1. Copyright ©2011 by Cengage Learning. All rights reserved 1 Designed & Prepared by B-books, Ltd. MGMT3 Chuck Williams Chapter 3 Organizational Environments and Cultures

2. Copyright ©2011 by Cengage Learning. All rights reserved 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. Copyright ©2011 by Cengage Learning. All rights reserved 3 Changing Environments Environmental Change Environmental Complexity Resource Scarcity Uncertainty Environmental Change Environmental Complexity Resource Scarcity Uncertainty Characteristics of Changing External Environments 1 1 © keko64/Shutterstock

4. Copyright ©2011 by Cengage Learning. All rights reserved 4 Environmental Change Environmental Change is the rate at which a company’s general and specific environments change  stable environments  dynamic environments Punctuated equilibrium theory Companies cycle through stable and dynamic environments. 1.1

5. Copyright ©2011 by Cengage Learning. All rights reserved 5 Environmental Complexity Environmental Complexity: the number of external factors in the environment that affect organizations Simple environmentsComplex environments 1.2

6. Copyright ©2011 by Cengage Learning. All rights reserved 6 Resource Scarcity The abundance or shortage of critical organizational resources in an organization’s external environment. 1.3

7. Copyright ©2011 by Cengage Learning. All rights reserved 7 Beyond the Book An Oncoming Diamond Shortage? After years of buying most of their diamonds pre-cut and pre-polished, Tiffany’s and many other diamond retailers began to fear oncoming supply shortages. Tiffany has invested in mine operators and opened cutting-and-polishing plants in several countries. Controlling all steps in the supply chain would require broad expertise to successfully manage. With diamonds representing 47% of Tiffany’s sales, the company believes maintaining its pipeline is worth the risk. Source: V. O’Connell, “Diamond Industry Makeover Sends Fifth Avenue to Africa”, The Wall Street Journal, 26 October 2009. http://online.wsj.com/article/SB125650986946206903.html?mod=WSJ_hps_RIGHTTopCarousel (accessed 10/26/2009). http://online.wsj.com/article/SB125650986946206903.html?mod=WSJ_hps_RIGHTTopCarousel

8. Copyright ©2011 by Cengage Learning. All rights reserved 8 Uncertainty 1.4

9. Copyright ©2011 by Cengage Learning. All rights reserved 9 External Environment 2 2

10. Copyright ©2011 by Cengage Learning. All rights reserved 10 Components of the General Environment Economy Technological trends Sociocultural trends Political / Legal trends 2 2

11. Copyright ©2011 by Cengage Learning. All rights reserved 11 Economy Growing vs. shrinking economies Predicting future economic activity Business confidence indices 2.1

12. Copyright ©2011 by Cengage Learning. All rights reserved 12 Technological Component Information Output Input Technology Knowledge Tools Techniques Technology Knowledge Tools Techniques Raw Materials Services Products 2.2

13. Copyright ©2011 by Cengage Learning. All rights reserved 13 Sociocultural Component –Demographic changes –Changes in behavior, attitudes, and beliefs 2.3

14. Copyright ©2011 by Cengage Learning. All rights reserved 14 Demographics Example 2.3

15. Copyright ©2011 by Cengage Learning. All rights reserved 15 Political / Legal Component Legislation Regulations Court decisions Managers must be educated about the laws, regulations, and potential lawsuits that could affect business http://www.eeoc.gov/abouteeo/overview_laws.html http://www.dol.gov/esa/whd/fmla/ Web Link 2.4

16. Copyright ©2011 by Cengage Learning. All rights reserved 16 Specific Environment Customer Competitor Supplier Industry Regulation Advocacy Group 3 3

17. Copyright ©2011 by Cengage Learning. All rights reserved 17 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

18. Copyright ©2011 by Cengage Learning. All rights reserved 18 Competitor Component Competitive Analysis Deciding who your competitors are Anticipating competitors’ moves Determining competitors’ strengths and weaknesses 3.2

19. Copyright ©2011 by Cengage Learning. All rights reserved 19 Beyond the Book Pushing in on Google’s Search Space Google currently holds 70.2% of the search market. Google’s most substantial competition could come from a combined effort from Yahoo and Microsoft’s Bing, which could garner as much as 27% of the market. Microblogger Twitter recently added a search function. OneRiot provides real-time search of current news and Twitter posts. Wolfram Alpha, Aardvark, ChaCha, and Mahalo are among services designed to provide concrete answers to factual queries. While none of these sites command anywhere near the market space that Yahoo and Bing do, Google must still account for them in its competitive environment. Source: R.D. Hoff, “Can Google Stay on Top of the Web”, Business Week, 12 October 2009. 44-49.

