Copyright ©2011 by Cengage Learning. All rights reserved 1 Designed & Prepared by B-books, Ltd....

1Copyright ©2011 by Cengage Learning. All rights reserved

Designed & Prepared byB-books, Ltd.

MGMT3

Chuck Williams

Chapter 3Organizational Environments

and Cultures


External EnvironmentsAfter 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.


Changing Environments

Environmental Change

Environmental Complexity

Resource Scarcity

Uncertainty

Environmental Change


Resource Scarcity

Uncertainty

Characteristics ofChanging External Environments

11 © keko64/Shutterstock


Environmental ChangeEnvironmental Change is 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.

1.11.1



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

Simple environments Complex environments

1.21.2


Resource Scarcity

Resource Scarcity The abundance or shortage of critical organizational resources in an organization’s external environment.

1.31.3


Beyond the BookAn Oncoming Diamond Shortage?• After years of buying most of their diamonds pre-cut and pre-polished, Tiffany’s and many other diamond retailers began to fear oncoming supply shortages.

• Tiffany has invested in mine operators and opened cutting-and-polishing plants in several countries.

• Controlling all steps in the supply chain would require broad expertise to successfully manage.

• With diamonds representing 47% of Tiffany’s sales, the company believes maintaining its pipeline is worth the risk.

Source: V. O’Connell, “Diamond Industry Makeover Sends Fifth Avenue to Africa”, The Wall Street Journal, 26 October 2009. http://online.wsj.com/article/SB125650986946206903.html?mod=WSJ_hps_RIGHTTopCarousel (accessed 10/26/2009).


Uncertainty

1.41.4


External Environment

22


Components of the General Environment

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

22


Economy

• Growing vs. shrinking economies

• Predicting future economic activity

• Business confidence indices

2.12.1


Technological Component

InformationInformation

OutputOutputInputInputTechnology

KnowledgeTools

Techniques

TechnologyKnowledge

ToolsTechniques

Raw Materials

Raw Materials

ServicesServices

ProductsProducts

2.22.2


Sociocultural Component

– Demographic changes

– Changes in behavior, attitudes, and beliefs

2.32.3


Demographics Example

2.32.3


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/abouteeo/overview_laws.htmlhttp://www.dol.gov/esa/whd/fmla/

Web Link 2.42.4


Specific Environment

CustomerCustomer

CompetitorCompetitor

SupplierSupplier

Industry RegulationIndustry Regulation

Advocacy GroupAdvocacy Group

33


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


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


Beyond the BookPushing in on Google’s Search SpaceGoogle currently holds 70.2% of the search market. Google’s most substantial competition could come from a combined effort from Yahoo and Microsoft’s Bing, which could garner as much as 27% of the market. Microblogger Twitter recently added a search function. OneRiot provides real-time search of current news and Twitter posts. Wolfram Alpha, Aardvark, ChaCha, and Mahalo are among services designed to provide concrete answers to factual queries. While none of these sites command anywhere near the market space that Yahoo and Bing do, Google must still account for them in its competitive environment.

Source: R.D. Hoff, “Can Google Stay on Top of the Web”, Business Week, 12 October 2009. 44-49.


Supplier Component

Opportunistic BehaviorOpportunistic Behavior

SuppliersSuppliersBuyer Dependence

Buyer Dependence

Supplier Dependence

Supplier Dependence

Relationship BehaviorRelationship Behavior

3.33.3


Industry Regulation Component

Industry Regulation

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

3.43.4


Federal Regulation AgenciesConsumer 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


Cost of ComplianceResearchers 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 billionAnd that’s just for manufacturing.


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

3.53.5


Advocacy Groups

PETA is a well-known advocacy group that attempts to influence consumers and companies to

pursue animal-friendly practices.


Beyond the BookCompeting Interests in the Utility SectorThe issue of cleaning up carbon emissions has brought new complications to the utility sector. Consider:

• Environmentalists are calling for greener energy.

• The government is working to pass new climate legislation that will reduce the effects of dirtier fuels like coal.

• Energy companies using cleaner fuels think the utilities that use the dirtier fuels (like coal) should foot the bill.

• The coal utilities counter that government policy has pushed them toward coal since the 1970s, when the country was trying to find alternatives to oil.

• All of the utilities must consider how the customer will respond to rising energy bills.Source: J. Carey, “The Clash Over Clean Power”, Business Week, 12 October 2009. 55-58.


Making Sense of Changing Environments

Acting on Threats and Opportunities


Interpreting Environmental Factors


Environmental Scanning


EvaluatingEvaluatingExternalExternal

EnvironmentsEnvironments

EvaluatingEvaluatingExternalExternal

EnvironmentsEnvironments

44



Searching the environment

for events or issues that

might affect an organization

keeps companies current on industry factors

reduces uncertaintyalters organizational strategiescontributes to organizational performance

4.14.1



EnvironmentalEnvironmentalScanScan

EnvironmentalEnvironmentalScanScan

Opportunities?Opportunities? Threats?Threats?

4.24.2



Cognitive Maps

simplified models of external environments depicts how managers believe

environmental factors relate to possible organizational actions

4.34.3


Cognitive Maps

4.34.3


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.


Internal Environments

Internal Environment

The events and trends inside an organization that affect 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

55


Beyond the Book

A Culture of InnovationHow does a company like Genentech keep producing revolutionary breakthroughs in pharmaceuticals? Genentech puts special emphasis on fostering a culture of innovation, where employees are encouraged to take risks and pursue areas of interest. Genentech is the only pharmaceutical company to offer a postdoctoral program. One of the advantages of this program is that it constantly attracts younger people with a broad range of backgrounds and interests, which helps foster a spirit of creativity and entrepreneurship and keeps new ideas flowing through the company. Genentech employees are encouraged to pursue ideas in areas that they are interested, even when those ideas might not pan out.

Source: C. Tkaczyk, “Encouraging Innovation”, Fortune, 12 October 2009. 22.


Creation and Maintenance of Organizational Cultures

Organizational HeroesOrganizational HeroesOrganizational StoriesOrganizational Stories

Company FounderCompany Founder

5.15.1


Successful Organizational Cultures

EmployeeSatisfactionEmployee

Satisfaction

QualityQuality

ConsistencyConsistency

AdaptabilityAdaptability

InvolvementInvolvement

Clear VisionClear Vision

SalesGrowthSales

Growth

Return onAssets

Return onAssets

ProfitsProfits

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

5.25.2


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


Beyond the BookTransforming a CultureNew CEO Diana Dykstra transformed the San Francisco Fire Credit Union from a culture crippled by policy into a place where employees are empowered to meet customer needs. Dykstra replaced the 1,000 page employee manual with four core values which define the company’s direction and culture. Now all decisions are measured against these values. Employees send stories to Dykstra of coworkers going the extra mile for customers, and the best ones are rewarded each month.

Source: M. D’Antonio, “Don’t Get Paralyzed by Company Policies,” 1to1 Magazine, 2 June 2009.

Copyright ©2011 by Cengage Learning. All rights reserved 1 Designed & Prepared by B-books, Ltd....

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