apple a Winner in a Fast-Changing Environment?
In the 1970s consumers fell in love with Apple’s spreadsheets and desktop publishing tools, but
in the 80s and 90s, Apple lost significant market share as consumers got on board in droves with
the Microsoft operating system. As technology advanced, Apple dropped the word “computer”
from the corporate name and focused on providing a wide array of tools to tap into the internet
for entertainment, communication, and expressing creativity. Apple also provides a software de-
velopment kit which will allow any programmer to create new applications which can be pur-
chased online at Apple’s App Store. Over 100 million apps were downloaded in the first two
months. What could Apple do to further enhance their brand and enhance their share of the
technology market?

2-5
Introduction
A. Organizations are open systems (Figure 2.1)
1. Receive raw materials, services, and financial, hu-
man, and information resources from the environ-
ment, called inputs
2. Transform resources into finished goods and ser-
vices
3. Send outputs back into the environment
B. External Environment Influences
1. When resources change, environment influences the
organization
2. When outputs differ, organization influences the en-
vironment
3. The organization operates in a competitive envi-
ronment.
I. The Macroenvironment
4. Macroenvironment is defined by the most general ele-
ments in the external environment that can potentially in-
fluence strategic decisions
A. The Econonmy (Figure 2.3)
a. The economic environment dramatically affects
companies’ ability to function effectively and in-
fluences their strategic choices.
b. Interest and inflation rates affect the availability
and cost of capital, the ability to expand, prices,
costs, and consumer demand for products.
c. Unemployment rates affect labor availability
and the wages the firm must pass, as well as
product demand.
B. Technology
a. Technological advances create new products.
As technology evolves, new industries, markets,
and competitive niches develop.
b. New technologies provide new production tech-
niques. Sophisticated robots perform jobs with-
out suffering fatigue.
c. New technologies also provide new ways to
manage and communicate. Computerized man-
LO 1: Describe how environ-
mental forces influence or-
ganizations, and how organi-
zations can influence their
environments
E.G.
Use Example 2.1 – Environment
Influences here
LO 2: Distinguish between
the macroenvironment and
the competitive environment

2-6
agement information systems (MIS) make in-
formation available when needed.
C. Laws and Regulations
1. U.S. government policies both impose strategic con-
straints and provide opportunities.
2. Government can affect business opportunities
through tax laws, economic policies, and interna-
tional trade rulings.
3. Regulators are specific government organizations in
a firm’s more immediate task environment.
4. Regulatory agencies have the power to investigate
company practices and take legal actions to ensure
compliance with the laws are:
i. Occupational Safety and Health Administra-
tion (OSHA)
ii. Interstate Commerce Commission (ICC)
iii. Federal Aviation Administration (FAA)
iv. Equal Employment Opportunity Commis-
sion (EEOC)
v. National Labor Relations Board (NLRB)
vi. Office of Federal Contract Compliance Pro-
grams (OFCCP)
vii. Environmental Protection Agency (EPA)
D. Demographics
a. Demographics measures of various characteris-
tics of the people comprising groups or other so-
cial units.
b. Work groups, organizations, countries, markets,
or societies can be described statistically by re-
ferring to their members’ age, gender, family
size, income, education, occupation, and so
forth.
E. Social Issues
a. Societal trends regarding how people think and
behave have major implications for management
of the labor force, corporate social actions, and
E.G.
Use Example 2.2 – Laws and
Regulations here
LO 3: Explain why managers
and organizations should at-
tend to economic and social
developments

2-7
strategic decisions about products and markets.
b. Companies have introduced more supportive
policies, including family leave, flexible work-
ing hours, and childcare assistance.
F. The Natural Environment
a. Prominent issues in today’s press pertain to nat-
ural resources.
b. The protection of the natural environment is im-
portant to managerial decisions.
II. The Competitive Environment
A. Competitors
LO 4: Identify elements of the
competitive environment
a. As a first step in understanding their competitive
environment, organizations must identify their
competitors, which may include:
i. small domestic firms
ii. overseas firms
iii. new domestic companies exploring new
markets
iv. strong regional competitors
v. unusual entries, such as Internet shopping
b. The next step is to analyze how they compete.
B. New Entrants
a. Barriers to entry are conditions that prevent
new companies from entering an industry.
b. Some major barriers to entry are government
policy, capital requirements, brand identifica-
tion, cost disadvantages, and distribution chan-
nels.
C. Substitutes and Complements (Table 2.1)
a. Technological advances and economic efficien-
cies are among the ways that firms can develop
substitutes for existing products.
TEXT REFERENCE
Management Connection –
Progress Report
As part of its innovation, Apple has
needed to forge new relationships with
creators of online content which includes
recording companies. More recently,
magazines publishers are joining the App
Store to provide their products to con-
sumers in a digital format. Publishers
must pay 30% of revenues to Apple, so
they are reducing their income per sub-
scription, but the iPod and other Apply
devices are so popular that publishers are
afraid not to jump on board. With so
many applications and devices coming
into the market, these complex relation-
ships can get stormy. In some cases
Apply and its competitors are buying
components from the same suppliers,
such as with Samsung.
• How do you think things will work out
between the Google Android platform
and the Apple platform with regard to
cell phones and tablet computers?
• Which company has the most power
and leverage in Apple’s supply chain?
Why?

2-8
D. Suppliers
a. Suppliers provide the resources needed for pro-
duction and may come in the form of people,
raw materials, information, and financial capital.
b. Suppliers can raise their prices or provide poor
quality goods and services.
c. Labor unions can go on strike or demand higher
wages.
d. Workers may produce defective work.
E. Customers
a. Customers purchase the products or services the
organization offers.
b. Final consumers are those who purchase prod-
ucts in their finished form.
c. Intermediate consumers are customers who
purchase raw materials or wholesale products
before selling them to final customers.
i. Customer service means giving customers
what they want or need, the way they want
it, the first time.
ii. Actions and attitudes that mean excellent
customer service include:
a.) Speed of filling and delivering normal
orders.
b.) Willingness to meet emergency needs.
c.) Merchandise delivered in good condi-
tion.
d.) Readiness to take back defective goods
and re-supply quickly.
e.) Availability of installation and repair
services and parts.
f.) Service charges (that is, whether services
are “free” or priced separately).
III. Environmental Analysis
a. Developments outside the organization can have a
profound impact on the way managers operate.
b. Example: if little is known about customer likes and
dislikes, organizations will have a difficult time de-
signing new products, scheduling production, or de-
veloping market plans.
c. Environmental uncertainty means that managers do
Teaching Tip:
Have students review and give
feedback on each others’ respons-
es to the pre-class assignment
(Experiential Exercise 2.1) at this
point in the lecture. The best way
to do this is in pairs. Each student
reads the other’s paper, and then
both students talk about environ-
mental factors that have been mis-
classified, and other environmen-
tal factors that could be added.
Students should correct their own
papers before turning them in, and
if possible, students should get
feedback from the professor or
teaching assistant about both the
paper and the corrections.
LO 5: Summarize how organ-
izations respond to environ-
mental uncertainty
E.G.
Use Example 2.3 – Environmen-
tal Complexity here

2-9
not have enough information about the environment
to understand or predict the future.
d. Uncertainty arises from two related factors:
1. Environmental complexity, or the number of is-
sues to which a manager must attend, as well as
their interconnectedness.
2. Dynamism, or the degree of discontinuous
change that occurs within the industry.
A. Environmental scanning
E.G.
Use Example 2.4 – Competitive
Intelligence here
a. A process that involves searching out information
that is unavailable to most people and sorting
through that information in order to interpret what is
important and what is not.
b. Competitive intelligence is the information neces-
sary to decide how best to manage in the competi-
tive environment they have identified. (Table 2.2)
B. Scenario Development
a. Scenario is a narrative that describes a particular set
of future conditions.
b. Best-case scenario--events occur that are favorable
to the firm.
c. Worst-case scenario--events are all unfavorable.
d. Scenario development helps managers develop con-
tingency plans for what they might do given differ-
ent outcomes.
C. Forecasting
a. Used to predict exactly how some variable or varia-
bles will change in the future.
b. The best advice for using forecasts might include
the following:
1. Use multiple forecasts
2. Accuracy decreases the farther into the future
you are trying to predict.
3. Forecasts are no better than the data used to con-
struct them
4. Use simple forecasts
5. Important events often are surprises and repre-
sent a departure from predictions
Teaching Tip:
Ask students to image different
scenarios that might impact your
school, and to develop contingen-
cy plans that might address those
scenarios. This can either be
done as a discussion question
with the entire class, or students
can work in groups to answer the
question, and report back. For
example, a possible scenario
might center around a population
boom or bust. In a population
boom, universities might respond
by setting up satellite campuses,
whereas in a bust, universities
might look for additional students
by setting up international pro-
grams and/or programs targeted
to meet the needs of working pro-
fessionals.

