UNDERSTANDING

MANAGEMENT’S CONTEXT
Constraints and Challenges
 VIEWS ON ACTIONS OF
MANAGERS
 How much actions of managers affect organization’s
performs?

 There are two point of views:

1. Omnipotent view of management

2. Symbolic view of management

 VIEWS ON ACTIONS OF MANAGERS
 Omnipotent view of management
 Managers are directly responsible for an organization’s success
or failure. We call this perspective the omnipotent view of
management.

 When profits are up, managers take the credit and are rewarded
with bonuses and other benefits.

 When profits are down, managers are often fired in the belief
that “new blood” will bring improved results.
VIEWS ON ACTIONS OF MANAGERS

 Omnipotent view of management

 For instance, the CEO of Cott Corporation  (American

beverage and food service) fired his manager.

 In this view, someone has to be held accountable-good or poor

performance.
VIEWS ON ACTIONS OF MANAGERS
 Symbolic view of management
 Organization’s success or failure is due to external forces that
outside manager’s control.

 According to this view, it’s unreasonable to expect managers to

significantly affect an organization’s performance.

 Instead, performance is influenced by factors over which

managers have little or no control such as the economy,
customers, governmental policies, competitor’s actions,
industry conditions, and decisions made by previous managers.
VIEWS ON ACTIONS OF MANAGERS
 Symbolic view of management

 In the 1990s, Cisco Systems -Growing rapidly.

 As Cisco’s performance declined during the early part of the
twenty-first century.

 Was declining performance was due to external circumstances

beyond their control.
EXTERNAL ENVIRONMENT
CONSTRAINTS AND CHALLENGES
 External environment refers to factors and forces outside the
organization that affect its performance
EXTERNAL ENVIRONMENT
CONSTRAINTS AND CHALLENGES
 EXTERNAL ENVIRONMENT
CONSTRAINTS AND CHALLENGES
 The economic component factors such as interest rates,
inflation, changes in income, and business cycle stages.
 The demographic component is concerned with trends in
population characteristics such as age, race, gender, education
level, income, and family size.
 The political/legal component looks at federal, state, and local
laws, as well as global laws and country’s political conditions and
stability.
 The sociocultural component is concerned with societal and
cultural factors such as values, attitudes, traditions, lifestyles,
beliefs, tastes, and patterns of behavior.
EXTERNAL ENVIRONMENT
CONSTRAINTS AND CHALLENGES
 The technological component is concerned with scientific or
industrial innovations.

 The global component encompasses those issues associated

with globalization and a world economy.
EXTERNAL ENVIRONMENT
CONSTRAINTS AND CHALLENGES
1. The Economic Environment
 The economic context has changed and seriously affect
organizations.

 Like General Motors declares bankruptcy; the Organization for

Economic Cooperation and Development predicts some 25
million unemployed individuals globally; 8.4 million jobs in the
United States vanish
EXTERNAL ENVIRONMENT
CONSTRAINTS AND CHALLENGES
 The Economic Environment
 “A recession creates winners and losers just like a
boom,”

 “When a recession ends, your position in the

competitive pack will depend on how skillfully you
managed [during the tough times].”

 Tata India
EXTERNAL ENVIRONMENT
CONSTRAINTS AND CHALLENGES
The Demographic Environment:
 is the study of human populations in terms of age, gender, family
size, income, education and occupation etc.

 The world population is growing at an explosive rate. It now

exceeds 6.8 billion people and is expected to grow to more than
8 billion by the year 2030.

 Consider China’s population

 As a result, China’s youth born after 1980—called

“Me generation’’ (new born-early 30’s)

 EXTERNAL ENVIRONMENT
CONSTRAINTS AND CHALLENGES
 The Demographic Environment:
 For instance, In China, Starbucks (American coffee) targets the
“Me generation’’-indulgent buying.

 Millennials. Born between 1977 and 2000 and onwards. This group
includes several ages : tweens (ages 10–12), teens (13–18), and
young adults (19–33).

 Millennials are most digital technology users. They don’t just

embrace technology; it’s a way of life.

 Consider the impact of such population trends on organizations and

managers in the future.
 HOW THE EXTERNAL ENVIRONMENT
AFFECTS MANAGERS
 1. JOBS AND EMPLOYMENT:
One of the most powerful constraints managers face is the impact of
such changes on jobs and employment—both in poor conditions and
in good conditions.

The Global recession create challenges, for managers who must

balance work demands and having enough of the right types of
people with the right skills to do the organization’s work.
 HOW THE EXTERNAL ENVIRONMENT
AFFECTS MANAGERS
 External conditions also affect how the jobs are created and
managed. For instance, many employers use flexible work
arrangements to meet work output demand.

 For instance, work tasks may be done by freelancers hired to

work on an as-needed basis or by temporary workers who work
full-time but are not permanent employees etc.
 HOW THE EXTERNAL ENVIRONMENT
AFFECTS MANAGERS
 2. ASSESSING ENVIRONMENTAL UNCERTAINTY

The amount of uncertainty found in that environment, which can

affect organizational outcomes.

Environmental uncertainty refers to the degree of change and

complexity in an organization’s environment.

If the components in an organization’s environment change

frequently, it’s a dynamic environment.
HOW THE EXTERNAL ENVIRONMENT
AFFECTS MANAGERS
 2. ASSESSING ENVIRONMENTAL UNCERTAINTY

 If change is minimal, it’s a stable one. A stable environment might

be one with no new competitors, few technological development,
little or no change in customer’s demand.

 Environmental complexity, which looks at the number of

components in an organization’s environment and the knowledge
that the organization has about those.

 For instance, an organization with fewer competitors, customers,

suppliers, government agencies, and so forth faces a less complex
environment.
ENVIRONMENTAL UNCERTAINTY
MATRIX
ENVIRONMENTAL UNCERTAINTY
MATRIX
 Cell 1 (stable and simple environment) represents the lowest
level of environmental uncertainty and Cell 4 (dynamic and
complex environment) the highest.

 Not surprisingly, managers have the greatest influence on

organizational outcomes in cell 1 and the least in cell 4

 Uncertainty poses a threat to an organization’s effectiveness,

managers try to minimize it. Given a choice, managers would
prefer to operate in the least uncertain environments.
 HOW THE EXTERNAL ENVIRONMENT
AFFECTS MANAGERS
3. MANAGING STAKEHOLDER RELATIONSHIPS:
 Stakeholders are any constituencies (people) in the organization’s
environment that can affect or be affected by an organization’s
decisions and actions.

 For example, think of the groups that might be affected by the

decisions and actions of Starbucks—coffee bean farmers,
employees, specialty coffee competitors, local communities, and so
forth. Some of these stakeholders also, may influence decisions and
actions of Starbuck’s managers.

 The more obvious and secure these relationships, the more

influence managers will have over organizational outcomes.
 3. MANAGING STAKEHOLDER
RELATIONSHIPS
 Why should managers care about managing stakeholder
relationships?
 For one thing, it can lead to desirable organizational outcomes
such as improved predictability of environmental changes, more
successful innovations, greater degree of trust among
stakeholders.

 But does it affect organizational performance?

 Because an organization depends on these external groups as

sources of inputs (resources) and as outlets for outputs (goods and
services), managers need to consider their interests as they make
decision.
 Also because it’s the “right” thing to do. Because an
organization depends on these external groups as sources of
inputs (resources) and as outlets for outputs (goods and
services), managers need to consider their interests as they
make decision.