2-1 © 2008 McGraw-Hill Australia Pty Ltd. Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al Slides prepared by Rob Lawrence, Victoria University (Australia) Chapter 2 Understanding internal and external environments

2-2 © 2008 McGraw-Hill Australia Pty Ltd. Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al Slides prepared by Rob Lawrence, Victoria University (Australia) Lecture outline Types of external environments Analysing environmental conditions Managing the environment The internal environment - Culture Changing organisational culture

2-3 © 2008 McGraw-Hill Australia Pty Ltd. Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al Slides prepared by Rob Lawrence, Victoria University (Australia) External environment ‘Major forces outside the organisation with potential to influence significantly the likely success of a product or service.’

2-4 © 2008 McGraw-Hill Australia Pty Ltd. Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al Slides prepared by Rob Lawrence, Victoria University (Australia) External environment External environment is made up of: Mega-environment - the broad conditions and trends in societies in which an organisation operates Task environment - specific outside elements with which an organisation interfaces in the course of conducting its business

2-5 © 2008 McGraw-Hill Australia Pty Ltd. Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al Slides prepared by Rob Lawrence, Victoria University (Australia) The mega-environment The organisation Sociocultural element Legal-political element International element Technological element Economic element

2-6 © 2008 McGraw-Hill Australia Pty Ltd. Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al Slides prepared by Rob Lawrence, Victoria University (Australia) The mega-environment Five major elements: Technological element - Current state of knowledge regarding production of products and services Economic element - Wealth production, distribution and consumption systems Legal-political element - Legal and governmental systems within which an organisation must operate

2-7 © 2008 McGraw-Hill Australia Pty Ltd. Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al Slides prepared by Rob Lawrence, Victoria University (Australia) The mega-environment Sociocultural element - Attitudes, values, norms, beliefs, behaviours and associated demographic trends characteristic of a given geographic area International element - Developments in countries outside an organisation’s home country with potential to influence the organisation

2-8 © 2008 McGraw-Hill Australia Pty Ltd. Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al Slides prepared by Rob Lawrence, Victoria University (Australia) External environment… an example Warren Featherbone Company Over a century, the company built a thriving business around a patented product, the featherbone, used to stiffen corsets and collars. Though the company survived the Great Depression, technological changes, such as plastic, were emerging. By 1938, the company had started making plastic baby pants to cover nappies, just as featherbone demand fell. As the company’s history shows, an organisation’s environment is crucial and organisations must be ready to change and innovate.

2-9 © 2008 McGraw-Hill Australia Pty Ltd. Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al Slides prepared by Rob Lawrence, Victoria University (Australia) The task environment Suppliers Competitors Government & regulators The employment market Public pressure groups THE ORGANISATION Customers/ clients

2-10 © 2008 McGraw-Hill Australia Pty Ltd. Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al Slides prepared by Rob Lawrence, Victoria University (Australia) The task environment Five elements: Customers and clients - Individuals and organisations purchasing products/services Competitors - Other organisations offering (or with a high potential to offer) rival products/services Suppliers - Organisations and individuals supplying resources an organisation needs to conduct its operations

2-11 © 2008 McGraw-Hill Australia Pty Ltd. Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al Slides prepared by Rob Lawrence, Victoria University (Australia) The task environment Labour supply - Individuals potentially employable by an organisation Government agencies - Agencies providing services and monitoring compliance with laws and regulations at local, state or regional and national levels

2-12 © 2008 McGraw-Hill Australia Pty Ltd. Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al Slides prepared by Rob Lawrence, Victoria University (Australia) Analysing environmental conditions Two major perspectives on the organisational environment: Population ecology model - Argues that environmental factors cause organisations to survive or fail - Also known as the “natural selection” model Resource dependence model - Highlights the dependence of organisations on the environment - so organisations attempt to manipulate the environment to reduce this dependence

2-13 © 2008 McGraw-Hill Australia Pty Ltd. Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al Slides prepared by Rob Lawrence, Victoria University (Australia) Analysing environmental conditions Reconciling the two models: Managers find both models useful - The population ecology model shows that organisations have little control over environmental factors and that success may be based on luck. The resource dependence model shows that managers can influence environmental aspects, therefore they must monitor, understand and influence. They must realise that major organisational impacts can come from unexpected elements.

2-14 © 2008 McGraw-Hill Australia Pty Ltd. Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al Slides prepared by Rob Lawrence, Victoria University (Australia) Analysing environmental conditions Characteristics of the environment Uncertainty –Condition in which future environmental circumstances affecting an organisation cannot be accurately assessed and predicted Complexity –Number of elements in an organisation’s environment and their degree of similarity

2-15 © 2008 McGraw-Hill Australia Pty Ltd. Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al Slides prepared by Rob Lawrence, Victoria University (Australia) Analysing environmental conditions Characteristics of the environment (continued) Dynamism - Rate and predictability of change in the elements of an organisation’s environment Environmental bounty - Extent to which the environment can support sustained growth and stability - can range from “rich” to “lean”

