CHAPTER

3
The Environmen t of Organizatio ns and Managers
PowerPoint Presentation by Charlie Cook
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Learning Objectives
After studying this chapter, you should be able to:
Discuss the nature of the organizational environment and identify the environments of interest to most organizations. Describe the components of the general and task environments and discuss their impact on organizations. Identify the components of the internal environment and discuss their impact on organizations. Identify and describe how the environment affects organizations and how organizations adapt to their environment. Discuss the meaning of and approaches to organizational effectiveness.

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32

Chapter Outline
The Organizations Environments The External Environment
The General Environment The Task Environment

OrganizationalEnvironment Relationships
How Environments Affect Organizations How Organization Adapt to Their Environments

The Internal Environment

Owners Board of Directors Employees Physical Work Environment

The Environment and Organizational Effectiveness

Models of Organizational Effectiveness Examples of Organizational Effectiveness

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The Business Environment

External Environment
General environment is everything outside an organizations boundarieseconomic, legal, political, socio-cultural, international, and technical forces. Task environment is composed of specific groups and organizations that affect the firm.

Internal Environment
Conditions and forces present and at work within an organization

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34

The Organization and Its Environments

International dimension Competitors Technological dimension

Regulators

Owners Customers Employees Physical environment Board of directors Culture Economic dimension

Politicallegal dimension

Strategic partners

Suppliers

Internal environment Task environment General environment Copyright by Houghton Mifflin Company. All rights reserved. External environment

Sociocultural dimension

Figure 3.1
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The External Environment

The General Environment
The set of broad dimensions and forces in an organizations surroundings that create its overall context. Economic dimension is the overall health and vitality of the economic system in which the organization operates. Technological dimension refers to the methods available for converting resources into products or services. Sociocultural dimension includes the customs, mores, values, and demographic characteristics of the society in which the organization functions. Political-legal dimension is the extent of government regulation of business and the general relationship between business and government. International dimension is the extent to which the organization is affected by business in other countries.
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McDonalds General Environment

International Dimension Restaurants in 115 countries About two-thirds of sales from outside the United States Political-Legal Dimension Government food standards Local zoning climate General posture toward business regulation Technological Dimension Improved information technology More efficient operating systems

McDonalds

Economic Dimension Strong economic growth Low unemployment Low inflation

Internal environment Task environment General environment External environment

Sociocultural Dimension Demographic shifts in number of single adults and dual-income families Growing concerns about health and nutrition

Figure 3.2
37

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 Dimensions of the Task Environment

The External Environment (contd)

Specific groups affecting the organization Competitors seeking the same resources as the organization. Customers who acquire an organizations products or resources. Suppliers that provide resources for the organization. Regulators that control, legislate, or influence the organizations policies or practices:
regulatory agencies. interest groups.

Strategic partners (allies) who are in a joint venture or partnership with the organization.

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McDonalds Task Environment

Competitors Burger King Wendys Subway Dairy Queen Customers Individual consumers Institutional customers

Regulators Food and Drug Administration Securities and Exchange Commission Environmental Protection Agency

McDonalds

Strategic Partners Wal-Mart Disney Foreign partners

Suppliers Coca-Cola Wholesale food processors Packaging manufacturers

Internal environment Task environment

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Figure 3.3
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The Internal Environment

Conditions and stakeholder forces within an organization
Owners are persons with legal property rights to a business. Board of directors are elected by the stockholders and are charged with overseeing the general management of the firm to ensure that it is run in a way that best serves the stockholders interest. Employees are persons who work for the firm and have a vested interest in its continued operation and existence. Physical work environment is the actual physical environment of the organization and the work that people do.

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310

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 Uncertainty is a driving force that influences organizational decisions.

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311

Environmental Change, Complexity, and Uncertainty

Simple

Degree of Homogeneity

Least uncertainty

Moderate uncertainty

Moderate uncertainty

Most uncertainty

Complex Stable Degree of Change Dynamic

Source: Adapted from J.D. Thompson, Organizations in Action. Copyright 1967 by McGraw-Hill. Reprinted by permission of McGraw-Hill Companies. Copyright by Houghton Mifflin Company. All rights reserved.

Figure 3.4
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How Environments Affect Organizations (contd) Competitive Forces

Porters Five Competitive Forces Threat of new entrants into the market Competitive rivalry among present competitors Threat of substitute products Power of buyers Power of suppliers

Environmental Turbulence
Unexpected changes and upheavals in the environment of an organization.
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Porters 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.

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314

How Organizations Respond to Their Environments

General Environment Task Environment Information management

Social responsibility

Mergers, takeovers, acquisitions, alliances

The Organization
Strategic response Direct influence

Organization design and flexibility

Figure 3.5
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How Organizations Respond to Their Environments (contd)

Information Management in Organizations
A boundary spanner is an employee who accumulates information through contacts outside the organization. Environmental scanning is the process of monitoring the environment. Information systems summarize and deliver information in a form pertinent to a managers needs.

Strategic Response
Maintaining the status quo, altering the current strategy, or adopting a new strategy.

Mergers, Acquisitions, Alliances

Firms can combine (merge), purchase (acquisition), or form new venture partnerships or alliances with another firm.
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How Organizations Respond to Their Environments (contd)

Organizational Design and Flexibility
An organization may adapt to its environmental conditions by incorporating flexibility in its structural design. Mechanistic firms operate best in stable environments. Organic firms are best suited for dynamic environments.

Direct Influence of the Environment

An organization may attempt 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 can alter the organizations environment in a way that favors the organization.

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The Environment and Organizational Effectiveness

Models of Organizational Effectiveness
Systems resource approach focuses on acquiring inputs. Internal processes approach focuses on the transformation processes (production efficiencies). Goal approach focuses on outputs (achieving organizational goals). Strategic constituencies approach focuses on feedback (satisfying stakeholders).

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318

A Model of Organizational Effectiveness

1 Acquiring the resources needed from the environment (Systems resource approach) and combining them in an efficient and productive manner (Internal processes approach) 2 facilitates the attainment of organizational goals (Goal approach) 3

Transformation

Inputs

Organizational System
Feedback

Outputs

5 making it easier to acquire future resources. (Combined approach)

and satisfies the strategic constituents in the environment, . . . (Strategic constituencies approach)

Figure 3.6
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Examples of Admired and High-performing Firms

Fortunes Most Admired Companies (2000) 1. General Electric 2. Microsoft 3. Dell Computer 4. Cisco Systems 5. Wal-Mart 6. Southwest Airlines 7. Berkshire Hathaway 8. Intel 9. Home Depot 10. Lucent Technologies Business Weeks Best Performing Companies (2000) 1. Microsoft 2. Time Warner 3. Cisco Systems 4. Oracle 5. EMC 6. Citrix Systems 7. Morgan Stanley Dean Witter 8. Gap 9. Warner-Lambert 10. Lucent Technologies

Source: Americas Most Admired Companies, Fortune, February 21, 2000, pp. 108 110; The Business Week 50, Business Week, March 27, 2000, pp. 123125.

Table 3.1
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