Chapter Two

The Environment of
Organizations
and Managers

Copyright © 2005 Houghton Mifflin Company. All rights reserved. PowerPoint Presentation by Charlie Cook.
 Chapter
Chapter Outline
Outline
• The Organization’s Environments
– The General Environment
– The Task Environment
– The Internal Environment
• The Ethical and Social Environment of
Management
– Individual Ethics in Organizations
– Social Responsibility and Organizations
– Managing Social Responsibility

Copyright © 2005 by Houghton Mifflin Company. All rights reserved. 2–2

 Chapter
Chapter Outline
Outline (cont’d)
(cont’d)
• The International Environment of Management
– Trends in International Business
– Levels of International Business Activity
– The Context of International Business
• The Organization’s Culture
– The Importance of Organization Culture
– Determinants of Organization Culture
– Managing Organization Culture

Copyright © 2005 by Houghton Mifflin Company. All rights reserved. 2–3

 Learning
Learning Objectives
Objectives
• After studying this chapter, you should be able
to:
– Discuss the nature of the organizational environment
and identify the components of the general, task, and
internal environments.
– Describe the ethical and social environment of
management.
– Discuss the international environment of
management.
– Describe the importance and determinants of an
organization’s culture.

Copyright © 2005 by Houghton Mifflin Company. All rights reserved. 2–4

 The
The Organization’s
Organization’s Environment
Environment
• External Environment
– Everything outside an organization’s boundaries-
economic, legal, political, socio-cultural, international,
and technical forces.
– General environment is a set of broad dimensions
and forces in an organization’s surroundings that
determine its overall context
– Task environment is composed of specific groups
and organizations that affect the firm.
• Internal Environment
– Conditions and forces within an organization.

Copyright © 2005 by Houghton Mifflin Company. All rights reserved. 2–5

The
The Organization
Organization and
and Its
Its Environments
Environments

International Technological
dimension dimension

Competitors

Regulators Owners Customers

Employees
Physical environment
Board of directors
Culture
Political-
Economic
legal
Strategic dimension
dimension Suppliers
partners

Sociocultural
Internal environment dimension
Task environment External
General environment environment

Copyright © 2005 by Houghton Mifflin Company. All rights reserved. 2–6

 The
The External
External Environment
Environment
• The General Environment
– Economic dimension is the overall health and vitality
of the economic system in which the organization
operates.
– Technological dimension refers to the methods
available for converting resources into products or
services.

Copyright © 2005 by Houghton Mifflin Company. All rights reserved. 2–7

 The
The External
External Environment
Environment (cont’d)
(cont’d)
• The Task Environment
– Specific groups affecting the organization
• Competitors seeking the same resources as the
organization.
• Customers who acquire an organization’s products or
resources.
• Suppliers that provide resources for the organization.
• Regulators (agencies and interest groups) that control,
legislate, or influence the organization’s policies and
practices.
• Strategic partners (allies) who are in a joint venture or
partnership with the organization.

Copyright © 2005 by Houghton Mifflin Company. All rights reserved. 2–8

 Figure
Figure 2.1
2.1
McDonald’s
McDonald’s
Task
Task
Environment
Environment

Copyright © 2005 by Houghton Mifflin Company. All rights reserved. 2–9

 Five-Forces
Five-Forces Analysis
Analysis (Porter)
(Porter)

Level
Levelof
of
Rivalry
Rivalry

Power
Powerof
of Power
Powerof
of
Buyers
Buyers Suppliers
Suppliers
Performance
Performanceof of
organizations
organizations
in
inan
anindustry
industry

Threat
Threatof
of Threat
Threatof
of
Substitute
Substitute New
NewEntrants
Entrants
Products
Products

Copyright © 2005 by Houghton Mifflin Company. All rights reserved. 2–10

 The
The Internal
Internal Environment
Environment
• Conditions and stakeholder forces within an
organization
– Owners with legal property rights to a business.
– Board of directors elected by the stockholders to
oversee the general management of the firm to best
serve the stockholders’ interest.
– Employees who work for the firm and have a vested
interest in its continued operation and existence.
– Physical work environment of the organization and
the work that people do.

Copyright © 2005 by Houghton Mifflin Company. All rights reserved. 2–11

 Individual
Individual Ethics
Ethics In
In Organizations
Organizations
• Ethics
– An individual’s personal beliefs regarding what is right
or wrong or good or bad.
• Ethical Behavior
– Behavior that is acceptable in the eye of the beholder.
However, it also refers to behavior that conforms to
generally accepted social norms.
• Examples of Unethical Behavior
– “Borrowing” office supplies for personal use.
– “Surfing the Net” on company time.

