CHAPTER 2: ORGANIZATIONAL ENVIRONEMENTS AND CULTURES

CHANGING ENVIRONMENTS
 External Environment: forces and events outside a company that have potential to influence or affect it.

(A) Environmental Change: refers to the rate of which a company’s general and specific environments
change.
o Stable Environment: the rate of environmental change is slow.
 e.g. food distribution companies: makes little changes from year to year.
o Dynamic Environment: the rate of environmental change if fast.
 e.g. the smartphone industry: it is heavily influenced by the actions of ferocious
competitors, technological innovations and changes in consumer demand.
o Punctuated Equilibrium Theory: companies go through long periods of stability (equilibrium)
during which incremental changes occur, followed by short periods of dynamic, fundamental
change (revolutionary periods), which end with the return to stability (new equilibrium).
 e.g. Airline Industry

(B) Environmental Complexity: refers to the number and intensity of external factors in the environment
that affect organization.
o Simple Environment: has a few environmental factors.
 e.g. Dairy companies
o Complex Environment: has many environmental factors.
 e.g. Newspaper industry due to the rising technological advancements.

(C) Resource Scarcity: refers to the abundance or shortage

of critical resources in the organization’s external
environment.

(D) Uncertainty: refers to how well managers can

understand or predict the external changes and trends
affecting their business.

TWO TYPES OF EXTERNAL ENVIRONMENT

 General Environment: Consists of the political/legal,
economic, sociocultural, and technological trends that
indirectly affect all organizations.
 Specific Environment: factors that is unique to its industry and that directly affects how it conducts day-
to-day business. Includes customers, competitors, suppliers, industry regulation and advocacy groups.

GENERAL ENVIRONEMENT
(A) Economy: the current state of a country’s economy affects all organizations doing business there.
o Growing economy: more people are working and higher wages are increasing, consumers have
more money to spend.
o Shrinking economy: wages are decreasing, making the growth of business tougher. People have
less money to spare, therefore, business generating revenue becomes tougher.
o Business confidence indices: shows how confident actual managers are about future business
growth.
 (B) Technological Component:
o Technology: is the knowledge, tools and techniques used to transform inputs in outputs.
o Impact of Technology: can benefit a business or make a business obsolete. Companies must
embrace new technology and find effective ways to improve products and services or decrease
costs. If not, they will lose out to those companies that do.

(C) Sociocultural Component: refers to the demographic characteristics, general behavior, attitudes and
beliefs of people in a particular society.
1. Demographic Characteristics: changes in number of people with particular skills, the growth or
declines in particular population segments, and evolving natural norms.
2. Changes in behavior, attitudes, and beliefs: affect the demand for a business’s products and
services.

(D) Political/Legal Component: includes laws, regulations and court decisions that govern and regulate
business behavior. They impose additional responsibilities to companies.
o Companies pursuing international opportunities should carefully consider the political and legal
practices in foreign markets.
o The best mitigator against legal risk is prevention.

SPECIFIC OR TASK ENVIRONMENT

 The impact from the specific environment is immediate.

(A) Customer Component: monitoring customers’ changing wants and needs is critical to the business.
o Reactive customer monitoring: identifying and addressing customer trends and problems right
after they occur. Listening closely to customer complaints by contacting their customers asking
them questions, customer fall into three categories
 Promoters: who would recommend the business to others
 Passives: who are neither negative nor positive
 Detractors: unhappy customers who would not recommend the business.
o Proactive customer monitoring: identifying customer needs, trends, and issues before they
occur.
 e.g. Michaels planned to advertise on The Weather Channel on rainy days, on the
assumption that customers would be more likely to do arts on rainy days.

(B) Competitor Component:

