1. Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 1 Organizational Environments and Cultures Prepared by Deborah Baker Texas Christian University Management 4th Edition Chuck Williams Chapter 3

2. Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 2 What Would You Do?  Obesity is at epic proportions, with 66 percent of Americans overweight  Fast food restaurants are faced with lawsuits, regulation, and complaints  Healthier cooking techniques costs more with less tasty results Wendy’s International Headquarters Should Wendy’s pay attention to activists— or give customers what they want?

3. Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 3 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.

4. Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 4 Changing Environments Environmental Change Environmental Complexity Resource Scarcity Uncertainty Environmental Change Environmental Complexity Resource Scarcity Uncertainty Characteristics of Changing External Environments 1 1

5. Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 5 Environmental Change 1.1 Environmental Change is the rate at which a company’s environments change  stable environments  dynamic environments Punctuated equilibrium theory Companies cycle through stable and dynamic environments.

6. Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 6 Punctuated Equilibrium: U.S. Airline Industry 1.1

7. Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 7 Environmental Complexity 1.2 Environmental Complexity: the number of external factors in the environment that affect organizations Simple environmentsComplex environments

8. Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 8 Resource Scarcity 1.3 Resource Scarcity The degree to which an organization’s external environment has an abundance or scarcity of critical organizational resources

9. Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 9 Natural Resources There is general concern over the scarcity of natural resources. Companies like Weyerhauser work extra hard to correct the misperception that they are "using up" valuable resources. In fact, through careful planning and good management, Weyerhauser is able to both guarantee its lumber resources and be a good environmental steward.

10. Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 10 Uncertainty 1.4

11. Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 11 2 2 External Environment

12. Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 12 Components of the General Environment  Economy  Technological trends  Sociocultural trends  Political / Legal trends 2 2

13. Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 13 Economy  Growing vs. shrinking economies  Predicting future economic activity  Business confidence indices 2.1

14. Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 14 Technological Component Information Output Input Technology-- Knowledge Tools Techniques Technology-- Knowledge Tools Techniques Raw Materials Services Products 2.2

15. Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 15 Impact of Technology  Technology can be a great benefit or a daunting threat. MP3 players have created a tremendous new business opportunity for some, like Apple, Creative, and other manufacturers. But record labels have suffered from the rapid acceptance of digital music and persistent file swapping.

16. Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 16 Sociocultural Component  Sociocultural Components  Demographic changes  Changes in behavior, attitudes, and beliefs 2.3

17. Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 17 Demographics Example 2.3

18. Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 18 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/laws/cra91.html http://www.dol.gov/esa/whd/fmla/ Web Link 2.3

19. Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 19 Specific Environment 3 3 Customer Competitor Supplier Industry Regulation Advocacy Group

20. Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 20 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

21. Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 21 Competitor Component Competitive Analysis Deciding who your competitors are Anticipating competitors’ moves Determining competitors’ strengths and weaknesses 3.2

22. Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 22 Supplier Component Opportunistic Behavior Suppliers Buyer Dependence Supplier Dependence Relationship Behavior 3.3

23. Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 23 Supplier Dependence

24. Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 24 Industry Regulation Component 3.4 Industry Regulation Consists of regulations and rules that govern the business practices and procedures of specific industries, businesses, and professions

25. Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 25 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

26. Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 26 Cost of Compliance Researchers studied U.S. manufacturers and the cost they incur complying with the 25 major federal regulations. Researchers 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.

27. Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 27 Dealing with Gifts and Suppliers 3 3 Guidelines to Avoid Conflicts of Interest  There’s no such thing as a free lunch  Meals and entertaining are valid business  No gifts worth more than $25 in value  No cash or cash equivalents  No discount on goods and services  No stock in suppliers’ companies  Don’t allow personal friendship to influence decisions Guidelines to Avoid Conflicts of Interest  There’s no such thing as a free lunch  Meals and entertaining are valid business  No gifts worth more than $25 in value  No cash or cash equivalents  No discount on goods and services  No stock in suppliers’ companies  Don’t allow personal friendship to influence decisions

28. Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 28 Advocacy Groups 3.5 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

29. Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 29 Advocacy Groups PETA is a well-known advocacy group that attempts to influence consumers and companies to pursue animal-friendly practices.

30. Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 30 Making Sense of Changing Environments Acting on Threats and Opportunities Interpreting Environmental Factors Environmental Scanning EvaluatingExternalEnvironmentsEvaluatingExternalEnvironments 4 4

31. Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 31 Environmental Scanning  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

32. Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 32 Interpreting Environmental Factors 4.2 Environmental Scan Opportunities? Threats?

33. Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 33 Acting on Threats and Opportunities 4.3 Cognitive Maps  simplified models of external environments  depicts how managers believe environmental factors relate to possible organizational actions

34. Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 34 Cognitive Maps 4.3

35. Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 35 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.

36. Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 36 Internal Environments 5 5 Internal Environment Consists of the trends and events within an organization that affect the 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

37. Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 37 Creation and Maintenance of Organizational Cultures Organizational Heroes Organizational Stories Company Founder 5.1

38. Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 38 Successful Organizational Cultures Adapted from Exhibit 3.7 Employee Satisfaction Employee Satisfaction Quality Consistency Adaptability Involvement Clear Vision Sales Growth Sales Growth Return on Assets Return on Assets Profits D.R. Denison & A.K. Mishra, Organization Science 6 (1995): 204-223 5.2

39. Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 39 Levels of Organizational Culture  Symbolic artifacts  Behaviors  Symbolic artifacts  Behaviors 1. Surface Level SEEN  What people say  How decisions are made  What people say  How decisions are made 2. Expressed Values and Beliefs HEARD  Beliefs and assumptions  Rarely discussed  Beliefs and assumptions  Rarely discussed 3. Unconsciously Held Assumptions and Beliefs BELIEVED Adapted from Exhibit 3.8 5.3

40. Chapter 3 Copyright ©2007 by South-Western, a division of Thomson Learning. All rights reserved 40 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