Copyright © 2005 by Houghton Mifflin Company. All rights reserved. 2–12

 Determinants
Determinants of
of Individual
Individual Ethics
Ethics

Family
Family Situational
Situational Values
Valuesand
and Peer
Peer
Experiences
Experiences
Influences
Influences Factors
Factors Morals
Morals Influences
Influences

Individual
Individual Ethics
Ethics

Copyright © 2005 by Houghton Mifflin Company. All rights reserved. 2–13

 Ethics
Ethics in
in Organizations
Organizations
• Managing Ethical Behavior
– Begins with top management which establishes the
organization’s culture and defines what will and will
not be acceptable behavior.
– Includes training on how to handle different ethical
dilemmas.
– Developing a code of ethics.
• A written statement of
the values and ethical
standards that guide
the firm’s actions.

Copyright © 2005 by Houghton Mifflin Company. All rights reserved. 2–14

 Social
Social Responsibility
Responsibility and
and Organizations
Organizations
• Social Responsibility
– The set of obligations (to behave responsibly) that an
organization has to protect and enhance the social
context in which it functions.
• Areas of Social Responsibility
– Stakeholders: customers, employees, and investors.
– The natural environment: environmentally sensitive
products, recycling, and public safety.
– The general social welfare: charitable contributions,
and support for social issues such as child labor and
human rights.

Copyright © 2005 by Houghton Mifflin Company. All rights reserved. 2–15

 Figure
Figure 2.2
2.2
Arguments
Arguments For
For and
and Against
Against
Social
Social Responsibility
Responsibility

Copyright © 2005 by Houghton Mifflin Company. All rights reserved. 2–16

 Highest Degree of
Social Responsibility
Proactive Stance

Accommodative Stance
Approaches
Approaches toto
Social
Social
Responsibility
Responsibility
Defensive Stance

Obstructionist Stance

Source: Barney, Jay B. and Ricky W. Griffin, The

Lowest Degree of
Management of Organizations. Copyright © 1992
by Houghton Mifflin Company. Used with
Social Responsibility
permission.

Copyright © 2005 by Houghton Mifflin Company. All rights reserved. 2–17

 Managing
Managing Social
Social Responsibility:
Responsibility:
Formal
Formal Organizational
Organizational Dimensions
Dimensions
• Legal Compliance
– Extent to which the organization conforms to local,
state, federal, and international laws.
• Ethical Compliance
– Extent to which members of the organization follow
basic ethical/legal standards of behavior.
• Philanthropic Giving
– Awarding of funds or gifts to charities or other social
programs.

Copyright © 2005 by Houghton Mifflin Company. All rights reserved. 2–18

 Managing
Managing Social
Social Responsibility:
Responsibility:
Informal
Informal Organizational
Organizational Dimensions
Dimensions
• Organizational Leadership and Culture
– Leadership practices and the culture of the
organization can help define the social responsibility
stance an organization and its members will adopt.
• Whistle Blowing
– The organizational response to the disclosure by an
employee of illegal or unethical conduct on the part of
others within the organization is indicative of the
organization’s stance on social responsibility.

Copyright © 2005 by Houghton Mifflin Company. All rights reserved. 2–19

 Trends
Trends in
in International
International Business
Business
• Economic Recovery
– Industrialized nations in
Europe and Asia have
rebuilt their economic
systems that were
devastated in WWII.
• Decreasing Isolation from Foreign Competition
– U.S. consumer goods markets are open to overseas
competitors.
• Increasing Globalization of World Markets
– Volume of international trade has increased more
than 3,000% from 1960 to 2000.

Copyright © 2005 by Houghton Mifflin Company. All rights reserved. 2–20

 Managing
Managing The
The Process
Process of
of Globalization
Globalization
• Exporting
– Making a product in the firm’s domestic market and
selling it in another country.
• Importing
– Bringing a good, service, or capital into a home
country from abroad.
• Licensing
– An arrangement whereby a firm allows a foreign
company to manufacture or market the products and
uses its brand name, trademark, technology, patent,
copyright, or other assets in exchange for a royalty
based on sales.

Copyright © 2005 by Houghton Mifflin Company. All rights reserved. 2–21

 Managing
Managing The
The Process
Process of of Globalization
Globalization
(cont’d)
(cont’d)
• Strategic Alliance and Joint Ventures
– Two or more firms jointly cooperate for mutual gain,
by sharing business costs and/or sharing ownership
of a new enterprise.
• Direct Investment
– Occurs when a firm headquartered in one country
builds or purchases operating facilities or subsidiaries
in a foreign country.
• Maquiladoras are light-assembly plants built in northern
Mexico close to the U.S. border which are given special tax
breaks by the Mexican government.

