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

2. 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

3. Environmental influences
Figure 3.1 Environmental influences on the organisation

4. 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?

5. 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.

6. How culture develops
Figure 3.2 The stages of cultural formation

7. 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.

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

9. 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).

10. 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.

11. 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

12. 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

13. 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.

14. 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.

15. 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.

16. 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.

17. General environment
Figure 3.5 Identifying environmental influences – PESTEL analysis

18. 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.

19. 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

20. 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.

21. 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.

22. Change and complexity
Figure 3.6 Types of environment

23. 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.

24. 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.

25. 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.

26. 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.