2-10
D. Benchmarking
a. Benchmarking is the process of comparing the or-
ganization’s practices and technologies with those
of other companies.
b. Benchmarking means identifying the best-in-class
performance by a company in a given area.
IV. Responding to the Environment
A. Changing the Environment You Are In
1. Strategic maneuvering is the organization’s con-
scious efforts to change the boundaries of its task
environment. It can take four basic forms:
a. Domain selection is the entrance by a company
into another suitable market or industry.
b. Diversification occurs when a firm invests in
different types of businesses or products, or
when it expands geographically to reduce its de-
pendence on a single market or technology.
c. A merger or acquisition takes place when two
or more firms combine, or one firm buys anoth-
er, to form a single company.
d. Divestiture occurs when a company sells one or
more businesses.
2. Prospectors are companies that continuously change
the boundaries of their task environments by seeking
new products and markets, diversifying and merg-
ing, or acquiring new enterprises.
3. Defenders are companies that stay within a more
limited, stable product domain
B. Influencing your environment
1. Independent strategies are strategies that an organi-
zation acting on its own uses to change some aspect
of its current environment. (Table 2.4)
2. Cooperative strategies are strategies used by two or
more organizations working together to manage the
external environment. (Table 2.5)
C. Adapting to the Environment: Changing Yourself
1. Four different approaches that organizations can
E.G.
Use Example 2.5 Independent
Strategies here
LO 6: Define elements of an
organization’s culture
LO 7: Discuss how an organ-
ization’s culture affects its
response to its external envi-
ronment

2-11
take in adapting to environmental uncertainty are:
(Table 2.3)
a. Decentralized bureaucratic (stable, complex en-
vironment)
b. Centralized bureaucratic (stable, simple envi-
ronment)
c. Decentralized organic (dynamic, complex envi-
ronment)
d. Centralized organic (dynamic, simple environ-
ment)
2. Adapting at the boundaries.
a. Buffering is creating supplies of excess re-
sources in case of unpredictable needs.
b. Smoothing is leveling normal fluctuations at the
boundaries of the environment.
3. Adapting at the core.
a. Flexible process allows for adaptation in the
technical core to meet the varied and changing
demands of customers.
D. Choosing a Response Approach
1. Three general considerations help guide manage-
ment’s response to the environment.
a. Change appropriate elements of the environ-
ment.
b. Choose responses that focus on pertinent ele-
ments of the environment.
c. Choose responses that offer the most benefit at
the lowest cost.
V. The Internal Environment of Organiza-
tions: Culture and Climate
A. Organization culture is the set of important assump-
tions about the organization and its goals and practices
that members of the company share.
1. Strong cultures
a. Everyone understands and believes in firm’s
goals, priorities, and practices.
b. An advantage if appropriate behaviors are sup-
ported.
E.G.
Use Example 2.6 Corporate
Culture here
TEXT REFERENCE
Management Connection –
Onward
Apple’s CEO, Steve Jobs, has described
Apple’s culture as “that of a start-up.” A
new company typically is run by the
founder, who has a passion for some new
idea or a desire to create something new
(the organization) to deliver a product or
service better than others do. As noted at
the beginning of this chapter, Apple
ended the previous century with a doubt-
ful future. The customers for its comput-
ers were a loyal but small sliver of the
personal computer market. Investors
were so doubtful about Apple’s prospects
that the company’s stock was trading for
a few dollars per share. Jobs returned to
Apple and made some changes that refo-
cused the company on its start-up cul-
ture. He discontinued projects that were
unrelated to his vision, encouraged active
debate about new ideas, and
forced people in different functions to
work together on strategy—for example,
seeing the retail activities as related to
product design activities. Together, these
efforts enabled the company to drive
innovation as it had when it was a start-
up. Jobs was able to lead this effort be-
cause he was respected as the founder
and as someone with visionary ideas plus
the ability to sell them. In 2011, Jobs lost
his personal battle with pancreatic cancer
and Apple’s chief operating officer, Tim
Cook, was selected to lead the company.
Cook is widely respected, but not
because he is a clone of Jobs. Quite the
contrary—he is known for being calm,
quiet, and serious-minded, managing
processes more than pitching new prod-
ucts. Cook is, however, respected for his
track record.

2-12
2. Weak cultures
a. Different people hold different values
b. Confusion about corporate goals
c. Not clear what principles should guide decisions
B. Diagnosing Culture
1. Culture can be diagnosed through the following:
a. Corporate mission statements and
official goals. (Figure 2.5)
b. Business practices.
c. Symbols, rites, and ceremonies.
d. The stories people tell.
2. Four types of organizational culture (Figure 2.6)
a. Group culture - flexible, internal
focus
b. Hierarchical structure - control-
ling, internal focus
c. Rational culture - controlling, ex-
ternal focus
d. Adhocracy - flexible, external fo-
cus
C. Managing Culture
1. Espouse lofty ideals and visions for the company
2. Give constant attention to mundane, daily details
3. CEO’s need to embody the vision of the company
D. Organizational Climate
• Using the model of cultural types in
Figure 2.6, which type of culture do you
think Apple has? Why?
• How can Apple’s managers reinforce
Apple’s culture in the absence of Steve
Jobs?
KEY TERMS PRESENTED IN THIS CHAPTER
Acquisition One firm buying another
Barriers to entry Conditions that prevent new companies from entering an industry
Benchmarking The process of comparing an organization’s practices and technologies with those of oth-
er companies
Buffering Creating supplies of excess resources in case of unpredictable needs
Competitive environment The immediate environment surrounding a firm; includes suppliers, customers,
rivals, and the like
Competitive intelligence Information that helps managers determine how to compete better
Cooperative strategies: Strategies used by two or more working organizations working together to man-
age the external environment

2-13
Defenders Companies that stay within a stable product domain as a strategic maneuver
Demographics Measures of various characteristics of the people who make up groups or other social
units
Diversification A firm’s investment in a different product, business, or geographic area
Divestiture A firm selling one or more businesses
Domain selection Entering a new market or industry with an existing expertise
Empowerment The process of sharing power with employees, thereby enhancing their confidence in
their ability to perform their jobs and their belief that they are influential contributors to
the organization
Environmental scanning Searching for and sorting through information about the environment
Environmental uncertainty Lack of information needed to understand or predict the future
External environment All relevant forces outside a firm’s boundaries, such as competitors, customers,
the government, and the economy
Final consumer Those who purchase products in their finished form
Flexible processes Methods for adapting the technical core to changes in the environment
Forecasting Method for predicting how variables will change the future
Independent strategies Strategies that an organization acting on its own uses to change some aspect of its
current environment
Inputs Goods and services organizations take in and use to create products or services
Intermediate consumer A customer who purchases raw materials or wholesale products before selling
them to final customers
Macroenvironment The general environment; includes governments, economic conditions, and other
fundamental factors that generally affect all organizations
Merger One or more companies combining with another
Open systems Organizations that are affected by, and that affect, their environment
Organizational climate: The patterns of attitudes and behavior that shape people’s experience of an or-
ganization
Organization culture The set of important assumptions about the organization and its goals and practices
that members of the company share
Outputs The products and services organizations create
Prospectors Companies that continually change the boundaries for their task environments by seeking
new products and markets, diversifying and merging, or acquiring new enterprises
Scenario A narrative that describes a particular set of future conditions
Smoothing Leveling normal fluctuations at the boundaries of the environment
Strategic maneuvering An organization’s conscious efforts to change the boundaries of its task envi-
ronment
Supply chain management The managing of the network of facilities and people that obtain materials
from outside the organization, transform them into products, and distribute
them to customers
Switching costs Fixed costs buyers face when they change suppliers

