Chapter 3 Organizational Environments and Cultures

MGMT Chuck Williams

Designed & Prepared by B-books, Ltd.
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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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External Environments
The forces and events outside a company that have the potential to influence or affect it. Types of external environment:
General Specific

ORGANIZATIONAL ENVIORNMENTS AND SOCIAL RESPONSIBILITY

Organizations Operate within Conditions set by the Environment

General Environment

Consists of cultural, economic, legal, political and educational conditions Economic Sociocultural

Health of the economy in terms of inflation, income levels, gross domestic product, unemployment, and job outlook Norms, customs, and social values on such matters as human rights, trends in education and related social institutions, as well as demographic patterns in society Prevailing philosophy and objectives of the political party or parties running the government, as well as laws and government regulations Development and availability of technology, including scientific advancements Nature and conditions of the natural environment, including levels of public concern expressed through environmentalism

Legal-political

Technological Natural

Changing Environments
Characteristics of Changing External Environments

Environmental Change + Environmental Complexity + Resource Scarcity = Uncertainty

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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 -rate of change is slow(bakeries) dynamic environments -rate of change is fast(video games) Punctuated equilibrium theory Companies cycle through stable and dynamic environments.(airlines)

1.1
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Environmental Complexity
Environmental Complexity: the number of external factors in the environment that affect organizations

Simple environments

Complex environments

1.2
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Environmental Complexity and Resource Scarcity

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

Simple environments

Complex environments

1.2
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Resource Scarcity
Resource Scarcity The degree to which an organizations external environment has an abundance or scarcity of critical organizational resources(LCD factories)

1.3
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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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Environmental Uncertainty
Environmental change, environmental complexity and resource scarcity affect environmental uncertainty, which is how well managers can understand or predict the external environment.

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Uncertainty

1.4
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External Environment

2
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Components of the General Environment

Economy Technological trends Sociocultural trends Political / Legal trends

2
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Economy
Growing vs. shrinking economies Predicting future economic activity Business confidence indices

2.1
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Technological Component
Technology--

Input
Raw Materials

Knowledge Tools Techniques

Output
Products

Information

Services

2.2
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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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2.2

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

2.3
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Demographics Example

2.3
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Demographics
Women are 47% of the U.S. workforce and hold 50.3% of managerial jobs. African-Americans are 13.8% of the workforce and hold 6.5% of managerial jobs. Hispanics are 11.1% of the workforce and hold 5% of managerial jobs. Women hold 14.7% of board seats at Fortune 500 companies; women of color hold 3.4%. For each $1 earned by men, women earn 76 cents; African-American women earn 64 cents; Hispanic women earn 52 cents.

Is There a Pending Labor Shortage in the United States?

2010 U.S. Labor Shortage
Fewer available workers Retiring baby boomers Immigration restrictions More sophisticated recruitment and retention strategies
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Implication for managers

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/laws/cra91.html http://www.dol.gov/esa/whd/fmla/
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Specific Environment
Customer Customer Competitor Competitor Supplier Supplier Industry Regulation Industry Regulation Advocacy Group Advocacy Group
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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 Competitive Analysis Deciding who your competitors are Deciding who your competitors are Anticipating competitors moves Anticipating competitors moves Determining competitors Determining competitors strengths and weaknesses strengths and weaknesses
Mistakes managers make in regard to competitive analysis:
They tend to focus on only two or three well-known competition with similar goals and resources. They underestimate potential competitors capabilities.
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3.2

Supplier Component
Buyer Dependence
The degree to which a supplier relies on a buyer because of the importance of that buyer to the supplier and the difficulty of selling its products to other buyers.

Suppliers Suppliers

Supplier Dependence
The degree to which a company relies on a supplier because of the importance of the suppliers product to the company and the difficulty of finding other sources of that product.

Opportunistic Behavior Opportunistic Behavior

3.3

Relationship Behavior Relationship Behavior

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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 Consists of regulations and rules that govern the business practices and procedures of specific industries, businesses, and professions Ex. CAF standards
3.4
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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 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 For every $1 the federal government spends creating regulations, businesses spend $45 to comply with them.

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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PETA

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Making Sense of Changing Environments

Environmental Environmental Scanning Scanning

Evaluating Evaluating External External Environments Environments

Interpreting Interpreting Environmental Factors Environmental Factors Acting on Acting on Threats and Opportunities Threats and Opportunities

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Environmental Scanning
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 Environmental Scan Scan

Opportunities? Opportunities?

Threats? Threats?

4.2
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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
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Cognitive Maps

4.3
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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
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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Biz Flix: Brazil

Describe the culture at Sams new employer.

Beyond the Book

Take Two Video

How easy would it be to change the culture at Sams new company?

Click

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Creation and Maintenance of Organizational Cultures

Company Founder Company Founder

Organizational Stories Organizational Stories

Organizational Heroes Organizational Heroes

5.1
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Levels of Organizational Culture

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

HEARD HEARD

Beliefs and 3. Beliefs and 3. assumptions assumptions Rarely discussed Rarely discussed

BELIEVED BELIEVED

5.3
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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.
5.4
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