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CHAPTER
3
The Environment
of Organizationsand Managers
Copyright by Houghton Mifflin Company.All rights reserved.
PowerPoint Presentationby Charlie Cook
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Learning Objectives
After studying this chapter, you should be able to: Discuss the nature of the organizational environment andidentify the environments of interest to most organizations.
Describe the components of the general and taskenvironments and discuss their impact on organizations.
Identify the components of the internal environment anddiscuss their impact on organizations.
Identify and describe how the environment affectsorganizations and how organizations adapt to theirenvironment.
Discuss the meaning of and approaches to organizationaleffectiveness.
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Chapter Outline
The Organizations
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 toTheir Environments
The Environment andOrganizationalEffectiveness Models of Organizational
Effectiveness Examples of Organizational
Effectiveness
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The Business Environment
External Environment General environmentis everything outside an organizationsboundarieseconomic, legal, political, socio-cultural,international, and technical forces.
Task environmentis composed of specific groups and
organizations that affect the firm.
Internal Environment Conditions and forces present and at work within an
organization
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The Organization and Its Environments
Owners
Employees
Physical environment
Board of directors
Culture
Competitors
International
dimension
Political-
legal
dimension
Technological
dimension
Sociocultural
dimension
Economic
dimension
Regulators Customers
Strategic
partnersSuppliers
Internal environment
Task environmentExternal environment
General environment
Figure3.1
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The External Environment
The General Environment The set of broad dimensions and forces in an organizationssurroundings that create its overall context.
Economic dimensionis the overall health and vitality of theeconomic system in which the organization operates.
Technological dimensionrefers to the methods available forconverting resources into products or services.
Sociocultural dimensionincludes the customs, mores,values, and demographic characteristics of the society inwhich the organization functions.
Political-legal dimensionis the extent of governmentregulation of business and the general relationship betweenbusiness and government.
International dimensionis the extent to which theorganization is affected by business in other countries.
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McDonalds General Environment
McDonalds
International Dimension Restaurants in 115
countries About two-thirds of
sales from outsidethe UnitedStates
Political-LegalDimension Government
food standards Local zoning
climate General posture
toward business
regulation
TechnologicalDimension Improved information
technology More efficient
operating systems
Sociocultural Dimension Demographic shifts in
number of single adultsand dual-income families
Growing concerns abouthealth and nutrition
EconomicDimension Strong economic
growth Low unemploy-
ment Low inflation
Internal environment
Task environmentExternal environment
General environment
Figure3.2
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The External Environment (contd)
Dimensions of the Task Environment Specific groups affecting the organization Competitors seeking the same resources as the organization.
Customers who acquire an organizations products or resources.
Suppliers that provide resources for the organization.
Regulators that control, legislate, or influence the organizations
policies or practices:
regulatory agencies.
interest groups.
Strategic partners (allies) who are in a joint venture or partnership
with the organization.
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McDonalds Task Environment
McDonalds
Competitors
Burger King
Wendys
Subway
Dairy Queen
Customers
Individualconsumers
Institutional
customers
Suppliers
Coca-Cola Wholesale food
processors
Packaging
manufacturers
Strategic Partners
Wal-Mart
Disney
Foreign partners
Regulators
Food and Drug
Administration
Securities andExchange
Commission
Environmental
Protection
Agency
Internal environment
Task environment
Figure3.3
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The Internal Environment
Conditions and stakeholder forces within anorganization Owners are persons with legal property rights to a business.
Board of directors are elected by the stockholders and arecharged with overseeing the general management of the firm
to ensure that it is run in a way that best serves thestockholders interest.
Employees are persons who work for the firm and have avested interest in its continued operation and existence.
Physical work environment is the actual physical
environment of the organization and the work that people do.
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How Environments Affect Organizations
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 organizationaldecisions.
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Environmental Change, Complexity,and Uncertainty
Simple
Complex
Stable Dynamic
Moderateuncertainty
Mostuncertainty
Moderateuncertainty
Leastuncertainty
Degree of Change
DegreeofHomogeneity
Source:Adapted from J.D. Thompson, Organizations in Action. Copyright
1967 by McGraw-Hill. Reprinted by permission of McGraw-Hill Companies. Figure3.4
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How Environments Affect Organizations(contd)
Competitive Forces Porters 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 Turbulence Unexpected changes and upheavals in the
environment of an organization.
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Porters Five Competitive Forces
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.
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How Organizations Respond to Their Environments
General Environment
Task Environment
Information
management
Social
responsibility
Strategic
response
Mergers, takeovers,
acquisitions,alliances
Direct
influence
Organization
design and
flexibility
TheOrganization
Figure3.5
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How Organizations Respond toTheir Environments (contd)
Information Management in Organizations A boundary spanneris an employee who accumulates
information through contacts outside the organization.
Environmental scanningis the process of monitoring the
environment. Information systemssummarize and deliver information in a
form pertinent to a managers needs.
Strategic Response Maintaining the status quo, altering 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.
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How Organizations Respond toTheir Environments (contd)
Organizational Design and Flexibility An organization may adapt to its environmental conditions by
incorporating flexibility in its structural design.
Mechanistic firmsoperate best in stable environments.
Organic firmsare 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 organizationsenvironment in a way that favors the organization.
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The Environment andOrganizational Effectiveness
Models of Organizational Effectiveness Systems resource approachfocuses on acquiring inputs.
Internal processes approachfocuses on the transformationprocesses (production efficiencies).
Goal approachfocuses on outputs (achieving organizationalgoals).
Strategic constituencies approachfocuses on feedback(satisfying stakeholders).
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A Model of Organizational Effectiveness
(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 constituencies
approach)
and combining them
in an efficient and
productive manner
(Internal processes approach)
OrganizationalSystem
Feedback
(Goal approach)
facilitates the attainment
of organizational goals
Inputs
Transformation
Outputs
1 2 3
5 4
Figure3.6
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Examples of Admired andHigh-performing Firms
Fortunes Most AdmiredCompanies (2000)
Business Weeks BestPerforming Companies (2000)
1. General Electric 1. Microsoft
2. Microsoft 2. Time Warner
3. Dell Computer 3. Cisco Systems
4. Cisco Systems 4. Oracle
5. Wal-Mart 5. EMC
6. Southwest Airlines 6. Citrix Systems
7. Berkshire Hathaway 7. Morgan Stanley Dean Witter
8. Intel 8. Gap
9. Home Depot 9. Warner-Lambert
10. Lucent Technologies 10. Lucent Technologies
Table3.1
Source:Americas Most Admired Companies, Fortune, February 21, 2000, pp. 108110; The Business Week 50, Business Week, March 27, 2000, pp. 123125.