Chapter 3 Organizational Environments and Cultures

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Chapter 3Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved

OrganizationalEnvironments and Cultures

Prepared byDeborah Baker

Texas Christian University

Management4th Edition

Chuck Williams

Chapter 3

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What Would You Do?

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

Wendy’s International Headquarters

Should Wendy’s pay attention to activists—or give customers what they want?

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External Environments

After reading the next four sections, you should be able to:

1. discuss how changing environments affect organizations.

2. describe the four components of the general environment.

3. explain the five components of the specific environment

4. describe the process that companies use to make sense of their changing environments.

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Changing Environments

Environmental Change

Environmental Complexity

Resource Scarcity

Uncertainty



Resource Scarcity

Uncertainty

Characteristics ofChanging External Environments

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5



1.11.1

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.

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Punctuated Equilibrium: U.S. Airline Industry

1.11.1

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1.21.2

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

Simple environments Complex environments

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Resource Scarcity

1.31.3

Resource Scarcity

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

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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

1.41.4

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External Environment

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Components of the General Environment

Economy Technological trends Sociocultural trends Political / Legal trends

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Economy

Growing vs. shrinking economies

Predicting future economic activity

Business confidence indices

2.12.1

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Technological Component

InformationInformation

OutputOutputInputInputTechnology--

KnowledgeTools

Techniques

Technology--Knowledge

ToolsTechniques

Raw Materials

Raw Materials

ServicesServices

ProductsProducts

2.22.2

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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

2.32.3

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Demographics Example

2.32.3

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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

http://www.eeoc.gov/laws/cra91.htmlhttp://www.dol.gov/esa/whd/fmla/

Web Link 2.32.3

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Specific Environment

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CustomerCustomer

CompetitorCompetitor

SupplierSupplier

Industry RegulationIndustry Regulation

Advocacy GroupAdvocacy Group

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Customer Component

Reactive customer monitoring responding to problems,

trends, and events

Proactive customer monitoring anticipating problems,

trends, and events

Monitoring customer wants and needs

is critical for business success

3.13.1

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Competitor Component

Competitive AnalysisCompetitive Analysis

Deciding who your competitors areDeciding who your competitors are

Anticipating competitors’ movesAnticipating competitors’ moves

Determining competitors’ strengths and weaknesses

Determining competitors’ strengths and weaknesses

3.23.2

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Supplier Component

Opportunistic BehaviorOpportunistic Behavior

SuppliersSuppliersBuyer Dependence

Buyer Dependence

Supplier Dependence

Supplier Dependence

Relationship BehaviorRelationship Behavior

3.33.3

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Supplier Dependence

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Industry Regulation Component

3.43.4

Industry Regulation

Consists of regulations and rules that govern the business practices and procedures of specific industries, businesses, and professions

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Federal Regulation Agencies

Consumer Product Safety Commission

Consumer Product Safety Commission http://www.cpsc.govhttp://www.cpsc.gov

Department of LaborDepartment of Labor http://www.dol.govhttp://www.dol.gov

Environmental Protection AgencyEnvironmental Protection Agency http://www.epa.govhttp://www.epa.gov

Equal EmploymentOpportunity Commission

Equal EmploymentOpportunity Commission http://www.eeoc.govhttp://www.eeoc.gov

Federal Communications Commission

Federal Communications Commission http://www.fcc.govhttp://www.fcc.gov

Federal Reserve SystemFederal Reserve System http://www.federalreserve.govhttp://www.federalreserve.gov

Federal Trade CommissionFederal Trade Commission http://www.ftc.govhttp://www.ftc.gov

Food and Drug AdministrationFood and Drug Administration http://www.fda.govhttp://www.fda.gov

National Labor Relations BoardNational Labor Relations Board http://www. nlrb.govhttp://www. nlrb.gov

Occupational Safety andHealth Administration

Occupational Safety andHealth Administration http://www.osha.govhttp://www.osha.gov

Securities and ExchangeCommission

Securities and ExchangeCommission http://www.sec.govhttp://www.sec.gov

3.43.4

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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 billionAnd that’s just for manufacturing.

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Dealing with Gifts and Suppliers

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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

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

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Advocacy Groups

3.53.5

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

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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

Acting on Threats and Opportunities


Interpreting Environmental Factors


Environmental Scanning


EvaluatingEvaluatingExternalExternal

EnvironmentsEnvironments

EvaluatingEvaluatingExternalExternal

EnvironmentsEnvironments

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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

4.14.1

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4.24.2

EnvironmentalEnvironmentalScanScan

EnvironmentalEnvironmentalScanScan

Opportunities?Opportunities? Threats?Threats?

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4.34.3

Cognitive Maps

simplified models of external environments

depicts how managers believe environmental factors relate to possible organizational actions

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Cognitive Maps

4.34.3

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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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Internal Environments

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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

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Creation and Maintenance of Organizational Cultures

Organizational HeroesOrganizational HeroesOrganizational StoriesOrganizational Stories

Company FounderCompany Founder

5.15.1

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Successful Organizational Cultures

Adapted from Exhibit 3.7

EmployeeSatisfactionEmployee

Satisfaction

QualityQuality

ConsistencyConsistency

AdaptabilityAdaptability

InvolvementInvolvement

Clear VisionClear Vision

SalesGrowthSales

Growth

Return onAssets

Return onAssets

ProfitsProfits

D.R. Denison & A.K. Mishra, Organization Science 6 (1995): 204-223

5.25.2

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Levels of Organizational Culture

Symbolic artifacts Behaviors

Symbolic artifacts Behaviors

1. SurfaceLevel

1. SurfaceLevel SEENSEEN

What people say How decisions

are made

What people say How decisions

are made2. Expressed Values

and Beliefs2. Expressed Values

and Beliefs HEARDHEARD

Beliefs andassumptions

Rarely discussed

Beliefs andassumptions

Rarely discussed

3. Unconsciously Held Assumptionsand Beliefs

3. Unconsciously Held Assumptionsand Beliefs BELIEVEDBELIEVED

Adapted from Exhibit 3.8

5.35.3

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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.

5.35.3