Chapter 3

THE ENVIRONMENT AND

CORPORATE CULTURE
The study of management has traditionally focused on factors within the organisation:
leading, motivating and controlling employees. This closed systems view of management (i.e.
focusing on internal aspects over which managers have direct control) is incomplete.
Globalisation and the trend toward a borderless world affect organisations in new ways.
Most events that impact on organisations originate in the external environment. Managers
must monitor and respond to the external environment within which they operate an open
systems view.
This chapter covers two major issues:

1 the components of the external organisational environment and how they affect
the organisation; and
2 corporate culture and how the organisational environment shapes it.

The external environment

The external organisational environment includes all elements existing outside the
boundary of the organisation that have the potential to affect the organisation. It does not
include those events so far removed from the organisation that their impact is not apparent.
The organisational environment can be conceptualised as having two layers:

1 The general environment is the outer layer that is widely dispersed and affects
organisations indirectly. Although it does not directly change daily operations, the
general environment will eventually influence all organisations.
2 The task environment layer is closer to the organisation and includes the sectors
that conduct day-to-day transactions with the organisation and directly influence
basic organisational operations and performance.
The organisation also has an internal environment that includes the elements within the
organisations boundaries. This includes current employees, management and corporate
culture.
Corporate culture defines employee behaviour in the internal environment and how well the
organisation will adapt to the external environment.

General environment
The general environment influences the organisation over time, but often does not impact
directly on day-to-day operations. The general environment includes the following
dimensions:

international
technological
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 sociocultural
economic
legalpolitical.
The international dimension embodies events originating in foreign countries and
opportunities for local organisations in other countries. This dimension influences all other
aspects of the external environment. It provides new competitors, customers and suppliers,
and shapes social, technological and economic trends. Today, every organisation must think
internationally.
The technological dimension includes scientific and technological advancements in a specific
industry as well as society at large. Technology can rapidly change an entire industry and
management must be ready to respond.
The sociocultural dimension represents the demographic characteristics, norms, customs
and values of the population within which the organisation operates. Important
sociocultural elements are:

geographical distribution
population density
age
education levels.
Forecasters see increased globalisation of both consumer markets and labour supply with
increasing diversity both within organisations and consumer markets.
The economic dimension embodies the overall economic health of the country or region in
which the organisation operates. Key economic elements include:

consumer purchasing power

unemployment rates
interest rates.
A significant recent trend in the economic environment has been the frequency of mergers
and acquisitions. The corporate economic landscape is changing as a result, and creates
increasing uncertainty for both managers and employees.
The legalpolitical dimension includes government regulations at the local, state and federal
levels, as well as political activities designed to control organisation behaviour. Federal and
state governments affect organisations with a range of legislation, including:

occupational health and safety

environmental protection
fair trade and competition practices
consumer protection legislation
product safety requirements
import and export restrictions
labour laws
information and labelling requirements.
A variety of pressure groups also work within the legalpolitical framework to influence

organisations to behave in certain ways.

Task environment
The task environment includes those sectors that have a direct working relationship with
the organisation. These include:

Customers People and organisations that acquire goods or services

from the organisation. Customers are important because they
determine the organisations success.
Competitors Other organisations in the same industry or type of
business that provide goods or services to the same set of customers.
Specific competitive issues characterise each industry.
Suppliers People and organisations that provide the raw materials used by the
organisation to produce its output.
Many organisations are finding that being cooperative, rather than adversarial, is
the key to saving money, maintaining quality and speeding products to market.
The labour market People available for hire by the organisation. Two
key labour market factors currently impacting on organisations are:
the necessity for continuous investment in human resources through recruitment,
education and training to meet the competitive demands of globalisation
the effects of international trading blocs, automation and shifting plant location
upon labour dislocations, creating unused labour pools in some areas and labour
shortages in others.

The organisationenvironment relationship

Organisations care so much about factors in the external environment because the
environment creates uncertainty for organisation managers. They must respond by
designing the organization to adapt to or to influence the environment.

