1. Effective Management, by Williams South-Western College Publishing Copyright © 2002 Chapter 2 Organizational Environments and Cultures

2. Effective Management, by Williams South-Western College Publishing Copyright © 2002 2 What Would You Do? 4Airlines cut commission payments 4Wal-Mart Travel 4Web-based travel agencies 4What would you do?

3. Effective Management, by Williams South-Western College Publishing Copyright © 2002 3 After discussing this section, you should be able to: Learning Objectives External Environments ¬discuss how changing environments affect organizations. ­describe the four components of the general environment. ®explain the five components of the specific environment. ¯describe the process that companies use to make sense of their changing environments.

4. Effective Management, by Williams South-Western College Publishing Copyright © 2002 4 Changing Environments 4Environmental Change 4Environmental Complexity 4Environmental Munificence 4Uncertainty

5. Effective Management, by Williams South-Western College Publishing Copyright © 2002 5 Environmental Change 4The rate at which a company’s general and specific environments change Tstable environments Tdynamic environments 4Punctuated equilibrium theory Tcompanies cycle through stable and dynamic environments

6. Effective Management, by Williams South-Western College Publishing Copyright © 2002 6 Punctuated Equilibrium: U.S. Airline Industry Punctuated Equilibrium: U.S. Airline Industry Adapted from Figure 2.1

7. Effective Management, by Williams South-Western College Publishing Copyright © 2002 7 Environmental Complexity 4The number of external factors in the environment that affect organizations TSimple environments âhave few environmental factors TComplex environments âhave many environmental factors.

8. Effective Management, by Williams South-Western College Publishing Copyright © 2002 8 Environmental Munificence 4The degree to which an organization’s external environment has an abundance or scarcity of critical organizational resources

9. Effective Management, by Williams South-Western College Publishing Copyright © 2002 9 Uncertainty 4How well managers can understand or predict the external changes and trends affecting their businesses

10. Effective Management, by Williams South-Western College Publishing Copyright © 2002 10 Environmental Change, Complexity, & Munificence Environmental Characteristics ComplexityChangeResources High Medium Low Environmental Uncertainty Adapted from Figure 2.2

11. Effective Management, by Williams South-Western College Publishing Copyright © 2002 11 General & Specific Environments Business B Customers Competitors Suppliers Industry Regulation Advocacy Groups Business A Customers Competitors Suppliers Industry Regulation Advocacy Groups Sociocultural Component Economy Political/Legal Component Technological Component Adapted fromFigure 2.3 Specific Environment General Environment

12. Effective Management, by Williams South-Western College Publishing Copyright © 2002 12 General Environment 4Economy 4Technological 4Sociocultural 4Political/Legal

13. Effective Management, by Williams South-Western College Publishing Copyright © 2002 13 Economy 4Growing vs. shrinking economies 4Future economic activity is difficult to predict 4Business confidence indices Towners’/managers’ confidence in the growth of the economy

14. Effective Management, by Williams South-Western College Publishing Copyright © 2002 14 Technological 4Technology is the knowledge, tools, and techniques used to transform inputs (raw materials, information, etc.) into outputs (products and services) 4Technological changes can benefit or threaten businesses

15. Effective Management, by Williams South-Western College Publishing Copyright © 2002 15 Sociocultural 4Refers to the demographic characteristics and general behavior, attitudes, and beliefs of people in a particular society 4Two important components TDemographic changes TChanges in behavior, attitudes, and beliefs

16. Effective Management, by Williams South-Western College Publishing Copyright © 2002 16 Political/Legal 4Includes the legislation, regulation, and court decisions that govern and regulate business behavior 4Managers must be aware of relevant laws and regulations Ttrack changes Tavoid lawsuits and penalties

17. Effective Management, by Williams South-Western College Publishing Copyright © 2002 17 Specific Environment 4Customer 4Competitor 4Supplier 4Industry Regulation 4Advocacy Group

18. Effective Management, by Williams South-Western College Publishing Copyright © 2002 18 Customer Component 4Customers are essential for business survival 4Managers must monitor customers’ wants and needs T reactive âresponding to complaints T proactive âanticipating problems

