1. Chapter 2 Understanding internal and external environments
Chapter 2 starts with an extensive interview (Pages 40-42) with Brett Godfrey, CEO of Virgin Blue. If focuses on “Virgin Blue culture” - the internal environment.
Specific Learning Objectives for the Chapter are given at Page 39.
© 2008 McGraw-Hill Australia Pty Ltd.
Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al
Slides prepared by Rob Lawrence, Victoria University (Australia) and Dr Raveendra Nayak, University of Ballarat

2. Lecture outline Types of external environments
Analysing environmental conditions
Managing the environment
The internal environment - Culture
Changing organisational culture
The slightly more detailed Chapter outline is on Page 38 - main headings set out above. The lecture will cover “the environment” for organisations - the major forces and conditions influencing organisations, looking first at external, then at internal factors.
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.
© 2008 McGraw-Hill Australia Pty Ltd.
Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al
Slides prepared by Rob Lawrence, Victoria University (Australia) and Dr Raveendra Nayak, University of Ballarat

3. External environment
‘Major forces outside the organisation with potential to influence significantly the likely success of a product or service.’
This broad definition of the external environment is on Page 42.
© 2008 McGraw-Hill Australia Pty Ltd.
Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al
Slides prepared by Rob Lawrence, Victoria University (Australia) and Dr Raveendra Nayak, University of Ballarat

4. 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
The textbook splits the external environment into two segments: the Mega (or general environment), and the Task (or specific) environment, as defined above.
Further details on Page 42, with a useful diagram at Figure 2.1 on Page 43.
© 2008 McGraw-Hill Australia Pty Ltd.
Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al
Slides prepared by Rob Lawrence, Victoria University (Australia) and Dr Raveendra Nayak, University of Ballarat

5. The mega-environment The organisation Economic element
Technological element
Legal-political element
The organisation
The five major elements of the mega or general environment are set out above.
This is a modified version of Figure 2.1 on Page 43 - a more specific example in Figure 2.2 on Page 44 identifies the relevant elements in the example of the Xerox corporation.
The five elements identified above are covered and explained in more detail in the following two slides.
International element
Sociocultural element
© 2008 McGraw-Hill Australia Pty Ltd.
Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al
Slides prepared by Rob Lawrence, Victoria University (Australia) and Dr Raveendra Nayak, University of Ballarat

6. The mega-environment Five major elements: Technological element
- Current state of knowledge regarding production of products and services
Economic element
- Wealth production, distribution and consumption systems
Legal-political element
- Legal and governmental systems within which an organisation must operate
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 43-5.
© 2008 McGraw-Hill Australia Pty Ltd.
Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al
Slides prepared by Rob Lawrence, Victoria University (Australia) and Dr Raveendra Nayak, University of Ballarat

7. The mega-environment Sociocultural element International element
- Attitudes, values, norms, beliefs, behaviours and associated demographic trends characteristic of a given geographic area
International element
- Developments in countries outside 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 Page 45.
© 2008 McGraw-Hill Australia Pty Ltd.
Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al
Slides prepared by Rob Lawrence, Victoria University (Australia) and Dr Raveendra Nayak, University of Ballarat

8. External environment… an example
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 42.
© 2008 McGraw-Hill Australia Pty Ltd.
Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al
Slides prepared by Rob Lawrence, Victoria University (Australia) and Dr Raveendra Nayak, University of Ballarat

9. Government & regulators Public pressure groups
The task environment
Competitors
Government & regulators
Customers/ clients
THE ORGANISATION
The employment market
Suppliers
The task environment refers to the specific external elements an organisation faces.
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.
Figure 2.3 on Page 46 identifies task environment aspects for the Xerox Corporation.
Further details are on Pages 45-47, but the aspects identified above will be discussed in the following two slides in more depth.
Public pressure groups
© 2008 McGraw-Hill Australia Pty Ltd.
Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al
Slides prepared by Rob Lawrence, Victoria University (Australia) and Dr Raveendra Nayak, University of Ballarat

