Chapter 3
Organizational Environments
and Cultures
MGMT
Chuck Williams
Designed & Prepared by
B-books, Ltd.
1
External Environments
After reading the next four sections,
you should be able to:
1. discuss how changing environments affect
organizations.
2. describe the four components of the general
environment.
3. explain the five components of the specific
environment
4. describe the process that companies use to make
sense of their changing environments.
2
Changing Environments
Characteristics of
Changing External Environments
Environmental Change
Environmental Complexity
Resource Scarcity
Uncertainty
1
3
Environmental Change
Environmental Change is the rate at which
a company’s environments change
 stable environments
 dynamic environments
Punctuated equilibrium theory
Companies cycle through stable and dynamic
environments.
1.1
4
Environmental Complexity
Environmental Complexity: the number of
external factors in the environment that
affect organizations
Simple environments
Complex environments
1.2
5
Resource Scarcity
Resource Scarcity
The degree to which an organization’s
external environment has an abundance
or scarcity of critical organizational resources
1.3
6
Natural
Resources
The scarcity of natural
resources is a general
concern. Companies like
Weyerhauser work extra
hard to correct the
misperception that they
are using up valuable
resources. In fact,
through careful planning
and good management,
Weyerhauser is able to
both guarantee its
lumber resources and be
a good environmental
steward.
7
Uncertainty
1.4
8
External Environment
Specific Environment
2
9
Components of the
General Environment
•
•
•
•
Economy
Technological trends
Sociocultural trends
Political / Legal trends
2
10
Economy
• Growing vs. shrinking
economies
• Predicting future economic
activity
• Business confidence indices
2.1
11
Technological Component
Technology
Input
Knowledge
Tools
Techniques
Output
Raw
Materials
Products
Information
Services
2.2
12
Impact of Technology
2.2
Technology
can be a great
benefit or a
daunting
threat. MP3
players have
created a
tremendous
new business
opportunity for some, like Apple, Creative,
and other manufacturers. But record
labels have suffered from the rapid
acceptance of digital music and persistent
file swapping.
13
Sociocultural Component
– Demographic changes
– Changes in behavior, attitudes, and beliefs
2.3
14
Demographics Example
2.3
15
Political / Legal Component
•
•
•
2.4
Legislation
Regulations
Court decisions
Web Link
Managers must be educated
about the laws, regulations,
and potential lawsuits that
could affect business
http://www.eeoc.gov/abouteeo/overview_laws.html
http://www.dol.gov/esa/whd/fmla/
16
Specific Environment
Customer
Competitor
Supplier
Industry Regulation
Advocacy Group
3
17
Customer Component
Monitoring customer
wants and needs
is critical for
business success
Reactive customer monitoring
– responding to problems,
trends, and events
3.1
Proactive customer monitoring
– anticipating problems,
trends, and events
18
Competitor Component
Competitive Analysis
Deciding who your competitors are
Anticipating competitors’ moves
Determining competitors’
strengths and weaknesses
3.2
19
Supplier Component
Buyer
Dependence
Suppliers
Opportunistic Behavior
Supplier
Dependence
Relationship Behavior
3.3
20
Industry Regulation
Component
Industry Regulation
Regulations and rules that govern the
business practices and procedures of specific
industries, businesses, and professions
3.4
21
Federal Regulation Agencies
Consumer Product
Safety Commission
http://www.cpsc.gov
Department of Labor
http://www.dol.gov
Environmental Protection Agency
http://www.epa.gov
Equal Employment
Opportunity Commission
Federal Communications
Commission
3.4
http://www.eeoc.gov
http://www.fcc.gov
Federal Reserve System
http://www.federalreserve.gov
Federal Trade Commission
http://www.ftc.gov
Food and Drug Administration
http://www.fda.gov
National Labor Relations Board
http://www. nlrb.gov
Occupational Safety and
Health Administration
Securities and Exchange
Commission
http://www.osha.gov
http://www.sec.gov
22
Cost of Compliance
Researchers studied U.S. manufacturers and the
costs they incur complying with the 25 major
federal regulations. They found:
• There are about 300,000 manufacturing companies in
the U.S.
• Each company spends roughly $2.2 million
So, the aggregate cost of complying with federal
regulations is roughly
$660 billion
And that’s just for manufacturing.
23
Advocacy Groups
Advocacy Groups
 Groups of concerned citizens who band together to
try to influence the business practices of specific
industries, businesses, and professions
 Techniques to try to influence companies
 public communications
 media advocacy
 product boycotts
3.5
24
Advocacy Groups
PETA is a well-known advocacy
group that attempts to influence
consumers and companies to
pursue animal-friendly practices.
25
Making Sense of
Changing Environments
Environmental
Scanning
Evaluating
External
Environments
Interpreting
Environmental Factors
Acting on
Threats and Opportunities
4
26
Environmental Scanning
Searching the environment
for events or issues that
might affect an organization
4.1
keeps companies current
on industry factors
reduces uncertainty
alters organizational strategies
contributes to organizational performance
27
Interpreting Environmental
Factors
Environmental
Scan
Opportunities?
Threats?
4.2
28
Acting on Threats
and Opportunities
Cognitive Maps
 simplified models of external environments
 depicts how managers believe
environmental factors relate to possible
organizational actions
4.3
29
Cognitive Maps
4.3
30
Internal Environments
After reading this section,
you should be able to:
5. explain how organizational cultures are created
and how they can help companies be
successful.
31
Internal Environments
Internal Environment
The trends and events within an organization that
affect the management, employees, and
organizational culture
 important because it affects what people think,
feel, and do at work
 organizational culture is the set of key values,
beliefs, and attitudes shared by organizational
members
5
32
Creation and Maintenance of
Organizational Cultures
Company Founder
Organizational Stories
Organizational Heroes
5.1
33
Successful Organizational Cultures
Adaptability
Consistency
Involvement
Clear Vision
5.2
Sales
Growth
Return on
Assets
Employee
Satisfaction
Profits
Source: D.R. Denison and A.K. Mishra, Organization Science 6 (1995): 204-223
Quality
34
Levels of Organizational Culture
 Behaviors
1. Surface
 Symbolic artifacts
Level
 What people say
2. Expressed Values
 How decisions
and Beliefs
are made
 Beliefs and
3. Unconsciously
assumptions
Held Assumptions
 Rarely discussed
and Beliefs
SEEN
HEARD
BELIEVED
5.3
35
Changing Organizational Cultures
• Behavioral addition
– is the process of having managers and employees
perform a new behavior.
• Behavioral substitution
– is having managers and employees perform a new
behavior in place of another behavior.
• Change visible artifacts
– such as the office design and layout, company
dress codes, etc.
5.3
36