Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 1 CHAPTER TWO CHAPTER TWO Management 3rd Edition Chuck Williams Organizational Environments and Cultures Prepared by Deborah Baker Texas Christian University

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 2 CHAPTER TWO What Would You Do? How can you deal with these external and internal problems and turn them into opportunities? You are the CEO of McDonald’s…  Sales are declining, stores are closing  Competitors are stronger  Food quality is dropping, food preferences have changed  Service is rude and inaccurate

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 3 CHAPTER TWO 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.

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 4 CHAPTER TWO Changing Environments 1 Environmental Change Environmental Complexity Resource Scarcity Uncertainty Environmental Change Environmental Complexity Resource Scarcity Uncertainty Characteristics of Changing External Environments

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 5 CHAPTER TWO Environmental Change 1.1  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

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 6 CHAPTER TWO Punctuated Equilibrium: U.S. Airlines 1.1

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 7 CHAPTER TWO Environmental Complexity 1.2  Environmental Complexity: the number of external factors in the environment that affect organizations  Simple environments  have few environmental factors  Complex environments  have many environmental factors

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 8 CHAPTER TWO Resource Scarcity  Resource scarcity is the degree to which an organization’s external environment has an abundance or scarcity of critical organizational resources 1.3

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 9 CHAPTER TWO Uncertainty  Uncertainty is how well managers can understand or predict the external changes and trends affecting their businesses 1.4

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 10 CHAPTER TWO General Environment 2 Organization Specific Environment General Environment

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 11 CHAPTER TWO Components of the General Environment  Economy  Technological  Sociocultural  Political / Legal 2

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 12 CHAPTER TWO Economy 2.1  Growing vs. shrinking economies  Future economic activity is difficult to predict  Business confidence indices  show how confident managers are about future business growth

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 13 CHAPTER TWO Technological Component 2.2 Information Output Input Technology-- Knowledge Tools Techniques Technology-- Knowledge Tools Techniques Raw Materials Services Products

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 14 CHAPTER TWO Sociocultural Component 2.3  Sociocultural Components  Demographic changes  Changes in behavior, attitudes, and beliefs

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 15 CHAPTER TWO Demographics Example 2.3

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 16 CHAPTER TWO Political / Legal Component 2.3  Legislation  Regulations  Court decisions Managers must be educated about the laws, regulations, and potential lawsuits that could affect business

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 17 CHAPTER TWO Specific Environment 3  Customer  Competitor  Supplier  Industry regulation  Advocacy group

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 18 CHAPTER TWO Customer Component 3.1  Reactive customer monitoring  responding to problems, trends, and events  Proactive customer monitoring  anticipating problems, trends, and events Monitoring customer wants and needs is critical for business success

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 19 CHAPTER TWO Competitor Component 3.2 Competitive Analysis Deciding who your competitors are Anticipating competitors’ moves Determining competitors’ strengths and weaknesses

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 20 CHAPTER TWO Competitive Analysis Not lie when representing yourself Observe the company’s legal guidelines Not tape-record a conversation Not bribe Not plant eavesdropping devices Not deliberately mislead anyone in an interview Not obtain nor give price information to a competitor Not swap misinformation Not steal a trade secret Not press someone for information if it may jeopardize that person’s job or reputation The Ten Commandments for Ethical Decision Making Adapted from Fuld & Company Thou Shalt …

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 21 CHAPTER TWO Supplier Component 3.3 Opportunistic Behavior Suppliers Buyer Dependence Supplier Dependence Relationship Behavior

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 22 CHAPTER TWO Industry Regulation Component 3.4  Consists of regulations and rules that govern the business practices and procedures of specific industries, businesses, and professions

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 23 CHAPTER TWO Federal Regulation Agencies 3.4 Consumer Product Safety Commission Environmental Protection Agency Equal Employment Opportunity Commission Federal Communications Commission Federal Reserve System Federal Trade Commission Food and Drug Administration National Labor Relations Board nlrb.gov Occupational Safety and Health Administration Securities and Exchange Commission

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 24 CHAPTER TWO Advocacy Groups 3.5  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

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 25 CHAPTER TWO 4 Making Sense of Changing Environments Acting on Threats and Opportunities Interpreting Environmental Factors Environmental Scanning EvaluatingExternalEnvironmentsEvaluatingExternalEnvironments

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 26 CHAPTER TWO 4.1 Environmental Scanning  Environmental scanning: searching the environment for events or issues that might affect an organization  Scanning the environment:  keeps companies current on industry factors  reduces uncertainty  alters organizational strategies  contributes to organizational performance

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 27 CHAPTER TWO 4.2 Interpreting Environmental Factors  Managers determine what environmental events and issues mean to the organization  Opportunities  Threats

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 28 CHAPTER TWO 4.3 Acting on Threats and Opportunities  Managers have to decide how to respond to these environmental factors  Cognitive maps  simplified models of external environments  depicts how managers believe environmental factors relate to possible organizational actions

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 29 CHAPTER TWO Cognitive Maps 4.3

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 30 CHAPTER TWO 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.

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 31 CHAPTER TWO Internal Environments  Internal environment consists of 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

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 32 CHAPTER TWO Creation and Maintenance of Organizational Cultures 5.1 Organizational Heroes Organizational Stories Company Founder

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 33 CHAPTER TWO Successful Organizational Cultures 5.2 Adapted from Exhibit 2.7 Employee Satisfaction Employee Satisfaction Quality Consistency Adaptability Involvement Clear Vision Sales Growth Sales Growth Return on Assets Return on Assets Profits D.R. Denison & A.K. Mishra, Organization Science 6(1995):

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 34 CHAPTER TWO Blast from the Past 5.2  Corporate history helps employees and managers understand the people, and events, and changes that shaped a company  Preserves culture and values  Gets people involved in the culture of a company

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 35 CHAPTER TWO Levels of Organizational Culture 5.3  Symbolic artifacts  Behaviors  Symbolic artifacts  Behaviors 1. Surface Level SEEN  What people say  How decisions are made  What people say  How decisions are made 2. Expressed Values and Beliefs HEARD  Beliefs and assumptions  Rarely discussed  Beliefs and assumptions  Rarely discussed 3. Unconsciously Held Assumptions and Beliefs BELIEVED Adapted from Exhibit 2.8

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 36 CHAPTER TWO Been There Done That  The beliefs and values of Starbucks Coffee  success has to be shared  people are the most significant component  a culture of meaning and loyalty  grassroots decision making

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 37 CHAPTER TWO Changing Organizational Cultures 5.3  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.