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. 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.
2

Changing Environments
Characteristics of Changing External Environments

Environmental Change Environmental Complexity Resource Scarcity Uncertainty

1
3

Nissan Responds to Changing Auto Industry

Beyond the Book

The auto industry is rapidly changing as consumers become more concerned with the environment, traditional markets slow down, and new markets develop in countries like China and India. Nissan CEO Carlos Ghosn responds with focus on tech research for environmentally sustainable models and low-priced models for developing markets. Ghosn plans to develop a Nissan hybrid by 2010, release an all-electric car in Japan by 2011, and make a $3000 model to compete with Tata in India.
Source: A. Taylor III, Nissans Radical Chic, Fortune, 29 October 2007, 127-134.

Environmental Change
Environmental Change is the rate at which a companys environments change

stable environments dynamic environments

Punctuated equilibrium theory

Companies cycle through stable and dynamic environments.

1.1
5

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

Simple environments

Complex environments

1.2
6

Resource Scarcity
Resource Scarcity The degree to which an organizations external environment has an abundance or scarcity of critical organizational resources

1.3
7

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.

Uncertainty

1.4
9

External Environment

2
10

Components of the General Environment

Economy Technological trends Sociocultural trends Political / Legal trends

2
11

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

2.1
12

Technological Component

Technology
Input
Raw Materials

Knowledge Tools Techniques

Output
Products

Information

Services

2.2
13

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.

2.2

14

Sociocultural Component
Demographic changes Changes in behavior, attitudes, and beliefs

2.3
15

Demographics Example

2.3
16

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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Specific Environment
Customer Competitor Supplier

Industry Regulation
Advocacy Group
3
18

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
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3.1

Competitor Component
Competitive Analysis Deciding who your competitors are Anticipating competitors moves Determining competitors strengths and weaknesses

3.2
20

Supplier Component
Buyer Dependence

Suppliers

Supplier Dependence

Opportunistic Behavior

Relationship Behavior

3.3
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Supplier Dependence on Boeing

Beyond the Book

Companies like General Electric and Barnes Group, Inc. supply engine and other airplane parts to Boeing. A Fall 2008 machinists strike at Boeing meant the company produced 23% fewer planes. Fewer planes means need for fewer engine parts, and Boeing instructed suppliers to delay shipments. Suppliers like Spirit AeroSystems, Inc. instituted shorter work weeks to avoid layoffs.
Source: F. Haflich, Boeing Strikes Impact Spreading to Suppliers, American Metal Market , 6 October 2008, 1-2.

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Beyond the Book Impact of Economic Downturn on Supply Chain

Steelmakers like ArcelorMittal face decreased demand in steel for products like cars and buildings. Price of iron ore on the spot market dropped from $180 to $70 per metric ton. But steelmakers are locked into contracts with suppliers like BHP Billiton for $90 per metric ton, contracts made when the price was high. Buyers pressure suppliers to renegotiate contracts or default on them. Suppliers meet with U.S. Commerce Department to protect and enforce contracts.
Source: R. G. Matthews, Steelmakers Squeeze Suppliers, The Wall Street Journal, 18 November 2008.

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Industry Regulation Component

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

3.4
24

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

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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3.4

Occupational Safety and Health Administration Securities and Exchange Commission

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 thats just for manufacturing.
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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 3.5
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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

Environmental Scanning

Evaluating External Environments

Interpreting Environmental Factors Acting on Threats and Opportunities

4
29

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
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4.1

Interpreting Environmental Factors

Environmental Scan

Opportunities?

Threats?

4.2
31

Acting on Threats and Opportunities

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

4.3
32

Cognitive Maps

4.3
33

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.

34

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
5
35

Creation and Maintenance of Organizational Cultures

Company Founder

Organizational Stories

Organizational Heroes

5.1
36

Successful Organizational Cultures

Adaptability Consistency Involvement

Clear Vision

5.2

Sales Growth Return on Assets

Employee Satisfaction Profits Quality

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

Levels of Organizational Culture

Behaviors 1. Surface Symbolic artifacts Level What people say 2. Expressed Values How decisions and Beliefs are made Beliefs and 3. Unconsciously assumptions Held Assumptions Rarely discussed and Beliefs SEEN

HEARD

BELIEVED

5.3
38

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.
5.3
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