20. Copyright ©2011 by Cengage Learning. All rights reserved 20 Supplier Component Opportunistic Behavior Suppliers Buyer Dependence Supplier Dependence Relationship Behavior 3.3

21. Copyright ©2011 by Cengage Learning. All rights reserved 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. Copyright ©2011 by Cengage Learning. All rights reserved 22 Federal Regulation Agencies Consumer Product Safety Commission http://www.cpsc.gov Department of Labor http://www.dol.gov Environmental Protection Agency http://www.epa.gov Equal Employment Opportunity Commission http://www.eeoc.gov Federal Communications Commission http://www.fcc.gov Federal Reserve System http://www.federalreserve.gov Federal Trade Commission http://www.ftc.gov Food and Drug Administration http://www.fda.gov National Labor Relations Board http://www. nlrb.gov Occupational Safety and Health Administration http://www.osha.gov Securities and Exchange Commission http://www.sec.gov 3.4

23. Copyright ©2011 by Cengage Learning. All rights reserved 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. Copyright ©2011 by Cengage Learning. All rights reserved 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. Copyright ©2011 by Cengage Learning. All rights reserved 25 Advocacy Groups PETA is a well-known advocacy group that attempts to influence consumers and companies to pursue animal-friendly practices.

26. Copyright ©2011 by Cengage Learning. All rights reserved 26 Beyond the Book Competing Interests in the Utility Sector The issue of cleaning up carbon emissions has brought new complications to the utility sector. Consider: Environmentalists are calling for greener energy. The government is working to pass new climate legislation that will reduce the effects of dirtier fuels like coal. Energy companies using cleaner fuels think the utilities that use the dirtier fuels (like coal) should foot the bill. The coal utilities counter that government policy has pushed them toward coal since the 1970s, when the country was trying to find alternatives to oil. All of the utilities must consider how the customer will respond to rising energy bills. Source: J. Carey, “The Clash Over Clean Power”, Business Week, 12 October 2009. 55-58.

27. Copyright ©2011 by Cengage Learning. All rights reserved 27 Making Sense of Changing Environments Acting on Threats and Opportunities Interpreting Environmental Factors Environmental Scanning EvaluatingExternalEnvironmentsEvaluatingExternalEnvironments 4 4

28. Copyright ©2011 by Cengage Learning. All rights reserved 28 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

29. Copyright ©2011 by Cengage Learning. All rights reserved 29 Interpreting Environmental Factors Environmental Scan Opportunities? Threats? 4.2

30. Copyright ©2011 by Cengage Learning. All rights reserved 30 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

31. Copyright ©2011 by Cengage Learning. All rights reserved 31 Cognitive Maps 4.3

32. Copyright ©2011 by Cengage Learning. All rights reserved 32 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.

33. Copyright ©2011 by Cengage Learning. All rights reserved 33 Internal Environments Internal Environment The events and trends inside an organization that affect 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

34. Copyright ©2011 by Cengage Learning. All rights reserved 34 Beyond the Book A Culture of Innovation How does a company like Genentech keep producing revolutionary breakthroughs in pharmaceuticals? Genentech puts special emphasis on fostering a culture of innovation, where employees are encouraged to take risks and pursue areas of interest. Genentech is the only pharmaceutical company to offer a postdoctoral program. One of the advantages of this program is that it constantly attracts younger people with a broad range of backgrounds and interests, which helps foster a spirit of creativity and entrepreneurship and keeps new ideas flowing through the company. Genentech employees are encouraged to pursue ideas in areas that they are interested, even when those ideas might not pan out. Source: C. Tkaczyk, “Encouraging Innovation”, Fortune, 12 October 2009. 22.

35. Copyright ©2011 by Cengage Learning. All rights reserved 35 Creation and Maintenance of Organizational Cultures Organizational Heroes Organizational Stories Company Founder 5.1

36. Copyright ©2011 by Cengage Learning. All rights reserved 36 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): 204-223 5.2

37. Copyright ©2011 by Cengage Learning. All rights reserved 37 Levels of Organizational Culture 5.3 © Thinkstock/Jupiter Images

38. Copyright ©2011 by Cengage Learning. All rights reserved 38 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

39. Copyright ©2011 by Cengage Learning. All rights reserved 39 Beyond the Book Transforming a Culture New CEO Diana Dykstra transformed the San Francisco Fire Credit Union from a culture crippled by policy into a place where employees are empowered to meet customer needs. Dykstra replaced the 1,000 page employee manual with four core values which define the company’s direction and culture. Now all decisions are measured against these values. Employees send stories to Dykstra of coworkers going the extra mile for customers, and the best ones are rewarded each month. Source: M. D’Antonio, “Don’t Get Paralyzed by Company Policies,” 1to1 Magazine, 2 June 2009.