The Environment of Management Chapter 3 The Environment of Management © 2015 YOLO Learning Solutions

The Nature of the Environment The organizational environment includes all those factors that affect the operation of the organization. Its three main components are: The general environment: The external factors that affect all organizations, including economic, technological, sociocultural, political-legal, and global dimensions The task environment: The external factors that are specific to an organization, such as customers, suppliers, competitors, substitutes, and potential new entrants to the industry The internal environment: All the factors that make up the organization, such as the owners, managers, employees, and board of directors © 2015 YOLO Learning Solutions

© 2015 YOLO Learning Solutions

The General Environment The general environment refers to the external factors that affect all organizations, including sociocultural, political-legal, technological, economic, and global dimensions. The sociocultural dimension of the general environment includes the demographics and the values of the society within which the firm operates. The political-legal dimension refers to the nature of the relationship between various areas of government and the organization. © 2015 YOLO Learning Solutions

(continued on next screen) © 2015 YOLO Learning Solutions

© 2015 YOLO Learning Solutions

© 2015 YOLO Learning Solutions

© 2015 YOLO Learning Solutions

The General Environment (continued) The technological dimension of the general environment refers to the knowledge and process of changing inputs (resources, labor, money) to outputs (goods and services). The economic dimension reflects the overall condition of the complex interactions of economies throughout the world. The global dimension of the general environment refers to those factors in other countries that affect the organization. © 2015 YOLO Learning Solutions

The Task Environment Suppliers are organizations and individuals that provide resources to other organizations. Customers buy an organization’s goods or services. Substitutes are goods or services that may be used in place of those of the business. Competitors are other organizations that produce similar, or in some cases, identical goods or services. Potential new competitors are companies not currently operating in a business’s industry but that have a high potential for entering the industry. © 2015 YOLO Learning Solutions

The Internal Environment In the smallest companies, the owner is the sole manager of the firm and fulfills all typical management tasks. As the organization expands and becomes more complex, the owner normally brings in additional persons to act as managers. Managers can be divided into three types: Strategic or institutional Technical Operational © 2015 YOLO Learning Solutions

The Internal Environment (continued) Employees can be classified as unionized or non- unionized, with the relationship between managers and unionized employees being more formal. Changing demographics is creating an older and more culturally diverse work force. Technological change is forcing employees to acquire more complex skills. Corporate governance is the formal system of oversight, accountability, and control for organizational decisions and resources. © 2015 YOLO Learning Solutions

Stakeholder View of the Environment The stakeholder view of the environment is concerned with those individuals or organizations that could affect the organization. Primary stakeholders have ongoing relationships with the organization through formal contracts, ownership, or monitoring of a legal obligation of the organization. Secondary stakeholders do not have a formal connection to the firm but may affect it through public opinion. Stakeholders, though external to the organization, constantly influence the organization. © 2015 YOLO Learning Solutions

© 2015 YOLO Learning Solutions

Identifying Stakeholders A stakeholder map is a representation of the organization’s stakeholders and their stakes. A stake can be of three basic types: Equity interest Market interest Influencing interest The ability to visualize the environment through a stakeholder map is necessary for deciding how to manage the environment properly. © 2015 YOLO Learning Solutions

© 2015 YOLO Learning Solutions

Gathering Information about Stakeholders in the Environment Collecting information about stakeholders allows organizations to anticipate changes in their environment and develop plans to respond to these changes. Techniques organizations use to collect information include: Customer surveys Economic forecasting Trend analysis © 2015 YOLO Learning Solutions

Techniques for Interacting with the Environment Organizations interact with and manage their external environment to lessen the threats and take advantage of the opportunities. Common interaction techniques include: Public relations Boundary spanning Lobbying Negotiation Forming alliances Organizational restructuring © 2015 YOLO Learning Solutions

The Importance of the External Environment Managers must perceive the threats and opportunities in the external environment and react accordingly. Problems in receiving and using information about the external environment include: Limited capability Lack of information Superfluous information Current organizational constraints The external environment may be thought of as differing among organizations in two dimensions: homogeneity and change. © 2015 YOLO Learning Solutions

© 2015 YOLO Learning Solutions