2-14
LECTURETTES
LECTURETTE 2.1
Being Mindful instead of Mindless: Johnsonville Sausage
As noted in this chapter, excelling at the profession of management takes careful thinking and
learning. Harvard psychologist Ellen Langer calls this “being mindful.” How can a company inspire em-
ployees to adopt this approach to their work? Johnsonville Sausage has managed to craft a company cul-
ture that asks employees to keep their minds engaged at all times. Their company creed makes it clear.
What they call “The Johnsonville Way” is posted on their website, and their success as an organization
suggests that they “walk the talk.”
The Johnsonville Way
Date Posted: 04/08/2007
We at Johnsonville have a moral responsibility to become the Best Company in the World.
We will accomplish this as each one of us becomes better than anyone else at defining, and then serving, the best inter-
ests of all those who have a stake in our success.
We will succeed by setting near-term objectives and long-term goals that will require personal growth and superlative
performance by each of us. We will change any objectives or goals that no longer require personal growth and superla-
tive performance to ones that do.
As an individual, I understand The Johnsonville Way is about my performance and my accountability to the team. My
commitment to stretch, grow and excel is an unending one.
This is The Johnsonville Way and I am committed to it.
The Johnsonville Way also indicates the company’s belief in management science. Their focus on
“setting near-term objectives and long terms goals” suggests that they carefully measure and monitor their
progress toward those objectives and goals.
Johnsonville is more than just an organization that is focused on management science and keeping
employees mindful. Their commitment to “change any objectives or goals that no longer require personal
growth and superlative performance to ones that do” suggests that this organization prides itself on being
a learning organization. As evidenced by the number of concepts this company creed conveys in just a
few lines, “The Johnsonville Way” has been carefully crafted to indicate in a powerful way just exactly
the kind of mindset the organization expects from its employees.
(Source: http://www.johnsonville.com/home/press-room/corp-info/the-johnsonville-way)

2-15
LECTURETTE 2.2
Operations and Human Resources: IBM’s Workforce Management Initiative
As the book explains, one way in which an organization can manage its competitive environment
is through becoming a globally integrated enterprise. IBM has adopted a human capital management ap-
proach to better utilize its talented workforce. Considering labor as an input and IBM products as an out-
put, the company launched its Workforce Management Initiative (WMI) to capture and effectively lever-
age every employee’s skill set and training. All of IBM’s approximately 330,000 employees are captured
in this database. Having this database allows managers to search for employee talent within the company-
--around the world---rather than having to look outside to recruit talent and fill current needs. The
company estimates that this initiative has saved over $500 million. In addition to saving the company
money, applying this supply chain approach allows the company to estimate its talent capacity for future
anticipated needs as well, and to train individuals in a proactive fashion. In 2007, the IBM Institute for
Business Value published seven keys to succeed in a globally integrated world of business, written by
Eric Lesser, Tim Ringo, and Andrea Blumberg. The seven principles are:
1. Understanding the demographics and capabilities of the workforce.
2. Predicting the future labor supply and demand.
3. Utilizing social networks to increase visibility and application of knowledge across the organiza-
tion.
4. Enabling individuals to perform work regardless of location.
5. Facilitating collaboration across traditional organizational boundaries.
6. Driving the rapid development of skills and capabilities to meet changing business conditions.
7. Evaluating employee performance and providing appropriate feedback.
Sources:
http://intelligententerprise.informationweek.com/showArticle.jhtml;jsessionid=FRFIJGEA3BMIXQE1G
HPSKHWATMY32JVN?articleID=175002433 (accessed on December 22, 2009)
http://www.shrm.org/Education/hreducation/Documents/Boudreau_IBM%20Case%20Study%20with%20
Teaching%20Notes_FINAL.pdf (accessed on November 9, 2011)
accessed on December 22, 2009)
DISCUSSION QUESTIONS
.
1. This chapter’s opening quote by Peter Drucker said, “The essence of a business is outside it-
self.” What do you think this means? Do you agree?
Students may ask: What is meant by the word “essence?” It has a number of meanings. How-
ever, according the dictionary, it means “that which makes something what it is.” It is im-
portant to remember that the purpose of a successful business is to get customers and to retain
customers.
Using the definition above, Drucker’s statement can be interpreted to mean that it is the out-
side environments that determine the nature of business. This can be illustrated through the
use of an example. A new automobile manufacturer entering the U.S. market is faced with

2-16
three large domestic companies and a number of well-established foreign firms. The newcom-
er’s strategy has to take this external environment into consideration. This can be contrasted
with a new company entering a business in which the competition is limited to three or four
small firms.
However, one can argue that even though the external environments can have a dramatic im-
pact on a business, it is still management’s responsibility to develop a strategy to enable the
organization to grow and prosper.
2. What are the most important forces in the macroenvironment facing companies today?
In order to answer this question, the student probably needs to recognize that different compa-
nies operate in different industries and a critical macroenvironment force facing one company
may be a minor factor for another. Three examples are given below:
Economy. The economy is always a factor. A booming economy may allow a new
business to grow and prosper while a depressed economy would cause it to fail. Some
businesses do very well in booming economies whereas others (notably the entertainment
industry) seem to flourish during times when the economy is weak.
Technology. Consider the impact of rapidly changing technology on the computer
industry. Most of the early innovators are no longer in business, and many of the current
leaders might not survive another dramatic change in technology. And yet, in other in-
dustries (such as candy making), the technology has been unchanged for many years.
Political/legal. This factor is having a major impact on the televi-
sion/telephone/computer interface. Political efforts to increase competition in the cable
television industry will probably be a major factor for many years to come.
Students should be able to identify industries in which each of the forces in the macroen-
vironment is playing a major role or, at least, have done so in the past.
3. What are the main differences between the macroenvironment and the competitive environ-
ment?
The macroenvironment consists of the major forces (international, economic, social and natural,
demographic, technological, and political/legal) which affect all businesses to some degree.
The competitive environment. While this is also part of the external environment, it is viewed
separately from the macroenvironment in that it focuses on the competitive forces that are specif-
ic to each business.
4. What kinds of changes do companies make in response to environmental uncertainty?
Organizations may adapt to the environment by altering their work structures and work processes
in order to reduce uncertainty. When uncertainty arises due to environmental complexity, many
organizations adopt more decentralized decision-making structures. This allows people with the
most direct knowledge of a particular product or operation to make important decisions rather
than a centralized unit that may be more removed from the daily business activities.
When uncertainty arises due to changes in the environment, many organizations adopt more flex-
ible structures. When technologies, customers, and competitors change rapidly, a highly rigid,
bureaucratized organization is less able to respond effectively, thus responsiveness and innova-
tion become priorities

2-17
Organizations can adapt to uncertainty by buffering at both the input and output sides of their
boundaries. They may do this by hiring temporary workers during rush periods on the input side,
and by maintaining adequate inventory in order to manage a rush of orders on the output side.
Organizations may also adapt at their core by establishing flexible processes such as mass cus-
tomization which allows an organization to produce large quantities at low cost, yet still offer in-
dividual customization.
5. We outlined several proactive responses organization can make to the environment. What
examples have you seen recently of an organization responding effectively to its environment?
Did the effectiveness of the response depend upon whether the organization was facing a
threat or an opportunity?
A number of proactive responses to the environment are identified in the text:
Independent strategies: The firm acts on its own to change some aspect of the current environ-
ment through competitive aggression, competitive pacification, public relations, voluntary action,
legal action, or political action.
Cooperative strategies: The firm collaborates with another organization to either reduce their
costs and risks or increase their power relative to the environment.
Strategic maneuvering: The firm attempts to change the boundaries of its competitive environ-
ment through domain selection (entering new markets with limited competition or regulation), di-
versification (investing in different types of business), mergers and acquisitions, or divestiture.
Challenge students to identify firms that are adopting each of these strategies and whether or not
they are doing so in response to a threat or an opportunity.
6. Select two organizations that you are interested in. Research information about the firms or
talk with an employee if possible. What types of cultures do they have? Write a paragraph
that describes each culture.
EXAMPLE: “Company X seems to really care about their new employees. The employee I
spoke to told me that the company actively encourages employees to move from job to job within
the organization - that sounded great to me. In addition, I found out that people have a lot of flex-
ibility to work on their terms - for example, being in the office at 9am doesn’t matter as much as
whether or not you get the job done. To me, this company looks like it has a group culture.”
7. When you were visiting colleges to decide where to attend, were there cultural differences in
the campuses that made a difference in your choice? How did these differences impact your
decision on which college to attend?
Student responses to this question will differ widely, but if they understand the concept of culture,
they should talk about the “feeling” a place has - organized, productive, friendly, etc. If students
have visited several college campuses, they should definitely be able to talk about difference in
culture for each campus. For example, in California, one might have perceive USC as being very
sports-oriented, Occidental as being very arts-oriented and exclusive, UCSD as a school that pro-
duced “renaissance people”, CalTech as being a place for brains and geeks, and San Diego State
as a party school. Note that all of these perceptions of culture have value judgments attached to
them, and they may or may not be accurate.

