8 Chapter

The Management
Environment

2-1
Learning Objectives: Two Things

• Explain what the external environment is and why it’s

important.

• Discuss how the external environment affects managers.

• Define what organizational culture is and explain why it’s

important.

• Describe how organizational culture affects managers.

2-2
Opening Vignette – Going to Extremes
• What does it take to be the number one best e-retailer?

• [Link] believes that it is more than just providing a great selection of products,
super-fast shipping, and free returns.

• Zappos believes the secret of their success lies in their organizational culture.

• As part of its culture, Zappos advocates 10 corporate values. At the top of that list is “Deliver
WOW through service.” And do they ever deliver the WOW!

• Another factor that contributes to success is how an organization deals with their dynamic
environment.

• Change is everywhere.

• Companies must be able to adapt to assess and adapt to internal and external changes if they
want to survive in today’s turbulent business world.

2-3
2-4
What Is External Environment?
• One of the biggest mistakes managers make today is failing to adapt to
the changing world.

• No successful organization, or its managers, can operate without

understanding and dealing with the dynamic environment—external and
internal—that surrounds it.
•The term “external environment” refers to
factors, forces, situations, and events outside the
organization that affect its performance.

•Because of today’s global society, a volcanic

eruption in Iceland in 2010 prevented delivery of
auto parts that led to a shutdown at a BMW
plant in South Carolina and a Nissan Motor
facility in Japan.

2-5
Components of External Environment

2-6
Components of External Environment
• As shown in Exhibit 2-1, the external environment includes six components:

1. The economic component encompasses factors such as interest rates, inflation, changes in
disposable income, stock market fluctuations, and business cycle stages.

2. The demographic component includes trends in population characteristics such as age, race,
gender, education level, geographic location, income, and family composition.

3. The technological component focuses on scientific and industrial innovations.

4. The socio-cultural component is concerned with societal and cultural factors such as values,
attitudes, trends, traditions, lifestyles, beliefs, tastes, and patterns of behavior.

5. The political/legal component looks at federal, provincial, and local laws, as well as other
countries’ laws and global laws. It also includes a country’s political conditions and stability.

6. The global component encompasses issues associated with globalization and a world
economy.

2-7
What Role Do Demographics Play?
• The size and characteristics of a country’s population can
have a significant effect on what it’s able to achieve. (India
and China)

• Demographic characteristics of
concern to organizations include:

– age,
– income,
– sex,
– race,
– education level,
– ethnic makeup,
– employment status, and
– geographic location.

2-8
What Role Do Demographics Play?
• Additionally, the size and characteristics of a country’s population can
have a significant effect on what it can achieve.

– For example, experts say that by

2050, “emerging economies led by
India and China will collectively be
larger than the developed
economies.”

– Also, small European nations with

low birth rates, such as Austria,
Belgium, Denmark, Norway, and
Sweden, are expected to drop off
the list of the 30 biggest economies.

2-9
2-10
How Does External Environment Affect
Managers?
• One of the important organizational factors affected by changes in
the external environment is jobs and employment.

• For example, economic downturns result in higher unemployment

and place constraints on staffing and production quotas for
managers.

– Not only does the external

environment affect the number
of jobs available, but it also
impacts how jobs are managed
and created.

– Changing conditions can create

demands for more temporary
work and alternative work
arrangements

2-11
How Does External Environment Affect
Managers?
• There are three ways that the external environment affects managers:

1. Its impact on jobs and employment

2. The amount of environmental uncertainty, and
3. The nature of stakeholder relationships.

• Environments differ in their amount of environmental uncertainty,

which relates to

– (1) the degree of change in an organization’s environment and

– (2) the degree of complexity in that environment (see Exhibit 2-2).

• Degree of change is characterized as being dynamic or stable

2-12
How Does External Environment Affect
Managers?
• As external environmental conditions change, managers face the impact of these
changes on jobs and employment.

– Economists predict that about one quarter of the 8.4 million U.S. jobs eliminated
during the most recent economic downturn won’t be reinstated.

• Such readjustments create challenges for managers who must balance work
demands with having enough people with the right skills to do the organization’s
work.

• Changes in external conditions not only affect the types of jobs available but they
also affect how the jobs are created and managed.

– For example, many employers use flexible work arrangements and contract
freelancers or temporary workers.

2-13
Assessing Environmental Uncertainty

2-14
Assessing Environmental Uncertainty
• Another constraint posed by external environments is the amount of uncertainty that exists,
which can affect organizational outcomes. Environmental uncertainty refers to the degree of
change and complexity in an organization’s environment.

