The Environment and Culture of
Organizations
Much of the slide content was created by Dr, Charlie Cook, Houghton Mifflin, Co.©

The Organization’s Environment
 External Environment the set of forces and conditions that operate beyond an organization’s boundaries , but affect a manager’s ability to acquire and utilize resources. Everything outside an organization’s boundaries that might affect it
 General environment: everything outside an organization’s boundaries—economic, legal, political, socio-cultural, international, and technical forces.
 Task environment: specific external groups and organizations that affect the firm.
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The Organization’s Environment
 Internal Environment
 Conditions and forces present and at work within an organization.
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The External Environment
 General Environment
 Task Environment

The External Environment
 The General Environment
 The set of broad dimensions and forces in an organization’s surroundings that create its overall context .
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Economic dimension
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Technological dimension
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Sociocultural dimension
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Political-legal dimension
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International dimension
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 Interest rates
 Inflation
 Unemployment
 Economic growth
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 Effects of changes in technology that affect:
 Product/service design
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Bound encyclopedias v. Online (wikipedia)
 Product/service distribution
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Internet sales
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PayPal
 Product/service production
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Industrial robotics
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Fax
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Sociocultural Dimension - values, mores, and norms of behavior of the society in which the organization functions.
 Customer tastes and preferences.
 Cultural awareness (Split pea & ham baby food in the Middle East, e.g.).
Organizations are affected by changing societal attitudes and characteristics.
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Women
Ethnic minorities
Sexual preference
Age
Social class
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 Effects of changing laws and regulations.
 Title VII
 Deregulation
 Tax laws
 EPA
 Subsidies (think corn & ethanol)
 Privatization
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 Effects of increased global markets
(opportunities) and competition (threats).
 Reduced trade barriers (NAFTA).
 Improved, and reliable, global communications.
 Global labor markets.
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The External Environment
 Task environment: specific external groups and organizations that affect the firm. Change here usually have a direct and immediate effect.
 Government (regulators those who enforce the law)
 Customers
 Strategic Partners
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Joint venture partners
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Allies
 Suppliers
 Competitors
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The Internal Environment
 Conditions and stakeholder forces within an organization
 Owners.
 Board of directors
 Employees
 Physical work environment
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How Environments Affect
Organizations
 Change and Complexity
 Environmental change occurs in two ways:
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Degree to which change in environment is occurring
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Degree of homogeneity or complexity of the environment
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The environment is either simple or complex
 Uncertainty
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A driving force that influences organizational decisions.
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Affects predictability and ability to forecast events.
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Stable or dynamic
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How Environments Affect
Organizations
 Environmental Turbulence
 The frequency and magnitude of unexpected changes and upheavals in the environment of an organization.
 Also affects predictability.
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Source: From J.D. Thompson, Organizations in Action
, 1967. Copyright © 1967 The McGraw-Hill Companies, Inc. Reprinted with permission.
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Competitive Forces
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Porter’s Five Competitive Forces
Threat of new entrants
 Extent to and ease with which competitors can enter market.
 Competitive rivalry
 Competitive rivalry between firms in an industry.
 Threat of substitute products
 Extent to which alternative products/services may replace the need for existing products/services.
 Power of buyers
 Extent to which buyers influence market rivals.
 Power of suppliers
 Extent to which suppliers influence market rivals.
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Economies of
Scale
Brand
Loyalty
Barriers to
Entry
Reduced Threat of New Entrants
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How Organizations Adapt to Their
Environments
 Information Management in Organizations
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Boundary spanners Individuals who interact with outside constituencies.
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Improve information gathering (government, customers, suppliers, etc.).
Providing information (government, customers, suppliers, etc.).
Environmental scanning
Information systems
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Improved collection and dissemination of critical information.
Rapidly informs constituents of changes.
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Provides new distribution opportunities (i.e., internet sales).
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How Organizations Adapt to Their
Environments
 Strategic Response
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 Maintaining the status quo, altering the current strategy, or adopting a new strategy.
Top management’s Strategic Response reduces uncertainty by scanning the general and task environments to identify opportunities and threats .
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Middle managers collect information primarily dealing with the firm’s task environment.
First level managers focus on the daily efficient use of resources.
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How Organizations Adapt to Their
Environments
 Mergers, Acquisitions, Alliances
 Firms combine (merge), purchase (acquisition), or form new venture partnerships or alliances with another firm.
 Uncertainty is offset by mergers, acquisitions, and alliances .
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Divides the risk [but also the profits].
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Acquisition differs from merger in that in acquisitions one organization loses its identity and becomes part of another.
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In a merger both organizations lose their identity an become a new organization
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How Organizations Respond to
Their Environments (cont’d)
 Organizational Design and Flexibility
 Adapting to environmental conditions by incorporating flexibility in its structural design.
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Mechanistic firms operate best in stable environments.
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Organic firms are best suited for dynamic environments.
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Adopts a new structural design, i.e., going from a functional structure to a division structure, or a network structure.
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Going from a centralized structure to a decentralized structure
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How Organizations Respond to
Their Environments (cont’d)
 Direct Influence of the Environment
 Attempting to change the nature of the competitive conditions in its environment to suit its needs.
 Pursuing new or changed relationships with suppliers, customers, and regulators.
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 Uncertainty is offset by Top management’s boundary spanning roles .
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Individuals who interact with outside constituencies.
 Improve information gathering (government, customers, suppliers, etc.).
 Providing information (government, customers, suppliers, etc.).
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Most Admired
1. Apple
2. Berkshire Hathaway
3. Toyota Motor
4. Google
5. Johnson & Johnson
6. Procter & Gamble
7. FedEx
7. Southwest Airlines
9. General Electric
10. Microsoft
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Best Performing
1 Gilead Sciences
2 CF Industries
3 Diamond Offshore
Drilling
4 Windstream
6 Robinson (C.H.)
Worldwide
7 EXELON
8 Microsoft
9 Best Buy
10 Mastercard

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1 Molson Coors Brewing
2 Amtrak
3 Dollar General
4 US Airways Group
5 Family Dollar Stores
6 Constellation Brands (Arbor Mist wine)
7 WellCare Health Plans
8 Amerco (parent company of U-Haul)
9 Northwest Airlines
10 Sears Holdings