Mgmt 371Chapter Three

The Environment and Culture of Organizations

Much of the slide content was created by Dr, Charlie Cook, Houghton Mifflin, Co.©

2

The Organization’s Environment

External Environment the set of forces and conditions that operate beyond an organization’s boundaries, but affect a manager’s ability to acquire and utilize resources. Everything outside an organization’s boundaries that might affect it General environment: everything outside an

organization’s boundaries—economic, legal, political, socio-cultural, international, and technical forces.

Task environment: specific external groups and organizations that affect the firm.

3

The Organization’s Environment

Internal Environment Conditions and forces present and at

work within an organization.

4

The Organization and Its Environments

The External Environment

General EnvironmentTask Environment

6

The External Environment

The General Environment The set of broad dimensions and forces in an

organization’s surroundings that create its overall context.

Economic dimension

Technological dimension

Sociocultural dimension

Political-legal dimension

International dimension

7

Economic Dimension

Interest ratesInflationUnemploymentEconomic growth

8

Technological Dimension

Effects of changes in technology that affect: Product/service design

Bound encyclopedias v. Online (wikipedia) Product/service distribution

Internet sales PayPal

Product/service production Industrial robotics Fax

9

Sociocultural Dimension

Sociocultural Dimension - values, mores, and norms of behavior of the society in which the organization functions. Customer tastes and preferences. Cultural awareness (Split pea & ham baby food in

the Middle East, e.g.). Organizations are affected by changing societal

attitudes and characteristics. Women Ethnic minorities Sexual preference Age Social class

10

Political-Legal Dimension

Effects of changing laws and regulations. Title VII Deregulation Tax laws EPA Subsidies (think corn & ethanol) Privatization

11

International dimension

Effects of increased global markets (opportunities) and competition (threats). Reduced trade barriers (NAFTA). Improved, and reliable, global

communications. Global labor markets.

12

The External Environment

Task environment: specific external groups and organizations that affect the firm. Change here usually have a direct and immediate effect. Government (regulators those who enforce the

law) Customers Strategic Partners

Joint venture partners Allies

Suppliers Competitors

13

Figure 3.2: McDonald’s General Environment

14

Figure 3.3: McDonald’s Task Environment

15

The Internal Environment

Conditions and stakeholder forces within an organization Owners. Board of directors Employees Physical work environment

16

How Environments Affect Organizations Change and Complexity

Environmental change occurs in two ways: Degree to which change in environment is occurring Degree of homogeneity or complexity of the

environment The environment is either simple or complex

Uncertainty A driving force that influences organizational

decisions. Affects predictability and ability to forecast events. Stable or dynamic

17

How Environments Affect Organizations Environmental Turbulence

The frequency and magnitude of unexpected changes and upheavals in the environment of an organization.

Also affects predictability.

18

Environmental Change, Complexity, and Uncertainty

Source: From J.D. Thompson, Organizations in Action, 1967. Copyright © 1967 The McGraw-Hill Companies, Inc. Reprinted with permission.

19

Competitive Forces

Porter’s Five Competitive Forces Threat of new entrants

Extent to and ease with which competitors can enter market.

Competitive rivalry Competitive rivalry between firms in an industry.

Threat of substitute products Extent to which alternative products/services may

replace the need for existing products/services. Power of buyers

Extent to which buyers influence market rivals. Power of suppliers

Extent to which suppliers influence market rivals.

20

Creating Barriers to Entry

Economies ofScale

BrandLoyalty

Barriers to Entry

Reduced Threat of New Entrants

21

How Organizations Adapt to Their Environments

22

How Organizations Adapt to Their Environments Information Management in Organizations

Boundary spanners - Individuals who interact with outside constituencies.

Improve information gathering (government, customers, suppliers, etc.).

Providing information (government, customers, suppliers, etc.).

Environmental scanning Information systems

Improved collection and dissemination of critical information.

Rapidly informs constituents of changes. Provides new distribution opportunities (i.e., internet

sales).

23

How Organizations Adapt to Their Environments Strategic Response

Maintaining the status quo, altering the current strategy, or adopting a new strategy.

Top management’s Strategic Response reduces uncertainty by scanning the general and task environments to identify opportunities and threats. Middle managers collect information primarily dealing

with the firm’s task environment. First level managers focus on the daily efficient use of

resources.

24

How Organizations Adapt to Their Environments Mergers, Acquisitions, Alliances

Firms combine (merge), purchase (acquisition), or form new venture partnerships or alliances with another firm.

Uncertainty is offset by mergers, acquisitions, and alliances.

Divides the risk [but also the profits]. Acquisition differs from merger in that in

acquisitions one organization loses its identity and becomes part of another.

In a merger both organizations lose their identity an become a new organization

25

How Organizations Respond to Their Environments (cont’d) Organizational Design and Flexibility

Adapting to environmental conditions by incorporating flexibility in its structural design.

Mechanistic firms operate best in stable environments.

Organic firms are best suited for dynamic environments.

Adopts a new structural design, i.e., going from a functional structure to a division structure, or a network structure.

Going from a centralized structure to a decentralized structure

26

How Organizations Respond to Their Environments (cont’d) Direct Influence of the Environment

Attempting to change the nature of the competitive conditions in its environment to suit its needs.

Pursuing new or changed relationships with suppliers, customers, and regulators.

27

A Model of Organizational Effectiveness

28

How Environments Affect Organizations

Uncertainty is offset by Top management’s boundary spanning roles.

Individuals who interact with outside constituencies.

Improve information gathering (government, customers, suppliers, etc.).

Providing information (government, customers, suppliers, etc.).

29

Examples of Admired and High-Performing Firms

Fortune Magazine Most Admired Companies 2009

Most Admired 1. Apple 2. Berkshire Hathaway 3. Toyota Motor 4. Google 5. Johnson & Johnson 6. Procter & Gamble 7. FedEx 7. Southwest Airlines 9. General Electric 10. Microsoft

Best Performing 1 Gilead Sciences  2 CF Industries 3 Diamond Offshore

Drilling  4 Windstream  6 Robinson (C.H.)

Worldwide  7 EXELON  8 Microsoft  9 Best Buy  10 Mastercard 

The Bottom 10 Least Admired Companies 1 Molson Coors Brewing 2 Amtrak 3 Dollar General 4 US Airways Group 5 Family Dollar Stores 6 Constellation Brands (Arbor Mist wine) 7 WellCare Health Plans 8 Amerco (parent company of U-Haul) 9 Northwest Airlines 10 Sears Holdings