C HAPTER O UTLINE 1  The Organization’s Environments  The External Environment The General Environment The Task Environment  The Internal Environment Owners Board of Directors Employees Physical Work Environment  The Organization’s Environments  The External Environment The General Environment The Task Environment  The Internal Environment Owners Board of Directors Employees Physical Work Environment  Organizational-Environment Relationships How Environments Affect Organizations How Organization Adapt to Their Environments  The Environment and Organizational Effectiveness Models of Organizational Effectiveness Examples of Organizational Effectiveness  Organizational-Environment Relationships How Environments Affect Organizations How Organization Adapt to Their Environments  The Environment and Organizational Effectiveness Models of Organizational Effectiveness Examples of Organizational Effectiveness

E NVIRONMENT & C ULTURE External Environment Major forces outside organization with potential to influence significantly product or service’s likely success. Internal Environment General conditions & forces that exists within an organization. Operational or interaction. Culture System of shared values, assumptions, beliefs & norms uniting members of an organization. 2

T HE B USINESS E NVIRONMENT External Environment General Environment: is everything outside an organization’s boundaries - economic, legal, political, socio-cultural, international, and technical forces. Task Environment: Specific outside elements with which an organization interfaces in course of conducting its business. Internal Environment Conditions and forces present and at work within an organization. 3

T HE O RGANIZATION AND I TS E NVIRONMENTS 4 Owners Employees Physical environment Board of directors Culture Competitors International dimension Political- legal dimension Technological dimension Sociocultural dimension Economic dimension RegulatorsCustomers Strategic partners Suppliers Internal environment Task environment External environment General environment

T HE E XTERNAL E NVIRONMENT The General Environment The set of broad dimensions and forces in an organization’s 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 attitudes, customs, 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. 5

M C D ONALD ’ S G ENERAL E NVIRONMENT 6 McDonald’s 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 Sociocultural Dimension Demographic shifts in number of single adults and dual-income families Growing concerns about health and nutrition Economic Dimension Strong economic growth Low unemploy- ment Low inflation Internal environment Task environment External environment General environment

T HE E XTERNAL E NVIRONMENT ( CONT ’ D ) Dimensions of the Task Environment Specific groups affecting the organization Competitors seeking the same resources as the organization. Customers who acquire an organization’s products or resources. Suppliers that provide resources for the organization. Regulators that control, legislate, or influence the organization’s policies or practices: regulatory agencies created by govt. to regulate business activities. interest groups formed by its own individual members to attempt to influence business. Strategic partners (allies) who are in a joint venture or partnership with the organization. 7

M C D ONALD ’ S T ASK E NVIRONMENT 8 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

T HE I NTERNAL E NVIRONMENT 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. 9

H OW E NVIRONMENTS A FFECT O RGANIZATIONS 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. 10

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H OW E NVIRONMENTS A FFECT O RGANIZATIONS ( CONT ’ D ) Competitive Forces Porter’s 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 Instability Unexpected changes and upheavals (disturbance) in the environment of an organization. 12

P ORTER ’ S F IVE C OMPETITIVE F ORCES 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. 13

H OW O RGANIZATIONS R ESPOND TO T HEIR E NVIRONMENTS 14 General Environment Task Environment Information management Social responsibility Strategic response Mergers, takeovers, acquisitions, alliances Direct influence Organization design and flexibility The Organization Figure 3.5

H OW O RGANIZATIONS R ESPOND TO T HEIR E NVIRONMENTS ( CONT ’ D ) 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 relevant to a manager’s needs. Strategic Response Maintaining the status quo, changing 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. 15

H OW O RGANIZATIONS R ESPOND TO T HEIR E NVIRONMENTS ( CONT ’ D ) Organizational Design and Flexibility An organization may adapt to its environmental conditions by adopting 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 organization’s environment in a way that favors the organization. 16

T HE E NVIRONMENT AND O RGANIZATIONAL E FFECTIVENESS Models of Organizational Effectiveness Systems resource approach focuses on getting inputs. Internal processes approach focuses on the transformation processes (production efficiencies). Goal approach focuses on outputs (achieving organizational goals). Strategic approach focuses on feedback (satisfying stakeholders). 17

A M ODEL OF O RGANIZATIONAL E FFECTIVENESS 18 (Systems resource approach) Acquiring the resources needed from the environment… making it easier to acquire future resources. (Combined approach) and satisfies the strategic constituents in the environment,... (Strategic approach) and combining them in an efficient and productive manner… (Internal processes approach) Organizational System Feedback (Goal approach) facilitates the attainment of organizational goals… Inputs Transformation Outputs

E XAMPLES OF A DMIRED AND H IGH - PERFORMING F IRMS 19 Table 3.1 Source: “America’s Most Admired Companies,” Fortune, February 21, 2000, pp. 108– 110; “The Business Week 50,” Business Week, March 27, 2000, pp. 123–125.

O RGANIZATIONS C ULTURE System of shared values, assumptions, beliefs & norms uniting members of an organization. It is the set of values that helps member of organizations understand what it stands for, how it does things and what it considers important. Importance of Culture Determinants of Culture 20

C ULTURE ( C ONTD.) Managing Organizational Culture Understand current culture and then decide whether to change it or not. Can be maintained by rewarding employees those consistently behave with existing culture and articulating it. Symbols: object, act, event or quality serving as vehicle for conveying meaning. Story: narrative based on true events, which may highlight future value. 21