© 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. PowerPoint Presentation by Charlie Cook The University of West Alabama Management: Principles and Practices 11e Ricky W. Griffin CHAPTER 3 The Environment and Culture of Organizations PART 2 The Environmental Context of Management

Learning Objectives 1.Discuss the nature of the organizational environment and identify the environments of interest to most organizations. 2.Describe the components of the general and task environments and discuss their impact on organizations. 3.Identify the components of the internal environment and discuss their impact on organizations. 4.Discuss the importance and determinants of an organization’s culture and how the culture can be managed. 5.Identify and describe how the environment affects organizations and how organizations adapt to their environment. 6.Describe the basic models of organizational effectiveness and identify contemporary examples of highly effective firms. 3–2 © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The Organization’s Environments External EnvironmentExternal Environment  General environment  Everything outside an organization’s boundaries—economic, legal, political, socio-cultural, international, and technical forces.  Task environment  Specific groups and organizations that affect the firm. Internal EnvironmentInternal Environment  Conditions and forces present and at work within an organization. © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–3

3–4 © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3.1 The Organization and Its Environments

The External Environment The General EnvironmentThe General Environment  The set of broad dimensions and forces in an organization’s surroundings that create its overall context.  Economic dimension  Technological dimension  Sociocultural dimension  Political-legal dimension  International dimension © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–5

The General Environment Economic dimensionEconomic dimension -Overall health and vitality of the economic system in which the organization operates -General economic growth, inflation, interest rates and unemployment Technological dimensionTechnological dimension -Methods available for converting resources into products and services -The forms and availability of that technology come from the general environment -Technology is not associated only with manufacturing of product but also with service sector 3–6

The General Environment Sociocultural dimensionSociocultural dimension -Includes customs, mores, values and demographic characteristics of the society -Important because they determine the products, services and standards of conduct that the society is likely to value -Influence how workers in a society feel about their jobs and organizations -Appropriate standards of business conduct also vary across culture 3–7 © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The General Environment Political-legal dimensionPolitical-legal dimension -Government regulation of business and relationship between business and government -Three reason behind the importance of this dimension 1)Legal system partially defines what an organization can and cannot do 2)Pro or anti-business sentiment in government influences business activity. 3)Political stability has ramifications for planning 3–8 © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The General Environment International dimensionInternational dimension -Extent to which an organization is involved in or affected by business in other countries -Firms may face foreign competition at home -Also applicable for not-profit organizations -Virtually every organization is affected by the international dimension of its general environment 3–9

3– McDonald’s General Environment

The External Environment (cont’d) Dimensions of the Task EnvironmentDimensions of the Task Environment  Specific groups affecting the organization  Competitors  Customers  Suppliers  Regulators (agencies and interest groups)  Strategic partners (allies) © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–11

Task Environment CompetitorsCompetitors -Are other organization that compete with for resources -Competes for customers dollars -Competes for different types of resource as for suppliers, bank loans etc. CustomersCustomers -Who pays money to acquire an organization’s products or services -Customers can be individual or institutional -Dealing customers has become more complex -May face critical differences as they expand internationally 3–12

Task Environment SuppliersSuppliers -Provide resources for organization -Examples are: 3–13 USA (Prefer multiple suppliers) May be vulnerable if the supplier raises its price, goes out of business or is shut down by a labor union Can help maintain a competitive relationship among suppliers, keeping costs down JAPAN ( Prefer single supplier) Enable them to work together better for their mutual benefit Make suppliers responsive to the customer’s need

Task Environment Strategic PartnersStrategic Partners -Two or more companies work together RegulatorsRegulators -Potential to control, legislate or influence an organization’s policies and practices -Two kinds of regulations a)Regulatory agencies b)Interest groups 3–14

3–15 © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3.3 McDonald’s Task Environment McDonald’s Competitors Burger King Wendy’s Subway Dairy Queen Customers Individual consumers Institutional customers Suppliers Coca-Cola Wholesale food processors Packaging manufacturers Strategic Partners Wal-Mart Disney Foreign partners Regulators Food and Drug Administration Securities and Exchange Commission Environmental Protection Agency Internal environment Task environment

The Internal Environment Conditions and stakeholder forces within an organizationConditions and stakeholder forces within an organization  Owners.  Board of directors  Employees  Physical work environment  Culture 3–16 © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The Organization’s Culture Organization CultureOrganization Culture  Is the set of internal values, beliefs, behaviors, customs, and attitudes that determines the “feel” of the organization.  Is not necessarily the same throughout the entire organization.  Must be managed so that its strength benefits the firm’s overall effectiveness and long-term success.  Can be dysfunctional if it becomes strongly resistant to change. 3–17 © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

