Chapter 3
The Environment of Management
© 2015 YOLO Learning Solutions
The Nature of the Environment


The organizational environment includes all those
factors that affect the operation of the organization.
Its three main components are:
◦ The general environment: The external factors that affect all
organizations, including economic, technological,
sociocultural, political-legal, and global dimensions
◦ The task environment: The external factors that are specific to
an organization, such as customers, suppliers, competitors,
substitutes, and potential new entrants to the industry
◦ The internal environment: All the factors that make up the
organization, such as the owners, managers, employees, and
board of directors
© 2015 YOLO Learning Solutions
© 2015 YOLO Learning Solutions
The General Environment



The general environment refers to the external factors
that affect all organizations, including sociocultural,
political-legal, technological, economic, and global
dimensions.
The sociocultural dimension of the general
environment includes the demographics and the
values of the society within which the firm operates.
The political-legal dimension refers to the nature of the
relationship between various areas of government and
the organization.
© 2015 YOLO Learning Solutions
(continued on next screen)
© 2015 YOLO Learning Solutions
© 2015 YOLO Learning Solutions
© 2015 YOLO Learning Solutions
© 2015 YOLO Learning Solutions
The General Environment (continued)



The technological dimension of the general
environment refers to the knowledge and process of
changing inputs (resources, labor, money) to outputs
(goods and services).
The economic dimension reflects the overall condition
of the complex interactions of economies throughout
the world.
The global dimension of the general environment
refers to those factors in other countries that affect the
organization.
© 2015 YOLO Learning Solutions
The Task Environment





Suppliers are organizations and individuals that provide
resources to other organizations.
Customers buy an organization’s goods or services.
Substitutes are goods or services that may be used in
place of those of the business.
Competitors are other organizations that produce
similar, or in some cases, identical goods or services.
Potential new competitors are companies not currently
operating in a business’s industry but that have a high
potential for entering the industry.
© 2015 YOLO Learning Solutions
The Internal Environment



In the smallest companies, the owner is the sole
manager of the firm and fulfills all typical management
tasks.
As the organization expands and becomes more
complex, the owner normally brings in additional
persons to act as managers.
Managers can be divided into three types:
◦ Strategic or institutional
◦ Technical
◦ Operational
© 2015 YOLO Learning Solutions
The Internal Environment (continued)




Employees can be classified as unionized or nonunionized, with the relationship between managers
and unionized employees being more formal.
Changing demographics is creating an older and more
culturally diverse work force.
Technological change is forcing employees to acquire
more complex skills.
Corporate governance is the formal system of
oversight, accountability, and control for organizational
decisions and resources.
© 2015 YOLO Learning Solutions
Stakeholder View of the Environment




The stakeholder view of the environment is concerned
with those individuals or organizations that could affect
the organization.
Primary stakeholders have ongoing relationships with the
organization through formal contracts, ownership, or
monitoring of a legal obligation of the organization.
Secondary stakeholders do not have a formal connection
to the firm but may affect it through public opinion.
Stakeholders, though external to the organization,
constantly influence the organization.
© 2015 YOLO Learning Solutions
© 2015 YOLO Learning Solutions
Identifying Stakeholders


A stakeholder map is a representation of the
organization’s stakeholders and their stakes.
A stake can be of three basic types:
◦ Equity interest
◦ Market interest
◦ Influencing interest

The ability to visualize the environment through a
stakeholder map is necessary for deciding how to
manage the environment properly.
© 2015 YOLO Learning Solutions
© 2015 YOLO Learning Solutions
Gathering Information about Stakeholders
in the Environment


Collecting information about stakeholders allows
organizations to anticipate changes in their environment
and develop plans to respond to these changes.
Techniques organizations use to collect information
include:
◦ Customer surveys
◦ Economic forecasting
◦ Trend analysis
© 2015 YOLO Learning Solutions
Techniques for Interacting with the Environment


Organizations interact with and manage their external
environment to lessen the threats and take advantage
of the opportunities.
Common interaction techniques include:
◦
◦
◦
◦
◦
◦
Public relations
Boundary spanning
Lobbying
Negotiation
Forming alliances
Organizational restructuring
© 2015 YOLO Learning Solutions
The Importance of the External
Environment


Managers must perceive the threats and opportunities
in the external environment and react accordingly.
Problems in receiving and using information about the
external environment include:
◦
◦
◦
◦

Limited capability
Lack of information
Superfluous information
Current organizational constraints
The external environment may be thought of as
differing among organizations in two dimensions:
homogeneity and change.
© 2015 YOLO Learning Solutions
© 2015 YOLO Learning Solutions