The Environment and

Corporate Culture

Chapter 3
 Organizational Environment
• Managers face many challenges from both the
external and internal environments. This chapter
explores in detail components of the external
environment and how they affect the
organization.
• The chapter also examines a major part of the
organization’s internal environment - corporate
culture.
• Corporate culture is both shaped by the external
environment and shapes how managers
respond to changes in the external environment.
• All elements existing outside the boundary of
the organization that have the potential to affect
the organization
2
 Organizational Environment

All elements existing outside the boundary

of the organization that have the potential
to affect the organization.
 External Environment
● General environment
 Affects indirectly includes social, economic, legal-
political, international, natural & technological factors
that influence all organizations about equally
● Task environment
 Affects directly and is closer to the organization.
Influences operations and performances. Include
competitors, suppliers, customers, labor market,
students & suppliers
● Internal environment
 Elements within the organization’s boundaries,
composed of current employees, management and
especially corporate culture

4
 Organizational Environments

Technological General
Environment
Customers
Labor Market

Competitors
Task
Environment
Management

Suppliers
Internal
Environment

5
A. GENERAL ENVIRONMENT

 International
 Technological
 Sociocultural, Natural
 Economic
 Legal/Political
 International Dimension
● Provides New
• Customers
• Competitors
• Suppliers

● Shapes:
• Social trends
• Technological trends
• Economic trends

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 International Dimension - example
• After eight years operating 63 stores, Starbucks never
turned a profit in France. Why?
• A sluggish economy and Europe’s debt crisis hurt sales.
• Starbucks faced high rent and labor costs in France.
• The company was also slow to tailor the Starbucks
experience to the French café culture. A New Yorker grabs
a paper cup of coffee and leaves while the French prefer to
linger over a large, ceramic mug of coffee with friends in a
café-style environment.
• To respond to these challenges, Starbucks launched a
multimillion-dollar campaign in France that includes
makeover of stores, with more seating and customized
beverages and blends that appeal to local tastes.
 International Dimension - example

• In 2005, Kraft decided to research the Chinese market to

understand why the Oreo cookie that was so successful in
most countries had failed to resonate with the Chinese.
• Chinese consumers liked the contrast of sweet and bitter
but "they said it was a little bit too sweet and a little bit too
bitter". Chinese division used this information to formulate
a modified recipe, making the cookie with more chocolate
& less cream.
• They also introduced different packages, including smaller
packets for just 29 cents to cater to Chinese buying
habits. The changes had a positive impact on sales
 Technological Dimension
 Scientific and technological advances
– Specific industries
– Society at large
 Impact
– Competition
– Relationship with Customers
– Medical advances
– Internet

Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved.

10
Technological Dimension - example
• Fuji got high marks for seeing the trend toward digital
cameras and responding faster than Kodak, but even
they didn’t anticipate or prepare for the wireless
revolution.
• Adding WiFi technology for Internet connectivity is
common in many consumer electronics, but for the
most part, digital cameras remain stand-alone devices.
• It’s an oversight that is hurting not only Fuji, but also
Panasonic, Olympus, Canon, and other camera
makers.
• The number of photos being taken is soaring, but most
people are using their smartphones.
 Socio-Cultural, Natural Dimension

 Dimension of the general environment

–Demographic characteristics*
– Norms
– Customs
– Values
• Demographic (a specific segment of population having
shared characteristics). e.g. geographical distribution
and population density, age, education levels. e.g. the
producers were looking for a show that would
appeal to the 18-34 years demographic.
• A new generation of technologically oriented
consumers constitute a major portion of customers.
Predictions of what they will value as consumers
include brands that are trustworthy
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Key Social, Cultural, Demographic, and Natural
dimensions

 Number of marriages  Life expectancy rates

 Number of divorces  Attitudes toward work
 Number of births  Attitudes toward saving
 Number of deaths  Average level of
 Immigration and education
emigration rates  Attitudes toward product
 Per capita income quality
 Lifestyles  Attitudes toward
 Average disposable customer service
income  Social responsibility
 Economic Dimension
General economic health
● Consumer purchasing power
● Unemployment rate
● Interest rates
Recent Trends
● Frequency of mergers and acquisitions
● Business model, size and geographic diversity is an
advantage. Conventional wisdom five years ago would
have said differently
● Individuals place a premium on time. Improved
customer service, immediate availability, trouble-free
operation of products and dependable maintenance
and repair services are becoming more important
 Key Economic Variables
 Availability of credit
 Level of disposable
income
 Propensity (tendency) of
people to spend
 Interest rates
 Inflation rates
 Money market rates
 Consumption patterns
 Unemployment trends
 Worker productivity levels
 Import/export factors
 Demand shifts for different
categories of goods &
services
 Income differences by
region & consumer groups
 Price fluctuations
 Tax rates
 Value of the dollar in world
markets
 Stock market trends
Ch 3 -15
 Legal-Political
• Government regulations at the local, provincial and
federal levels
• Political activities
• For industries and firms that depend heavily on
government contracts or subsidies, political forecasts
can be the most important part of an external audit.
• Changes in budget and tax rates can affect firms
significantly.
Some Political, Governmental, and Legal
Variables
• Government regulations
or deregulations
• Changes in tax laws
• Special tariffs
• Level of government
subsidies
• Import–export regulations
• Import–export regulations
• Political conditions in own
and foreign countries
• World oil, currency and
labor markets
• Location and severity of
terrorist activities
• National elections
 B. Task Environment
Sectors that have a direct working relationship with the
organization
● Customers: As recipients of the organization’s output,
customers are important because they determine the
organization’s success. Organizations have to be
responsive to marketplace changes
● Competitors: Competitors are constantly battling for
loyalty from the same group of customers. Key
questions to be considered concerning competitors:
Their strengths, weaknesses, their objectives and
strategies, their responses to external variables, etc.

