Organizational Environments and Cultures 3 © 2012 Cengage Learning

discuss how changing environments affect organizations describe the four components of the general environment explain the five components of the specific environment describe the process that companies use to make sense of their changing environments explain how organizational cultures are created and how they can help companies be successful © 2012 Cengage Learning

External Environments discuss how changing environments affect organizations describe the four components of the general environment explain the five components of the specific environment describe the process that companies use to make sense of their changing environments External environments are the forces and events outsides a company that have the potential to influence or affect it. © 2012 Cengage Learning

Environmental Change The rate at which a company’s general and specific environments change. Stable slow rate of change Dynamic fast rate of change © 2012 Cengage Learning

Punctuated Equilibrium Theory Stability Dynamic Change Dynamic Change Dynamic Change Although you might think that a company’s external environment would be either stable or dynamic, research suggests that companies often experience both. According to punctuated equilibrium theory, companies go through long, simple periods of stability (equilibrium) during which incremental changes occur, followed by short, complex periods of dynamic, fundamental change (revolutionary periods), which end with a return to stability (new equilibrium) Stability © 2012 Cengage Learning

Environmental Complexity Simple few environmental factors that affect organizations Complex many environmental factors that affect organizations Environmental complexity refers to the number and intensity of factors in the external environment that affect organizations. Simple environments have few environmental factors that affect organizations, whereas complex environments have many environmental factors that affect organizations. © 2012 Cengage Learning

Resource Scarcity The abundance or shortage of critical resources in an organization’s external environment. © 2012 Cengage Learning

Uncertainty The extent to which managers can understand or predict the external changes and trends affecting their business. © 2012 Cengage Learning

Environmental Change, Environmental Complexity, and Resource Scarcity © 2012 Cengage Learning

General Environment General environment Specific environment the economy and the technological, sociocultural, and political/legal trends that indirectly affect all organizations Specific environment unique to a firm’s industry directly affects the way its conducts daily business © 2012 Cengage Learning

General and Specific Environments © 2012 Cengage Learning

Economy A growing economy provides a favorable environment for business growth. Business confidence indices show how confident managers are about future business growth. © 2012 Cengage Learning

Technological Component Technology an umbrella term for the knowledge, tools, and techniques used to transform inputs into outputs Changes in technology can help companies provide better products or produce their products more efficiently. © 2012 Cengage Learning

Sociocultural Component Demographic characteristics, general behavior, attitudes, and beliefs of people in a particular society © 2012 Cengage Learning

Demographics: Percentage of Married Women (with Children) Who Work © 2012 Cengage Learning

Political/Legal Component The legislation, regulations, and court decisions that govern and regulate business behavior Many managers are unaware of the potential legal risks associated with traditional managerial decisions like recruiting, hiring, and firing employees. © 2012 Cengage Learning

Specific Environment Customers Competitors Suppliers Industry regulations Advocacy groups © 2012 Cengage Learning

Customer Component Reactive customer monitoring Identifying and addressing customer trends and problems after they occur Proactive customer monitoring Identifying and addressing customer needs, trends, and issues before they occur Customers purchase products and services. Companies cannot exist without customer support. Monitoring customers’ changing wants and needs is therefore critical to business success. There are two basic strategies for monitoring customers: reactive and proactive. © 2012 Cengage Learning

Competitor Component Competitors Competitive analysis companies in the same industry that sell similar products or services Competitive analysis a process of monitoring the competition that involves identifying competition, anticipating their moves, and determining their strengths and weaknesses Surprisingly, managers often do a poor job of identifying potential competitors because they tend to focus on only two or three well-known competitors with similar goals and resources. Another mistake managers may make when analyzing the competition is to underestimate potential competitors’ capabilities. When this happens, managers don’t take the steps they should to continue to improve their products or services. © 2012 Cengage Learning

Supplier Component Suppliers Supplier dependence vs. Buyer dependence companies that provide material, human, financial, and informational resources to other companies Supplier dependence vs. Buyer dependence © 2012 Cengage Learning

Behaviors Opportunistic behavior Relationship behavior when one party benefits at the expense of another Relationship behavior focuses on establishing a mutually beneficial, long-term relationship between buyers and sellers How important is relationship behavior? Researchers examined the relationships between auto suppliers and eight major automakers in Japan, Korea, and the United States and found that, in cases where a lack of trust existed between suppliers and buyers, procurement costs could be as much as five times higher than when parties trusted one another. Furthermore, the least-trusted companies were often the least profitable. © 2012 Cengage Learning

