CHAPTER 2

THE MANAGEMENT
ENVIRONMENT
LEARNING OUTCOMES
1. Explain what external environment is and why it
is important.
2. Discuss how the external environment affects
manager.
3. Define what organizational culture is and why it
is important.
4. How organizational culture affects the managers.
 Introduction
• No successful organization, or its managers, can operate without
understanding and dealing with the dynamic environment internally and
especially in external environment that surrounds it.
• One of the biggest mistakes managers make today is failing to adapt to
the changing world. As one executive said recently, “I have learned more
about management and leadership during the past six months than I had
in the previous ten years.”
• Organizations that are to bound by tradition and don’t (or refuse to)
change are less and less likely to survive the turbulence in today’s world.
• To better understand this issues in the external environment, we need to
look at the important forces in the management environment that are
affecting the way organizations are managed today.
 What is External
Environment?
The term external environment refers to
factors, forces, situations, and events
outside the organization that affect its
performance.
Components of External Environment
ECONOMIC
Organization GLOBAL
POLITICAL/LEGAL
SOCIOCULTURAL
TECHNOLOGICAL
DEMOGRAPHICS
 ECONOMIC
The economic component encompasses factors such as
interest rates, inflation, changes in disposable income,
stock market fluctuations, and business cycle stages.

GLOBAL
The global component encompasses those issues (like a
volcano eruption) associated with globalization and a
world economy.
 POLITICAL/LEGAL
The Political/legal component looks at federal, state, and local
laws, as well as laws of other countries and global laws. It also
includes a country’s political conditions and stability.

SOCIOCULTURAL
The sociocultural component is concerned with societal and
cultural factors such as values, attitudes, trends, traditions,
lifestyles, beliefs, tastes, and patterns of behavior.
 TECHNOLOGICAL
The technological component is concerned with
scientific or industrial innovations