o Competitors: are companies in the same industry that sell similar products or services to
customers.
o Competitive Analysis: involves deciding who your competitors are, anticipating their moves, and
determining their strengths and weaknesses. This is needed to make your business stand out
and ultimately survive.
o Mistakes of Managers:
 Focusing on only two or three well-known competitors with similar goals and resources.
 e.g. The vacuum cleaner industry: Hoover, Dirt Devil, and Oreck only paid
attention to one another until Dyson entered the market with a radical
innovation that garnered 20 percent of the market in its first year.
 Underestimating potential competitors’ capabilities:
 e.g. Walmart and other and other market place companies in Canada devised
their defense operations against the arrival of Target in the Canadian
Marketplace. Their preparedness not only put Target out of business but it
ensured their survival.
 (C) Supplier Component
o Suppliers: are companies that provide material, human, financial, and informational resources
to other companies.
o The key factor influencing the impact and quality of the relationship between companies and
suppliers is their interdependence.
o Supplier dependence: refers to the degree to which a company relies on a given supplier
because of the importance of its product to the company and difficulty of finding other sources
for that product.
 e.g. even is Apple and Samsung have been competitors for a long time, Apple still relies
on Samsung for their computer chips, flash drives, and high-resolution touch screens.
o Buyer dependence: the degree to which a supplier relies on a buyer because of the importance
of that buyer to the supplier’s sales and difficulty finding other buyers for its product.
 e.g. If Apple relies on Samsung to supply products (supplier dependence), Samsung
relies on Apple as well to buy their products (Buyer dependence).
o Opportunistic Behavior: a transaction in which one party in the relationship benefits at the
expense of the other. This results from a high degree of buyer or seller dependence.
o Relationship Behavior: focuses on establishing mutually beneficial, long term relations between
buyers and suppliers.

(D) Industry Regulation Component: consists of regulations and rules that govern practices of specific
industries, businesses and professions.
o Regulatory agencies affect businesses by creating and enforcing rules and regulations to protect
consumers, workers, and society.

(E) Advocacy Group Component:

o Advocacy Groups: are groups of concerned citizens who band together to influence the business
practice of specific industries. They cannot force organizations to change their practice but can
use a number of techniques to influence the companies.
o Public communications: relies on voluntary participation by the news media and advertising
industry to send out a message.
o Media advocacy: framing the group’s concerns as public issues.
o Product boycott: persuading consumers not to purchase a company’s products or services.

MAKING SENSE OF CHANGING ENVIRONMENTS:

 Managers must complete all three steps to make sense of changing external environments.

(1) Environmental Scanning: involves searching the environment for important events or issues that might
affect an organization.
o They want to know if demand will increase or prices for key components will rise.
 Google bought out Sky Box Imaging to capture real time video of vehicles travelling
down a highway, etc. All to monitor what comes out of factories, to compete with the
companies.
o Managers pay close attention to trends and events that are directly related to their company’s
ability to compete in the marketplace.
 Nestle’s water bottle profits will increase in China because their water is 70% polluted.
o Helps managers detect environmental changes and problems before they become a crisis.

(2) Interpreting Environmental Factors: includes understanding what these environmental events and
issues mean to the organization.
 (3) Acting on Threats and Opportunities: managers must decide how to respond to these environmental
factors. This is required to minimize the impact of threats and turn opportunities into increase profits.

ORGANIZATIONAL CULTURES: CREATION, SUCCESS, AND CHANGE

 Internal environment: consists of trends and events within an organization that affects management,
employees and organizational culture.
o They affect what people think, feel and do at work.
 Organizational Culture: a key component of internal environments which is the key values, beliefs, and
attitudes shared by members of the organization.

(A) Creating and Maintaining Organizational Cultures:

o A key source of organizational culture is the company founder.
o Organizational stories: stories told by members to make sense of events and changes in an
organization to emphasize culturally consistent assumptions, decisions, and actions.
 e.g. managers talk about Sam Walton’s (Walmart CEO) thriftiness, to makes sense of
company policies on saving and thriftiness.
o Organizational heroes: people celebrated for their qualities and achievements within an
organization.

(B) Successful Organizational Cultures:

o Adaptability: is the ability to notice and respond to changes in the organization’s environment.
o Employee Involvement: employees feel a greater sense of ownership and responsibility.
o Company vision: successful cultures includes a company with a clear vision, purpose and
direction.
 e.g. Four Seasons Hotel: treating all others as we would wish to be treated.”
o Consistent organizational cultures: actively defines and teach organizational values, beliefs and
attitudes.

(C) Changing Organizational Cultures: managers should control what they can control.

THREE LEVELS OF ORGANIZATIONAL CULTURE:

 Seen (surface level)
o Symbolic artifacts such as dress codes
o Workers’ and managers’ behavior
 Heard (Expressed values and beliefs)
o What people say.
o How decisions are made and explained
 Believed (unconscious assumptions and beliefs)
o Widely shared assumptions and beliefs
o Buried deep below surface.
o Rarely discussed or thought about.