The Environment and Culture of Organizations Mgmt 371 Chapter Three The Environment and Culture of Organizations Much of the slide content was created by Dr, Charlie Cook, Houghton Mifflin, Co.©

The Organization’s Environment External Environment the set of forces and conditions that operate beyond an organization’s boundaries, but affect a manager’s ability to acquire and utilize resources. Everything outside an organization’s boundaries that might affect it General environment: everything outside an organization’s boundaries—economic, legal, political, socio-cultural, international, and technical forces. Task environment: specific external groups and organizations that affect the firm. 3

The Organization’s Environment Internal Environment Conditions and forces present and at work within an organization. 3

The Organization and Its Environments

The External Environment General Environment Task Environment

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 Technological dimension Sociocultural dimension Political-legal dimension International dimension 7

Economic Dimension Interest rates Inflation Unemployment Economic growth 7

Technological Dimension Effects of changes in technology that affect: Product/service design Bound encyclopedias v. Online (wikipedia) Product/service distribution Internet sales PayPal Product/service production Industrial robotics Fax 7

Sociocultural Dimension Sociocultural Dimension - values, mores, and norms of behavior of the society in which the organization functions. Customer tastes and preferences. Cultural awareness (Split pea & ham baby food in the Middle East, e.g.). Organizations are affected by changing societal attitudes and characteristics. Women Ethnic minorities Sexual preference Age Social class 7

Political-Legal Dimension Effects of changing laws and regulations. Title VII Deregulation Tax laws EPA Subsidies (think corn & ethanol) Privatization 7

International dimension Effects of increased global markets (opportunities) and competition (threats). Reduced trade barriers (NAFTA). Improved, and reliable, global communications. Global labor markets. 7

The External Environment Task environment: specific external groups and organizations that affect the firm. Change here usually have a direct and immediate effect. Government (regulators those who enforce the law) Customers Strategic Partners Joint venture partners Allies Suppliers Competitors

Figure 3.2: McDonald’s General Environment

Figure 3.3: McDonald’s Task Environment

The Internal Environment Conditions and stakeholder forces within an organization Owners. Board of directors Employees Physical work environment 11

How Environments Affect Organizations Change and Complexity Environmental change occurs in two ways: Degree to which change in environment is occurring Degree of homogeneity or complexity of the environment The environment is either simple or complex Uncertainty A driving force that influences organizational decisions. Affects predictability and ability to forecast events. Stable or dynamic 17

How Environments Affect Organizations Environmental Turbulence The frequency and magnitude of unexpected changes and upheavals in the environment of an organization. Also affects predictability. 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.

Competitive Forces 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. 16

Creating Barriers to Entry Economies of Scale Barriers to Entry Reduced Threat of New Entrants Brand Loyalty

How Organizations Adapt to Their Environments

How Organizations Adapt to Their Environments Information Management in Organizations Boundary spanners - Individuals who interact with outside constituencies. Improve information gathering (government, customers, suppliers, etc.). Providing information (government, customers, suppliers, etc.). Environmental scanning Information systems Improved collection and dissemination of critical information. Rapidly informs constituents of changes. Provides new distribution opportunities (i.e., internet sales). 21

How Organizations Adapt to Their Environments Strategic Response Maintaining the status quo, altering the current strategy, or adopting a new strategy. Top management’s Strategic Response reduces uncertainty by scanning the general and task environments to identify opportunities and threats. Middle managers collect information primarily dealing with the firm’s task environment. First level managers focus on the daily efficient use of resources. 21

How Organizations Adapt to Their Environments Mergers, Acquisitions, Alliances Firms combine (merge), purchase (acquisition), or form new venture partnerships or alliances with another firm. Uncertainty is offset by mergers, acquisitions, and alliances. Divides the risk [but also the profits]. Acquisition differs from merger in that in acquisitions one organization loses its identity and becomes part of another. In a merger both organizations lose their identity an become a new organization 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. Adopts a new structural design, i.e., going from a functional structure to a division structure, or a network structure. Going from a centralized structure to a decentralized structure 21

How Organizations Respond to Their Environments (cont’d) 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. 21

A Model of Organizational Effectiveness

How Environments Affect Organizations Uncertainty is offset by Top management’s boundary spanning roles. Individuals who interact with outside constituencies. Improve information gathering (government, customers, suppliers, etc.). Providing information (government, customers, suppliers, etc.).

Examples of Admired and High-Performing Firms

Fortune Magazine Most Admired Companies 2009 1. Apple 2. Berkshire Hathaway 3. Toyota Motor 4. Google 5. Johnson & Johnson 6. Procter & Gamble 7. FedEx 7. Southwest Airlines 9. General Electric 10. Microsoft Best Performing 1 Gilead Sciences  2 CF Industries 3 Diamond Offshore Drilling  4 Windstream  6 Robinson (C.H.) Worldwide  7 EXELON  8 Microsoft  9 Best Buy  10 Mastercard 

The Bottom 10 Least Admired Companies 1 Molson Coors Brewing 2 Amtrak 3 Dollar General 4 US Airways Group 5 Family Dollar Stores 6 Constellation Brands (Arbor Mist wine) 7 WellCare Health Plans 8 Amerco (parent company of U-Haul) 9 Northwest Airlines 10 Sears Holdings