DEMOGRAPHICS
The demographic component is concerned with
trends in population characteristics such as age, race,
gender, education level, geographic location, income,
and family composition.
 ECONOMIC CHANGE
Key challenges face the country: significantly high
unemployment numbers; a high inflation rate
(forecast to reach 5.1 percent in 2023); rising
policy rates; import and export bottlenecks; and the
declining strength of the Philippine peso against
the American dollar.
 GLOBAL CHANGE
The Philippines is projected to be one of the most
vulnerable countries to the impacts of climate change,
which would exacerbate weather extremes. As the
Philippines lies on the Pacific Ring of Fire, it is prone to
natural disasters, like earthquakes, typhoons, and
volcanic eruptions.
 POLITICAL/LEGAL CHANGE
Political factors that affect businesses
include taxation, employment laws, and political
stability. They can impact a business positively
or negatively by influencing how companies
operate.
 SOCIOCULTURAL CHANGE
When adapting and facing sociocultural changes there
are some cultural risks to consider:
• Failing to adapt your business model to the local market.
• Failing to recognize regional differences in cultures.
• Failing to adapt your management practices across
different cultures.
• Misunderstanding of local legal and ethical issues.
• Mishandling employee diversity.
 TECHNOLOGICAL CHANGE
Technological change refers to the idea of
improving existing technologies and developing
new ones to improve the existing products and to
create new products in the market. This whole
process helps in creating new markets and new
market structures and destroying obsolete markets.
 DEMOGRAPHICS CHANGE
There are five main segments in consumer
demographics: age group, gender, income level,
education and occupation. While focusing on
just one demographic characteristic might be
profitable, targeting all five may deliver a better
outcome.
Why External Environment is
Important?
The external environment
is important because it
poses constraints and
challenges to managers.
How External Factors Affects Managers?
• Knowing what the various components of the external
environment are and examining certain aspects of that
environment are important for managers.
• However, understanding how the environment affects managers
is equally as important. We’re going to look at three ways the
external environment constrains and challenges managers.
• First Through its impact on jobs and employment; next,
through the environmental uncertainty that is present; and
finally, through the various stakeholder relationships that exist
between an organization and its external constituencies.
Jobs and Employment
As any or all the external environmental conditions
change, 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 power of this constraint became painfully
obvious during the recent global recession as millions of
jobs were eliminated and unemployment rates rose to
levels not seen in many years.
Jobs and Employment
Not only do changes in external conditions affect
the types of jobs that are available, but they also affect
how those jobs are created and managed.
For instance, many employers are using flexible
work arrangements with work tasks done by freelancers
hired to work on an as-needed basis or by temporary
workers who work full-time but are not permanent
employees or by individuals who share jobs.
 Assessing Environmental
Uncertainty
Another constraint posed by external
environments is 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.
Assessing Environmental
Uncertainty
Managing Stakeholders Relationship
A stakeholder is a party that has an interest in a company
and can either affect or be affected by the business. The
primary stakeholders in a typical corporation are its investors,
employees, customers, and suppliers.
What has made MTV a popular cable channel for young
adults year after year? One reason is that it understands the
importance of building relationships with its various
stakeholders: viewers, reality show participants, music
celebrities, advertisers, affiliate TV stations, public service
groups, and others.
Managing Stakeholders Relationship
Why should managers even 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, and greater organizational flexibility to
reduce the impact of change.
 What is Organizational Structure?
Organizational culture has been described as
the shared values, principles, traditions, and ways
of doing things that influence the way
organizational members act.
In most organizations, these shared values and
practices have evolved over time and determine, to
a large extent, how “things are done around here.”
 What is Organizational Structure?
First, culture is a perception. It’s not something that can be
physically touched or seen, but employees perceive it based on what
they experience within the organization.
Second, organizational culture is descriptive. It’s concerned
with how members perceive or describe the culture, not with whether
they like it.
Finally, even though individuals may have different backgrounds
or work at different organizational levels, they tend to describe the
organization’s culture in similar terms. That’s the shared aspect of
culture.
How Do Employees Learn the Culture?
Employees “learn” an organization’s culture in several ways. The
most common are stories, rituals, material symbols, and
language.
• Organizational “stories” typically contain a narrative of
significant events or people including such things as the
organization’s founders, rule breaking, reactions to past
mistakes, and so forth;
• Corporate rituals are repetitive sequences of activities that
express and reinforce the important values and goals of the
organization.
How Do Employees Learn the Culture?
• Types of business feel it's either formal, casual, fun, serious, etc.
These reactions demonstrate the power of material symbols or
artifacts. The layout of an organization’s facilities, how
employees dress, the types of automobiles provided to top
executives, and the availability of corporate aircraft are
examples of material symbols.
• Within organizations use language to identify and unite
members of a culture. By learning this language, members attest
to their acceptance of the culture and their willingness to help
preserve it.
Why It is Important?
Organizational culture is important
because of the impact it has on
decisions, behaviors, and actions of
organizational employees.
How does Organizational Culture
Affects Managers?
“To make it the place where, when you
come to work you feel like you have the
opportunity to bring your best self and
you’re also challenged to bring your best
self.”
How Does Culture Affect What Employees
Do?
An organization’s culture influences what
employees do, depending on how strong, or weak, the
culture is. Strong cultures those in which the key
values are deeply held and widely shared have a
greater influence on employees than do weaker
cultures.
The more employees accept the organization’s
key values and the greater their commitment to those
values, the stronger the culture is.
How Does Culture Affect What Employees
Do?
Most organizations have moderate to strong
cultures; that is, there is relatively high agreement
on what’s important, what defines “good”
employee behavior, what it takes to get ahead, and
so forth.
The stronger a culture becomes, the more it
affects what employees do and the way managers
plan, organize, lead, and control.
 How Does Culture Affect What Managers
Do?
Employees are handsomely rewarded if they meet profit
and production goals. Because an organization’s culture
constrains what they can and cannot do and how they manage,
it’s particularly relevant to managers.
Such constraints are rarely explicit. They’re not written
down. It’s unlikely they’ll even be spoken. But they are there,
and all managers quickly learn what to do and not do in their
organization.
How Does Culture Affect What
Managers Do?
Managers are unlikely to pursue programs that are
innovative, risky, long term, or expansionary.
In an organization whose culture conveys a basic
distrust of employees, managers are more likely to use
an authoritarian leadership style than a democratic one.
Why? The culture establishes for managers appropriate
and expected behavior.
THANK
YOU!