Chapter 3 – External Environment &

Organizational Culture

LO 3.1 – Omnipotent vs. Symbolic View

Omnipotent View: Managers are directly responsible for an organization's success or failure.
Differences in performance are assumed to result from managers' decisions and actions. Good
managers anticipate change, exploit opportunities, and correct poor performance. When
profits are up → managers get bonuses. When profits are down → managers get fired.
Consistent with the "take-charge executive" stereotype. Also explains why sports coaches get
fired when teams lose.

Symbolic View: A manager's ability to affect outcomes is constrained by external factors

they can't control. Performance is shaped by the economy, customers, govt policies,
competitors, industry conditions, and past managers' decisions. Management only affects
symbolic outcomes — creating meaning out of randomness and ambiguity. Management
plays the role of someone to praise when things go right, and someone to blame when things
go wrong. Actual impact on success/failure is minimal.

 Example: Levitz Furniture went bankrupt in 2008 not because of bad management,
but because the housing market collapsed — something management couldn't control.

Reality (Synthesis): Neither view alone is correct. Managers operate within constraints from
two sources:

 Internal constraint → Organizational culture

 External constraint → Environment

Despite these constraints, there's still a "managerial discretion" area where good managers
differentiate themselves from poor ones.

LO 3.2 – External Environment

Environment = institutions or forces outside the organization that potentially affect its
performance.

Environmental Uncertainty = the degree of change and complexity in an organization's

environment. Uncertainty is a threat to effectiveness, so managers prefer to operate in low-
uncertainty environments.
Two dimensions:

 Degree of Change → Stable (minimal change) vs. Dynamic (frequent, unpredictable

change). Note: predictable change (like seasonal sales) is NOT considered dynamic.
 Degree of Complexity → Simple vs. Complex — based on the number of
environmental components and the knowledge needed about them.

4 Cells (Exhibit 3-2):

 Cell 1 (Stable + Simple) = Lowest uncertainty → managers have MOST influence

 Cell 2 (Dynamic + Simple) = Few components but constantly changing
 Cell 3 (Stable + Complex) = Many components but predictable
 Cell 4 (Dynamic + Complex) = Highest uncertainty → managers have LEAST
influence

General Environment (affects org indirectly, relevance may not always be

clear)

6 components — EDPSTG:

 Economic – interest rates, inflation, disposable income, stock market, business cycle
 Demographic – age, gender, race, education level, geographic location, income,
family composition
 Political/Legal – federal/state/local laws, global laws, political conditions and
stability
 Sociocultural – values, attitudes, trends, traditions, lifestyles, beliefs, tastes,
behavioral patterns
 Technological – scientific or industrial innovations
 Global – issues associated with globalization and the world economy

Specific Environment (directly relevant to achieving the org's goals)

The part of the environment that directly impacts goal achievement. Consists of key
stakeholders/constituencies:

 Suppliers – provide labor, materials, equipment. Management tries to ensure a

steady, reliable flow at the lowest price. Disruptions = major threat to effectiveness.
 Customers – absorb the org's output. Can be unpredictable/fickle (e.g., consumers
shifting to store-brand products over big brands like Kraft or PepsiCo).
 Competitors – all orgs have competitors, even monopolies. Must monitor pricing,
services, new products. Ignoring competitors is costly (e.g., ABC/CBS/NBC losing
market share to cable and streaming).
 Government – federal, state, and local laws limit managerial discretion and increase
costs. Examples: ADA (1990), Lilly Ledbetter Fair Pay Act (2009), Dodd-Frank Act
(2010), local minimum wage laws.
  Pressure Groups – special-interest groups that try to influence org behavior through
protests, boycotts, or lobbying (e.g., Black Lives Matter vs. Starbucks, Coalition to
Stop Gun Violence vs. gun manufacturers).

Managing the Environment

Organizations are not self-contained — they depend on their environment for inputs and as a
recipient of outputs. Managers can reduce environmental constraints by:

 Identifying key external constituencies and building relationships with them

 Examples: Lockheed hiring former military officers to lobby the Pentagon; Apple
building relationships with multiple suppliers to avoid disruptions; Kraft Heinz using
advertising to build brand loyalty against cheaper store brands.

LO 3.3 – Organizational Culture

Definition: The shared values, principles, traditions, and ways of doing things that influence
how organizational members act and that distinguish the organization from others. In most
orgs, these evolve over time and determine "how things are done around here."

