Chapter 2
Organizational
Environments and
Cultures
What Would You Do?




The “Southwest” of Europe
Stiff competition from “go” & rising costs
How do you react to the competition &
political pressures?
What would you do?
2
Learning Objectives
External Environments
After discussing this section,
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.
3
Changing Environments

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Environmental Change
Environmental Complexity
Environmental Munificence
Uncertainty
4
Environmental Change

The rate at which a company’s general and
specific environments change



stable environments
dynamic environments
Punctuated equilibrium theory

companies cycle through stable and dynamic
environments
5
Punctuated Equilibrium: U.S. Airline Industry
10000000
8000000
$ in Thousands
6000000
4000000
2000000
Operating
Profit
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
0
-2000000
-4000000
Year
Adapted from Exhibit 2.1
6
Environmental Complexity

The number of external factors in the
environment that affect organizations

Simple environments


have few environmental factors
Complex environments

have many environmental factors.
7
Environmental Munificence

The degree to which an organization’s
external environment has an abundance or
scarcity of critical organizational resources
8
Uncertainty

How well managers can understand or
predict the external changes and trends
affecting their businesses
9
Environmental Uncertainty
Environmental Change, Complexity,
& Munificence
High
Medium
Low
Environmental Characteristics
Complexity
Change
Resources
Adapted from Exhibit 2.2
10
General & Specific Environments
Specific Environment
General Environment
Sociocultural
Component
Economy
Customers
Competitors
Customers
Competitors
Advocacy Business
B
Groups
Suppliers
Advocacy
Groups
Business
A
Suppliers
Industry
Regulation
Industry
Regulation
Adapted from Exhibit 2.3
Technological
Component
Political/Legal
Component
11
General Environment




Economy
Technological
Sociocultural
Political/Legal
12
Economy



Growing vs. shrinking economies
Future economic activity is difficult to predict
Business confidence indices

owners’/managers’ confidence in the growth of the
economy
13
Technological


Technology is the knowledge, tools, and
techniques used to transform inputs (raw
materials, information, etc.) into outputs
(products and services)
Technological changes can benefit or
threaten businesses
14
Sociocultural


Refers to the demographic characteristics
and general behavior, attitudes, and beliefs of
people in a particular society
Two important components


Demographic changes
Changes in behavior, attitudes, and beliefs
15
Political/Legal


Includes the legislation, regulation, and court
decisions that govern and regulate business
behavior
Managers must be aware of relevant laws
and regulations


track changes
avoid lawsuits and penalties
16
Specific Environment

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Customer
Competitor
Supplier
Industry Regulation
Advocacy Group
17
Customer Component
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Customers are essential for business survival
Managers must monitor customers’ wants
and needs

reactive


responding to complaints
proactive

anticipating problems
18
Competitor Component
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
Companies in the same industry that sell
similar products or services to customers
Competitive analysis



deciding who your competitors are
anticipating competitors’ moves
determining competitors’ strengths and
weaknesses
19
Supplier Component
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
Companies that provide material, human,
financial, and informational resources to other
companies
Supplier & buyer dependence
Opportunistic vs. relationship behavior
20
Industry Regulation Component

Consists of regulations and rules that govern
the business practices and procedures of
specific industries, businesses, and
professions
21
Federal Regulatory Agencies & Commissions
Federal Agency
Regulatory Responsibilities
Consumer Product Safety
Commission
Reduce risk of injuries and deaths
associated with consumer products, set
product safety standards, enforce product
recalls, and provide consumer education
Reduce and control pollution through
research, monitoring, standard setting,
and enforcement activities
Promote fair hiring and promotion
practices
Regulate interstate and international
communications by radio, television, wire,
satellite, and cable
As nation’s central bank, control interest
rates and money supply, and monitor the
U.S. banking system to produce a
growing economy with stable prices
Environmental Protection
Agency
Equal Employment
Opportunity Commission
Federal Communications
Commission
Federal Reserve System
Adapted from Exhibit 2.5
22
Federal Regulatory Agencies & Commissions
Federal Agency
Regulatory Responsibilities
Federal Trade
Commission
Restrict unfair methods of business
competition and misleading advertising,
and enforce consumer protection laws
Food and Drug
Protect nation’s health by making sure
Administration
food, drugs, and cosmetics are safe
National Labor Relations Monitor union elections and stop
Board
companies from engaging in unfair labor
practices
Occupational Safety &
Save lives, prevent injuries, and protect
Health Administration
the health of workers
Securities and Exchange Protect investors in the bond and stock
Commission
markets, guarantee access to information
on publicly traded securities, and regulate
firms that sell securities or give investment
advice
Adapted from Exhibit 2.5
23
Advocacy Group Component


Groups of concerned citizens who band
together to try to influence the business
practices of specific industries, businesses,
and professions
Influence techniques



public communications
media advocacy
product boycotts
24
Making Sense of Changing
Environments
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Environmental Scanning
Interpreting Environmental Factors
Acting on Threats and Opportunities
25
Environmental Scanning

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Searching the environment for important
events or issues that might affect an
organization
Scanning:



reduces uncertainty
alters organizational strategies
contributes to organizational performance
26
Interpreting Environmental Factors


Managers determine what environmental
events and issues mean to the organization
Opportunities vs. threats
27
Acting on Threats and Opportunities


Managers have to decide how to respond to
these environmental factors
Cognitive maps


simplified models of external environments
depicts how managers believe environmental
factors relate to possible organizational actions
28
Cognitive Maps
Good
location
Kmart
Low-cost
strategy
-
+
-
Strength &
Weaknesses
Too small to get
volume discounts
-
Good value
Good
service
+
Large selection
of latest
fashions
+
Reasonable
selection prices
Wal-Mart
Adapted from
Exhibit 2.6
+
-
-
Low rent
& taxes
+
Success,
Profits
+
+
Know
customers well
Low
employee
turnover
Potential
Actions
Environmental
Factors
Large mall 20
minutes away
29
Learning Objectives
Internal Environments
After discussing this section,
you should be able to:
5.
explain how organizational cultures are
created and how they can help companies
be successful.
30
Organizational Cultures: Creation,
Success, and Change



Creation and Maintenance of Organizational
Cultures
Successful Organizational Cultures
Changing Organizational Cultures
31
Creation and Maintenance of
Organizational Cultures

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Company founders help create culture
Cultures are maintained through:


Stories
Heroes
32
Blast From The Past

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Capturing corporate history
Preserves culture and values
33
Successful Organizational Cultures
Adaptability
Consistency
Involvement
Clear
Mission
Adapted from
Exhibit 2.7
D.R. Denison & A.K. Mishra, Organization Science 6(1995): 204-223
34
Been There, Done That

The beliefs and values of Starbucks Coffee



sharing success
a culture of meaning and loyalty
grassroots decision making
35
Changing Organizational Cultures

Behavioral addition


Behavioral substitution


is the process of having managers and employees
perform a new behavior
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.
36
What Really Happened?
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Challenges in the economic, supplier,
competitor, and industry components
Avoids travel agents by using the Web
Directly confronts competitors and regulators
37