Chapter 3 Organizational Environments and Cultures

1. MGMT Chuck Williams Chapter 3Organizational Environments and Cultures Designed & Prepared byB-books, Ltd.

2. External Environments After reading the next four sections, you should be able to: • discuss how changing environments affect organizations. • describe the four components of the general environment. • explain the five components of the specific environment • describe the process that companies use to make sense of their changing environments.

3. Changing Environments Characteristics ofChanging External Environments Environmental Change Environmental Complexity Resource ScarcityUncertainty 1

4. Beyond the Book Nissan Responds to Changing Auto Industry • The auto industry is rapidly changing as consumers become more concerned with the environment, traditional markets slow down, and new markets develop in countries like China and India. • Nissan CEO Carlos Ghosn responds with focus on tech research for environmentally sustainable models and low-priced models for developing markets. • Ghosn plans to develop a Nissan hybrid by 2010, release an all-electric car in Japan by 2011, and make a $3000 model to compete with Tata in India. Source: A. Taylor III, “Nissan’s Radical Chic,” Fortune, 29 October 2007, 127-134.

5. Environmental Change is the rate at which a company’s environments change • stable environments • dynamic environments Punctuated equilibrium theory Companies cycle through stable and dynamic environments. Environmental Change 1.1

6. Environmental Complexity: the number of external factors in the environment that affect organizations Environmental Complexity • Simple environments Complex environments 1.2

7. Resource Scarcity The degree to which an organization’s external environment has an abundance or scarcity of critical organizational resources Resource Scarcity 1.3

8. Natural Resources The scarcity of natural resources is a general concern. Companies like Weyerhauser work extra hard to correct the misperception that they are using up valuable resources. In fact, through careful planning and good management, Weyerhauser is able to both guarantee its lumber resources and be a good environmental steward.

9. Uncertainty 1.4

10. External Environment 2

11. Components of the General Environment • Economy • Technological trends • Sociocultural trends • Political / Legal trends 2

12. Economy • Growing vs. shrinking economies • Predicting future economic activity • Business confidence indices 2.1

13. TechnologyKnowledge Tools Techniques Input Output Raw Materials Products Information Services Technological Component 2.2

14. Impact of Technology Technology can be a great benefit or a daunting threat. MP3 players have created a tremendous new business opportunity for some, like Apple, Creative, and other manufacturers. But record labels have suffered from the rapid acceptance of digital music and persistent file swapping. 2.2

15. Sociocultural Component • Demographic changes • Changes in behavior, attitudes, and beliefs 2.3

16. Demographics Example 2.3

17. Web Link http://www.eeoc.gov/abouteeo/overview_laws.html http://www.dol.gov/esa/whd/fmla/ Political / Legal Component Managers must be educated about the laws, regulations, and potential lawsuits that could affect business • Legislation • Regulations • Court decisions 2.4

18. Customer Competitor Supplier Industry Regulation Advocacy Group Specific Environment 3

19. Monitoring customer wants and needs is critical for business success Customer Component Reactive customer monitoring • responding to problems, trends, and events Proactive customer monitoring • anticipating problems, trends, and events 3.1

20. Competitive Analysis Deciding who your competitors are Anticipating competitors’ moves Determining competitors’ strengths and weaknesses Competitor Component 3.2

21. Suppliers Buyer Dependence Supplier Dependence Opportunistic Behavior Relationship Behavior Supplier Component 3.3

22. Beyond the Book Supplier Dependence on Boeing • Companies like General Electric and Barnes Group, Inc. supply engine and other airplane parts to Boeing. • A Fall 2008 machinists strike at Boeing meant the company produced 23% fewer planes. • Fewer planes means need for fewer engine parts, and Boeing instructed suppliers to delay shipments. • Suppliers like Spirit AeroSystems, Inc. instituted shorter work weeks to avoid layoffs. Source: F. Haflich, “Boeing Strike’s Impact Spreading to Suppliers,” American Metal Market , 6 October 2008, 1-2.