2-18
CONCLUDING CASE
Wild Water Gets Soaked
Case Summary:
This case reveals how important it is to organizations of all sizes to be prepared and ready to im-
plement changes in business scope and even product mix in order to combat the effects of external
forces. As the case depicts, external environmental changes – changes in competition and con-
sumers’ preference, to name a few - often strongly impact companies. Changes such as these ne-
cessitate that an organization, desiring to remain profitable, must be willing to modify operations
to better accommodate its changing consumers’ needs.
Chapter Topics Related to the Case:
Discuss how environmental forces impact organizations
Describe the purpose of an environmental analysis
Discuss how organizations like the Salernos operation can conduct environmental analyses
Identify how an organization can better adapt to the demands of its external environment
Identify how an organization can influence its external environment
Differentiate between an organization’s external and competitive environments
Case Discussion Questions:
1. Imagine that you are a management consultant hired by the Salernos to help them navigate
the choppy waters ahead. First, describe the elements of the macroenvironment and compet-
itive environment that affect Wild Water now. Then describe elements that you anticipate
will affect the water park in the next few years.
The elements of the macroenvironment that are going to be affecting Wild Water are de-
mographics (the changing clientele attracted by the new condos), technology (the upscale chain
park), the economy (the price of tickets, along with the costs of running the park), laws and poli-
tics (the new state safety law). Wild Water will also be affected by the competitive environment in
the form of rivals (the chain park), substitutes (golf, deep-sea fishing trips), and a customer base
that is potentially changing.
2. Next, describe the organization’s culture. Discuss how the current culture affects the way it
responds to the organization’s external environment.
Wild Water has a strong group culture. Despite the “hierarchy”, employees at Wild Water are
considered “family”, and there is a sense of cohesiveness, participation, and teamwork. Having a
group culture means that the staff at Wild Water are probably going to care more about loyalty,
tradition, and developing employees than they will about gaining a competitive advantage or mar-
ket superiority. Having a strong culture means that Wild Water can identify and support appropri-
ate behaviors for moving the company forward.
3. Now, create a plan for Wild Water. In your plan, describe what changes the organization
needs to make in its culture to meet upcoming challenges in the external environment. Then

2-19
describe steps that Wild Water can take to compete successfully against the new amusement
park. How can the Salernos keep their loyal customers happy while attracting new ones?
The first thing Wild Water managers will need to do is to understand the changes to their envi-
ronmental and competitive environments. As noted in the text, there are three considerations that
guide the choice of a response approach to the environment: 1) changing the appropriate elements
of the environment; 2) choosing responses that focus on pertinent elements of the environment;
and 3) choosing responses that offer the most benefit at the lowest cost. In this case, independent
action may be the best way for Wild Water to change the environment. If they started working
right away, they would be able to bring their park up to the new safety standard laws. The next
thing they need to do is embark on a public relations campaign - making sure that their best fea-
tures are highlighted in advertising, and that the advertising reaches the right people. They may
not be able to compete head-to-head with the new chain park, but they may still be able to engage
in competitive aggression through the use of aggressive pricing.
EXPERIENTIAL EXERCISE
EXERCISE 2.1: EXTERNAL ENVIRONMENT ANALYSIS
Objective
To give students the experience of performing an analysis of a company’s external environment.
Suggested Responses to Student Questions
1. Laws and Regulations. What are some key laws and regulations under which this company and
the music industry must operate?
Key laws and regulations in the music industry might include copyright regulations, contracts, royalty
practices in retail sales and radio broadcasting, anti-trust, advertising regulations, foreign-trade prac-
tices.
2. The Economy. How does the state of the economy influence the sales of this company’s
products?
The state of the economy has traditionally had less of an immediate impact on the music industry than
on some others. CDs and on-line music sales tend to be low-ticket items and are less likely to be af-
fected too adversely even by a recession. A key driver of sales is the presence or absence of popular
new talent.
3. Technology. What new technologies strongly affect the company you have selected?
New technologies permitting on-line music sales, like iTunes, and recording and playing devices like
iPod and upcoming cellphone technologies, increase the easy availability and sale of music products.
They also allow music companies to avoid the expense of manufacturing and distributing CDs, and
sharing sales revenues with retailers. A major downside is that new technologies permit easy copying
of music without payment. Technology that can provide copyright protection (e.g., preventing unau-
thorized copying) may be one solution to this problem.

2-20
4. Demographics. What changes in the population might affect the company’s customer base?
Demographics affecting the company might include changes in the population of young people who
are the primary purchasers of pop music (conversely, the gradual decrease in classical music sales as
the demographic for that segment ages) and the growing importance of the Hispanic market.
5. Social Issues. What changes in society affect the market for your company’s music products?
Social issues affecting the company include not only the increased tolerance for illegal copying of
music, but also the increased fragmentation of public tastes and interests. Objections to obscenity in
lyrics and the rising influence of the religious market, are other social factors influencing the music
business.
6. Suppliers. How does your company’s relationship with suppliers affect its profitability?
The lower the cost of supplies, the more profit the company will make. In the music industry, sup-
plies are both tangible (the cost of CDs and jewel cases, for example) and intangible (the money paid
to artists.) Companies that introduce new artists may take bigger risks, but also have smaller costs
than companies that record and distribute the music of established acts.
7. Competitors. What companies compete with the firm you have selected? Do they compete on
price, on quality, or on other factors?
Key competitors in the industry include Bertelsmann, EMI, Sony, Universal, and Warner Music. In
the past, many more companies existed, but the industry has experienced considerable consolidation.
(There might be even more consolidation but for anti-trust regulations in the U.S. and Europe.) The
companies do not compete on price at all, or even on the quality of their products per se; the main
sources of competitive advantage are the companies' backlist - the music copyrights they own - and,
even more important, the new talent they are able to find and sign. Most music buyers do not know
or care which company is selling the music they are buying.
8. New entrants. Are new competitors to the company likely? Possible?
Traditionally, new entrants were extremely unlikely; given the large capital investment the music
business requires (millions to launch a new album, for example). That may still be the case, but today
potential new entrants include music distributors themselves, like Apple, who can decide to bypass
music companies and sign new talent on their own. This is unlikely, as companies like Apple current-
ly do not have the expertise, experience, or perhaps even interest in the business. But it remains a
possibility that music companies need to take into account, particularly as on-line distributors become
an increasingly important part of the supply chain. In addition, the ability to sell music on-line may
reduce the need for some well-known artists to rely on the marketing and distribution capabilities of
music companies, and to sell directly to consumers on their own.
9. Substitutes. Is there a threat of substitutes for the music industry’s existing products?
There are many substitute delivery systems for music, and the music industry is constantly being
threatened by non-paying delivery systems. Music itself is more difficult to replace, however time
spent on other forms of entertainment may decrease the amount of time and money spent on music.

2-21
10. Customers. What characteristics of the company’s customer base influence the company’s
competitiveness?
Customers in the industry are characterized mainly by the fickleness, volatility, and unpredictability
of their tastes. Only a small fraction of new releases succeed - and these are new releases issued by
extremely experienced, knowledgeable companies, in an extremely competitive industry. Even sales
of new albums by well-known groups are difficult to predict, and very few stars maintain their lon-
gevity. In addition, many customers think there is nothing wrong with making free copies of music
for their friends, nor do they have great affection or respect for music companies.
Suggested Responses to Discussion Questions
1. What has the company done to adapt to its environment?
To adapt to the environment, music companies are taking over more of the supply chain, manufactur-
ing their own CDs and managing their own music clubs. They are making deals with on-line music
distributors to sell individual songs. They are also increasing their on-line marketing efforts, as in let-
ting AOL offer its customers music video and song samples.
2. How does the company attempt to influence its environment?
To influence the environment, music companies pay slotting fees to retailers to gain shelf space, and
pay fees to ensure play time on radio stations. They heavily market new releases. They are aggres-
sively seeking to enforce copyright laws forbidding illegal copying - their success in shutting down
Napster is an example of that. They are also enlisting the artists themselves in an effort to educate
and influence the public on the illegal copying issue. In the U.S., they are also asking the government
to pressure China to reduce the widespread music piracy in that country.
EXERCISE 2.2 - CORPORATE CULTURE PREFERENCE SCALE
Objectives
To expose students to different types of corporate cultures.
To help students identify the kind of organization in which they would most
like to work.
To help students see how classroom cultures can differ along the same lines
as corporate cultures.
Case Discussion Questions:
1. Review the four types of corporate cultures outlined in the exercise. Working in small
groups, give examples of classes you have taken that correspond to each of the different
types of corporate culture dimensions.
Student responses will vary, but in general, you can expect to see the following differences
across different types of classrooms:
Control Culture - These classes have professors that are firmly in charge of the class and they
let students know it. Typically, professors in a control culture will take roll, have large
amounts of homework (which may or may not be meaningful to the students), and will give

