Chapter 2 Organizational Environments and Cultures

2 What Would You Do? The “Southwest” of Europe Stiff competition from “go” & rising costs How do you react to the competition & political pressures? What would you do?

3 After discussing this section, you should be able to: Learning Objectives External Environments 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.

4 Changing Environments Environmental Change Environmental Complexity Environmental Munificence Uncertainty

5 Environmental Change The rate at which a company’s general and specific environments change  stable environments  dynamic environments Punctuated equilibrium theory  companies cycle through stable and dynamic environments

6 Punctuated Equilibrium: U.S. Airline Industry Adapted from Exhibit 2.1

7 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.

8 Environmental Munificence The degree to which an organization’s external environment has an abundance or scarcity of critical organizational resources

9 Uncertainty How well managers can understand or predict the external changes and trends affecting their businesses

10 Environmental Change, Complexity, & Munificence Environmental Characteristics ComplexityChangeResources High Medium Low Environmental Uncertainty Adapted from Exhibit 2.2

11 General & Specific Environments Business B Customers Competitors Suppliers Industry Regulation Advocacy Groups Business A Customers Competitors Suppliers Industry Regulation Advocacy Groups Sociocultural Component Economy Political/Legal Component Technological Component Adapted from Exhibit 2.3 Specific Environment General Environment

12 General Environment Economy Technological Sociocultural Political/Legal

13 Economy Growing vs. shrinking economies Future economic activity is difficult to predict Business confidence indices  owners’/managers’ confidence in the growth of the economy

14 Technological Technology is the knowledge, tools, and techniques used to transform inputs (raw materials, information, etc.) into outputs (products and services) Technological changes can benefit or threaten businesses

15 Sociocultural Refers to the demographic characteristics and general behavior, attitudes, and beliefs of people in a particular society Two important components  Demographic changes  Changes in behavior, attitudes, and beliefs

16 Political/Legal Includes the legislation, regulation, and court decisions that govern and regulate business behavior Managers must be aware of relevant laws and regulations  track changes  avoid lawsuits and penalties

17 Specific Environment Customer Competitor Supplier Industry Regulation Advocacy Group

18 Customer Component Customers are essential for business survival Managers must monitor customers’ wants and needs  reactive responding to complaints  proactive anticipating problems

19 Competitor Component Companies in the same industry that sell similar products or services to customers Competitive analysis  deciding who your competitors are  anticipating competitors’ moves  determining competitors’ strengths and weaknesses

20 Supplier Component Companies that provide material, human, financial, and informational resources to other companies Supplier & buyer dependence Opportunistic vs. relationship behavior

21 Industry Regulation Component Consists of regulations and rules that govern the business practices and procedures of specific industries, businesses, and professions

22 Federal Regulatory Agencies & Commissions Adapted from Exhibit 2.5

23 Federal Regulatory Agencies & Commissions Adapted from Exhibit 2.5

24 Advocacy Group Component Groups of concerned citizens who band together to try to influence the business practices of specific industries, businesses, and professions Influence techniques  public communications  media advocacy  product boycotts

25 Making Sense of Changing Environments Environmental Scanning Interpreting Environmental Factors Acting on Threats and Opportunities

26 Environmental Scanning Searching the environment for important events or issues that might affect an organization Scanning:  reduces uncertainty  alters organizational strategies  contributes to organizational performance

27 Interpreting Environmental Factors Managers determine what environmental events and issues mean to the organization Opportunities vs. threats

28 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

29 Cognitive Maps Good location Kmart Low rent & taxes Wal-Mart Large mall 20 minutes away Low-cost strategy Good value Good service Large selection of latest fashions Strength & Weaknesses Potential Actions Environmental Factors Success, Profits Too small to get volume discounts Low employee turnover Know customers well Reasonable selection prices Adapted from Exhibit

30 After discussing this section, you should be able to: Learning Objectives Internal Environments 5. explain how organizational cultures are created and how they can help companies be successful.

31 Organizational Cultures: Creation, Success, and Change Creation and Maintenance of Organizational Cultures Successful Organizational Cultures Changing Organizational Cultures

32 Creation and Maintenance of Organizational Cultures Company founders help create culture Cultures are maintained through:  Stories  Heroes

33 Blast From The Past Capturing corporate history Preserves culture and values

34 Successful Organizational Cultures Adapted from Exhibit 2.7 D.R. Denison & A.K. Mishra, Organization Science 6(1995): Involvement Consistency Clear Mission Clear Mission Adaptability

35 Been There, Done That The beliefs and values of Starbucks Coffee  sharing success  a culture of meaning and loyalty  grassroots decision making

36 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.

37 What Really Happened? Challenges in the economic, supplier, competitor, and industry components Avoids travel agents by using the Web Directly confronts competitors and regulators