10. 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.
Global competition has meant that firms can lower costs by having fewer contracted suppliers.
Further discussion can be found on Pages (and see the Xerox example in Figure 2.3 on Page 46).
© 2008 McGraw-Hill Australia Pty Ltd.
Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al
Slides prepared by Rob Lawrence, Victoria University (Australia) and Dr Raveendra Nayak, University of Ballarat

11. 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
Note: students often make the mistake of confusing labour supply (an external factor) with the organisation’s labour force - its employees - an internal factor. Here, we are looking at the external labour market - the availability of potential suitable recruits (unemployment rates, education and training of the population, regional factors).
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 Page 47.
© 2008 McGraw-Hill Australia Pty Ltd.
Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al
Slides prepared by Rob Lawrence, Victoria University (Australia) and Dr Raveendra Nayak, University of Ballarat

12. Analysing environmental conditions
Two major perspectives on the organisational environment:
Population ecology model
- Argues that environmental factors cause organisations to survive or fail
- Also known as the “natural selection” model
Resource dependence model
- Highlights the dependence of organisations on the environment - so organisations attempt to manipulate the environment to reduce this dependence
Pages
© 2008 McGraw-Hill Australia Pty Ltd.
Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al
Slides prepared by Rob Lawrence, Victoria University (Australia) and Dr Raveendra Nayak, University of Ballarat

13. 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.
Discussed very briefly on Page 49.
© 2008 McGraw-Hill Australia Pty Ltd.
Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al
Slides prepared by Rob Lawrence, Victoria University (Australia) and Dr Raveendra Nayak, University of Ballarat

14. 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 Page 49 - this also continues into discussion of dynamism and environmental bounty in the next slide.
© 2008 McGraw-Hill Australia Pty Ltd.
Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al
Slides prepared by Rob Lawrence, Victoria University (Australia) and Dr Raveendra Nayak, University of Ballarat

15. Analysing environmental conditions
Characteristics of the environment (continued)
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 - can range from “rich” to “lean”
See Pages
Figure 2.4 on Page 50 has a useful graphic setting out a matrix for assessing the degree of environmental uncertainty, with some examples.
© 2008 McGraw-Hill Australia Pty Ltd.
Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al
Slides prepared by Rob Lawrence, Victoria University (Australia) and Dr Raveendra Nayak, University of Ballarat

16. Managing environmental elements
Three approaches to managing the environment:
Adaptation
Involves changing internal operations and 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.
These three aspects identified above are set out in more detail in following slides.
Further discussion can be found on Pages
© 2008 McGraw-Hill Australia Pty Ltd.
Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al
Slides prepared by Rob Lawrence, Victoria University (Australia) and Dr Raveendra Nayak, University of Ballarat

17. Adaptation
Buffering
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 and 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, with some examples, can be found on Pages
© 2008 McGraw-Hill Australia Pty Ltd.
Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al
Slides prepared by Rob Lawrence, Victoria University (Australia) and Dr Raveendra Nayak, University of Ballarat

18. Favourability influence
Advertising and 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. Tactics organisations can use are identified above.
Further discussion, with examples, can be found on Pages
© 2008 McGraw-Hill Australia Pty Ltd.
Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al
Slides prepared by Rob Lawrence, Victoria University (Australia) and Dr Raveendra Nayak, University of Ballarat

19. 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 54.
© 2008 McGraw-Hill Australia Pty Ltd.
Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al
Slides prepared by Rob Lawrence, Victoria University (Australia) and Dr Raveendra Nayak, University of Ballarat

20. The Internal environment: Organisational culture
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.
Further discussion can be found on page 58.
© 2008 McGraw-Hill Australia Pty Ltd.
Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al
Slides prepared by Rob Lawrence, Victoria University (Australia) and Dr Raveendra Nayak, University of Ballarat