• Let’s look at the matrix shown here, where each of the four cells represents different
combinations of complexity and change.

– The first dimension of uncertainty is the degree of unpredictable change; that is, a stable
environment experiences minimal change and a dynamic environment experiences frequent
change.

• For example, a stable environment might have no new competitors, few technological breakthroughs by
current competitors, little pressure from groups trying to influence the organization, and so on.

– The other dimension of uncertainty describes the degree of environmental complexity , which
looks at the number of components in an organization’s environment and the knowledge that the
organization has about those components.

– That means we consider the six components of the external environment we discussed earlier:
economic, demographic, technical, socio-cultural, political/legal, and global.

– Therefore, an organization with few competitors, customers, suppliers, or government agencies to

deal with, or an organization that needs little information about its environment, has a less
complex and more certain, stable environment, as seen in Cell 1.

2-15
Assessing Environmental Uncertainty
• So how does the concept of environmental uncertainty influence
managers? As illustrated here, each of the four cells represents different
combinations of degree of complexity and degree of change.

– Cell 1 (a stable-simple environment) represents the lowest level of

environmental uncertainty and Cell 4 (a dynamic and complex environment)
represents the highest level of environmental uncertainty.

– Not surprisingly, managers have the greatest influence on organizational

outcomes in Cell 1 and the least influence in Cell 4.

– Because uncertainty is a threat to an organization’s effectiveness, managers

try to minimize it.

– Most industries today face more dynamic change, and consequently, their
environments are more uncertain.

2-16
Managing Stakeholder Relationships
The nature of stakeholder relationships
is another way in which the
environment influences managers.
Remember!
The more obvious and secure these
relationships, the more influence
managers will have over organizational
outcomes.
Stakeholders are any constituencies in
an organization’s environment that are
affected by that organization’s
decisions and actions.
These groups have a stake in, or
are significantly influenced by,
what the organization does.
In turn, these groups can influence
the organization.
2-17
Why Manage Stakeholder
Relationships?
• There are a number of benefits to managing external stakeholder
relationships.

– Good stakeholder management improves organizational performance.

– The organization is perceived as “doing the right thing,” which demonstrates corporate social
responsibility and creates a positive image of the organization. (animal testing)

– Because an organization depends on external groups for resources (such as vendors) and as outlets
for goods and services (such as customers), decisions that consider stakeholders’ interests can pay
off. (ethics &CSR)

– Gone are the days of “business as usual” for either organizations or managers. Managers will have
to make difficult decisions about how they do business and about their people.

– It’s important to understand how changes in the external environment will affect your future
organizational and management experiences.

2-18
Organizational Stakeholders

2-19
Now that we’ve looked at the external environment of an
organization, let’s focus on the internal aspects of the
organization, specifically its culture.

2-20
What Is Organizational Culture?
• Organizational culture has been
described as the shared values,
principles, traditions, and ways of
doing things that influence the
way organizational members act.

• In most organizations, these

shared values and practices have
evolved over time and largely
determine how things are done in
a given organization.

2-21
Defining Culture and Its Impact
• “Culture” implies three things: this is how things are done around here!
1. Culture is a perception that cannot be physically
touched or seen, but is perceived based on what
employees experience within the organization.

2. Organizational culture is concerned with how

members perceive or describe the culture, not with
whether they like it.

3. Employees tend to describe the organization’s

culture in similar terms, regardless of their
backgrounds or their work at different organizational
levels.

• Organizational culture is important because of the impact it has on

decisions, behaviors, and actions of organizational employees.

2-22
Strong Corporate Culture = Success

“Deliver WOW
through Service.”

2-23
How Can Culture Be Assessed?
Research suggests that an organization’s culture can be described using the
seven dimensions shown in Exhibit here:

2-24
How Can Culture Be Assessed?
• These dimensions range fromlow (meaning not typical of the culture) to high (meaning especially typical of the
culture).

• In many organizations, one cultural dimension is emphasized more than the others and essentially shapes both the
organization’s personality and the way organizational members work.

• For instance, Sony Corporation focuses on product innovation, identified in this graphic as “innovation and risk
taking.”

• In contrast, Southwest Airlines has made its employees a central part of its culture, illustrated in this graphic as
“people orientation,” which the company shows by how it treats its employees.

2-25
How Do Employees Learn the
Culture?
• Stories
• Rituals
• Material symbols
• Language

• IKEA
• Wal-Mart
• Nordstrom; etc.