2-22
difficult tests that may or may not be related to the work done previously in class. Control
culture classes often place a lot of emphasis on memorization as a learning tool.
Performance Culture - These classes have professors that are interested in learning and who
foster a learning environment with their students. Class assignments are typically relevant
and give students new skills, and although tests may be difficult, they are clearly related to
what has been presented in class. Students often describe these classes as challenging, but
fair and interesting. In a performance culture, the primary emphasis is on learning and
growth.
Relationship Culture - These classes have professors that become ‘friends’ with students.
Students feel that their opinions count, that their voices are heard, and that they contribute to
learning, along with the professor.
Responsive Culture - This class is constantly changing to keep up with the latest changes in
the field. It may be taught online or it may evolve as students bring in additional information.
2. How do you know what kind of culture a class has? What do you look for that tells you
how the class is going to be?
Again, student responses will vary, but students are likely to talk about professor behavior
(business practices), the class syllabus (corporate mission statement and official goals), ritual-
ized behaviors such as distributing paperwork and taking roll (symbol, rites, and ceremonies),
and student reviews of the class (the stories people tell.)
EXAMPLES
Example 2.1 – Environment Influences: In February, 2001, the last typewriter repair shop
closed in New York City.1
Did it close because its employees didn’t do good work? Because of a
poor organizational structure? No, the typewriter repair store simply fell victim to a changing en-
vironment - changes in technology decreased demand for services and finally shut the business
down.
Example 2.2 – Laws and Regulations: The macroenvironment is composed of international, le-
gal and political, economic, technological and social forces that influence strategic decisions.
Many of these factors affect a manager’s ability to function effectively and influence their strate-
gic choices – interest and inflation rates, unemployment rates, rising energy costs, rising health
care costs and changes in the value of the dollar to name a few. In Malaysia when the cost of do-
ing business is artificially inflated, the customer bears the charge without any real gain in value.
One such example was The Private Healthcare Facilities and Services Act 1998 and Regulations
(2006). This act stipulate higher charges by private medical practitioners to which must be added
the cost of registration.2
Example 2.3 – Environmental Complexity: Recently, more and more Americans are becoming
aware of the environment - specifically the air that they breathe. With concerns about global
1 “TECH.Tuesday”, February 20, 2001, Vol. 13, #23. Retrieved August 15, 2005 from
http://web.dexter.k12.mi.us/tech_resource/tec_tue/tt110.html.
2
Singh, Beldev. “Keep cost of doing business low.” New Straits Times (Malaysia). August 21, 2006, pg. 25.

2-23
warming and pollution at an all-time high, people want to be sure that they and their companies
are acting in environmentally responsible ways. Americans spend 90% of their time indoors and
much of that at work. According to the EPA, air pollution is up to five times worse inside than
outside. Harsh cleaning chemicals contribute to the problem. Approximately 37 million Ameri-
cans suffer from chemical sensitivity, leading to increased absenteeism and health costs. Manag-
ers who promote the use of eco-cleaners, which do not evaporate harmful materials into the air,
can reduce their costs, make the workplace safer for their workers, and improve their reputation
as part of the “green movement”.3
Example 2.4 – Competitive Intelligence: Faced with declining customer-service ratings and
prices higher than competitors, Michael Dell recently resumed the role of chief executive at the
company he founded. His initial steps to be more competitive focused on eliminating redundan-
cies throughout the business. He began by eliminating eight senior executives, suspending bo-
nuses and providing limited discretionary awards to exceptional performers. Dell urged employ-
ees to work quickly to turnaround the company. He said “There is no luxury of time. The com-
petitors are fierce.” 4
Example 2.5 – Independent Strategies: As global warming is threatening the viability of As-
pen’s famed ski resort, companies there are responding by becoming pioneers in corporate envi-
ronmentalism. Aspen uses biodiesel fuel in its bulldozer-sized snowcats, uses a speck of dust to
seed artificial snowflake which consumes less water and energy, vehicle shop is partly heated
with used motor oil, Coke machines run on motion sensors, toilets have two different flush set-
tings—half flush and full flush, and resorts add $2 a day to the bill of every hotel guest donating
it to the Aspen Valley Land Trust to preserve open space. Aspen managers must complete an en-
vironmental impact assessment for each request for capital spending. Auden Schendler, Aspen’s
director of environmental affairs, wants “Aspen to be a thought leader – not just to be doing it,
but talking about how we do it.”5
This is a good example of both the public relations and voluntary action approaches to changing
the environment. (Table 2.4)
Example 2.6 – Corporate Culture: Jeff Bezos, the founder of Amazon.com, is adamant about
his company’s culture. In a recent interview with the Harvard Business Review, he says, “First,
we are willing to plant seeds and wait a long time for them to turn into trees.” He also says that
he pays as much attention to what’s NOT going to change in the next five to ten years, as he does
to what’s going to change. In this way, he believes he can create a stable, long-lasting strategy,
rather than a strategy that has to be constantly reinvented. At the same time, he is totally custom-
er-focused. He says that when a decision is “too hard”, the way to answer it is to say “Well,
what’s better for the consumer?” One of the business practices that best defines Amazon.com’s
corporate culture is that every person in the organization, no matter what their job title, has to
spend two days doing customer service in a call center every two years.6
3
Boulden, Jennifer. “The air in there.” Fast Company, September 2007, Iss. 118, pg. 64.
4
Techweb Newswire. “Dell suspends bonuses, streamlines management.” February 5, 2007
5 Fishman, Charles. “Degree of difficulty.” Fast Company, February 2007, Issue 112, pg. 94
6
Kirby, Julia and Stewart, Thomas A. “The institutional YES.” Harvard Business Review, Oct. 2007, Vol. 85, Issue 10, pp 74-82.

2-24
SUPPLEMENTAL FEATURES
Please see the following materials in the Asset Gallery on the text website.
CHAPTER VIDEO
Pikes’ Place Fish Market: Something Fishy
Days start early at Pike’s Place Fish Market with workers handling smelly fish for long 12 hour days.
Somehow they never get crabby working in an outdoor market that is cold and busy. When someone
buys a fish, workers throw them through the open air market to other workers who catch the fish and
wrap them up for the customer to take with them. People arrive from all over the world to watch the
action. John Yokoyama is owner and man in charge who decided they would become world famous.
He encouraged an environment and work culture of fun and pleasure. He wants his workers to look
forward to coming to work, so he encouraged throwing fish. You may not be able to throw your pa-
perwork or work equipment like they throw fish, but there are ways that you can laugh and play at
work. Yokoyama’s staff quickly grew from six to a team of 21. He teaches that working together is
an opportunity to “be in relationship” with one another. Today, companies are paying thousands of
dollars for videos and live training from these fish market workers who believe in the philosophy of
making work fun.
MANAGER’S HOT SEAT (MHS)
There are no Manager’s Hot Seat clips for this chapter
SELF-ASSESSMENT
Corporate Culture Preference Scale
TEST YOUR KNOWLEDGE
Macro Environmental Forces

2-25
EXPANDED POWERPOINT SLIDE SHOW
Expanded PowerPoint Slides include most Basic PowerPoint slides, along with additional material that
can be used to expand the lecture.
EXPANDED POWERPOINT
SLIDE 1
Chapter Title
EXPANDED POWERPOINT
SLIDE 4
Figure 2.1: Organization Inputs
and Outputs
EXPANDED POWERPOINT
SLIDE 7
External/Competitive
Environment
EXPANDED POWERPOINT
SLIDE 2
LO 1 – LO 4
EXPANDED POWERPOINT
SLIDE 5
Open Systems: Definition.
EXPANDED POWERPOINT
SLIDE 8
Macroenvironment
EXPANDED POWERPOINT
SLIDE 3
LO 5 – LO 7
EXPANDED POWERPOINT
SLIDE 6
Open Systems: Inputs & Outputs
EXPANDED POWERPOINT
SLIDE 9
Figure 2.2: The External
Environment

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EXPANDED POWERPOINT
SLIDE 10
The Economy: The economic
environment…
EXPANDED POWERPOINT
SLIDE 13
Technology
EXPANDED POWERPOINT
SLIDE 16
Demographics: trends
EXPANDED POWERPOINT
SLIDE 19
Competitors
EXPANDED POWERPOINT
SLIDE 11
Figure 2.3: Twelve month
comparison of stock markets
EXPANDED POWERPOINT
SLIDE 14
Laws and Regulations
EXPANDED POWERPOINT
SLIDE 17
Social Issues and the Natural
Environment
EXPANDED POWERPOINT
SLIDE 20
New Entrants
EXPANDED POWERPOINT
SLIDE 12
The Economy: publicly held
companies…
EXPANDED POWERPOINT
SLIDE 15
Demographics: defn.
EXPANDED POWERPOINT
SLIDE 18
Figure 2.4: The Competitive
Environment
EXPANDED POWERPOINT
SLIDE 21
Substitutes and Complements