21. The nature of organisation culture
Three aspects of culture are important:
Direction
Pervasiveness, and
Strength.
Three aspects of culture are important: direction, pervasiveness and strength.
Direction: Degree to which culture supports (not interferes with) organisational goal achievement.
Pervasiveness: how widely the culture is held amongst members.
Strength: How much members accept cultural values.
See Page 55.
© 2008 McGraw-Hill Australia Pty Ltd.
Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al
Slides prepared by Rob Lawrence, Victoria University (Australia) and Dr Raveendra Nayak, University of Ballarat

22. 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.
The “manifestations” of culture are those aspects we can observe, and from which we can infer certain things about the organisation.
Further discussion can be found on Pages 55 and 56 (examples of different kinds of manifestations are given).
© 2008 McGraw-Hill Australia Pty Ltd.
Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al
Slides prepared by Rob Lawrence, Victoria University (Australia) and Dr Raveendra Nayak, University of Ballarat

23. Cultural types Strong cultures Weak cultures Unhealthy cultures
Adaptive cultures
Other classification systems?
(e.g. Engineering culture, operator culture,
executive culture)
See Page 56.
Strong cultures have deeply held values which do not change much even with a change of CEO.
Weak cultures lack widely-shared values – subcultures may develop.
Unhealthy cultures have highly politicised internal environments and are hostile to change.
Adaptive cultures continually challenge current ways of doing things and promote risk taking and innovation. The other cultural classification systems are covered in more detail in a later slide.
© 2008 McGraw-Hill Australia Pty Ltd.
Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al
Slides prepared by Rob Lawrence, Victoria University (Australia) and Dr Raveendra Nayak, University of Ballarat

24. Promoting innovation: Entrepreneurial cultures
Strategic
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 57) classifies firms by how much their culture supports a desire for change and a belief in its capacity to influence the competitive environment.
The above slide forms part of Table 2.2 on Page 57, which sets out the characteristics of Entrepreneurial cultures versus Administrative cultures.
© 2008 McGraw-Hill Australia Pty Ltd.
Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al
Slides prepared by Rob Lawrence, Victoria University (Australia) and Dr Raveendra Nayak, University of Ballarat

25. Schien’s three cultures of management
Operator culture
Any organisational action ultimately depends on the people (their knowledge, skill, learning ability, commitment)
Engineering culture
Preference for linear, quantitative and “people-free” solutions, concern for safety
Executive culture
Reflects strong but tacit CEO preoccupations: concern for financial performance, survival, growth, boards of directors, investors and capital markets.
Schien proposed this classification model for management culture in 1996.
Often, operator and engineering cultures do not align with executive culture.
For more detail see Page 58.
© 2008 McGraw-Hill Australia Pty Ltd.
Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al
Slides prepared by Rob Lawrence, Victoria University (Australia) and Dr Raveendra Nayak, University of Ballarat

26. 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
This is Kilmann’s (1985) recommended process for changing organisational culture – See Page 58.
© 2008 McGraw-Hill Australia Pty Ltd.
Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al
Slides prepared by Rob Lawrence, Victoria University (Australia) and Dr Raveendra Nayak, University of Ballarat

27. 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 58.
© 2008 McGraw-Hill Australia Pty Ltd.
Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al
Slides prepared by Rob Lawrence, Victoria University (Australia) and Dr Raveendra Nayak, University of Ballarat

28. Lecture summary External environment: - Types of external environment
- Mega-environment; task environment
- Analysing the environment
- Models: ecology and resource dependence
- Managing the environment
- Adaptation, favourability influence and domain shifts
The detailed Chapter summary is on Page 59. The summary continues in the next slide.
© 2008 McGraw-Hill Australia Pty Ltd.
Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al
Slides prepared by Rob Lawrence, Victoria University (Australia) and Dr Raveendra Nayak, University of Ballarat

29. 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
Cultural change can be hard, requires visionary or motivational leaders
Page 59.
Organisational change is revisited, and dealt with in more detail, in Chapter 7
© 2008 McGraw-Hill Australia Pty Ltd.
Power Points t/a Management Foundations: A Pacific Rim Focus 2e by Bartol et al
Slides prepared by Rob Lawrence, Victoria University (Australia) and Dr Raveendra Nayak, University of Ballarat