2-26
Employees most commonly learn an organization’s culture
through its stories, rituals, material symbols, and language.

• Organizational stories recount significant events or people, such as a popular Nike story that tells how its
cofounder, the late Bill Bowerman, poured rubber into his wife’s waffle iron to create a better running
shoe.

• Corporate rituals are repetitive activities that express and reinforce the important values and goals of the
organization.

• For example, “Passing of the Pillars” at Boston Scientific is a ritual that acknowledges a challenging
assignment by awarding the employee who completes the assignment with a two-foot high
plaster-of-Paris pillar to show that this person has the support of all his or her colleagues.

• Material symbols , such as the layout of organizations facilities, how employees dress, employee perks,
and so on, give a sense of whether the work environment is formal or casual, fun or serious, and the kinds
of behavior that are rewarded, such as risk taking, conservative, participative, and so on.

• Many organizations use language to identify and unite members of a culture by developing unique terms
to describe equipment, key personnel, customers, processes, or products related to its business.

2-27
Where Does an Organization’s Culture Come
From?
• An organization’s culture generally reflects the vision or mission of its founders, who establish the early
culture by projecting an image of what the organization should be and what its values are.

• The small size of most new organizations helps the founders impose their vision on all organization
members. An organization’s culture, then, results from the interaction between:

1. The founders’ biases and assumptions, and

2. What the first employees subsequently learn from their own experiences.

2-28
How Does Organizational Culture
Affect Managers?
• Organizational culture affects managers in two primary ways:

• Through its effect on what employees do and how they behave, and

• Through its effect on what managers do as they plan, organize, lead, and control.

• Marjorie Kaplan, president of the Animal Planet and Science television networks, describes how the power of
organizational culture affects her as a manager.

– She says that one of her company’s stated goals is “to make it the place where, when you come to work, you feel
like you have the opportunity to bring your best self—and you’re alsochallenged to bring your best self.”

2-29
How Does Culture Affect What
Employees Do?
• An organization’s culture has an effect on what employees do, depending on how strong or weak it is.

• Strong cultures —those in which the key values are deeply held and widely shared—have a greater
influence on employees than weaker cultures do.

• The more employees accept and commit to the organization’s key values, the stronger the culture is,
based on high agreement on what’s important, what defines good employee behavior, what it takes
to get ahead, and so on.

• The stronger a culture becomes, the more it affects what employees do and the way managers plan,
organize, lead, and control.

• Strong cultures can create predictability, orderliness, and consistency without the need for written rules
and regulations because employees internalize these behaviors when they accept the organization’s
culture.

2-30
In today’s
lecture we will
discuss….

2-31
How Does Culture Affect What
Managers Do?

2-32
How Does Culture Affect What
Managers Do?
• An organization’s culture constrains what managers can and cannot do, and how they manage.

• Such constraints are rarely explicit and all managers must quickly learn how to respond in their
organization.

• For instance, the following values are unwritten, but each comes from a real organization:

• Look busy even if you’re not.

• If you take risks and fail around here, you’ll pay dearly for it.
• Before you make a decision, run it by your boss so that he or she is never surprised.
• We make our product only as good as the competition forces us to.
• What made us successful in the past will make us successful in the future.
• If you want to get to the top here, you have to be a team player.

2-33
How Does Culture Affect What
Managers Do?
• The link between values such as the ones discussed on the last slide and managerial behavior is clear.

• If an organization’s culture supports the belief that profits can be increased by cost cutting and that the company’s
best interests are served by achieving slow but steady increases in quarterly earnings, managers are unlikely to
pursue innovative, risky, long-term, or expansionary programs.

• In an organization whose cultureconveys a basic distrust of employees, managers are more likely to use an
authoritarian leadership style rather than ademocratic one because the culture establishes appropriate and
expected behavior for managers.

2-34
Managerial Decisions Affected by
Culture
An organization’s culture, especially a strong one, influences and constrains
the way managers plan, organize, lead, and control.

2-35
Practice

You want to design a product specially for people

aged 50-43. While researching about your target
market you find this group really different from your
mindset. Their views and lifestyle inspire you to relate
to nature more. How does Generation X today differ
from previous generations as they neared and
reached their fifties? What are their preferences and
needs?
[Link]
Practice

As a Manager of XYZ Company how can you

establish a high performing culture in your
organization?

[Link]
E

Anjum Nisar Qureshi