Chapter
3
Organizational
Environments
and Cultures
Management
4th Edition
Chuck Williams
Chapter 3
Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved
Prepared by
Deborah Baker
Texas Christian University
1
What Would You Do?
Wendy’s International Headquarters

Obesity is at epic
proportions, with 66 percent
of Americans overweight

Fast food restaurants are
faced with lawsuits,
regulation, and complaints

Healthier cooking techniques
costs more with less tasty
results
Should Wendy’s pay attention to activists—
or give customers what they want?
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2
External Environments
After reading the next four sections,
you should be able to:
1.
2.
3.
4.
discuss how changing environments affect
organizations.
describe the four components of the general
environment.
explain the five components of the specific
environment
describe the process that companies use to make
sense of their changing environments.
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3
Changing Environments
Characteristics of
Changing External Environments
Environmental Change
Environmental Complexity
Resource Scarcity
Uncertainty
1
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4
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
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Punctuated Equilibrium:
U.S. Airline Industry
1.1
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Environmental Complexity
Environmental Complexity: the number of
external factors in the environment that
affect organizations
Simple environments
environments
Complex
1.2
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Resource Scarcity
Resource Scarcity
The degree to which an organization’s
external environment has an abundance
or scarcity of critical organizational
resources
1.3
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Natural
Resources
There is general concern
over the scarcity of
natural resources.
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.
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Uncertainty
1.4
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External Environment
2
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Components of the
General Environment




Economy
Technological trends
Sociocultural trends
Political / Legal trends
2
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Economy

Growing vs. shrinking economies

Predicting future economic activity

Business confidence indices
2.1
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Technological Component
Technology--
Input
Knowledge
Tools
Techniques
Output
Raw
Materials
Products
Information
Services
2.2
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Impact of Technology

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.
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Sociocultural Component

Sociocultural Components
 Demographic changes
 Changes in behavior, attitudes, and beliefs
2.3
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Demographics Example
2.3
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Political / Legal Component



2.3
Legislation
Regulations
Court decisions
Managers must be educated
about the laws, regulations, and
potential lawsuits that could
affect business
Web Link
http://www.eeoc.gov/laws/cra91.html
http://www.dol.gov/esa/whd/fmla/
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Specific Environment
Customer
Competitor
Supplier
Industry Regulation
Advocacy Group
3
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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
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Competitor Component
Competitive Analysis
Deciding who your competitors are
Anticipating competitors’ moves
Determining competitors’
strengths and weaknesses
3.2
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Supplier Component
Buyer
Dependence
Suppliers
Opportunistic Behavior
Supplier
Dependence
Relationship Behavior
3.3
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Supplier Dependence
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Industry Regulation Component
Industry Regulation
Consists of regulations and rules that
govern the business practices and
procedures of specific industries,
businesses, and professions
3.4
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24
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
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Commission
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a division of Thomson Learning.
http://www.osha.gov
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http://www.sec.gov
25
Cost of Compliance
Researchers studied U.S. manufacturers and the
cost they incur complying with the 25 major
federal regulations. Researchers 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.
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26
Dealing with Gifts and Suppliers
Guidelines to Avoid Conflicts of Interest
 There’s no such thing as a free lunch
 Meals and entertaining are valid business
 No gifts worth more than $25 in value
 No cash or cash equivalents
 No discount on goods and services
 No stock in suppliers’ companies
 Don’t allow personal friendship to
influence decisions
3
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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
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Advocacy Groups
PETA is a well-known advocacy group that attempts to influence
consumers and companies to pursue animal-friendly practices.
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Making Sense of
Changing Environments
Environmental
Scanning
Evaluating
External
Environments
Interpreting
Environmental Factors
Acting on
Threats and Opportunities
4
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Environmental Scanning

Environmental scanning:
 searching the environment for
events or issues that might
affect an organization
 keeps companies current
on industry factors
 reduces uncertainty
 alters organizational strategies
 contributes to organizational performance
4.1
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Interpreting Environmental Factors
Environmental
Scan
Opportunities?
Threats?
4.2
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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
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Cognitive Maps
4.3
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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.
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35
Internal Environments
Internal Environment
Consists of 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
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36
Creation and Maintenance of
Organizational Cultures
Company Founder
Organizational Stories
Organizational Heroes
5.1
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Successful Organizational Cultures
Adaptability
Consistency
Involvement
Clear Vision
5.2
Sales
Growth
Return on
Assets
Employee
Satisfaction
Profits
Quality
Adapted from Exhibit 3.7
D.R. Denison & A.K. Mishra, Organization Science 6 (1995): 204-223
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38
Levels of Organizational Culture
 Symbolic artifacts 1. Surface
 Behaviors
Level
SEEN
 What people say
 How decisions
are made
2. Expressed Values
and Beliefs
 Beliefs and
assumptions
 Rarely discussed
3. Unconsciously
Held Assumptions
and Beliefs
HEARD
BELIEVED
5.3
Adapted from Exhibit 3.8
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39
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
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