Ch3. Managing The External Environment and The The Organization Culture

Management
Fourteenth Edition
Chapter 3
Managing the External
Environment and the
Organization’s Culture
Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Learning Objectives
3.1 Contrast the actions of managers according to the
omnipotent and symbolic views.
3.2 Describe the constraints and challenges facing
managers in today’s external environment.
3.3 Discuss the characteristics and importance of
organizational culture.
Know how to read and assess an organization’s culture.
3.4 Describe current issues in organizational culture.
The Manager: Omnipotent .
• Omnipotent view: managers are directly
responsible for an organization’s success or
failure. We call this perspective the omnipotent
view of management.
• Good managers anticipate change, exploit
opportunities, correct poor performance, and lead
their organization’s success.
The Manager: Symbolic View
• Symbolic view: much of an organization’s

success or failure is due to external forces outside
managers’ control.
• The symbolic view says that a manager’s ability to
affect performance outcomes is influenced and
constrained by external factors.
Managerial Constraints
• In reality, managers are neither all-powerful nor
helpless. But their decisions and actions are
constrained.
• External constraints come from the organization’s
environment and internal constraints come from
the organization’s culture.
Exhibit 3-1
Constraints on Managerial Discretion
Exhibit 3-1 shows that external constraints come from the organization’s environment and
internal constraints come from the organization’s culture.
Environment
Environment: is the combination of internal and
external factors that influence a company's operating
situation.
The business environment can include factors such
as: clients , suppliers, competitors, owners,
technology, laws ,government, activities, market,
social, and economic trends.
The word “environment” we understand the
surroundings or conditions in which a particular
activity is carried on.
The External Environment
• Those factors and forces outside the organization
that affect its performance.
– Economic
– Demographic
– Political/Legal
– Sociocultural
– Technological
– Global
Exhibit 3-2
Components of External Environment
Exhibit 3-2 shows the different components that make up the external environment.
Economic Factors
• Economic factors have a significant impact on

how an organization does business and also how
profitable they are Factors include – economic
growth, interest rates, exchange rates, inflation,
disposable income of consumers and businesses
and so on.
Demographic Factors
• Population growth rate
• Immigration and emigration rates
• Age distribution and life expectancy rates
• Average disposable income level
• Social classes
• Family size and structure
• Minority
Political Factors
• Organizations need to be able to respond to the

current and predicted future legislation, and adjust
their marketing policy.
• This can include – government policy, political
stability or instability in overseas markets, foreign
trade policy, tax policy, labor law, environmental
law, trade restrictions and so on.
• These are all about how and to what degree a
government intervenes in the economy.
Political/Legal
Organizations need to comply within the legal
boundaries of their operations and this will
influence strategic planning.
• Discrimination laws
• Antitrust laws
• Employment laws
• Consumer protection laws
• Health and safety laws
• Education laws
Social factors
• Population size and growth rate
• Birth rates
• Death rates
• Number of marriages
• Number of divorces
• Life expectancy rates
• Wealth distribution
• Social classes
• Family size and structure
• Attitude towards work
• Ethical concerns
• Cultural norms and value
Technological factors
• Technological change
• R&D activity
• Access to new technology
• Level of innovation
• Technological awareness
• Internet infrastructure
• Communication infrastructure
• Life cycle of technology
The Economic Environment
• Managers need to be aware of the

economic context so they can make the
best decisions for their organizations.
The Global Economy and the Economic Context
• The lingering global economic challenges began
with the turmoil in the U.S. housing market.
Economic Inequality and the Economic
Context
• Polls or surveys show that in many countries,
people believe that the gap between the rich and
poor is problematic.
Gen Y
Gen Y is an important demographic at Facebook, where most employees
are under 40.
The Demographic Environment
• Age is a particularly important demographic since
the workplace often has different age groups all
working together
– Baby Boomers
– Gen Y (Millennials)
– Post-Millennials
– Gen Z:
The Demographic Environment
• Baby Boomers: Baby boomers were born between 1946 and
1964. They're currently between 57-75 years old (71.6 million
in the)
• Gen X: Gen X was born between 1965 and 1979/80 and is
currently between 41-56 years old (65.2 million people in the.)
• Gen Y: Gen Y, or Millennials, were born between 1981 and
1994/6. They are currently between 25 and 40 years old (72.1
million in the.)
• Gen Z: Gen Z is the newest generation, born between 1997
and 2012. They are currently between 9 and 24 years old
(nearly 68 million in the.)
How the External Environment Affects
Managers
• Jobs and Employment: the impact of external
factors on jobs and employment is one of the most
powerful constraints mangers face
All external environmental conditions (economic,
demographic, technological, globalization, etc.)
changes on jobs and employment—both in poor
conditions and in good conditions.
Assessing Environmental Uncertainty
• Environmental uncertainty: the degree of
change and complexity or complication in an
organization’s environment
– Change: stable to dynamic
– Complexity: simple to complex
Managing Stakeholder Relationships
• Stakeholders: any constituencies or
communities in the organization’s environment
that are affected by an organization’s decisions
and actions.
Exhibit 3-4
Organizational Stakeholders
Exhibit 3-4 identifies some of an organization’s most common stakeholders

Benefits of Good Stakeholder Relationships
• Improved predictability of environmental changes
• Increased successful innovations
• Increased trust among stakeholders
• Greater organizational flexibility to reduce the
impact of change
What is Organizational Culture?
• Organizational culture: the shared values,
principles, traditions, and ways of doing things that
influence the way organizational members act and
that distinguish the organization from other
organizations
• Organizational culture is the collection of values,
expectations, and practices that guide and inform
the actions of all team members.
Organizational Culture
• Organizational culture is a system of shared
assumptions, values, and beliefs, which governs
how people behave in organizations.
• Just as each individual has a unique personality,
an organization, too, has a personality.
Exhibit 3-6
Dimensions of Organizational Culture
Exhibit 3-5 identifies the seven dimensions of organizational culture.

