1. 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.©

2. 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

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

4. The Organization and Its Environments

5. The External Environment
General Environment
Task Environment

6. 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

7. Economic Dimension Interest rates Inflation Unemployment
Economic growth 7

8. 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

9. 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

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

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

12. 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

13. Figure 3.2: McDonald’s General Environment

14. Figure 3.3: McDonald’s Task Environment

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

16. 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

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

18. Environmental Change, Complexity, and Uncertainty
Source: From J.D. Thompson, Organizations in Action, Copyright © 1967 The McGraw-Hill Companies, Inc. Reprinted with permission.

19. 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

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

21. How Organizations Adapt to Their Environments

22. 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

23. 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

24. 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

25. 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

26. 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

27. A Model of Organizational Effectiveness

28. 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.).

29. Examples of Admired and High-Performing Firms

30. 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 

31. 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