23. Beyond the Book Impact of Economic Downturn on Supply Chain • Steelmakers like ArcelorMittal face decreased demand in steel for products like cars and buildings. • Price of iron ore on the spot market dropped from $180 to $70 per metric ton. • But steelmakers are locked into contracts with suppliers like BHP Billiton for $90 per metric ton, contracts made when the price was high. • Buyers pressure suppliers to renegotiate contracts or default on them. • Suppliers meet with U.S. Commerce Department to protect and enforce contracts. Source: R. G. Matthews, “Steelmakers Squeeze Suppliers,” The Wall Street Journal, 18 November 2008.

24. Industry Regulation Regulations and rules that govern the business practices and procedures of specific industries, businesses, and professions Industry Regulation Component 3.4

25. Consumer Product Safety Commission http://www.cpsc.gov Department of Labor http://www.dol.gov Environmental Protection Agency http://www.epa.gov Equal EmploymentOpportunity Commission http://www.eeoc.gov Federal Communications Commission http://www.fcc.gov Federal Reserve System http://www.federalreserve.gov Federal Trade Commission http://www.ftc.gov Food and Drug Administration http://www.fda.gov National Labor Relations Board http://www. nlrb.gov Occupational Safety andHealth Administration http://www.osha.gov Securities and ExchangeCommission http://www.sec.gov Federal Regulation Agencies 3.4

26. Cost of Compliance Researchers studied U.S. manufacturers and the costs they incur complying with the 25 major federal regulations. They found: • There are about 300,000 manufacturing companies in the U.S. • Each company spends roughly $2.2 million So, the aggregate cost of complying with federal regulations is roughly $660 billion And that’s just for manufacturing.

27. Advocacy Groups • Advocacy Groups • Groups of concerned citizens who band together to try to influence the business practices of specific industries, businesses, and professions • Techniques to try to influence companies • public communications • media advocacy • product boycotts 3.5

28. Advocacy Groups PETA is a well-known advocacy group that attempts to influence consumers and companies to pursue animal-friendly practices.

29. Making Sense of Changing Environments Environmental Scanning Evaluating External Environments Interpreting Environmental Factors Acting on Threats and Opportunities 4

30. Environmental Scanning Searching the environment for events or issues that might affect an organization • keeps companies current on industry factors • reduces uncertainty • alters organizational strategies • contributes to organizational performance 4.1

31. EnvironmentalScan Opportunities? Threats? Interpreting Environmental Factors 4.2

32. Acting on Threats and Opportunities • Cognitive Maps • simplified models of external environments • depicts how managers believe environmental factors relate to possible organizational actions 4.3

33. Cognitive Maps 4.3

34. Internal Environments After reading this section, you should be able to: • explain how organizational cultures are created and how they can help companies be successful.

35. Internal Environments Internal Environment The trends and events within an organization that affect the management, employees, and organizational culture • important because it affects what people think, feel, and do at work • organizational culture is the set of key values, beliefs, and attitudes shared by organizational members 5

36. Company Founder Organizational Stories Organizational Heroes Creation and Maintenance of Organizational Cultures 5.1

37. Successful Organizational Cultures Adaptability Consistency Involvement Clear Vision Sales Growth Employee Satisfaction Profits Return on Assets Quality 5.2 Source: D.R. Denison and A.K. Mishra, Organization Science 6 (1995): 204-223

38. Behaviors • Symbolic artifacts 1. SurfaceLevel SEEN • What people say • How decisions are made 2. Expressed Valuesand Beliefs HEARD • Beliefs andassumptions • Rarely discussed 3. Unconsciously Held Assumptionsand Beliefs BELIEVED Levels of Organizational Culture 5.3

39. Changing Organizational Cultures • Behavioral addition • is the process of having managers and employees perform a new behavior. • Behavioral substitution • is having managers and employees perform a new behavior in place of another behavior. • Change visible artifacts • such as the office design and layout, company dress codes, etc. 5.3