Chapter 2 The Environment and Culture of Organizations General Task Internal Copyright © Houghton Mifflin Company. All rights reserved.

The Organization’s Environment 3 Environments of an organization: Internal, Task, General Environmental Factors play a major role in determining an organization’s success or failure Managers should strive to maintain the proper alignment between their organization and its environments. Copyright © Houghton Mifflin Company. All rights reserved. 3

The Organization and its Environments

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 General economic growth, inflation, interest rates, unemployment Technological dimension Methods available for converting resources into products Sociocultural dimension Customs, values, demographic characteristics of society Political-legal dimension Government regulation of business International dimension Extent an organization is involved/affected by business in other countries Copyright © Houghton Mifflin Company. All rights reserved. 7

McDonald’s General Environment Copyright © Houghton Mifflin Company. All rights reserved.

The External Environment The Task Environment Competitors Organizations that compete with it for resources Customers Whoever pays money to acquire an organization’s products/services Suppliers Organizations that provide resources for other organizations Strategic Partners Companies that work together in joint ventures/partnerships Regulators Have potential to control, legislate, or otherwise influence and organization’s policies/practices Regulatory agencies – EPA, SEC, FDA, EEOC Interest Groups – PETA, MADD, NRA Copyright © Houghton Mifflin Company. All rights reserved. 7

Task Environment McDonald’s Competitors • Burger King Wendy’s Subway Dairy Queen Customers Individual consumers Institutional customers Suppliers Coca-Cola Wholesale food processors Packaging manufacturers Strategic Partners Wal-Mart Disney Foreign partners Regulators Food and Drug Administration Securities and Exchange Commission Environmental Protection Agency Internal environment Task environment Copyright © Houghton Mifflin Company. All rights reserved.

The Internal Environment Conditions and stakeholder forces within an organization Owners Board of directors (elected by stockholders, act in best interests of stockholders) Employees Physical work environment Culture Copyright © Houghton Mifflin Company. All rights reserved. 11

How Environments Affect Organizations Change and Complexity Environment can be described as being: Relatively stable or relatively dynamic and Relatively simple or relatively complex Uncertainty Unpredictability created by environmental change and complexity Stable/Simple – Least Uncertainty Dynamic/Complex – Most Uncertainty Copyright © Houghton Mifflin Company. All rights reserved. 17

Environmental Change, Complexity, and Uncertainty Source: From J.D. Thompson, Organizations in Action, 1967. Copyright © 1967 The McGraw-Hill Companies, Inc. Reprinted with permission. Copyright © Houghton Mifflin Company. All rights reserved.

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. Copyright © Houghton Mifflin Company. All rights reserved. 16

How Organizations Adapt to Their Environments Information Management in Organizations Boundary spanners Environmental scanning Information systems Strategic Response Maintaining the status quo, altering the current strategy, or adopting a new strategy. Mergers, Acquisitions, Alliances Firms combine (merge), purchase (acquisition), or form new venture partnerships or alliances with another firm. Copyright © Houghton Mifflin Company. All rights reserved. 21

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. 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. Copyright © Houghton Mifflin Company. All rights reserved. 21