19. Effective Management, by Williams South-Western College Publishing Copyright © 2002 19 Competitor Component 4Companies in the same industry that sell similar products or services to customers 4Competitive analysis Tdeciding who your competitors are T anticipating competitors’ moves Tdetermining competitors’ strengths and weaknesses

20. Effective Management, by Williams South-Western College Publishing Copyright © 2002 20 Supplier Component 4Companies that provide material, human, financial, and informational resources to other companies 4Supplier & buyer dependence 4Opportunistic vs. relationship behavior

21. Effective Management, by Williams South-Western College Publishing Copyright © 2002 21 Industry Regulation Component 4Consists of regulations and rules that govern the business practices and procedures of specific industries, businesses, and professions

22. Effective Management, by Williams South-Western College Publishing Copyright © 2002 22 Advocacy Group Component 4Groups of concerned citizens who band together to try to influence the business practices of specific industries, businesses, and professions 4Influence techniques Tpublic communications Tmedia advocacy Tproduct boycotts

23. Effective Management, by Williams South-Western College Publishing Copyright © 2002 23 Federal Regulatory Agencies & Commissions Adapted from Table 2.1

24. Effective Management, by Williams South-Western College Publishing Copyright © 2002 24 Federal Regulatory Agencies & Commissions Adapted from Table 2.1

25. Effective Management, by Williams South-Western College Publishing Copyright © 2002 25 Making Sense of Changing Environments 4Environmental Scanning 4Interpreting Environmental Factors 4Acting on Threats and Opportunities

26. Effective Management, by Williams South-Western College Publishing Copyright © 2002 26 Environmental Scanning 4Searching the environment for important events or issues that might affect an organization 4Scanning: Treduces uncertainty Talters organizational strategies Tcontributes to organizational performance

27. Effective Management, by Williams South-Western College Publishing Copyright © 2002 27 Interpreting Environmental Factors 4Managers determine what environmental events and issues mean to the organization 4Opportunities vs. threats

28. Effective Management, by Williams South-Western College Publishing Copyright © 2002 28 Acting on Threats and Opportunities 4Managers have to decide how to respond to these environmental factors 4Cognitive maps Tsimplified models of external environments Tdepicts how managers believe environmental factors relate to possible organizational actions

29. Effective Management, by Williams South-Western College Publishing Copyright © 2002 29 Cognitive Maps Good location Kmart Low rent & taxes Wal-Mart Large mall 20 minutes away Low-cost strategy Good value Good service Large selection of latest fashions Strength & Weaknesses Potential Actions Environmental Factors Success, Profits Too small to get volume discounts Low employee turnover Know customers well Reasonable selection prices Adapted from Figure 2.4 + - - + - - + + + + - - + -

30. Effective Management, by Williams South-Western College Publishing Copyright © 2002 30 After discussing this section, you should be able to: Learning Objectives Internal Environments °explain how organizational cultures are created and how they can help companies be successful.

31. Effective Management, by Williams South-Western College Publishing Copyright © 2002 31 Organizational Cultures: Creation, Success, and Change 4Creation and Maintenance of Organizational Cultures 4Successful Organizational Cultures 4Changing Organizational Cultures

32. Effective Management, by Williams South-Western College Publishing Copyright © 2002 32 Creation and Maintenance of Organizational Cultures 4Company founders help create culture 4Cultures are maintained through: TStories THeroes

33. Effective Management, by Williams South-Western College Publishing Copyright © 2002 33 Successful Organizational Cultures Adapted from Figure 2.5 D.R. Denison & A.K. Mishra, Organization Science 6(1995): 204-223 Involvement Consistency Clear Mission Clear Mission Adaptability

34. Effective Management, by Williams South-Western College Publishing Copyright © 2002 34 Changing Organizational Cultures 4Behavioral addition Tis the process of having managers and employees perform a new behavior 4Behavioral substitution Tis having managers and employees perform a new behavior in place of another behavior 4Change visible artifacts Tsuch as the office design and layout, company dress codes, etc.

35. Effective Management, by Williams South-Western College Publishing Copyright © 2002 35 What Really Happened? 4An example of punctuated equilibrium 4Must realize that travel arrangements are no longer a local market 4Agencies respond to the threat by cutting costs 4Expand product line and services