Industry Regulation Component Regulations and rules that govern the practices and procedures of specific industries, businesses, and professions © 2012 Cengage Learning

Federal Regulatory Agencies and Commissions Consumer Product Safety Commission Department of Labor Environmental Protection Agency Equal Employment Opportunity Commission Federal Communications Commission Federal Reserve System Federal Trade Commission Food and Drug Administration National Labor Relations Board Occupational Safety and Health Administration Securities and Exchange Commission Consumer Product Safety Commission Reduces risk of injuries and deaths associated with consumer products, sets product safety standards, enforces product recalls, and provides consumer education http://www.cpsc.gov Department of Labor Collects employment statistics and administers labor laws concerning safe working conditions, minimum hourly wages and overtime pay, employment discrimination, and unemployment insurance http://www.dol.gov Environmental Protection Agency Reduces and controls pollution through research, monitoring, standard setting, and enforcement activities http://www.epa.gov Equal Employment Opportunity Commission Promotes fair hiring and promotion practices http://www.eeoc.gov Federal Communications Commission Regulates interstate and international communications by radio, television, wire, satellite, and cable http://www.fcc.gov Federal Reserve System As nation’s central bank, controls interest rates and money supply and monitors the U.S. banking system to produce a growing economy with stable prices http://www.federalreserve.gov Federal Trade Commission Restricts unfair methods of business competition and misleading advertising; enforces consumer protection laws http://www.ftc.gov Food and Drug Administration Protects nation’s health by making sure food, drugs, and cosmetics are safe http://www.fda.gov National Labor Relations Board Monitors union elections and stops companies from engaging in unfair labor practices http://www.nlrb.gov Occupational Safety and Health Administration Saves lives, prevents injuries, and protects the health of workers http://www.osha.gov Securities and Exchange Commission Protects investors in the bond and stock markets, guarantees access to information on publicly traded securities, and regulates firms that sell securities or give investment advice http://www.sec.gov © 2012 Cengage Learning

Advocacy Groups Concerned citizens who band together to try to influence the business practices of specific industries, businesses, and professions Public communication Media advocacy Product boycott The public communications approach relies on voluntary participation by the news media and the advertising industry to send out an advocacy group’s message. Media advocacy is much more aggressive than the public communications approach. A media advocacy approach typically involves framing the group’s concerns as public issues (affecting everyone); exposing questionable, exploitative, or unethical practices; and forcing media coverage by buying media time or creating controversy that is likely to receive extensive news coverage. A product boycott is a tactic in which an advocacy group actively tries to persuade consumers not to purchase a company’s product or service. © 2012 Cengage Learning

Environmental Scanning Searching the environment for important events or issues that might affect an organization. Managers scan the environment to reduce uncertainty. Organizational strategies affect environmental scanning. Environmental scanning contributes to organizational performance. © 2012 Cengage Learning

Interpreting Environmental Factors Threat or opportunity? Threat managers typically take steps to protect the company from further harm Opportunity managers consider strategic alternatives for taking advantage of those events to improve performance © 2012 Cengage Learning

Acting on Threats and Opportunities: Cognitive Maps Because it is impossible to comprehend all the factors and changes, managers often rely on simplified models of external environments called cognitive maps. Cognitive maps summarize the perceived relationships between environmental factors and possible organizational actions. For example, the cognitive map shown in Exhibit 3.4 represents a small clothing store owner’s interpretation of her business environment. The map shows three kinds of variables. The first set of variables, shown in blue rectangles, are environmental factors, such as a Wal-Mart or a large mall 20 minutes away. The second set of variables, shown in green ovals, are actions that the store owner might take: follow a low-cost strategy; a good value, good service strategy; or a large selection of the latest fashions strategy. The third set of variables, shown in gold trapezoids, are company strengths (low employee turn-over) and weaknesses (small size). The plus and minus signs on the map indicate whether the manager believes there is a positive or negative relationship between variables. For example, the manager believes that a low-cost strategy won’t work because Wal-Mart and Target are nearby. Offering a large selection of the latest fashions won’t work either—not with the small size of the store and that large mall nearby. However, the manager believes that a good value, good service strategy can lead to success and profits because of the store’s low employee turnover, good knowledge of customers, and reasonable selection of clothes at reasonable prices. © 2012 Cengage Learning