Environmental uncertainty
Environmental uncertainty must be managed to make the organisation more effective.
Uncertainty means that managers do not have sufficient information about environmental
factors to understand and predict environmental needs and changes. Environmental
uncertainty is influenced by two characteristics:

1 the number of factors in the organisation environment; and

2 the rate of change in the factors in the environment. Managers design the
organisation to cope with environmental uncertainty by:

1 adapting the organisation to the environment; and

2 influencing the environment to make it more compatible with organisational
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needs.
Adapting to the environment
If the organisation faces increased uncertainty with respect to competition, customers,
suppliers or government regulation, managers can use several strategies to adapt to these
changes, including:

Boundary-spanning roles link and coordinate the organisation with key elements
in the external environment. Boundary spanners serve two purposes for the
organisation:
1 They detect and process information about changes in the environment.
2 They represent the organisations interest to the environment. Organisation
members in departments such as marketing and purchasing span the boundary.
A large growth area in boundary spanning is competitive intelligence, or snooping
and spying.
Forecasting and planning for environmental changes are major activities in many
organisations, particularly when uncertainty is high. Forecasting is attempting to
spot trends that enable managers to predict future events. Planning can soften the
adverse effect of rapid shifts in the environment and is particularly important for
handling crisis situations.
Flexible structure should enable the organisation to respond effectively to shifts
in the external environment. An organic structure works best when the environment
changes rapidly, and is one that:
is free flowing
has few rules and regulations
encourages teamwork among employees
has decentralised decision-making.
On the other hand, a mechanistic structure is suited to a stable environment (less and less
common these days), and is characterised by:

rigidly defined tasks

many rules and regulations
little teamwork

 centralised decision-making.
Mergers and joint ventures can also reduce uncertainty.
A merger occurs when two or more organisations combine to become one. A
joint venture is a strategic alliance by two or more organisations and typically occurs
when a project is too complex, expensive or risky for one firm to do it alone.
Influencing the environment
Influencing the environment is the other major strategy for handling environmental
uncertainty. Widely used techniques for changing the environment include:

Advertising and public relations. Advertising can be a very successful

way to manage demand for an organisations products/services by
influencing consumer tastes. Public relations is similar to advertising,
except that its goal is to shape public opinion about the organisation
itself.
Political activity represents organisational attempts by both domestic
and foreign companies to influence government legislation and
regulation.
Trade associations are formed by organisations joining with others
that have similar interests for the purpose of influencing the
environment, including federal legislation and regulation.

The internal environment: corporate culture

So far in this chapter we have discussed only the external environment of the organisation.
Now, let us turn the discussion to the internal environment. The internal environment
includes:

corporate culture
production technology
organisation structure
physical facilities.
Culture is defined as the set of key values, beliefs, understandings and norms shared by
members of an organisation. Culture is a pattern of shared values and assumptions about
how things are done within the organisation. Corporate culture is extremely important to
competitive advantage. The internal culture must match the external environment and
organisation strategy.
Culture can be analysed at three levels:

1 At the visible or surface level are artefacts, all the things you can see, hear or
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observe by watching organisation members, including:

manner of dress
patterns of behaviour
physical symbols
organisational ceremonies
office layout.
2 At a deeper (invisible) level are the expressed values and beliefs, which are not
observable but can be discerned from how people explain and justify what they do
and can be interpreted from:
stories
language
symbols.
3 Some values become so deeply embedded in a culture that members are no longer
consciously aware of them. These basic, underlying assumptions and deep beliefs
are the essence of culture and subconsciously guide behaviour and decisions. The
fundamental that characterise culture can be understood through the visible
expressions of symbols, stories, heroes, slogans and ceremonies.
Symbols
A symbol is an object, act or event that conveys meaning to others. Symbols associated with
corporate culture convey the organisations important values.

Stories
A story is a narrative based on true events that is repeated and shared by organisational
employees. Stories are told to new employees to keep the organisations primary values
alive.

Heroes
A hero is a figure who exemplifies the deeds, character and attributes of a strong corporate
culture. Heroes are role models for employees to follow.

Slogans
A slogan is a phrase or sentence that succinctly expresses a key organisational value. Many
organisations use a slogan or saying to convey a special meaning to employees. Cultural
values
can also be discerned in written public statements.

Ceremonies
A ceremony is a planned activity that makes up a special event and is conducted for the
benefit of an audience. Ceremonies reinforce valued accomplishments, create a bond among
people by allowing them to share an important event, and anoint and celebrate heroes.

Environment and culture

The external environment has a major influence on internal corporate culture. Although
cultures vary widely across organisations, within the same industry organisations often
exhibit similar cultural characteristics because they are operating in similar environments.
If the external environment requires extraordinary customer service, the culture should
encourage high levels of service from its employees; if it calls for careful technical decisionmaking, cultural values should reinforce managerial decision-making

Adaptive cultures
There is a critical relationship between corporate culture and the external environment. A
strong corporate culture alone does not ensure business success unless the culture
encourages healthy adaptation to the external environment. Adaptive corporate cultures
have different values and behaviour from unadaptive corporate cultures.
In adaptive cultures, managers are concerned about customers and those internal people
and processes that bring about useful change.
In unadaptive cultures, managers are concerned about themselves, and their values tend to
discourage risk taking and change. An adaptive culture allows an organisation to move
quickly to respond to rapid changes in the environment.