Contrasting Organizational Culture
• At Tesla Motors, the focus is product innovation
(innovation and risk taking).
• In contrast, Southwest Airlines has made its
employees a central part of its culture.
Exhibit 3-7
Contrasting Organizational Culture
• Risk-taking and change discouraged
• Creativity discouraged
• Close managerial supervision
• Work designed around individual employees
• Risk-taking and change rewarded

• Creativity and innovation rewarded
• Management trusts employees
• Work designed around teams
Strong Cultures
• Strong cultures: organizational cultures in which
the key values are intensely held and widely
shared
Exhibit 3-8
Strong Versus Weak Cultures
Strong Cultures Weak Cultures
Values widely shared Values limited to a few people – usually
top management
Culture conveys consistent messages Culture sends contradictory messages
about what’s important about what’s important
Most employees can tell stories about Employees have little knowledge of
company history or heroes company history or heroes
Employees strongly identify with culture Employees have little identification with
culture
Strong connection between shared Little connection between shared values
values and behaviors and behaviors
Where Culture Comes From and How it
Continues
• The original source of the culture usually reflects
the vision of the founders.
• Once the culture is in place, certain organizational
practices help maintain it.
• The actions of top managers also have a major
impact on the organization’s culture.
Exhibit 3-9
Establishing and Maintaining Culture
Exhibit 3-8 illustrates how an organization’s culture is established and maintained.

How Employees Learn Culture
• Stories
• Rituals
• Material Artifacts and Symbols
• Language
• Stories: Organizational stories are often based on
memorable past events that are repeatedly talked
about and shared with other employees –
particularly new starters.
These stories can include narratives or events
relating to founders, successes, and failures of the
organization.
• Rituals and ceremonies refer to repetitive
patterns which emphasize an organization’s
values and core practices or what a company
‘stands for’.
• Material Artifacts and Symbols: Symbols serve
as a representation of an organization’s culture,
further instilling a sense of identity and drive-in
employees.
• Symbols can be experienced in the form of
company logos and branding, messaging on office
walls, office meeting room labels, job titles.
• Language: Language is often used by
organizations as a way to characterize their
unique voice and identify those within it.
How Culture Affects Managers
• Because an organization’s culture constrains what
they can and cannot do and how they manage, it’s
particularly relevant to managers.
Creating an Innovative Culture
• Challenge and involvement
• Freedom
• Trust and openness
• Idea time
• Playfulness/humor
• Conflict resolution
• Debates
• Risk taking
Creating innovative culture
• Challenge and involvement – Are employees involved
in, motivated by, and committed to long-term goals and
success of the organization?
• Freedom – Can employees independently define their
work, exercise discretion, and take initiative in their day-
to-day activities?
• Trust and openness – Are employees supportive and
respectful to each other?
• Idea time – Do individuals have time to elaborate on
new ideas before taking action?
Creating innovative culture
• Playfulness/humor – Is the workplace spontaneous and fun?
• Conflict resolution – Do individuals make decisions and
resolve issues based on the good of the organization versus
personal interest?
• Debates – Are employees allowed to express opinions and
put forth ideas for consideration and review?
• Risk-taking – Do managers tolerate uncertainty and
ambiguity, and are employees rewarded for taking risks?
Creating a Sustainability Culture
• For many companies, sustainability is developed
into the organization’s overall culture.
Review Learning Objective 3.1
• Contrast the actions of managers according to
the omnipotent and symbolic views.
– Omnipotent view: Managers are directly responsible for
the organization’s success or failure.
– Symbolic view: Much of the organization’s success or
failure is due to external forces outside of the
manager’s control.
– The two constraints on managers' discretion are
organizational culture (internal) and the environment
(external).
• Describe the constraints and challenges facing
managers in today’s external environment.
– The external environment includes those factors and forces
outside the organization that affect its performance).
– The main components of the external environment are
economic, demographic, political/legal, sociocultural,
technological, and global.
– These components can constrain and challenge managers
because they have an impact on jobs, environmental
uncertainty, and stakeholder relationships.
• Discuss the characteristics and importance of
organizational culture.
– The seven dimensions of culture are: attention to detail, outcome
orientation, people orientation, team orientation, aggressiveness,
stability, innovation, and risk taking.
– The stronger the culture, the greater the impact on the way
managers plan, organize, lead, and control.
– The original source of the organizational culture reflects the
founder’s vision.
– Culture is transmitted through stories, rituals, material symbols,
and language.
• Describe current issues in organizational
culture.
– The characteristics of an innovative culture are challenge and
involvement, freedom, trust and openness, idea time,
playfulness/humor, conflict resolution, debates, and risk taking.
– A customer responsive culture has five characteristics: outgoing
and friendly employees; jobs with few rigid rules, procedures, and
regulations; empowerment; clear roles and expectations; and
employees who are conscientious in their desire to please the
customer.
– Companies that achieve business goals and increase long-term
share-holder value by integrating economic, environmental, and
social opportunities into business strategies may develop
sustainability into the organization’s overall culture.
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Management

• Symbolic view: much of an organization’s

• Economic factors have a significant impact on

• Organizations need to be able to respond to the

• Managers need to be aware of the

Exhibit 3-4 identifies some of an organization’s most common stakeholders

Exhibit 3-5 identifies the seven dimensions of organizational culture.

• Risk-taking and change rewarded

Exhibit 3-8 illustrates how an organization’s culture is established and maintained.

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