Chapter 2 Internal and external environments An organisation’s effectiveness is influenced by its external environment—the major forces outside the organisation able to impact on the success of its products or services. In addition organisations which could be successful are unable to be unless their internal environment is compatible with external conditions. Further discussion can be found on page 64. © 2006 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management Foundations: A Pacific Rim Focus 1e by Bartol et al.

Lecture outline External environment Types of external environment Analysing the environment Managing the environment Internal environment Page 42 © 2006 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management Foundations: A Pacific Rim Focus 1e by Bartol et al.

Lecture outline Internal environment (culture) Nature of organisational culture Manifestations of culture Promoting innovation Changing organisational culture Leadership & cultural change Pages 58-62 © 2006 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management Foundations: A Pacific Rim Focus 1e by Bartol et al.

External environment with potential to influence significantly ‘Major forces outside the organisation with potential to influence significantly the likely success of a product or service.’ © 2006 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management Foundations: A Pacific Rim Focus 1e by Bartol et al.

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 Pages 45 & 48 © 2006 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management Foundations: A Pacific Rim Focus 1e by Bartol et al.

The mega-environment The organisation Economic element Technological element Legal-political element The organisation Page 45 International element Sociocultural element © 2006 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management Foundations: A Pacific Rim Focus 1e by Bartol et al.

The mega-environment Five major elements: Technological element - Current state of knowledge regarding production of products & services Economic element - Systems of producing, distributing & consuming wealth Legal-political element - Legal & governmental systems within which an organisation must function Although specific technical knowledge can give an organisation a competitive edge, it should be recognised that in time, technological progress may erode this edge. Because the mix of state and private ownership of the means of production varies between countries, international corporations face different systems of economic ground rules. A country’s legal system is often influenced by its political processes, i.e. government regulation may emanate from political issues. Further discussion can be found on pages 45-7. © 2006 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management Foundations: A Pacific Rim Focus 1e by Bartol et al.

The mega-environment Sociocultural element International element - Attitudes, values, norms, beliefs, behaviours & associated demographic trends characteristic of a given geographic area International element - Developments in countries outside of an organisation’s home country with potential to influence the organisation Because sociocultural aspects change, managers must monitor new opportunities or threats. Such changes can mean demand shifts across products and/or service types. International elements affect how an organisation conducts business overseas. For example, currency fluctuations influence a firm’s global competitiveness. Further discussion can be found on pages 47-8. © 2006 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management Foundations: A Pacific Rim Focus 1e by Bartol et al.

External environment 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. The example of the Warren Featherbone Company demonstrates that an organisation’s external environment is crucial to its success and continued existence. Organisations must be ready to change and innovate in response to its demands. Further discussion of the Warren Featherbone example can be found on page 44. © 2006 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management Foundations: A Pacific Rim Focus 1e by Bartol et al.

Government & regulators Public pressure groups The task environment Competitors Government & regulators Customers/ clients THE ORGANISATION The employment market Suppliers This environment depends on the products, services and locales where an organisation operates. Each organisation must assess its own situation to determine its specific task environment. Any organisation has difficulty influencing the mega-environment, but may affect its task environment. The example of the Warren Featherbone Company demonstrates that an organisation’s external environment is crucial to its success and continued existence. Organisations must be ready to change and innovate in response to its demands. Further discussion can be found on pages 48-9. Public pressure groups © 2006 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management Foundations: A Pacific Rim Focus 1e by Bartol et al.

The task environment Five elements: Customers and clients Competitors - 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 Many organisations work to be close to the customer, particularly attending to service and quality and listening to customers. Organisations must be aware of competitors’ activities (see ‘Management skills for a globalised economy: Keeping tabs on competitors’, page 50). Global competition has meant that firms can lower costs by having fewer contracted suppliers. Further discussion can be found on pages 48-51. © 2006 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management Foundations: A Pacific Rim Focus 1e by Bartol et al.

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 Being able to attract, motivate and retain human resources is crucial to an organisation and now employers can expect to recruit from a more diverse population. Usually the task environment requires interactions with representatives of different government agencies (e.g. tax, police, health, consumer affairs). Further discussion can be found on pages 51. © 2006 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management Foundations: A Pacific Rim Focus 1e by Bartol et al.