Three implications of culture:

1. It's a perception — not physically tangible; employees perceive it through experience

2. It's descriptive — about how members perceive and describe culture, not whether
they like it
3. It's shared — people at different levels tend to describe their org's culture similarly

6 Dimensions of Culture:

1. Adaptability – degree to which employees are encouraged to innovate, take risks, and
experiment
2. Attention to Detail – degree to which employees are expected to be precise and
analytical
3. Outcome Orientation – degree to which management focuses on results rather than
the process used to achieve them
4. People Orientation – degree to which management decisions consider the effect on
people inside and outside the org
5. Team Orientation – degree to which work is organized around teams rather than
individuals
6. Integrity – degree to which people exhibit honesty and high ethical principles

Each dimension ranges from low to high. Together they give a composite picture of the org's
culture.
Strong vs. Weak Culture

Strong culture = key values are intensely held AND widely shared → greater influence on
employee behavior, higher loyalty, higher performance tendency.

Strong Culture Weak Culture

Values widely shared Values limited to top management
Consistent messages about what's important Contradictory messages
Employees know company history/heroes Little knowledge of history/heroes
Employees strongly identify with culture Little identification with culture
Strong connection between values and Little connection between values and
behavior behavior

Downside of strong culture: can prevent employees from trying new approaches when
conditions change rapidly (e.g., Wells Fargo's corrupt sales culture).

Where Culture Comes From & How It's Maintained

Original source → Founders' philosophy/vision. Founders aren't constrained by past

customs, so they shape early culture freely. Small org size makes it easier to instill the vision
in all members (e.g., W.L. Gore's four principles, Apple's innovation culture from Steve
Jobs).

Maintained through three practices:

1. Selection – hiring people whose values fit the org; also a two-way street (candidates
can self-select out if values don't match)
2. Top Management Actions – senior executives set norms through words and behavior
(risk tolerance, dress, what gets rewarded/promoted)
3. Socialization – helping new employees adapt to "the way things are done." Methods
include: apprenticeships, mentoring, formal orientation, training programs, rotating
assignments, shadowing high performers.

How Employees Learn Culture (4 ways): (SRMasL)

1. Stories – narratives about founders, past mistakes, rule-breaking; anchor the present
in the past and signal what the org values (e.g., Nike's waffle iron story = innovation;
3M's Post-It Note story)
2. Rituals – repetitive sequences of activities that express and reinforce key values and
goals (e.g., Gentle Giant Moving Company's Harvard Stadium run for new recruits)
3. Material Artifacts & Symbols – office layout, size of offices, dress code, perks,
types of cars for executives; conveys who and what is important (e.g., Google's bocce
courts, REI's free equipment rentals)
 4. Language – unique jargon/acronyms that bond members and signal acceptance of the
culture (e.g., Walmart's "Action Alley," "The Cross," "Bowling Alley")

How Culture Affects Managers (POLC)

Culture shapes and constrains all 4 management functions — usually unwritten but deeply
felt:

 Planning – degree of risk in plans, individual vs. team planning, extent of

environmental scanning
 Organizing – employee autonomy, individual vs. team tasks, cross-department
interaction
 Leading – leadership style, concern for employee satisfaction, handling of
disagreements
 Controlling – external vs. self-control, performance evaluation criteria, consequences
of exceeding budget
Summary

LO 3.1 – Omnipotent vs. Symbolic View

 Omnipotent – managers fully responsible, credit/blame, fire when fail
 Symbolic – external forces responsible, managers only symbolic role, Levitz example
 Synthesis – neither extreme; two constraints: culture (internal) + environment (external);
managerial discretion exists

LO 3.2 – External Environment

 Institutions/forces outside org affecting performance
 Environmental Uncertainty = degree of change + complexity

o Change: Stable vs. Dynamic (unpredictable only)

o Complexity: Simple vs. Complex
o Cell 1 (lowest uncertainty) → Cell 4 (highest uncertainty)

General Environment – EDPSTG

 Economic, Demographic, Political/Legal, Sociocultural, Technological, Global

Specific Environment

 Suppliers – steady flow, lowest price

 Customers – fickle, uncertain
 Competitors – monitor always
 Government – limits discretion
 Pressure Groups – boycotts, lobbying

Managing Environment

 Build relationships with key constituencies

LO 3.3 – Organizational Culture

 Shared values, traditions, "how things are done here"
 Perception + Descriptive + Shared

6 Dimensions
Adaptability, Attention to Detail, Outcome Orientation, People Orientation, Team
Orientation, Integrity

Strong vs. Weak Culture

Strong Weak

Values widely
Values at top only
shared

Consistent Contradictory
messages messages

High identification Low identification

 Strong = higher performance, but can block adaptation

Where Culture Comes From

 Founders → Selection → Top Mgmt Actions → Socialization

How Employees Learn Culture

 Stories, Rituals, Material Symbols, Language

Culture Affects 4 Functions

 Planning, Organizing, Leading, Controlling