Chapter 3

Organizational Environments
and Cultures

MGMT
Designed & Prepared by
Chuck Williams B-books, Ltd.

1
 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.
2
 Changing Environments
Characteristics of
Changing External Environments

Environmental Change

Environmental Complexity

Resource Scarcity

Uncertainty

1
3
 Environmental Change
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.

1.1
4
 Environmental Complexity
Environmental Complexity: the number of
external factors in the environment that
affect organizations

Simple environments Complex environments

1.2
5
 Resource Scarcity
Resource Scarcity

The degree to which an organization’s

external environment has an abundance
or scarcity of critical organizational resources

1.3
6
 Natural
Resources
The scarcity of natural
resources is a general
concern. 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.

7
 Uncertainty

1.4
8
 External Environment

Specific Environment

2
9
 Components of the
General Environment
• Economy
• Technological trends
• Sociocultural trends
• Political / Legal trends

2
10
 Economy

• Growing vs. shrinking

economies
• Predicting future economic
activity
• Business confidence indices

2.1
11
 Technological Component

Technology
Input Knowledge Output
Tools
Techniques
Raw
Products
Materials

Information Services

2.2
12
 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
2.2 acceptance of digital music and persistent
file swapping. 13
 Sociocultural Component

– Demographic changes
– Changes in behavior, attitudes, and beliefs

2.3
14
 Demographics Example

2.3
15
 Political / Legal Component
• Legislation Managers must be educated
• Regulations about the laws, regulations,
• Court decisions and potential lawsuits that
could affect business

http://www.eeoc.gov/abouteeo/overview_laws.html
Web Link
2.4 http://www.dol.gov/esa/whd/fmla/
16
 Specific Environment
Customer

Competitor

Supplier

Industry Regulation

Advocacy Group
3
17
 Customer Component
Monitoring customer
wants and needs
is critical for
business success

Reactive customer monitoring

– responding to problems,
trends, and events

Proactive customer monitoring

– anticipating problems,
trends, and events
3.1
18
 Competitor Component
Competitive Analysis

Deciding who your competitors are

Anticipating competitors’ moves

Determining competitors’
strengths and weaknesses

3.2
19
 Supplier Component

Buyer Suppliers Supplier

Dependence Dependence

Opportunistic Behavior Relationship Behavior

3.3
20
 Industry Regulation
Component
Industry Regulation

Regulations and rules that govern the

business practices and procedures of specific
industries, businesses, and professions

3.4
21
 Federal Regulation Agencies
Consumer Product
http://www.cpsc.gov
Safety Commission
Department of Labor http://www.dol.gov

Environmental Protection Agency http://www.epa.gov

Equal Employment
http://www.eeoc.gov
Opportunity Commission
Federal Communications
http://www.fcc.gov
Commission
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
3.4 http://www.osha.gov
Health Administration
Securities and Exchange 22
http://www.sec.gov
Commission
 Cost of Compliance
Researchers studied U.S. manufacturers and the
costs they incur complying with the 25 major
federal regulations. They 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.

23
 Advocacy Groups
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

3.5
24
 Advocacy Groups

PETA is a well-known advocacy

group that attempts to influence
consumers and companies to
pursue animal-friendly practices.

25
 Making Sense of
Changing Environments
Environmental
Scanning

Evaluating
Interpreting
External Environmental Factors
Environments
Acting on
Threats and Opportunities

4
26
 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
4.1 contributes to organizational performance
27
 Interpreting Environmental
Factors

Environmental
Scan

Opportunities? Threats?

4.2
28
 Acting on Threats
and Opportunities
Cognitive Maps

 simplified models of external environments

 depicts how managers believe
environmental factors relate to possible
organizational actions

4.3
29
 Cognitive Maps

4.3
30
 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.

31
 Internal Environments

Internal Environment
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
5
32
 Creation and Maintenance of
Organizational Cultures

Company Founder

Organizational Stories Organizational Heroes

5.1
33
 Successful Organizational Cultures

Adaptability

Consistency Involvement

Clear Vision

Sales Employee
Growth Satisfaction
Return on Profits
Quality
Assets
5.2
Source: D.R. Denison and A.K. Mishra, Organization Science 6 (1995): 204-223
34
 Levels of Organizational Culture

 Behaviors 1. Surface
SEEN
 Symbolic artifacts Level

 What people say

2. Expressed Values
 How decisions HEARD
and Beliefs
are made

 Beliefs and 3. Unconsciously

assumptions Held Assumptions
BELIEVED
 Rarely discussed and Beliefs

5.3
35
 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
36