2-16 © 2008 McGraw-Hill Australia Pty Ltd. Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al Slides prepared by Rob Lawrence, Victoria University (Australia) Managing environmental elements Three approaches to managing the environment: Adaptation Involves changing internal operations and activities to make the organisation and its environment more compatible Favourability influence Involves trying to alter environmental elements to make them more compatible with the organisation’s needs Domain shifts Changing product/service mix to create favourable interface

2-17 © 2008 McGraw-Hill Australia Pty Ltd. Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al Slides prepared by Rob Lawrence, Victoria University (Australia) Adaptation Buffering Stockpiling either inputs into, or outputs from, a production or service process to cope with environmental fluctuations Smoothing Taking actions aimed at reducing the impact of fluctuations, given the market Forecasting Predicting changing conditions and future events that significantly affect an organisation’s business Rationing Providing limited access to a product or service in high demand

2-18 © 2008 McGraw-Hill Australia Pty Ltd. Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al Slides prepared by Rob Lawrence, Victoria University (Australia) Favourability influence Advertising and public relations Boundary spanning Recruiting Negotiating contracts Coopting Strategic alliances Trade associations Political activity

2-19 © 2008 McGraw-Hill Australia Pty Ltd. Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al Slides prepared by Rob Lawrence, Victoria University (Australia) Domain shifts Either: Move out of a current product, service or geographic area into a more favourable domain; or Expand current domains through diversification or expansion of products/services offered

2-20 © 2008 McGraw-Hill Australia Pty Ltd. Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al Slides prepared by Rob Lawrence, Victoria University (Australia) The Internal environment: Organisational culture Nature of organisational culture –‘A system of shared values, assumptions, beliefs and norms uniting organisational members’ (Smircich 1983; Kilman et al. 1986). –‘The way we do things around here.’ –The ‘glue’ binding the disparate parts (or the oil that keeps them moving). –The interpretive part of organisational behaviour: it explains, gives direction, sustains energy, commitment, and cohesion.

2-21 © 2008 McGraw-Hill Australia Pty Ltd. Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al Slides prepared by Rob Lawrence, Victoria University (Australia) The nature of organisation culture Three aspects of culture are important: Direction Pervasiveness, and Strength.

2-22 © 2008 McGraw-Hill Australia Pty Ltd. Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al Slides prepared by Rob Lawrence, Victoria University (Australia) Manifestations of organisational culture Symbols –Objects, acts, events or qualities serving as a vehicle for conveying meaning Stories –Narratives based on true events, which may be embellished to highlight intended value Rites –Relatively elaborate, dramatic, planned sets of activities intended to convey cultural values to participants and, usually, an audience Ceremonials –Systems of rites performed in conjunction with a single occasion or event

2-23 © 2008 McGraw-Hill Australia Pty Ltd. Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al Slides prepared by Rob Lawrence, Victoria University (Australia) Cultural types Strong cultures Weak cultures Unhealthy cultures Adaptive cultures Other classification systems? (Eg. Engineering culture, operator culture, executive culture)

2-24 © 2008 McGraw-Hill Australia Pty Ltd. Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al Slides prepared by Rob Lawrence, Victoria University (Australia) Promoting innovation: Entrepreneurial cultures Strategic –Focused on identifying opportunities Commitment to seize opportunities –Willing to make major, fast changes Commitment of resources –Many stages with risk assessed for each stage Control of resources –Rental or outsourcing of resources for flexibility Management structure –Few levels, with informal communication

2-25 © 2008 McGraw-Hill Australia Pty Ltd. Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al Slides prepared by Rob Lawrence, Victoria University (Australia) Schien’s three cultures of management Operator culture –Any organisational action ultimately depends on the people (their knowledge, skill, learning ability, commitment) Engineering culture –Preference for linear, quantitative and “people-free” solutions, concern for safety Executive culture –Reflects strong but tacit CEO preoccupations: concern for financial performance, survival, growth, boards of directors, investors and capital markets.

2-26 © 2008 McGraw-Hill Australia Pty Ltd. Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al Slides prepared by Rob Lawrence, Victoria University (Australia) Changing organisational culture Because they involve fairly stable values, beliefs and assumptions, organisations can be difficult to change. One approach to changing culture: Surfacing actual norms Articulating new directions Establishing new norms Identifying culture gaps Closing culture gaps

2-27 © 2008 McGraw-Hill Australia Pty Ltd. Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al Slides prepared by Rob Lawrence, Victoria University (Australia) How leaders influence cultural change Crisis identification Communication of a new vision Motivation of key staff to lead cultural change by implementing the new vision and its corresponding strategy

2-28 © 2008 McGraw-Hill Australia Pty Ltd. Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al Slides prepared by Rob Lawrence, Victoria University (Australia) Lecture summary External environment: - Types of external environment - Mega-environment; task environment - Analysing the environment - Models: ecology and resource dependence - Managing the environment - Adaptation, favourability influence and domain shifts

2-29 © 2008 McGraw-Hill Australia Pty Ltd. Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al Slides prepared by Rob Lawrence, Victoria University (Australia) Lecture summary Internal environment (culture): Nature of organisational culture –System of shared values, assumption, beliefs and norms uniting organisational members –Manifestations of culture –Symbols, stories, rites and ceremonials –Promoting innovation Requires strategically oriented organisations with ability to change quickly –Cultural change can be hard, requires visionary or motivational leaders