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Chapter 2 Organizational Environments and Cultures 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? 2 Learning Objectives External Environments After discussing this section, you should be able to: 1. 2. 3. 4. discuss how changing environments affect organizations. describe the four components of the general environment. explain the five components of the specific environment. describe the process that companies use to make sense of their changing environments. 3 Changing Environments Environmental Change Environmental Complexity Environmental Munificence Uncertainty 4 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 5 Punctuated Equilibrium: U.S. Airline Industry 10000000 8000000 $ in Thousands 6000000 4000000 2000000 Operating Profit 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983 1982 1981 1980 1979 1978 1977 1976 0 -2000000 -4000000 Year Adapted from Exhibit 2.1 6 Environmental Complexity The number of external factors in the environment that affect organizations Simple environments have few environmental factors Complex environments have many environmental factors. 7 Environmental Munificence The degree to which an organization’s external environment has an abundance or scarcity of critical organizational resources 8 Uncertainty How well managers can understand or predict the external changes and trends affecting their businesses 9 Environmental Uncertainty Environmental Change, Complexity, & Munificence High Medium Low Environmental Characteristics Complexity Change Resources Adapted from Exhibit 2.2 10 General & Specific Environments Specific Environment General Environment Sociocultural Component Economy Customers Competitors Customers Competitors Advocacy Business B Groups Suppliers Advocacy Groups Business A Suppliers Industry Regulation Industry Regulation Adapted from Exhibit 2.3 Technological Component Political/Legal Component 11 General Environment Economy Technological Sociocultural Political/Legal 12 Economy Growing vs. shrinking economies Future economic activity is difficult to predict Business confidence indices owners’/managers’ confidence in the growth of the economy 13 Technological 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 14 Sociocultural Refers to the demographic characteristics and general behavior, attitudes, and beliefs of people in a particular society Two important components Demographic changes Changes in behavior, attitudes, and beliefs 15 Political/Legal Includes the legislation, regulation, and court decisions that govern and regulate business behavior Managers must be aware of relevant laws and regulations track changes avoid lawsuits and penalties 16 Specific Environment Customer Competitor Supplier Industry Regulation Advocacy Group 17 Customer Component Customers are essential for business survival Managers must monitor customers’ wants and needs reactive responding to complaints proactive anticipating problems 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 19 Supplier Component Companies that provide material, human, financial, and informational resources to other companies Supplier & buyer dependence Opportunistic vs. relationship behavior 20 Industry Regulation Component Consists of regulations and rules that govern the business practices and procedures of specific industries, businesses, and professions 21 Federal Regulatory Agencies & Commissions Federal Agency Regulatory Responsibilities Consumer Product Safety Commission Reduce risk of injuries and deaths associated with consumer products, set product safety standards, enforce product recalls, and provide consumer education Reduce and control pollution through research, monitoring, standard setting, and enforcement activities Promote fair hiring and promotion practices Regulate interstate and international communications by radio, television, wire, satellite, and cable As nation’s central bank, control interest rates and money supply, and monitor the U.S. banking system to produce a growing economy with stable prices Environmental Protection Agency Equal Employment Opportunity Commission Federal Communications Commission Federal Reserve System Adapted from Exhibit 2.5 22 Federal Regulatory Agencies & Commissions Federal Agency Regulatory Responsibilities Federal Trade Commission Restrict unfair methods of business competition and misleading advertising, and enforce consumer protection laws Food and Drug Protect nation’s health by making sure Administration food, drugs, and cosmetics are safe National Labor Relations Monitor union elections and stop Board companies from engaging in unfair labor practices Occupational Safety & Save lives, prevent injuries, and protect Health Administration the health of workers Securities and Exchange Protect investors in the bond and stock Commission markets, guarantee access to information on publicly traded securities, and regulate firms that sell securities or give investment advice Adapted from Exhibit 2.5 23 Advocacy Group Component Groups 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 boycotts 24 Making Sense of Changing Environments Environmental Scanning Interpreting Environmental Factors Acting on Threats and Opportunities 25 Environmental Scanning Searching the environment for important events or issues that might affect an organization Scanning: reduces uncertainty alters organizational strategies contributes to organizational performance 26 Interpreting Environmental Factors Managers determine what environmental events and issues mean to the organization Opportunities vs. threats 27 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 28 Cognitive Maps Good location Kmart Low-cost strategy - + - Strength & Weaknesses Too small to get volume discounts - Good value Good service + Large selection of latest fashions + Reasonable selection prices Wal-Mart Adapted from Exhibit 2.6 + - - Low rent & taxes + Success, Profits + + Know customers well Low employee turnover Potential Actions Environmental Factors Large mall 20 minutes away 29 Learning Objectives Internal Environments After discussing this section, you should be able to: 5. explain how organizational cultures are created and how they can help companies be successful. 30 Organizational Cultures: Creation, Success, and Change Creation and Maintenance of Organizational Cultures Successful Organizational Cultures Changing Organizational Cultures 31 Creation and Maintenance of Organizational Cultures Company founders help create culture Cultures are maintained through: Stories Heroes 32 Blast From The Past Capturing corporate history Preserves culture and values 33 Successful Organizational Cultures Adaptability Consistency Involvement Clear Mission Adapted from Exhibit 2.7 D.R. Denison & A.K. Mishra, Organization Science 6(1995): 204-223 34 Been There, Done That The beliefs and values of Starbucks Coffee sharing success a culture of meaning and loyalty grassroots decision making 35 Changing Organizational Cultures Behavioral addition Behavioral substitution is the process of having managers and employees perform a new behavior is having managers and employees perform a new behavior in place of another behavior Change visible artifacts such as the office design and layout, company dress codes, etc. 36 What Really Happened? Challenges in the economic, supplier, competitor, and industry components Avoids travel agents by using the Web Directly confronts competitors and regulators 37