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18
 B. Task Environment – contd.
Labor Market: Labor market forces affecting organizations
right now include:
(1) the growing need for computer-literate knowledge workers
(2) the necessity for continuous investment in human
resources through recruitment, education & training
(3) the effects automation, outsourcing and shifting facility
locations creating unused labor pools in some areas and
labor shortages in others.
Suppliers: Bargaining Power of Suppliers affects the level of
competition in an industry when there are large numbers of
suppliers, few substitute raw materials & costs of switching
raw materials is high. In more and more industries, sellers are
forging strategic partnerships with select suppliers.
Firms also pursue a backward integration strategy to gain
control & ownership of suppliers.
 The Organization–Environment
Relationship

• Why do organizations care so much about factors in

the external environment? The reason is that the
environment creates uncertainty for organization
managers, and they must respond by designing the
organization to adapt to the environment.

 Environmental Uncertainty
 Adapting to the Environment
 Environmental Uncertainty
• Uncertainty means that managers do not have sufficient
information about environmental factors to understand and
predict environmental needs and changes.
• Managers at a large multinationals deal with thousands of
factors in the external environment that create uncertainty.
When external factors change rapidly, the organization
experiences high uncertainty; examples of companies that
often face such problems are telecommunications &
aerospace firms, computer & electronics companies and
Internet organizations.
• When an organization deals with only a few external factors
and these factors are relatively stable, such as those
affecting soft-drink bottlers or food processors, managers
experience low uncertainty and can devote less attention to
external issues.
 Adopting to the Environment
• Environmental changes may evolve unexpectedly, such
as shifting customer tastes for video and computer
games or social media sites, or they may occur violently,
such as the devastating Japanese earthquake and
tsunami in 2011
• Managers continuously scan the business horizon for
both small and dramatic environmental changes also
called strategic issues, and identify those that require
strategic responses.
• Managers use several strategies to adapt to these
strategic issues, including competitive business
intelligence and inter-organizational partnerships and
mergers or joint ventures.

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 Competitive Intelligence (CI)
• A systematic and ethical process for gathering and
analyzing information about the competition’s activities
and general business trends to further a business’s
own goals
• What - Activities to get as much information as
possible about one’s rivals
• Where - Web sites, commercial databases, financial
reports, market activities, news clippings, trade
publications, personal contacts
• Why – Spot potential threats or opportunities

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 Inter-Organizational Partnerships
● Trust, value added to both sides
● Equity, fair dealing, everyone profits
● E-business links to share information and
conduct digital transactions
● Close coordination; virtual teams and
people on site
● Involvement in partner’s product design
and production
● Long-term contracts
● Business assistance goes beyond the
contract

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C: The Internal Environment: Corporate
Culture

Cultures can vary widely across organizations;

however, organizations within the same industry
often reveal similar cultural characteristics
because they are operating in similar
environments
 Levels of Corporate Culture
*The 'HP Way': Trust and respect for individuals. Focus on a high
level of achievement. Conduct business with high integrity. Achieve
common objectives through teamwork

Culture
that can
Visible
be seen at 1. Artifacts, such as dress, office
the layout, symbols, slogans,
surface ceremonies
level

Invisible
2. Expressed values, such as “The Deeper values
Penney Idea,” “The HP Way” * and shared
understandings
3. Underlying assumptions and deep held by
beliefs, such as “people are lazy organization
and can’t be trusted” members

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 Organizational Culture
• Pattern of behavior developed by an organization and
taught to new members as the correct way to perceive,
think and feel
• Rites: (celebrations, customs) Ceremonial: (conventional) -
Several rites connected together.
• Myth: (fantasy, fiction) - A narrative of imagined events, usually not
supported by facts.
• Saga: (epic, tale) - A historical narrative describing the unique
accomplishments of a group and its leaders.
• Legend: (tradition) - A handed-down narrative of some wonderful
event, usually not supported by facts.
• Story: A narrative usually based on true events.
• Symbol: Any object, act, event, quality, or relation used to convey
meaning.
• Language: The manner in which members of a group
communicate.
• Values: Life-directing attitudes that serve as behavioral guidel
 Environment and Culture

 A big influence on internal corporate

culture is the external environment
 Cultures can vary widely
across organizations
 Organizations within same industry
reveal similar cultural characteristics

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 Four Types of Corporate Cultures

Needs of the Environment

Flexibility
Stability
External
Achievement
Adaptability Culture
Strategic Focus

Culture

Involvement Consistency
Culture Culture
Internal

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 Four Types of Corporate Cultures - Contd

• Adaptability Culture – Values that support company’s

ability to interpret and translate signals from the
environment in to new behavior response
• Achievement Culture – Results-oriented culture that
values competitiveness, personal initiative and
achievement
• Involvement Culture – Culture that places high value on
meeting the needs of employees and values cooperation
and equality
• Consistency Culture – Culture that values and rewards a
methodical, rational, orderly way of doing