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EXPANDED POWERPOINT
SLIDE 22
Question
EXPANDED POWERPOINT
SLIDE 25
Customers
EXPANDED POWERPOINT
SLIDE 28
Environmental Scanning and
Intelligence
EXPANDED POWERPOINT
SLIDE 31
Benchmarking
EXPANDED POWERPOINT
SLIDE 23
Suppliers
EXPANDED POWERPOINT
SLIDE 26
Environmental Analysis
EXPANDED POWERPOINT
SLIDE 29
Development and Forecasting
EXPANDED POWERPOINT
SLIDE 32
Changing the Environment
EXPANDED POWERPOINT
SLIDE 24
Supply Chain Management
EXPANDED POWERPOINT
SLIDE 27
Environmental uncertainty
EXPANDED POWERPOINT
SLIDE 30
Question
EXPANDED POWERPOINT
SLIDE 33
Changing the Environment: contd.

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EXPANDED POWERPOINT
SLIDE 34
Table 2.4: Influencing your Envi-
ronment
EXPANDED POWERPOINT
SLIDE 37
Adapting to the Environment
EXPANDED POWERPOINT
SLIDE 35
Table 2.3: Independent Action
EXPANDED POWERPOINT
SLIDE 38
Organization Culture
EXPANDED POWERPOINT
SLIDE 36
Table 2.5: Cooperative Action ma-
neuvering…
EXPANDED POWERPOINT
SLIDE 39
Figure 2.6: Competing Values Model
of Culture
EXPANDED POWERPOINT
SLIDE 40
Video: Pike’s Place Fish Market

Another Random Document on
Scribd Without Any Related Topics

London, and again smelt the perfume. I believed that Queen
Beelzebub was Mrs. Jarsell, and was astonished when I found Miss
Armour played that part. Penn's confession was not all destroyed,
and my friend Laurance has by this time shown what remains of it to
the police."
"And the telegram which Curberry received?" demanded Queen
Beelzebub. "Laurance sent that in vague terms so as to frighten
Curberry. It did, and he committed suicide after declaring to me that
he murdered Penn by your damned orders, Miss Armour. Then----"
"Thank you, we know the rest," she said in a quiet tone, which was
infinitely sinister in its suggestion; "you followed me in the
aeroplane, and smashed us both up."
"He broke my machines, the two of them," said a hoarse voice of
wrath, and Dan looked sideways to see Vincent glaring at him
furiously. "Well, you have fallen into your own trap," said Queen
Beelzebub, savagely. "I caught you, and I hold you, and, after we
have had a conference as to how you will be tortured, you will
expiate your crimes."
"Crimes," echoed Dan; "that's a nice way to put the matter. I have
done a service to the State by ridding the world of all you devils. You
can't escape hanging, not one of you," and he looked defiantly
round the room. "We shall all escape," said Queen Beelzebub,
quietly; "those who think that they will not have no trust in me." She
rose and stretched out her arms. "I have never failed you; never,
never. I shall not fail you now. I swear that not a single one of you
will suffer on the gallows." Apparently her sway over the society was
great, and they believed that she could accomplish even
impossibilities, for the faces of all cleared as if by magic. The look of
dread, the expression of terror disappeared, and there only
remained an uneasy feeling, as though none felt themselves quite
safe until Queen Beelzebub performed her promise. For his part, Dan
believed that the woman was lying, as he could not see how any

could win free of the net which was even now being cast over the
house. "You are a set of fools, as well as a pack of wolves," cried the
young man, in a vehement manner; "the police know too much for
you to escape them. My friend Laurance will lead them here; he
knows this house; you are safely trapped, say what that woman will.
Thieves, rogues, liars, murderers----"
"Lawyers, doctors, actors, soldiers," scoffed Queen Beelzebub; "they
all belong to the Society of Flies and you can see them here, Mr.
Halliday. Some of those ladies are in society; some are in shops;
some are married, and others are not. But both men and women
have acted for the good of the society, which I have founded, to give
each and everyone what he or she desires."
"You are all devils," raged Dan, his wrath getting the better of his
discretion; "red-handed criminals. The only decent one amongst you
is Mrs. Jarsell."
"I am decent?" gasped Mrs. Jarsell, looking up, surprised. "Yes;
because you were driven by that fiend," he pointed to the smiling
Miss Armour, "to compulsory crimes. You feel remorse----"
"Does she?" cried Queen Beelzebub, gaily; "and what good does that
do, my very dear Eliza, when you know what you have to do?" Mrs.
Jarsell looked at her companion with a long and deadly look of hate,
such as Dan had never thought a face was capable of expressing. "I
loath and detest you," she said, slowly, "but for you I would have
been a good woman. I have been driven to sin by you."
"And I shall still drive you," shouted Queen Beelzebub, furiously;
"take that man away until we decide what tortures we will inflict on
him. Then when he is dead and punished for his meddling, you will
either do what I have commanded you to do, or you shall be
tortured also!" The assembly, now quite certain that in some way
their head would deliver them from the talons of the law, shouted
joyfully, glad to think that two people would be done to death

instead of one. Mrs. Jarsell smiled in a faint, bitter manner. "You
shall be obeyed," she said, slowly; "come Mr. Halliday!"
"And say your prayers," cried Queen Beelzebub, as the door opened
to let the pair out; "you'll need them"; and, as the door closed with
Dan and Mrs. Jarsell on the outside, the young man heard again that
cruel laughter. "They are all in there," whispered the woman,
catching Dan's wrist and speaking hurriedly; "the men who captured
you included. The house is quite empty outside that room. Come."
"Where will you take me?" inquired Dan, hanging back and wincing,
for now his fate hung in the balance, indeed. "Outside; I am setting
you free. Run away and probably you will meet your friend and the
police. And pray for me; pray for me," she ended, vehemently. "Why
not come also," said Dan, when he found himself at the entrance
door of The Grange; "you are a good woman, and----"
"I am not good. I am wicked, and may God forgive me. But I am
doing one decent thing, and that is to set you free, to marry Lillian
Moon. When you leave this house, I shall do another decent deed."
"And that is?" Dan stepped outside, yet lingered to hear her answer.
"You shall see. Tell the police not to come too near the house," and
in a hurry she pushed him away and bolted the door. Halliday ran for
all he was worth from that wicked dwelling. On the high road he saw
a body of men approaching, and was certain that here were the
police and Laurance coming to save him. Shouting with glee at his
escape, he hastened towards them, when he heard a sullen heavy
boom like distant thunder. He looked back at The Grange and saw a
vast column of smoke towering into the sunlight. Then came a rain
of debris. At last the Society of Flies was disbanded, for the house
and its wicked inhabitants were shattered into infinitesimal
fragments.

CHAPTER XXI
SUNSHINE
After the storm came the calm, and with the spring a realization of
Mr. Halliday's hopes with regard to his future. Sir John Moon no
longer objected to Dan as the husband of his niece, and was indeed
profoundly thankful that she had escaped becoming Lady Curberry.
The story of the Society of Flies and the wickedness of Queen
Beelzebub and the blowing up of The Grange was a nine days
wonder. The papers, for some weeks, were filled with little else, and
The Moment almost doubled its circulation when the able pen of Mr.
Frederick Laurance set forth the complete story. Halliday became
quite a hero, as indeed he was, although he did not appreciate the
rewards of his conduct. To be interviewed, to have his portrait, more
or less unlike him, in dozens of illustrated papers, to receive offers
from music-hall managers, and even proposals of marriage from
various enthusiastic ladies, did not appeal to Dan. As soon as he
could, he went out of London and took refuge in Sir John's country
seat so as to escape publicity. Needless to say, Lillian was there, and
Mrs. Bolstreath also. Laurance was due within seven days to be
Dan's best man at the June wedding, and with him Mildred was
coming at Lillian's special request. Once, twice, and again the owner
of the house had heard the story of the late events, and also had
read them more or less garbled in different newspapers. Yet he
never wearied of the recital, and admired Halliday greatly for the
part he had played. From objecting to Dan as a nephew-in-law, the
baronet now urgently desired that he should make Lillian Mrs.
Halliday. In fact, when he thought of what the young man had saved
Lillian from, the uncle of the girl could not do enough for his