Internal Environments 5. explain how organizational cultures are created and how they can help companies be successful Internal environments consist of the trends and events within an organization that affect the management, employees, and organizational culture. Internal environments are important because they affect what people think, feel, and do at work. The key component in internal environments is organizational culture, or the set of key values, beliefs, and attitudes shared by members of the organization. © 2012 Cengage Learning

Creation and Maintenance of Organizational Cultures Primary source of organizational culture is the company founder. Organizational culture is sustained by… organizational stories organizational heroes © 2012 Cengage Learning

Keys to an Organizational Culture that Fosters Success Adaptability is the ability to notice and respond to changes in the organization’s environment. Company mission is the business’s purpose or reason for existing. In an organizational culture that includes a clear company mission, the organization’s strategic purpose and direction are apparent to everyone in the company. Finally, in a consistent organizational culture, the company actively defines and teaches organizational values, beliefs, and attitudes. Consistent organizational cultures are also called strong cultures because the core beliefs are widely shared and strongly held. © 2012 Cengage Learning

Three Levels of Organizational Culture As shown in Exhibit 3.6, organizational cultures exist on three levels. On the first, or surface, level are the elements of an organization’s culture that can be seen and observed, such as symbolic artifacts (e.g., dress codes and office layouts) and workers’ and managers’ behaviors. Next, just below the surface, are the values and beliefs expressed by people in the company. You can’t see these values and beliefs, but they become clear if you carefully listen to what people say and observe how decisions are made or explained. Finally, unconsciously held assumptions and beliefs about the company are buried deep below the surface. These are the unwritten views and rules that are so strongly held and so widely shared that they are rarely discussed or even thought about unless someone attempts to change them or unknowingly violates them. Changing such assumptions and beliefs can be very difficult. Instead, managers should focus on the parts of the organizational culture they can control. These include observable surface-level items, such as workers’ behaviors and symbolic artifacts, and expressed values and beliefs, which can be influenced through employee selection. © 2012 Cengage Learning

Changing Organizational Cultures Behavioral addition Behavioral substitution Change visible artifacts Hiring people with values and beliefs consistent with desired culture Corporate cultures are very difficult to change. Consequently, there is no guarantee that any one approach—changing visible cultural artifacts, using behavioral substitution, or hiring people with values consistent with a company’s desired culture—will change a company’s organizational culture. The best results are obtained by combining these methods. Together, these are some of the best tools managers have for changing culture because they send the clear message to managers and employees that “the accepted way of doing things” has changed. © 2012 Cengage Learning

Charlie Wilson’s War This chapter discussed organizational culture as having three levels of visibility. Visible artifacts are at the first level and are the easiest to see. Which visible artifacts did you observe in this sequence? Values appear at the next level of organizational culture. You can infer a culture’s values from the behavior of organizational members. Which values appear in this sequence? Organizational members will unconsciously behave according to the basic assumptions of an organization’s culture. You also infer these from observed behavior. Which basic assumptions appear in this sequence? “Good-Time” Charlie Wilson (Tom Hanks) is a Democratic Congressman from East Texas with a reputation for partying, drinking, and womanizing. When Afghanistan rebels against the Soviet troop invasion in the 1980s, Wilson becomes the unlikely champion of the Afghan cause through his role in two major congressional committees that deal with foreign policy and covert operations. Julia Roberts plays the Houston socialite and conservative political activist Joanne Herring, who urges Wilson to help the rebels. Wilson’s covert dealings with the rebels have some unforeseen and long-reaching effects, however. In this clip from the beginning of the movie, Charlie Wilson is at work in the Capitol Building, on his way to chambers where he’s about to cast a vote. © 2012 Cengage Learning

Camp Bow Wow What aspects of Camp Bow Wow’s corporate culture reflect the surface level of the organizational culture? What aspects reflect the values and beliefs? What aspects reflect the unconsciously held assumptions and beliefs. Why did Camp Bow Wow have to change its culture when it became a national franchise? 3. What impact does Heidi Ganahl’s personal story have on employees at Camp Bow Wow? Camp Bow Wow In ten years, Camp Bow Wow has grown from a single kennel in Denver, Colorado to a $40 million dollar business, with more than 150 locations. The transition from a small family business to a national chain, however, required a shift from a family-based culture to a business- and performance-based culture. A key element of of Camp Bow Wow’s culture is the staff’s deep emotional connection with animals. The connection is immediately apparent at corporate headquarters, where offices are bustling with employees and pets alike. According to founder Heidi Ganahal, “What we do is focus on what’s important to us, and that’s the animals.” © 2012 Cengage Learning