Part 2 THE ENVIRONMENT OF MANAGEMENT Chapter 3 ORGANISATION CULTURES AND CONTEXTS

The environments of managing Cultures and their components Types of culture Competitive environment – Porter’s five forces General environment – PESTEL analysis Stakeholders and corporate governance Integrating themes Cases and examples Nokia, Bosch, Unilever, Iris

Environmental influences Figure 3.1 Environmental influences on the organisation

Why study the environment of managing? Organisations depend on their environment for inputs and to take outputs. Managers act on assumptions about: culture competitive environment general environment stakeholders. These assumptions affect what they do. Are they valid, and how would alternative views lead to different actions?

Organisational cultures Belief that culture affects performance. Schein (2010): culture develops as people work together, and develop shared beliefs about what works, which is transmitted to successive generations (Figure 3.2). Beliefs relate to: mission, goals, ways of achieving goals and how to measure performance.

How culture develops Figure 3.2 The stages of cultural formation

Components of culture Artefacts Espoused beliefs and values Surface level – visible features: dress, layout. Espoused beliefs and values Beliefs members hold about their work and the situations with which they deal. Basic underlying assumptions Deeply held ideas about the way people work together, and the sources of their success.

Types of culture (Quinn et al. 2003) Figure 3.3 Types of organisational culture Source: Based on Quinn et al. (2003).

Multiple cultures Martin (2002) challenged the view that culture takes a unified form. Suggested three perspectives: Integration: members have consistent beliefs and values Differentiation: conflicting beliefs, by function or level Fragmentation: fluid, transient views about events, not related to functions or levels Shown empirically by Ogbonna and Harris (1998, 2002), (see Table 3.1).

External forces Competitive environment General environment Stakeholders Managers interpret these forces (not objective realities) respond by changing internal environment Forces in Figure 3.4 affect industry profitability.

Fewer new entrants = more profit Threat of new entrants Fewer new entrants = more profit Entry barriers include: high costs of equipment and facilities; lack of distribution facilities; customers loyal to established brands; small companies lack economies of scale; subsidies/regulations favour existing firms. Examples of products with entry barriers include patent protection for drugs, presentation software (Powerpoint). rpoint0

Intensity of rivalry amongst competitors Greater rivalry = less profit Rivalry increases when: many firms, but none dominant; market growing slowly, so firms fight for share; high fixed costs encourage overproduction; loyalties (family businesses or political support) prolong overcapacity. Examples include airline and newspaper industries. Mobile ries

Power of buyers (customers) Greater power of buyers = less profit to seller Power of buyer increases if: buyer takes high percentage of supplier’s sales; many alternative products or suppliers available; product is a high percentage of buyer’s costs, creating incentive to seek alternatives; cost of switching to other suppliers is low. Examples include products sold online, and major supermarkets like Wamart, Tesco.

Bargaining power of suppliers High power of supplier = less profit to buyer Power of supplier is high if: buyer takes small percentage of sales; few alternative products or suppliers (distinctive product keeps buyers loyal); product a low percentage of buyer’s costs, little incentive to seek alternatives; cost of switching suppliers high. Examples include luxury brands, business software.

Easy to substitute = less profit to supplier Threat of substitutes Easy to substitute = less profit to supplier Substitution becomes easier if: buyers willing to change buying habits; technological developments enable new products and services; transport costs fall; new suppliers enter the market. For example, online media, new materials.

Managing the five forces Subjective interpretation as well as objective realities Forces contradict/balance each other Managers can consciously try to shape them as part of their strategy Competitive forces affected by those in the general environment.

General environment Figure 3.5 Identifying environmental influences – PESTEL analysis

Political and economic Governments shape what businesses can do Taxation, pollution, regulation Businesses lobby to influence government. Economic Wealth and stage of development Wage levels, interest rates, consumer confidence Managers time investment to suit economic growth prospects.

Social and technological Socio-cultural Demographic trends, family structures consumer tastes, ‘Grown Up Digital’. Technological Physical infrastructure, transportation, communications technologies For example, convergence of data, video and voice technologies opening vast markets – Table 3.2. Able 3.2

Environmental and legal Environmental (natural) Natural resources, pollution and the effects of climate change on business (threats and opportunities). Legal The framework within which companies operate – employment, financial or governance regulations.

Using PESTEL As in five forces, subjective interpretation as well as objective realities. Forces in the general environment affect public organisations as much as private. The value is NOT a long list of factors, but agreement on critical ones that stakeholders may use to stimulate internal change.

Change and complexity Figure 3.6 Types of environment

Stakeholders People or groups with expectations of the organisation Customers, communities, government How to manage their conflicting interests Illustrated in Figure 3.7 Companies seek to influence stakeholders.

Corporate governance Interests of professional managers often diverge from those of owners and/or citizens who use and pay for public services. Governance refers to rules and processes intended to ensure transparency and accountability of those in charge. Substance includes: internal controls mechanisms to limit power of individuals process to manage relationships between groups.

Integrating themes Entrepreneurship Seeing external opportunities is a key skill, supported by experience, networks and creativity. Sustainability Climate change leading managers to seek ways to run organisations more sustainably. Internationalisation International organisation can benefit from the many cultural perspectives of employees. Governance Some cultures encourage excessive risks, which governance systems can discourage.

Summary The assumptions managers make about their environment affects what they do. The cultures, five forces, PESTEL and stakeholder models help managers to analyse their contexts. The models enable you to question The assumptions that guide action Whether they accurately reflect the context Possible alternative views The limitations of any one view.