estimable young friend. So Dan, having become famous, was about
to become rich, but neither fame nor wealth appealed to him so
much as the undoubted fact that he was on the eve of wedding the
girl he adored. "And I think," said Lillian, holding on to Dan as if she
feared to lose him, "that you and I would be as happy in a cottage
as in a palace. Money is a nuisance, I think, dear."
"You say that because you have never experienced the want of it,"
said Dan, in a sententious manner. All the same he slipped his arm
round the girl's slim waist, and kissed her for the pretty sentiment
she had expressed relative to a poor but Arcadian existence. The
happy pair, not yet joined in holy matrimony, but to be made one in
seven days, were seated in the delightful garden of Sir John's house,
which was situated in the pleasant county of Devon. They had
strolled out after dinner, leaving Mrs. Bolstreath to chat with the
baronet, who approved of the big, placid woman, and enjoyed her
society. Lillian and Dan, however, liked to be in one another's
company without any third person to spoil their pleasures and on
this occasion--being humored as lovers--they were entirely alone.
The garden sloped down to a yellow beach, which was the curve of
a tiny bay, and under the orb of a brilliant May moon the waters of
the vast sea murmured softly almost at their feet. There was a
marble bench here, with a marble statue of Cupid near at hand,
perched on a pedestal, so the spot was quite that which lovers
would have chosen. Dan chose it because the screen of shrubs and
trees quite shut off the nook they occupied from the many windows
of the great house, and he could kiss Lillian when he wished,
without any uneasy feeling that someone was looking on. It is quite
unnecessary to say that he frequently availed himself of his privilege.
The about-to-be bride fully approved of his ardor in this respect.
"But you really must be serious," said Miss Moon, sedately, after the
last embrace given out of compliment to her love-in-a-cottage
sentiment. "I want to ask you a few questions."
"Ask what you will; I can deny you nothing."

"It's about the Society of Flies," hesitated the girl. "My dear," said
Dan, patiently, and coaxing a loose leaf around his cigar, "I don't
want to be disagreeable, but I am really tired of the Society of Flies."
"Only a few questions," said Lillian, nestling to his side, "and then
we can forget all about the matter."
"That won't be easy for me to do," replied Mr. Halliday, rather grimly.
"I can never forget what I suffered when I was expecting to be
tortured by that fiend."
"Queen Beelzebub?"
"She could not have chosen a better name, my dear. I sometimes
doubt if she was a human being at all."
"Poor, misguided woman," murmured Lillian, resting her head on
Dan's shoulder. "Don't pity her, dear. She does not deserve your pity.
Now, Mrs. Jarsell--I have always been sorry for her."
"So have I," said the girl, promptly; "she was very good to you,
dear."
"Good is a weak way of expressing what I owe her," retorted
Halliday; "think of what she saved me from."
"Perhaps Queen Beelzebub would not have tortured you, after all."
Dan laughed incredulously. "I shouldn't have cared to have trusted
to her mercy. I tell you, Lillian, as I have told you before, that
already the implements of torture were being made ready. They
would have crowned me with a red-hot circlet of steel, and pinched
my flesh with red-hot pincers, and----"
"Don't, oh, don't." Lillian turned pale. "It is really too dreadful. And
to think that I was with Bolly at Mrs. Pelgrin's, quite ignorant of the
peril you were in. I wish I had been with you."

"I am glad you were not. My one feeling of thankfulness was that
you had escaped being hurt in any way. I didn't mind dying so long
as you were all right, my darling, although I much prefer being alive
and here. Lillian, my dear, don't cry; it's all over, weeks ago."
"I--I--I can't--can't help it," sobbed the girl, clinging to him; "it is all
so dreadful. When Mr. Laurance came that day with the police and
said you were at The Grange, I thought I should have died."
"There, there," Dan soothed her, as he would have soothed a fretful
child; "it is all over and done with. By the way, how was Freddy so
certain that I was at The Grange? He never quite explained his
certainty."
"Well, dear," said Miss Moon, drying her eyes with Dan's
handkerchief, "when he did not hear from you in London, he went
down to Blackheath with Inspector Tenson of Hampstead. They saw
the local inspector and called at Lord Curberry's house, after what
Mr. Laurance told. But already a policeman had been summoned by
the servants. Lord Curberry was dead of poison, and they found his
confession, saying how he had taken it because he believed that his
connection with the Society of Flies was found out. Then the
servants explained how Queen Beelzebub had come in an aeroplane-
---"
"They did not call her Queen Beelzebub--the servants I mean," said
Dan, who had heard the explanation before but was glad to hear it
again told in Lillian's soft voice. "No; they did not know who she
was, as she was cloaked and veiled. But they told Mr. Laurance that
you had declared this veiled lady had murdered Lord Curberry--that
wasn't true, you know."
"True enough in one sense," interrupted Dan, quickly, "seeing that
she drove him to suicide. Well?"
"Well, then, Mr. Laurance guessed that she was Queen Beelzebub
and wondered where you were. He went to the shed where you kept

your aeroplane and heard that you had followed her. Those at the
shed thought that it was a race." "It was," said Dan, grimly, again,
"and I won."
"Mr. Laurance guessed that you had followed her all the way to
Sheepeak, although he fancied, and indeed hoped, that both
aeroplanes had broken down. He dreaded lest you should get into
trouble at Sheepeak."
"Which I certainly did, although not quite in the way Freddy
expected." Lillian laughed at the memory of his escape, and rubbed
her soft face on the sleeve of his coat. "Mr. Laurance told the police
all about the matter, and they wished to telegraph to Thawley, so
that the police there might go over to Sheepeak. But Mr. Laurance
stopped them, as he fancied you might have been taken captive by
Queen Beelzebub, and that if such a move was made, she might
hurt you."
"She intended to hurt me very severely. And then Freddy heard from
the police about those numerous telegrams all in the same words,
calling thirty people to Sheepeak. It was the similarity of the
messages that made the telegraph authorities suspicious and, when
the police came to ask--knowing where Queen Beelzebub lived from
Freddy--they were shown the telegrams."
"But by that time all those who got the telegrams had come north,"
said Lillian, quite excited; "they all went up by the early train."
"Yes, and the police, with Freddy, followed, delaying action until such
time as they thought they could collar the whole gang. By jove, they
just came in time. Freddy was a fool to tell you that I was in The
Grange."
"He was not quite certain, and only thought so because the wrecked
aeroplanes were found in the field near the house. Oh, Dan," Lillian
put her arms round her lover's neck, "Mr. Laurance told me how

thankful he was when he saw you running along the road and knew
that you had escaped."
"He might have been thankful also that I caused him and the body
of police to halt," said Dan, quickly; "if they had not, everyone would
have been blown up. As it was, I very nearly got smashed by the
falling sticks and stones and what not. There must have been tons
of dynamite in the cellars of The Grange."
"Who do you think put it there, Dan?"
"Queen Beelzebub, of course. She said that she had made
everything ready against possible discovery, and warned poor Mrs.
Jarsell that she would have to commit a last crime. Crime, by Jove.
Why the best day's work the woman ever did was to blow up that
gang of devils." "I suppose Mrs. Jarsell did blow up the house, Dan?"
"Of course she did. Her heart softened for some reason, and she
pushed me out of danger. Then she must have gone straight down
to the cellar, and set a light to the stored dynamite. The explosion
happened so quickly after I was free that I am sure she acted in that
way. It was certainly efficacious, for not one of the blackguards,
either men or women, remained alive to be hanged."
"Well, that was a good thing," said Miss Moon, with a shudder; "you
know that their relatives would have been disgraced." Dan nodded.
"Quite so, and the names have never become public. This person
and that person and the other person disappeared from various
neighborhoods and from various family circles. But, when the
relatives read about the explosion in Hillshire and Freddy's brilliant
account of that infernal society, they made a pretty good guess as to
what had happened to the disappearing party. Very few people gave
information to the police that their relatives or friends had
disappeared. Tenson was rather annoyed, as he wanted to make a
big fuss over the matter."