© 2010 South-Western, Cengage Learning, Inc. All rights reserved. 3–18 Determinants of Organization Culture Shared experiences Organization successes Organization’s founder Organization Culture Symbols, stories, heroes, slogans, ceremonies

How Environments Affect Organizations Environmental Change and ComplexityEnvironmental Change and Complexity  Change occurs in two ways:  Degree to which change in environment is occurring  Degree of homogeneity or complexity of the environment  Uncertainty  A driving force that influences organizational decisions. Environmental TurbulenceEnvironmental Turbulence  Unexpected changes and upheavals in the environment of an organization. © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–19

3–20 © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3.4 Environmental Change, Complexity, and Uncertainty

Porter’s Five Competitive Forces Power of customers Power of suppliers Threat of substitute products Competitive rivalry Threat of new entrants © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–21

Porter’s Five Competitive Forces Threat of new entrantsThreat of new entrants  Extent to and ease with which competitors can enter market. Competitive rivalryCompetitive rivalry  Competitive rivalry between firms in an industry. Threat of substitute productsThreat of substitute products  Extent to which alternative products/services may replace the need for existing products/services. Power of buyersPower of buyers  Extent to which buyers influence market rivals. Power of suppliersPower of suppliers  Extent to which suppliers influence market rivals. © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–22

3–23 © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3.5 How Organizations Adapt to Their Environments

How Organizations Respond to Their Environments Information Management in OrganizationsInformation Management in Organizations  Boundary spanners  Environmental scanning  Information systems Strategic ResponseStrategic Response  Maintaining the status quo, altering the current strategy, or adopting a new strategy. Mergers, Acquisitions, AlliancesMergers, Acquisitions, Alliances  Firms combine (merge), purchase (acquisition), or form new venture partnerships or alliances. 3–24 © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

3–25 © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Mergers: Occurs when two or more firms combine to form a new firm.Mergers: Occurs when two or more firms combine to form a new firm. Acquisition: An acquisition is the purchase of one company by another in which no new company is formedAcquisition: An acquisition is the purchase of one company by another in which no new company is formed Strategic Alliance: An arrangement between two companies that have decided to share resources to undertake a specific, mutually beneficial project. A strategic alliance is less involved and less permanent than a joint venture, in which two companies typically pool resources to create a separate business entity. In a strategic alliance, each company maintains its autonomy while gaining a new opportunity. A strategic alliance could help a company develop a more effective process, expand into a new market or develop an advantage over a competitor, among other possibilities.Strategic Alliance: An arrangement between two companies that have decided to share resources to undertake a specific, mutually beneficial project. A strategic alliance is less involved and less permanent than a joint venture, in which two companies typically pool resources to create a separate business entity. In a strategic alliance, each company maintains its autonomy while gaining a new opportunity. A strategic alliance could help a company develop a more effective process, expand into a new market or develop an advantage over a competitor, among other possibilities. 3–26 © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

How Organizations Respond to Their Environments (cont’d) Organizational Design and FlexibilityOrganizational Design and Flexibility  Adapting by building flexibility into structural design.  Mechanistic firms operate best in stable environments.  Organic firms are best suited for dynamic environments. Direct Influence of the EnvironmentDirect Influence of the Environment  Attempting 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. © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–27

The Environment and Organizational Effectiveness 3–28 © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Systems resource approach Internal processes approach Goal approach Strategic constituencies approach Models of Organizational Effectiveness Combined approach

3–29 © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3.6 A Model of Organizational Effectiveness

3–30 © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3.1 Examples of Admired and High-Performing Firms Fortune’s Most Admired Companies (2011) Business Week’s Best-Performing Companies (2011) 1.Apple 2.Google 3.Berkshire Hathaway 4.Southwest Airlines 5.Procter & Gamble 6.Coca-Cola 7.Amazon 8.FedEx 9.Microsoft 10.McDonald’s 1.Priceline.com 2.Intuitive Surgical 3.Southwestern Energy 4.Apple 5.salesforce.com 6.Express Scripts 7.Flowserve 8.FMC Technologies 9.Cliff’s Natural Resources 10.Amazon.com

KEY TERMS internal environmentinternal environment external environmentexternal environment task environmenttask environment economic dimensioneconomic dimension technological dimensiontechnological dimension sociocultural dimensionsociocultural dimension political-legal dimensionpolitical-legal dimension international dimensioninternational dimension competitorcompetitor customercustomer suppliersupplier interest groupinterest group strategic partners (strategic allies)strategic partners (strategic allies) ownerowner board of directorsboard of directors organization cultureorganization culture uncertaintyuncertainty five competitive forcesfive competitive forces 3–31 © 2013 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.