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.

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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1

Changing Environments

Characteristics of Changing External Environments Environmental Change Environmental Complexity Resource Scarcity Uncertainty

3

1.1

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

.

4

1.2

Environmental Complexity

Environmental Complexity: the number of external factors in the environment that affect organizations Simple environments Complex environments

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1.3

Resource Scarcity

Resource Scarcity

The degree to which an organization’s external environment has an abundance or scarcity of critical organizational resources 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.

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1.4

Uncertainty

8

External Environment

2

Specific Environment 9

2

Components of the General Environment

• • • • Economy Technological trends Sociocultural trends Political / Legal trends 10

2.1

Economy

• Growing vs. shrinking economies • Predicting future economic activity • Business confidence indices 11

2.2

Technological Component

Input

Raw Materials Information Technology Knowledge Tools Techniques

Output

Products Services

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2.2

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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2.3

Sociocultural Component

– Demographic changes – Changes in behavior, attitudes, and beliefs 14

2.3

Demographics Example

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Political / Legal Component

• • • Legislation Regulations Court decisions

Managers must be educated about the laws, regulations, and potential lawsuits that could affect business

2.4

Web Link

http://www.eeoc.gov/abouteeo/overview_laws.html

http://www.dol.gov/esa/whd/fmla/

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3

Specific Environment

Customer Competitor Supplier Industry Regulation Advocacy Group

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3.1

Customer Component

Monitoring customer wants and needs is critical for business success

Reactive customer monitoring – responding to problems, trends, and events Proactive customer monitoring – anticipating problems, trends, and events 18

3.2

Competitor Component

Competitive Analysis

Deciding who your competitors are Anticipating competitors’ moves Determining competitors’ strengths and weaknesses

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Supplier Component

Buyer Dependence Suppliers Supplier Dependence 3.3

Opportunistic Behavior Relationship Behavior

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3.4

Industry Regulation Component

Industry Regulation

Regulations and rules that govern the business practices and procedures of specific industries, businesses, and professions 21

3.4

Federal Regulation Agencies

Consumer Product Safety Commission Department of Labor Environmental Protection Agency Equal Employment Opportunity Commission Federal Communications Commission Federal Reserve System Federal Trade Commission Food and Drug Administration National Labor Relations Board Occupational Safety and Health Administration Securities and Exchange Commission http://www.cpsc.gov

http://www.dol.gov

http://www.epa.gov

http://www.eeoc.gov

http://www.fcc.gov

http://www.federalreserve.gov

http://www.ftc.gov

http://www.fda.gov

http://www. nlrb.gov

http://www.osha.gov

http://www.sec.gov

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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.

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3.5

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 24

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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4

Making Sense of Changing Environments

Environmental Scanning Evaluating External Environments Interpreting Environmental Factors Acting on Threats and Opportunities

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Environmental Scanning

4.1

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 27

Interpreting Environmental Factors

Environmental Scan

Threats?

4.2

Opportunities?

28

4.3

Acting on Threats and Opportunities

Cognitive Maps

  simplified models of external environments depicts how managers believe environmental factors relate to possible organizational actions 29

4.3

Cognitive Maps

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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.

31

5

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 32

5.1

Creation and Maintenance of Organizational Cultures

Company Founder Organizational Stories Organizational Heroes

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Successful Organizational Cultures

Adaptability Consistency Involvement Clear Vision Sales Growth Return on Assets Profits 5.2

Source: D.R. Denison and A.K. Mishra, Organization Science 6 (1995): 204-223 Employee Satisfaction Quality

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5.3

Levels of Organizational Culture  

Behaviors Symbolic artifacts 1. Surface 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

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5.3

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.

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