"I don't see what bigger fuss could have been made, Dan. Why, the
papers were filled with nothing else for weeks."
"All the same, Tenson wanted the names of those who belonged to
the gang, and people declined to gives names of those who had
disappeared from their midst. We know that Curberry belonged to
the gang, and Penn; also Mrs. Jarsell, Vincent, and Queen
Beelzebub. But only one or two other names came to light in print."
"I think," said Lillian, thoughtfully, "that so many well-connected
people were mixed up in the matter that everything was hushed up
as much as was possible." "H'm," said Halliday, throwing away the
butt end of his cigar; "it is not unlikely that a hint was given in high
quarters that no more need be said than was absolutely necessary.
Heigh ho!" He rose and stretched; "I am weary of the business.
Come down and walk on the beach, dear, and let us talk about
ourselves." Lillian was only too glad and the lovers descended the
marble steps which led down gently to the sands. The moon glowed,
pure silver in a sky of the darkest blue, with the old moon in her
radiant arms. In dark ripples, fringed with creaming white, the
wavelets murmured on the sands, and at either side of the bay great
cliffs bulked, huge and densely black. It was a night of soft winds
and glorious moonshine, fit for Romeo and Juliet to converse about
love, yet Lillian still harped on the prosaic facts of the dangers she
and Dan had escaped. Perhaps it was natural, for they had assuredly
passed through a most trying time. "Why did Queen Beelzebub
found such a wicked society?" asked Lillian. "She wanted power and
perverted her talents to base ends in order to gain it, my dear. Well,
well, she has gone to her account, so we need say no more about
her. She was a clever woman, but a fiend incarnate."
"And Mrs. Jarsell?"
"Poor soul. She was but an example of the influence of a strong
mind on a weak one. I think she loathed the whole business
thoroughly, but she had gone too far to retreat."

"Do you think Mrs. Pelgrin or her nephew knew anything of the
matter?"
"No, I don't," said Halliday, very decidedly, "although Tenson had his
suspicions of George. Mrs. Jarsell, who was used as a blind by Miss
Armour, in her turn used George as a blind to say, if necessary, how
seldom she went to town. I forgot to tell you, Lillian, that the police
discovered that both Mrs. Jarsell and the leader of the society used
frequently to motor for miles and miles to different stations further
down the line in order to reach London without remark being made.
Mrs. Jarsell only used the Thawley Station so as to get George
Pelgrin's evidence that she scarcely ever went to town. In that way,
of course, it was next door to impossible to connect two harmless
old ladies with these many dreadful murders."
"It was only your cleverness about that scent which formed the link,"
said Lillian, proud of Dan's characteristic sharpness, "and by using
the biplane to travel to Blackheath, when Mr. Durwin was murdered,
Mrs. Jarsell was able to get Mrs. Pelgrin to prove an alibi."
"Oh, it was chance that showed Mrs. Jarsell's complicity on that
occasion, my dear," said Dan, modestly; "but that we went into that
animated picture entertainment, we should never have known she
was at Blackheath. I suppose Miss Armour did not feel equal to
committing that particular crime, so sent Mrs. Jarsell to carry out the
job."
"Miss Armour was never really paralyzed, I suppose?"
"No. She pretended to be when anyone paid a visit. Nor do I believe
that either she or Mrs. Jarsell were so old as they pretended to be.
What a queer thing human nature is," went on Dan, thoughtfully;
"here was Miss Armour, who could have lived a very pleasant and
comfortable life, plunging herself and that miserable woman into
dangerous crime just for the love of power. One would have thought
that she would have liked to show her power publicly, but she was

quite content to be a secret despot. I suppose it gave her a certain
amount of pleasure, though it is hard for a simple person like I am
to see where it came in."
"But her power could not have been exercised amidst public
applause, Dan, seeing what it meant."
"Quite so. The police would soon have ended her career had her
infernal sway been known."
"Do you think," asked Lillian, after a pause, "that the members of
the society expected that explosion?"
"No," answered Halliday, very promptly. "I do not, else, in spite of
the danger, I believe the half, if not the whole, of them would have
run out even into the arms of the police to be hanged in due course.
But they seemed to have an enormous belief in Queen Beelzebub,
who was undoubtedly as clever as her father the devil. The
members expected that in some way she would manage to save
them. But all the time--as I guessed, although I could not
understand what she was aiming at--she was preparing some way of
getting rid of the lot, herself included. She must have summoned
them to a pretended conference so as to house all under one roof
and then fire the mine. I expect she filled the cellars of The Grange
ages ago with dynamite, and arranged with Mrs. Jarsell to explode
the mine. Of course, where Mrs. Jarsell got the better of Queen
Beelzebub was that she did not give her the pleasure of revenging
herself on me, and fired the dynamite unexpectedly. While Miss
Armour and her demons were thinking how to torture me, they all
went--well, we won't say where they went. But there wasn't enough
left of them to form a single human being."
"And there is an immense hole in the ground where The Grange
stood," said Lillian, with awe; "Mr. Laurance told me, and Mildred
also."

"I daresay that hole will form the basis of a legend in years to
come," was Dan's reply, "and a very picturesque story can be made
out of the material supplied by that infernal woman. She was as
wicked and cruel and callous as that Ezzelin who played dice with
the arch-fiend. By the way, Lillian, I suppose Mildred Vincent was
very much cut up over the death of her uncle."
"No, she was not. Of course, she regretted his awful end, and that
he should have been so wicked, but he was never kind to her and
she had not much love for him. I don't know," ended Miss Moon,
reflectively, "if we can be sure that he ever committed a crime."
"Yes, he did," declared Halliday, quickly; "every single member of
that society had to commit a crime in order to belong to the gang.
Vincent, I truly believe, was not a bad man, as his sole idea was a
craze for inventing aeroplanes. But Queen Beelzebub, wanting him
for her purpose, no doubt inveigled him into committing himself as a
criminal, as she inveigled Mrs. Jarsell and Curberry."
"Poor Lord Curberry," sighed Lillian; "he is more to be pitied than
blamed. I don't think the young man who holds the title now cared
that he died."
"Can you expect him to?" asked Dan, sceptically, "seeing he has got
a title and a lot of money. In a clean way, too, for Curberry
consented to the murder of two relatives so as to secure what he
wanted. No, Lillian, it is your kind heart that makes you pity
Curberry, but he was not a good man. No decent fellow would have
belonged to that association of demons. But I think we have
discussed the subject threadbare. Let us talk of more pleasant
matters."
"About Mr. Laurance and his marriage?" cried Lillian, gaily. "Well,
yes, although being selfishly in love, I would much rather discuss our
own. Freddy will be able to marry Mildred now since you have given
him enough money to start a newspaper. It is very good of you."

"I don't think so," said Miss Moon, as they began to climb the steps
again, and return to the house. "Mr. Laurance helped you to learn
who killed my dear father, and deserved a reward, as you did. I gave
him money and----"
"And you gave me yourself, so I have been rewarded very richly.
Well, Freddy will make a very good proprietor and editor of a
newspaper, and Mildred can help him to make it a success. All's well
that ends well."
"And you are quite--quite happy, dear?"
"Quite, quite. Only I fear," Dan sighed, "that some people will call
me a fortune hunter, seeing that I, without a penny, am marrying a
rich woman." Lillian stopped in the path up to the house and took
hold of the lapels of Dan's coat to shake him. "How can you talk
such nonsense," she said reproachfully; "why, after your portrait and
an account of all you have done appearing in the papers, you could
have married half a dozen women."
"But none so sweet as you, dear," said Halliday, kissing her, for her
lips were temptingly near his own; "well, I must not despise my
good fortune. But what can I give you in return, Miss Crœsus?"
"A promise," said Lillian, earnestly, "that you will not go up any more
in those horrid flying-machines. I shall always be afraid of losing you
if you do; you know that quite well."
"Let me take a tiny little flight occasionally," coaxed Dan, gaily. "Well,
yes, on condition that you take me. If there is an accident, we can
be smashed up together. Don't argue;" she placed her hand on his
mouth; "that is the only way in which I shall agree to your flying."
"Wilful woman will do what she wants," said Halliday, resignedly, and
tucked Lillian's arm beneath his own; "hello, there is Sir John and
Mrs. Bolstreath on the terrace. They seem to be very happy
together."

"So happy," whispered Lillian in his ear, "that I believe----" She
pursed up her lips and looked unutterable things. "Well," said Dan,
laughing, "it would not be at all a bad thing for Sir John to make
Mrs. Bolstreath Lady Moon. She can nurse him and amuse him and
bury him in due course. What a heap of marriages; you and I;
Freddy and Mildred; Sir John and Mrs. Bolstreath. See; she's waving
her hand to us. Let us go inside, as it's growing a trifle chilly."
"Hark," said Lillian, raising her finger, and Dan listened to hear the
wild, delicious strain of a nightingale singing from a distant thicket.
"It sings of my love for you," he whispered, "and of your love for
me. What other than such a song can express our feelings, darling."
"This," said Lillian, and kissed him fondly.
"Clever girl!"
THE END

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