The External Environment and Organizational Culture Chapter 02 Copyright © 2011 by the McGraw-Hill...

The External The External EnvironmentEnvironment

and and Organizational Organizational

CultureCulture

Chapter 02Chapter 02

Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Learning ObjectivesLearning Objectives

LO 1 Describe how environmental forces influence organizations and how organizations can influence their environments

LO 2 Distinguish between the macro environment and the competitive environment

LO 3 Explain why managers and organizations should attend to economic and social developments.

LO 4 Identify elements of the competitive environment.

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Learning ObjectivesLearning Objectives

LO 5 Summarize how organizations respond to environmental uncertainty

LO 6 Define elements of an organization’s cultureLO 7 Discuss how an organization’s culture affects

its response to its external environment

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Employees Culture

Management

InternalEnvironment

Technological

Econom

icLegal/Political

Inte

rnat

ion

al

So

ciocu

ltura

l

General Environment

CustomersC

om

pe

titors

La

bo

r M

ark

et

Suppliers

Task Environment

Ex. 2.1 Location of the Organization’s General, Task, and Internal Environments

Organization Inputs and OutputsOrganization Inputs and Outputs

2-5Figure 2.1

Open SystemsOpen Systems

Macroenvironment The general environment; includes governments,

economic conditions, and other fundamental factors that generally affect all organizations.

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The EconomyThe Economy

The economic environment dramatically affects managers’ ability to function effectively and influences their strategic choices.

Interest and inflation rates affect the availability and cost of capital, growth opportunities, prices, costs, and consumer demand for products.

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Twelve Month Comparison of Twelve Month Comparison of Stock MarketsStock Markets

2-9Figure 2.3

The EconomyThe Economy

In publicly held companies, managers may feel required to meet Wall Street’s earnings expectations.

Managers may focus on short-term results at the expense of long-term success

Some managers may be tempted to engage in unethical or unlawful behavior that misleads investors

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TechnologyTechnology

Technological advances create new products, advanced production techniques, and better ways of managing and communicating.

As technology evolves, new industries, markets, and competitive niches develop.

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DemographicsDemographics

Demographics Measures of various characteristics of the people

who make up groups or other social units

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The Competitive EnvironmentThe Competitive Environment

2-13Figure 2.4

CompetitorsCompetitors

Competition is most intense when: There are many direct competitors Industry growth is slow Product/service is not easily differentiated

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New EntrantsNew Entrants

Barriers to entry conditions that prevent new companies from

entering an industry capital requirements, restrictive distribution

channels Profit potential Outlook Downstream

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Substitutes and ComplementsSubstitutes and Complements

Substitutes alternative products or

services video games

watching television movies

Complements products or services that

increase purchases of other products

car insurance automobile purchases

Tennis Work-leisure

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SuppliersSuppliers

suppliers Supply chain management

managing the network of facilities and people that obtain materials from outside the organization, transform them into products, and distribute them to customers

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CustomersCustomers

Final customers purchase products in

their finished form retail

Intermediate customers purchase raw material

or wholesale products before selling them to final customers

Wholesale

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Environmental AnalysisEnvironmental Analysis

Environmental uncertainty Lack of information needed to understand or

predict the future. SWOT

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Environmental UncertaintyEnvironmental Uncertainty

Environmental complexity The number of issues

to which a manager must attend as well as the interconnectedness of these issues

If-then

Environmental dynamism The degree of

discontinuous change that occurs within an industry

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Environmental AnalysisEnvironmental Analysis

Environmental scanning searching out

information that is unavailable to most people and sorting that information to interpret what is important and what is not.

Competitive intelligence Information that helps

managers determine how to compete better.

downstream

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Environmental AnalysisEnvironmental Analysis

Scenario development A narrative that

describes a particular set of future conditions

Best-case, worst-case

Forecasting Method for predicting

how variables will change the future

Probability

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Environmental AnalysisEnvironmental Analysis

Benchmarking The process of comparing an organization’s

practices and technologies with those of other companies.

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Influencing Your EnvironmentInfluencing Your Environment

Independent strategies Strategies that an

organization acting on its own uses to change some aspect of its current environment.

Cooperative strategies Strategies used by two

or more organizations working together to manage the external environment.

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Independent ActionIndependent Action

2-25Table 2.4

Cooperative ActionCooperative Action

2-26Table 2.5

Changing the Environment You are InChanging the Environment You are In

Strategic maneuvering An organization’s conscious efforts to change the

boundaries of its task environment. Domain selection

Entrance to a new market or industry with an existing expertise

Diversification Occurs when a firm invests in a different product,

business, or geographic area

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Changing the Environment You are InChanging the Environment You are In

Mergers One or more companies combine with another

Acquisitions One firm buys another

Divestiture A firm sells one or more businesses

Prospectors Continuously change the boundaries or their task environment by

seeking new products and markets, diversifying and merging, or acquiring new enterprises

Defenders Stay within a stable product domain as a strategic maneuver

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Culture and the Internal Environment of Culture and the Internal Environment of the Organizationthe Organization

Organizational culture The set of important assumptions about the

organization and its goals and practices that members of the company share

In strong cultures, the majority of people within the organization agree on organizational goals

In weak cultures, the majority of people within the organization disagree on organizational goals

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Ex. 2.5Ex. 2.5 Levels of Corporate Culture Levels of Corporate Culture

Visible

1. Artifacts, such as dress, office layout, symbols, slogans, ceremonies

2. Expressed values, such as “The Penney Idea,” “The HP Way”

3. Underlying assumptions and deep beliefs, such as “people are lazy and can’t be trusted”

Invisible

Culture that can be seen at the surface level

Deeper values and shared understandings held by organization members

Competing Values Model of CultureCompeting Values Model of Culture

2-31Figure 2.6

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Cultural Leadership InfluenceCultural Leadership Influence

1. Cultural leadership articulates a vision for the organizational culture in which employees can believe.

2. Cultural leadership heeds the day-to-day activities that reinforce the cultural vision.