1 Designed & Prepared by B-books, Ltd. MGMT Chuck Williams Chapter 3 Organizational Environments and Cultures

2 External Environments After reading the next four sections, you should be able to: 1.discuss how changing environments affect organizations. 2.describe the four components of the general environment. 3.explain the five components of the specific environment 4.describe the process that companies use to make sense of their changing environments.

3 Changing Environments Environmental Change Environmental Complexity Resource Scarcity Uncertainty Environmental Change Environmental Complexity Resource Scarcity Uncertainty Characteristics of Changing External Environments 1 1

4 Environmental Change Environmental Change is the rate at which a company’s environments change  stable environments  dynamic environments Punctuated equilibrium theory Companies cycle through stable and dynamic environments. 1.1

5 Environmental Complexity Environmental Complexity: the number of external factors in the environment that affect organizations Simple environmentsComplex environments 1.2

6 Resource Scarcity The degree to which an organization’s external environment has an abundance or scarcity of critical organizational resources 1.3

7 Natural Resources The scarcity of natural resources is a general concern. Companies like Weyerhauser work extra hard to correct the misperception that they are using up valuable resources. In fact, through careful planning and good management, Weyerhauser is able to both guarantee its lumber resources and be a good environmental steward.

8 Uncertainty 1.4

9 External Environment 2 2 Specific Environment

10 Components of the General Environment Economy Technological trends Sociocultural trends Political / Legal trends 2 2

11 Economy Growing vs. shrinking economies Predicting future economic activity Business confidence indices 2.1

12 Technological Component Information Output Input Technology Knowledge Tools Techniques Technology Knowledge Tools Techniques Raw Materials Services Products 2.2

13 Impact of Technology Technology can be a great benefit or a daunting threat. MP3 players have created a tremendous new business opportunity for some, like Apple, Creative, and other manufacturers. But record labels have suffered from the rapid acceptance of digital music and persistent file swapping. 2.2

14 Sociocultural Component –Demographic changes –Changes in behavior, attitudes, and beliefs 2.3

15 Demographics Example 2.3

16 Political / Legal Component Legislation Regulations Court decisions Managers must be educated about the laws, regulations, and potential lawsuits that could affect business Web Link 2.4

17 Specific Environment Customer Competitor Supplier Industry Regulation Advocacy Group 3 3

18 Customer Component Reactive customer monitoring –responding to problems, trends, and events Proactive customer monitoring –anticipating problems, trends, and events Monitoring customer wants and needs is critical for business success 3.1

19 Competitor Component Competitive Analysis Deciding who your competitors are Anticipating competitors’ moves Determining competitors’ strengths and weaknesses 3.2

20 Supplier Component Opportunistic Behavior Suppliers Buyer Dependence Supplier Dependence Relationship Behavior 3.3

21 Industry Regulation Component Industry Regulation Regulations and rules that govern the business practices and procedures of specific industries, businesses, and professions 3.4

22 Federal Regulation Agencies Consumer Product Safety Commission Department of Labor Environmental Protection Agency Equal Employment Opportunity Commission Federal Communications Commission Federal Reserve System Federal Trade Commission Food and Drug Administration National Labor Relations Board nlrb.gov Occupational Safety and Health Administration Securities and Exchange Commission 3.4

23 Cost of Compliance Researchers studied U.S. manufacturers and the costs they incur complying with the 25 major federal regulations. They found: There are about 300,000 manufacturing companies in the U.S. Each company spends roughly $2.2 million So, the aggregate cost of complying with federal regulations is roughly $660 billion And that’s just for manufacturing.

24 Advocacy Groups  Groups of concerned citizens who band together to try to influence the business practices of specific industries, businesses, and professions  Techniques to try to influence companies  public communications  media advocacy  product boycotts 3.5

25 Advocacy Groups PETA is a well-known advocacy group that attempts to influence consumers and companies to pursue animal-friendly practices.

26 Making Sense of Changing Environments Acting on Threats and Opportunities Interpreting Environmental Factors Environmental Scanning EvaluatingExternalEnvironmentsEvaluatingExternalEnvironments 4 4

27 Environmental Scanning Searching the environment for events or issues that might affect an organization keeps companies current on industry factors reduces uncertainty alters organizational strategies contributes to organizational performance 4.1

28 Interpreting Environmental Factors Environmental Scan Opportunities? Threats? 4.2

29 Acting on Threats and Opportunities Cognitive Maps  simplified models of external environments  depicts how managers believe environmental factors relate to possible organizational actions 4.3

30 Cognitive Maps 4.3

31 Internal Environments After reading this section, you should be able to: 5.explain how organizational cultures are created and how they can help companies be successful.

32 Internal Environments Internal Environment The trends and events within an organization that affect the management, employees, and organizational culture  important because it affects what people think, feel, and do at work  organizational culture is the set of key values, beliefs, and attitudes shared by organizational members 5 5

33 Creation and Maintenance of Organizational Cultures Organizational Heroes Organizational Stories Company Founder 5.1

34 Successful Organizational Cultures Employee Satisfaction Employee Satisfaction Quality Consistency Adaptability Involvement Clear Vision Sales Growth Sales Growth Return on Assets Return on Assets Profits Source: D.R. Denison and A.K. Mishra, Organization Science 6 (1995):

35 Levels of Organizational Culture  Behaviors  Symbolic artifacts  Behaviors  Symbolic artifacts 1. Surface Level SEEN  What people say  How decisions are made  What people say  How decisions are made 2. Expressed Values and Beliefs HEARD  Beliefs and assumptions  Rarely discussed  Beliefs and assumptions  Rarely discussed 3. Unconsciously Held Assumptions and Beliefs BELIEVED 5.3

36 Changing Organizational Cultures Behavioral addition –is the process of having managers and employees perform a new behavior. Behavioral substitution –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. 5.3