Copyright © 2005 by Houghton Mifflin Company. All rights reserved. 2–22

Managing
Managing The
The Process
Process of
of Globalization
Globalization (cont’d)
(cont’d)

Copyright © 2005 by Houghton Mifflin Company. All rights reserved. 2–23

 Table
Table 2.12.1
Advantages
Advantages and
and Disadvantages
Disadvantages of of Various
Various
Approaches
Approaches to
to Internationalization
Internationalization

Copyright © 2005 by Houghton Mifflin Company. All rights reserved. 2–24

 The
The Cultural
Cultural Environment
Environment
• Language
– In Japanese the word “hai” can
mean either “yes” or “I understand.”
– General Motors’ brand name “Nova”
pronounced as “no va” in Spanish
means “doesn’t go.”
• The Meaning of Colors
– Green is popular in Muslim countries, yet it signifies
death in other countries.
– Pink is associated with feminine characteristics in the
U.S.; yellow is the most feminine color in other
countries.

Copyright © 2005 by Houghton Mifflin Company. All rights reserved. 2–25

 Controls
Controls on
on International
International Trade
Trade
• Key Concepts
– Tariffs are collected on goods shipped across national
boundaries.
– Quotas are limits placed on the number or value of
goods that can be traded as exports or imports.
– Export restraint agreements
are voluntary limits on the
volume or value of goods
exported to, or imported
from, another country.

Copyright © 2005 by Houghton Mifflin Company. All rights reserved. 2–26

 The
The Structure
Structure of
of the
the Global
Global Economy
Economy
• Economic Communities
– Sets of countries that engage in high levels
of trade with each other through the elimination
of trade barriers such as quotas and tariffs.
• European Union (EU)
• North American Free Trade Agreement (NAFTA)
• Latin American Integration Association
• Caribbean Common Market

Copyright © 2005 by Houghton Mifflin Company. All rights reserved. 2–27

 Figure
Figure2.3
2.3
European
EuropeanUnion
Union
(EU)
(EU)
Member
MemberNations
Nations

Source: Lucas,
George H., Robert P.
Bush, and Larry R.
Gresham, Retailing.
Copyright © 1994
by Houghton Mifflin
Company. Used
with permission.

Copyright © 2005 by Houghton Mifflin Company. All rights reserved. 2–28

 The
The Role
Role of
of the
the GATT
GATT and
and the
the WTO
WTO
• General Agreement on Trade and Tariffs
(GATT)
– A trade agreement that promoted international trade
by lowering trading barriers and tariffs.
• World Trade Organization (WTO)
– Encourages the adoption of nondiscriminatory and
predictable trade policies.
– Seeks to reduce remaining trade barriers
through multilateral negotiations.
– Attempts to resolve trade disputes
through impartial procedures

Copyright © 2005 by Houghton Mifflin Company. All rights reserved. 2–29

 The
The Organization
Organization and
and Culture
Culture
• Organization Culture
– The collection of values, beliefs, behaviors, customs,
and attitudes that characterize a community of people.
• The Importance of Organization Culture
– Culture determines the overall “feel” of the
organization, although it may vary across different
segments of the organization.
– Culture is a powerful force that can shape the firm’s
overall effectiveness and long-term success.

Copyright © 2005 by Houghton Mifflin Company. All rights reserved. 2–30

 The
The Organization’s
Organization’s Culture
Culture
• Determinants of Organization Culture
– Organization’s founder (personal values and beliefs).
– Symbols, stories, heroes, slogans, and ceremonies
that embody and personify the spirit of the
organization.
– Corporate success that strengthens the culture.
– Shared experiences that
bond organizational members
together.

Copyright © 2005 by Houghton Mifflin Company. All rights reserved. 2–31

 The
The Organization’s
Organization’s Culture
Culture (cont’d)
(cont’d)
• Managing Organization Culture
– Understand the current culture to understand whether
to maintain or change it.
– Articulate the culture through slogans, ceremonies,
and shared experiences.
– Reward and promote people
whose behaviors are
consistent with desired
cultural values.

Copyright © 2005 by Houghton Mifflin Company. All rights reserved. 2–32

 The
The Organization’s
Organization’s Culture
Culture (cont’d)
(cont’d)
• Changing Organization Culture
– Develop a clear idea of what kind of
culture you want to create.
– Bring in outsiders to important
managerial positions.
– Adopt new slogans, stories,
ceremonies, and purposely
break with tradition.

Copyright © 2005 by Houghton Mifflin Company. All rights reserved. 2–33