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©2004 by Nelson, a division of Thomson Canada Limited 1
Chapter 2
Organizational Environments and
Cultures
©2004 by Nelson, a division of Thomson Canada Limited 2
What Would You Do? The “Southwest” of Europe Stiff competition from “go” & rising
costs How do you react to the
competition & political pressures? What would you do?
©2004 by Nelson, a division of Thomson Canada Limited 3
Learning Objectives:External EnvironmentsAfter reading the next four sections, you should be able to:
1. discuss how changing environments affect organizations2. describe the four components of the general
environment3. explain the five components of the specific environment4. describe the process of that companies use to make sense of their changing environments
©2004 by Nelson, a division of Thomson Canada Limited 4
Changing Environments Environmental
complexity and munificence
Environmental change
Uncertainty
©2004 by Nelson, a division of Thomson Canada Limited 5
Environmental Change The rate at which a company’s
general and specific environments change
stable environments dynamic environments
Punctuated equilibrium theory Companies cycle through stable and
dynamic environments
©2004 by Nelson, a division of Thomson Canada Limited 6
Environmental Complexity and MunificenceEnvironmental complexity The number of external factors in
the environment that affect organizations Simple environments
have few environmental factors Complex environments
have many environmental factors
©2004 by Nelson, a division of Thomson Canada Limited 7
Environmental Munificence The degree to which an
organization’s environment has an abundance or scarcity of critical organizational resources
©2004 by Nelson, a division of Thomson Canada Limited 8
Environmental Change, Complexity, and Munificence
Exhibit 2.1
©2004 by Nelson, a division of Thomson Canada Limited 9
Uncertainty
How well managers can understand or predict the external changes and trends affecting their businesses
©2004 by Nelson, a division of Thomson Canada Limited 10
General and Specific Environments
Exhibit 2.2
©2004 by Nelson, a division of Thomson Canada Limited 11
General Environment Economy Technological Component Sociocultural Component Political/Legal Component
©2004 by Nelson, a division of Thomson Canada Limited 12
Economy Growing versus shrinking
economies Future economic activity is difficult
to predict Business confidence indices
managers’ confidence in the growth of the economy
©2004 by Nelson, a division of Thomson Canada Limited 13
Technological Component Technology is the knowledge,
tools, and techniques used to transform inputs (raw materials, information, etc.) into outputs (products and services)
Technological changes can benefit or threaten businesses
©2004 by Nelson, a division of Thomson Canada Limited 14
Sociocultural Component Refers to the demographic
characteristics and general behaviour, attitudes and beliefs of people in a particular society
Two important components Demographic changes Changes in behaviour, attitudes, and
beliefs
©2004 by Nelson, a division of Thomson Canada Limited 15
Political/Legal Component Includes the legislation, regulation,
and court decisions that govern and regulate business behaviour
Managers must be aware of relevant laws and regulations Education is a key component
©2004 by Nelson, a division of Thomson Canada Limited 16
Specific Environment Customer Component Competitor Component Supplier Component Industry Regulation Component Advocacy Groups
©2004 by Nelson, a division of Thomson Canada Limited 17
Customer Component Companies cannot exist without
customers Managers must monitor customer
wants and needs reactive
responding after the fact proactive
anticipating problems
©2004 by Nelson, a division of Thomson Canada Limited 18
Competitor Component Companies in the same industry
that sell similar products or services to customers
Competitive analysis deciding who your competitors are anticipating competitors’ moves determining competitors’ strengths
and weaknesses
©2004 by Nelson, a division of Thomson Canada Limited 19
Supplier Component Companies that provide material,
human, financial, and informational resources to other companies
Supplier & buyer dependence Opportunistic vs. relationship
behaviour
©2004 by Nelson, a division of Thomson Canada Limited 20
Industry Regulation Component Consists of regulations and rules
that govern the business practices and procedures of specific industries, businesses, and professions
©2004 by Nelson, a division of Thomson Canada Limited 21
Advocacy GroupsGroups of concerned citizens who band together to try to influence the business practices of specific industries, businesses, and professions.Influence techniques:
public communications media advocacy product boycott
©2004 by Nelson, a division of Thomson Canada Limited 22
Making Sense of Changing Environments Environmental scanning Interpreting environmental factors Acting on threats and opportunities
©2004 by Nelson, a division of Thomson Canada Limited 23
Environmental ScanningSearching the environment for important events or issues that might affect an organization.Scanning:
reduces uncertainty alters organizational strategies contributes to organizational
performance
©2004 by Nelson, a division of Thomson Canada Limited 24
Interpreting Environmental Factors Managers determine what
environmental events and issues mean to the organization
Opportunities versus threats
©2004 by Nelson, a division of Thomson Canada Limited 25
Acting on Threats and Opportunities Managers have to decide how to
respond to these environmental factors
Cognitive maps simplified models of external
environments depicts how managers believe
environmental factors relate to possible organizational actions
©2004 by Nelson, a division of Thomson Canada Limited 26
Cognitive Maps
Exhibit 2.4
©2004 by Nelson, a division of Thomson Canada Limited 27
Learning Objectives:Internal EnvironmentsAfter reading the next section, you should be able to:
5. explain how organizational cultures are created and how they can help companies be successful
©2004 by Nelson, a division of Thomson Canada Limited 28
Organizational Cultures: Creation, Success, and Change Creation and maintenance of
organizational cultures Successful organizational cultures Changing organizational cultures
©2004 by Nelson, a division of Thomson Canada Limited 29
Creation and Maintenance of Organizational Cultures Visible artifacts Company founders help create
culture Cultures are maintained through:
stories organizational heroes rituals, ceremonies, and symbols
©2004 by Nelson, a division of Thomson Canada Limited 30
Successful Organizational Cultures
Exhibit 2.5
©2004 by Nelson, a division of Thomson Canada Limited 31
Changing Organizational Cultures Behavioural addition
is the process of having managers and employees perform a new behaviour
Behavioural substitution is having managers and employees perform a
new behaviour in place of another behaviour Change visible artifacts
Such as the office design and layout, company dress codes, etc.
©2004 by Nelson, a division of Thomson Canada Limited 32
What Really Happened? Challenges in the economic, supplier,
competitor, and industry components
Avoids travel agents by using the Web
Directly confronts competitors and regulators
Experiences new opportunities