Types of cultures
As identified in research by Sonnenfeld (1988) culture can be classified into four types, each
of which has a somewhat different potential for supporting a healthy, successful business:

Sporting team culture emerges in an environmental situation with high-risk

decision making and rapid feedback from the environment. Decision makers find
out quickly whether they have made the correct choice. Talent, innovation and
performance are valued and rewarded. This culture can be found in areas such as
movie production, advertising and software development.
Club culture is characterised by loyalty, commitment and fitting into the group.
It creates a stable, secure environment that values age and experience, and rewards
seniority. Members start young and stay. Club cultures promote from within,
members progress slowly, proving competence at each level. Individuals tend to be
generalists and may have vast experience in a number of organisational functions.
This culture is often found in commercial banks and the military.
Academy culture also hires young recruits interested in a long-term association
and a slow, steady climb within the organisation. Unlike club culture, however,
employees rarely cross from one division to another. Each person enters a specific
track and gains a high level of expertise in that area. Many long-established
organisations, such as universities and large corporations, maintain strong academy
cultures.
Fortress culture may emerge in an environmental survival situation. This culture
offers little job security or opportunity for professional growth as organisations
restructure and downsize to fit the new environment. Clothing and textile
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manufacturers, car makers, and savings and loan organisations are examples of
former dominant industries that are now retrenching for survival.

Shaping corporate culture for the twenty-first century

Changing and merging corporate cultures
An organisations culture may not always be in alignment with its needs and environment.
Cultural values may reflect what worked in the past but may no longer work in the current
environment. The difference between desired cultural norms and values and actual norms
and values is called a culture gap. Culture gaps can be enormous, especially in the case of
mergers and acquisitions. Although managers may successfully integrate the acquired
companys financial systems and production technologies, typically they are unable to
integrate the unwritten norms and values which have an even greater impact on
organisational success. Culture gaps can also exist in organisations that have not undergone
merger or acquisition.

Changing the corporate culture

Todays corporate cultures generally reflect the white male model of doing business. This
creates a mismatch between the dominant culture and the growing employee population of
minorities and women, resulting in under-utilisation of many employees talents and
reduced organizational competitiveness.
Managers can change corporate culture by:

actively using symbols for the new values, such as encouraging and celebrating
the promotion of minorities
examining the organisations unwritten rules and assumptions and leading the
way to a culture in which differences among people are valued
using surveys, interviews and focus groups to identify the way cultural
values affect minorities and women
setting up structured networks of women and other minority groups to explore
the issues they face in the workplace and to recommend changes to senior
management.
Symbolic leadership
One way managers change norms and values towards something more appropriate for
current circumstances is through symbolic leadership. A symbolic leader defines and uses
signals and symbols to influence corporate culture. Symbolic leaders influence culture by:

articulating a vision for the organisational culture that generates

excitement and that employees can believe in; and
heeding the day-to-day activities that reinforce the cultural vision.
Symbolic leadership works because employees watch executives. Employees attempt to read
signals from what managers do, not just from what they say. Symbolic leaders let other
organisation members know what really counts in the organisation through the use of
artifacts such as public statements, ceremonies, stories, heroes, symbols and slogans.

Shaping corporate culture for innovative response

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Managing the high performance culture

Corporate culture is a key factor in enabling learning and innovative responses to threats
from the external environment, challenging new opportunities, or organisational crises.
However, it is important that managers do not focus all their attention on culture;
commitment to strategy and solid business performance are also important. Companies that
pay scant attention to either values or results are unlikely to survive for long. Organisations
highly focused on creating a strong culture, but without direct alignment of their
organisational values with goals and desired business results, may well find their culture is a
liability during tough times. Companies focused primarily on business results and paying
little attention to organisational values are likely to be profitable in the short term; however,
they may well find this success is not sustainable because there is no glue (shared values)
holding the organisation together.
Organisations with a high performance culture are ones where the culture is:

based on a solid organisational mission or purpose;

embodies shared adaptive values that guide decisions and business
practices;
encourages individual employee ownership of both bottom-line results
and the organisations cultural backbone.

Cultural leadership
As organisational culture has a significant impact on performance, one of the most
important things managers do is create and influence culture. One way managers shape
cultural norms and values to build a high performance culture is through cultural
leadership. Managers must ensure that employees understand the new culture values, and
need to signal these values in actions as well as words.