Chapter 3: Organizational

Environments and Cultures

 External Environments

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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 Environmental Change
The rate at which a company’s general and specific
environments change.

•Stable
– slow rate of change

•Dynamic
– fast rate of change

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Punctuated Equilibrium Theory

Stability

Dynamic
Change
Dynamic
Change Dynamic
Change

Stability

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 Environmental Complexity
• Simple
– few environmental factors that affect organizations

• Complex
– many environmental factors that affect organizations

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 Resource Scarcity

The abundance or shortage of critical resources in

an organization’s external environment.

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 Uncertainty

The extent to which managers can understand or

predict the external changes and trends affecting
their business.

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 Environmental Change,
Environmental Complexity, and
Resource Scarcity

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 General Environment
• General environment
– the economy and the technological, sociocultural, and
political/legal trends that indirectly affect all
organizations

• Specific environment
– unique to a firm’s industry
– directly affects the way its conducts daily business

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 General and Specific
Environments

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reserved.
 Economy
• A growing economy provides a favorable
environment for business growth.

• Business confidence indices show how

confident managers are about future business
growth.

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 Technological Component
• Technology
– an umbrella term for the knowledge, tools, and
techniques used to transform inputs into outputs

Changes in technology can help companies provide

better products or produce their products more
efficiently.

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 Sociocultural Component
• Demographic characteristics, general behavior,
attitudes, and beliefs of people in a particular
society

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 Demographics: Percentage of Married
Women (with Children) Who Work

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reserved.
 Political/Legal Component
• The legislation, regulations, and court decisions
that govern and regulate business behavior

• Many managers are unaware of the potential

legal risks associated with traditional
managerial decisions like recruiting, hiring, and
firing employees.

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 Specific Environment
• Customers
• Competitors
• Suppliers
• Industry regulations
• Advocacy groups

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 Customer Component
• Reactive customer monitoring
– Identifying and addressing customer trends and
problems after they occur

• Proactive customer monitoring

– Identifying and addressing customer needs, trends,
and issues before they occur

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 Competitor Component
• Competitors
– companies in the same industry that sell similar
products or services

• Competitive analysis
– a process of monitoring the competition that involves
identifying competition, anticipating their moves, and
determining their strengths and weaknesses

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 Supplier Component
• Suppliers
– companies that provide material, human, financial,
and informational resources to other companies

Supplier dependence
vs.
Buyer dependence

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 Behaviors
• Opportunistic behavior
– when one party benefits at the expense of another

• Relationship behavior
– focuses on establishing a mutually beneficial, long-
term relationship between buyers and sellers

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

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 Federal Regulatory
Agencies and Commissions
• 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
• Occupational Safety and Health Administration
• Securities and Exchange Commission

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 Advocacy Groups
Concerned citizens who band together to try to
influence the business practices of specific
industries, businesses, and professions

•Public communication

•Media advocacy

•Product boycott

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 Environmental Scanning
Searching the environment for important events or
issues that might affect an organization.

•Managers scan the environment to reduce

uncertainty.
•Organizational strategies affect environmental
scanning.
•Environmental scanning contributes to
organizational performance.

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 Interpreting Environmental Factors
• Threat or opportunity?

• Threat
– managers typically take steps to protect the company
from further harm

• Opportunity
– managers consider strategic alternatives for taking
advantage of those events to improve performance

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 Acting on Threats and
Opportunities: Cognitive Maps

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 Internal Environments

5. explain how organizational cultures

are created and how they can help
companies be successful

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 Creation and Maintenance of
Organizational Cultures
• Primary source of organizational culture is the
company founder.

• Organizational culture is sustained by…

– organizational stories
– organizational heroes

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 Keys to an Organizational
Culture that Fosters Success

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reserved.
 Three Levels of Organizational
Culture

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 Changing Organizational Cultures
• Behavioral addition

• Behavioral substitution

• Change visible artifacts

• Hiring people with values and beliefs consistent

with desired culture

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 Question: Catch the Match
Ans. Artifact

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 Activity: Pick a chit
Create groups of 5 each
Choose a chit representing a set of culture
component
Discuss the components
Classify the components into the three layers of
org. culture

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