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Chapter 3Organizational Environments

and CulturesDr. Ellen A. Drost

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External Environments

After reading the next four sections, you should be able to:

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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External Environment

External environment is dynamic and complex.

Change is constant.

External environment is dynamic and complex.

Change is constant.

Characteristics ofChanging External Environments

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External Environment

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Components of the General Environment

• Economy• Technological trends• Sociocultural trends• Political / Legal

trends

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Economy

• Growing vs. shrinking economies

• Predicting future economic activity

• Business confidence indices

2.12.1

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Technological Component

InformationInformation

OutputOutputInputInputTechnology--

KnowledgeTools

Techniques

Technology--Knowledge

ToolsTechniques

Raw Materials

Raw Materials

ServicesServices

ProductsProducts

2.22.2

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Impact of TechnologyTechnology can be a great benefit or a daunting threat. MP3 players have created a tremendous new business opportunity for some, like Apple, Creative, and other manufacturers. But record labels have suffered from the rapid acceptance of digital music and persistent file swapping.2.22.2

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Sociocultural Component

• Sociocultural Components

– Demographic changes– Changes in behavior, attitudes,

and beliefs

2.32.3

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Demographics Example

2.32.3

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Political / Legal Component• Legislation

• Regulations• Court decisions

Managers must be educated about the

laws, regulations, and potential lawsuits that could affect business

http://www.eeoc.gov/laws/cra91.htmlhttp://www.dol.gov/esa/whd/fmla/

Web Link 2.42.4

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Specific Environment

CustomerCustomer

CompetitorCompetitor

SupplierSupplier

Industry RegulationIndustry Regulation

Advocacy GroupAdvocacy Group

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Customer Component

Reactive customer monitoring– responding to

problems, trends, and events

Proactive customer monitoring–anticipating problems,

trends, and events

Monitoring customer wants and needs

is critical for business success

3.13.1

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Competitor Component

Competitive AnalysisCompetitive Analysis

Deciding who your competitors areDeciding who your competitors are

Anticipating competitors’ movesAnticipating competitors’ moves

Determining competitors’ strengths and weaknessesDetermining competitors’ strengths and weaknesses

3.23.2

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Supplier Component

Opportunistic BehaviorOpportunistic Behavior

SuppliersSuppliersBuyer Dependence

Buyer Dependence

Supplier Dependence

Supplier Dependence

Relationship BehaviorRelationship Behavior

3.33.3

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Industry Regulation Component

Industry Regulation

Consists of regulations and rules that govern the business practices and procedures of specific industries, businesses, and professions

3.43.4

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Federal Regulation AgenciesConsumer Product Safety Commission

Consumer Product Safety Commission http://www.cpsc.govhttp://www.cpsc.gov

Department of LaborDepartment of Labor http://www.dol.govhttp://www.dol.gov

Environmental Protection AgencyEnvironmental Protection Agency http://www.epa.govhttp://www.epa.gov

Equal EmploymentOpportunity Commission

Equal EmploymentOpportunity Commission http://www.eeoc.govhttp://www.eeoc.gov

Federal Communications Commission

Federal Communications Commission http://www.fcc.govhttp://www.fcc.gov

Federal Reserve SystemFederal Reserve System http://www.federalreserve.govhttp://www.federalreserve.gov

Federal Trade CommissionFederal Trade Commission http://www.ftc.govhttp://www.ftc.gov

Food and Drug AdministrationFood and Drug Administration http://www.fda.govhttp://www.fda.gov

National Labor Relations BoardNational Labor Relations Board http://www. nlrb.govhttp://www. nlrb.gov

Occupational Safety andHealth Administration

Occupational Safety andHealth Administration http://www.osha.govhttp://www.osha.gov

Securities and ExchangeCommission

Securities and ExchangeCommission http://www.sec.govhttp://www.sec.gov

3.43.4

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Cost of ComplianceResearchers studied U.S. manufacturers and the

cost they incur complying with the 25 major federal regulations. Researchers found:

There are about 300,000 manufacturing companies in the U.S.

Each company spends roughly $2.2 million

So, the aggregate cost of complying with federal regulations is roughly

$660 billionAnd that’s just for manufacturing.

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Advocacy GroupsAdvocacy GroupsGroups of concerned citizens who

band together to try to influence the business practices of specific industries, businesses, and professions

Techniques to try to influence companies public communications media advocacy product boycotts3.53.5

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Advocacy Groups

PETA (People for the Ethical Treatment of Animals)

is a well-known advocacy group that attempts to influence consumers and companies to pursue animal-friendly practices.

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Making Sense of Changing Environments

Acting on Threats and Opportunities

Acting on Threats and Opportunities

Interpreting Environmental Factors

Interpreting Environmental Factors

Environmental Scanning

Environmental Scanning

EvaluatingExternal

Environments

EvaluatingExternal

Environments

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Environmental Scanning

• Environmental scanning: – searching the environment for

events or issues that might affect an organization

keeps companies current on industry factors

reduces uncertaintyalters organizational strategiescontributes to organizational performance

4.14.1

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Interpreting Environmental Factors

EnvironmentalScan

EnvironmentalScan

Opportunities?Opportunities? Threats?Threats?

4.24.2

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Internal Environments

After reading this section, you should be able to:

5. explain how organizational cultures are created

and how they can help companies be successful.

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Internal Environments

Internal Environment

Consists of the trends and events within an organization that affect its resources, such as technology, IT, finance, management, employees, and organizational culture.

important because it affects what people think, feel, and do at work

organizational culture is the set of key values, beliefs, and attitudes shared by organizational members

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Creation and Maintenance of Organizational Cultures

Organizational HeroesOrganizational HeroesOrganizational StoriesOrganizational Stories

Company FounderCompany Founder

5.15.1

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Successful Organizational Cultures

EmployeeSatisfactionEmployee

Satisfaction

QualityQuality

ConsistencyConsistency

AdaptabilityAdaptability

InvolvementInvolvement

Clear VisionClear Vision

SalesGrowthSales

Growth

Return onAssets

Return onAssets

ProfitsProfits

Source: D.R. Denison & A.K. Mishra, Organization Science 6 (1995): 204-223

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Levels of Organizational Culture

Symbolic artifacts Behaviors

Symbolic artifacts Behaviors

1. SurfaceLevel

1. SurfaceLevel SEENSEEN

What people say How decisions

are made

What people say How decisions

are made2. Expressed Values

and Beliefs2. Expressed Values

and Beliefs HEARDHEARD

Beliefs andassumptions

Rarely discussed

Beliefs andassumptions

Rarely discussed

3. Unconsciously Held Assumptionsand Beliefs

3. Unconsciously Held Assumptionsand Beliefs BELIEVEDBELIEVED

5.35.3