1. The External Environment and Organizational Culture Chapter 02 Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

2. Learning Objectives LO 1 Describe how environmental forces influence organizations and how organizations can influence their environments LO 2 Distinguish between the macro environment and the competitive environment LO 3 Explain why managers and organizations should attend to economic and social developments. LO 4 Identify elements of the competitive environment. 2-2

3. Learning Objectives LO 5 Summarize how organizations respond to environmental uncertainty LO 6 Define elements of an organization’s culture LO 7 Discuss how an organization’s culture affects its response to its external environment 2-3

4. © 2006 by South-Western, a division of Thomson Learning. All rights reserved. 2-4 EmployeesCulture Management Internal Environment Technological Economic Legal/Political International Sociocultura l General Environment Customers Competitors Labor Market Suppliers Task Environment Ex. 2.1 Location of the Organization’s General, Task, and Internal Environments

5. Organization Inputs and Outputs 2-5 Figure 2.1

6. Open Systems  External environment  All relevant forces outside a firm’s boundaries, such as competitors, customers, the government, and the economy.  Competitive environment  The immediate environment surrounding a firm; includes suppliers, customers, rivals, and the like. 2-6

7. Open Systems  Macroenvironment  The general environment; includes governments, economic conditions, and other fundamental factors that generally affect all organizations. 2-7

8. The Economy  The economic environment dramatically affects managers’ ability to function effectively and influences their strategic choices.  Interest and inflation rates affect the availability and cost of capital, growth opportunities, prices, costs, and consumer demand for products. 2-8

9. Twelve Month Comparison of Stock Markets 2-9 Figure 2.3

10. The Economy  In publicly held companies, managers may feel required to meet Wall Street’s earnings expectations.  Managers may focus on short-term results at the expense of long-term success  Some managers may be tempted to engage in unethical or unlawful behavior that misleads investors 2-10

11. Technology  Technological advances create new products, advanced production techniques, and better ways of managing and communicating.  As technology evolves, new industries, markets, and competitive niches develop. 2-11

12. Demographics  Demographics  Measures of various characteristics of the people who make up groups or other social units 2-12

13. The Competitive Environment 2-13 Figure 2.4

14. Competitors  Competition is most intense when:  There are many direct competitors  Industry growth is slow  Product/service is not easily differentiated 2-14

15. New Entrants  Barriers to entry  conditions that prevent new companies from entering an industry  capital requirements, restrictive distribution channels  Profit potential  Outlook  Downstream 2-15

16. Substitutes and Complements  Substitutes  alternative products or services  video games  watching television  movies  Complements  products or services that increase purchases of other products  car insurance  automobile purchases  Tennis  Work-leisure 2-16

17. Suppliers  suppliers  Supply chain management  managing the network of facilities and people that obtain materials from outside the organization, transform them into products, and distribute them to customers 2-17

18. Customers  Final customers  purchase products in their finished form  retail  Intermediate customers  purchase raw material or wholesale products before selling them to final customers  Wholesale 2-18

19. Environmental Analysis  Environmental uncertainty  Lack of information needed to understand or predict the future.  SWOT 2-19

20. Environmental Uncertainty  Environmental complexity  The number of issues to which a manager must attend as well as the interconnectedness of these issues  If-then  Environmental dynamism  The degree of discontinuous change that occurs within an industry 2-20

21. Environmental Analysis  Environmental scanning  searching out information that is unavailable to most people and sorting that information to interpret what is important and what is not.  Competitive intelligence  Information that helps managers determine how to compete better.  downstream 2-21

22. Environmental Analysis  Scenario development  A narrative that describes a particular set of future conditions  Best-case, worst-case  Forecasting  Method for predicting how variables will change the future  Probability 2-22

23. Environmental Analysis  Benchmarking  The process of comparing an organization’s practices and technologies with those of other companies. 2-23

24. Influencing Your Environment  Independent strategies  Strategies that an organization acting on its own uses to change some aspect of its current environment.  Cooperative strategies  Strategies used by two or more organizations working together to manage the external environment. 2-24

25. Independent Action 2-25 Table 2.4

26. Cooperative Action 2-26 Table 2.5

27. Changing the Environment You are In  Strategic maneuvering  An organization’s conscious efforts to change the boundaries of its task environment.  Domain selection  Entrance to a new market or industry with an existing expertise  Diversification  Occurs when a firm invests in a different product, business, or geographic area 2-27

28. Changing the Environment You are In  Mergers  One or more companies combine with another  Acquisitions  One firm buys another  Divestiture  A firm sells one or more businesses  Prospectors  Continuously change the boundaries or their task environment by seeking new products and markets, diversifying and merging, or acquiring new enterprises  Defenders  Stay within a stable product domain as a strategic maneuver 2-28

29. Culture and the Internal Environment of the Organization  Organizational culture  The set of important assumptions about the organization and its goals and practices that members of the company share  In strong cultures, the majority of people within the organization agree on organizational goals  In weak cultures, the majority of people within the organization disagree on organizational goals 2-29

30. © 2006 by South-Western, a division of Thomson Learning. All rights reserved. 2-30 Ex. 2.5 Levels of Corporate Culture Visible 1. Artifacts, such as dress, office layout, symbols, slogans, ceremonies 2. Expressed values, such as “The Penney Idea,” “The HP Way” 3. Underlying assumptions and deep beliefs, such as “people are lazy and can’t be trusted” Invisibl e Culture that can be seen at the surface level Deeper values and shared understandings held by organization members

31. Competing Values Model of Culture 2-31 Figure 2.6

32. © 2006 by South-Western, a division of Thomson Learning. All rights reserved. 2-32 Cultural Leadership Influence 1. Cultural leadership articulates a vision for the organizational culture in which employees can believe. 2. Cultural leadership heeds the day-to-day activities that reinforce the cultural vision.