The task environment Keeping tabs on competitors Commercial databases Specialty trade publications Local newspaper clippings Advertised vacancies Published market research Trade shows & product literature Personal contacts Page 50 © 2006 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management Foundations: A Pacific Rim Focus 1e by Bartol et al.

Analysing environmental conditions Perspectives on environment: Population ecology model - Argues that environmental factors cause organisations to survive or fail Resource dependence model - Highlights the dependence of organisations on environment but attempts to manipulate the environment to reduce this dependence Pages 51-2 © 2006 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management Foundations: A Pacific Rim Focus 1e by Bartol et al.

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. © 2006 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management Foundations: A Pacific Rim Focus 1e by Bartol et al.

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 Accurately assessing the environment is hard. Managers act on their perceptions of the environment and so must verify their perceptions through other information sources. In this analysis of the environment, two key concepts are used: environmental uncertainty and environmental complexity. Further discussion can be found on pages 52-3. © 2006 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management Foundations: A Pacific Rim Focus 1e by Bartol et al.

Analysing environmental conditions 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 Pages 53-4 © 2006 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management Foundations: A Pacific Rim Focus 1e by Bartol et al.

Managing environmental elements Three approaches to managing the environment: Adaptation - Involves changing internal operations & 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 In seeking to manage the environment, managers have three options: adapting to the environmental elements, trying to influence the environment and thus make it more favourable, and/or shifting the domain in which they operate to a more favourable one. The choice made may depend upon feasibility. Further discussion can be found on pages 54-8. © 2006 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management Foundations: A Pacific Rim Focus 1e by Bartol et al.

Adaptation Buffering Smoothing Forecasting Rationing 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 & future events that significantly affect an organisation’s business Rationing Providing limited access to a product or service in high demand The adaptation strategy accepts the existing environment as given and seeks to develop a rational process for dealing with it. Further discussion can be found on pages 54-5. © 2006 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management Foundations: A Pacific Rim Focus 1e by Bartol et al.

Favourability influence Advertising & public relations Boundary spanning Recruiting Negotiating contracts Coopting Strategic alliances Trade associations Political activity Rather than accept environmental aspects as givens, this approach holds that organisations can change some environmental aspects. Further discussion can be found on pages 55-8. © 2006 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management Foundations: A Pacific Rim Focus 1e by Bartol et al.

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 Page 58 © 2006 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management Foundations: A Pacific Rim Focus 1e by Bartol et al.

Internal environment 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. Culture is important as members act on shared values and other cultural aspects, so their behaviours can impact organisational effectiveness. Environmental changes such as new competitors may force firms to revisit norms in areas such as quality. Three aspects of culture are important: direction, pervasiveness and strength. Further discussion can be found on page 58. © 2006 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management Foundations: A Pacific Rim Focus 1e by Bartol et al.

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 An interesting feature of organisational culture is that the values, assumptions, beliefs and norms making up a particular culture are largely unseen. Also, culture can negatively impact when it is widely shared and well internalised but influences behaviour to interfere with organisational goals. Further discussion can be found on pages 59. © 2006 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management Foundations: A Pacific Rim Focus 1e by Bartol et al.

Promoting innovation Strategic Commitment to seize opportunities 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 Successful organisations foster adaptive, entrepreneurial cultures. The organisation opportunity matrix (see Figure 2.5, page 59) classifies firms by how much their culture supports a desire for change and a belief in its capacity to influence the competitive environment. Further discussion can be found on pages 59-60. © 2006 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management Foundations: A Pacific Rim Focus 1e by Bartol et al.

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 Pages 60-1 © 2006 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management Foundations: A Pacific Rim Focus 1e by Bartol et al.

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 Page 62 © 2006 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management Foundations: A Pacific Rim Focus 1e by Bartol et al.

Lecture summary External environment: - Types of external environment - Mega-environment; task environment - Analysing the environment - Models: ecology & resource dependence - Managing the environment - Adaptation, favourability influence & domain shifts Page 65 © 2006 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management Foundations: A Pacific Rim Focus 1e by Bartol et al.

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 Page 65 © 2006 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management Foundations: A Pacific Rim Focus 1e by Bartol et al.

Lecture summary Internal environment (culture) (contd): Changing organisational culture - Difficult because of need to change values & behaviour Leadership & cultural change - Leaders convey need for change, provide new vision & motivate key staff Page 65 © 2006 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management Foundations: A Pacific Rim Focus 1e by Bartol et al.