Chapter Three

The Environment and Culture of Organizations

 If you manage the business
well throughout the good
The times, then the bad times are External Environment the
Organizat not quite as pronounced or
profound. But it’s actually
set of forces and conditions
that operate beyond an
ion’s more difficult to manage organization’s boundaries,
but affect a manager’s ability
during the good
Environme times………. William to acquire and utilize
resources.
nt Weldon (former CEO of
Johnson and Johnson) Everything outside an
organization’s boundaries
that might affect it.
 The Organization’s
Environment

General Task
Environment Environmen
t

General environment: everything outside an organization’s boundaries—economic,

legal, political, socio-cultural, international, and technical forces.
Task environment: specific external groups and organizations that affect the firm.
External
Environm
ent
The
Organizat
ion and
Its
Environme
nts

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The External
Environment
•The General Environment
• The set of broad dimensions and
forces in an organization’s
surroundings that create its
overall context.
• Economic dimension
• Technological dimension
• Sociocultural dimension
• Political-legal dimension
• International dimension

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 • Economic dimensions: the overall health and vitality of
The the economic system in which the organization operates.
General • Technical dimensions: the methods available for
converting resources into products or services.
Environmen • Socio-cultural dimensions: the customs, values, and
t demographics of the society in which the organization
functions.
• International dimension: degree to which an
organization is involved or affected by business in other
countries.
• Political dimension: the government law of business ,
business government relationship and the overall
political and legal situation of a country.
McDonald
’s
General
Environm
ent
 Economic Dimension

INTEREST INFLATION UNEMPLOYMENT ECONOMIC

RATES GROWTH

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Technological Dimension
• Effects of changes in technology that
affect:
• Product/service design
• Bound encyclopedias v. Online (wikipedia)
• Product/service distribution
• Internet sales
• Product/service production
• Industrial robotics

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Technological Component

Technology
Input Knowledge Output
Tools
Techniques
Raw
Products
Materials

Information Services

2.2
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Sociocultural Dimension
• Sociocultural Dimension - values,
mores, and norms of behavior of the
society in which the organization
functions.
• Customer tastes and preferences.
• Cultural awareness.
• Organizations are affected by
changing societal attitudes and
characteristics.
• Women
• Ethnic minorities
• Age
• Social class
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Political-Legal Dimension
• Effects of changing laws and
regulations.
• Deregulation
• Tax laws
• Subsidies
• A good business government relationship
is essential to the economy and most
importantly for business.
• The legal system partially defines what
an organization can do or can’t do.
• Finally political stability has
ramifications for planning.
• No business wants to set up shop in
another country unless trade
relationship with that country and are
relatively well defined and stable. 13
International dimension
• Effects of increased global markets
(opportunities) and competition
(threats).
• Improved, and reliable, global
communications.
• Global labor markets.

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The External Environment
• Task environment: specific external groups and
organizations that affect the firm. Change here
usually have a direct and immediate effect.
• Government (regulators those who enforce the law)
• Customers
• Strategic Partners
• Suppliers
• Competitors

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Task Environment

McDonald’s Task Environment

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The Organization’s Environment
Board of directors:
governing body
Internal
elected by a
Environment: Owner: someone who
corporation’s
Conditions and has legal property
stockholders and
forces present and rights to a
charged with
at work within an business.
overseeing the
organization.
general management
of the firm.

Employees: those Physical work

employed by the environment: the
organization. firm’s facilities

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The Internal Environment
• Conditions and stakeholder forces within an
organization
• Owners.
• Board of directors
• Employees
• Physical work environment

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 How
• Change and Complexity
Environme • Environmental change occurs in two ways:
nts • Degree to which change in environment is
occurring
Affect • Degree of homogeneity or complexity of
the environment
Organizat • The environment is either simple or
complex
ions • Uncertainty
• A driving force that influences
organizational
decisions.
• Affects predictability and ability to
forecast events.
• Stable or dynamic

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Environmental Change, Complexity, and
Uncertainty

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 Competitive Forces
Porter’s 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 •Extent to which alternative products/services may

products 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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 22

How
Organizations
Adapt to
Their
Environments
How Organizations Adapt to Their
Environments

• Maintaining the status quo,

Strategic Response altering the current strategy, or
adopting a new strategy.

Top management’s
Strategic Response
reduces uncertainty • Middle managers collect
by scanning the information primarily dealing with
general and task the firm’s task environment.
environments to • First level managers focus on the
identify daily efficient use of resources.
opportunities and
threats.
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How Organizations Adapt to Their
Environments
• Mergers, Acquisitions, Alliances
• Firms combine (merge), purchase (acquisition), or form new venture
partnerships or alliances with another firm.

• Uncertainty is offset by mergers, acquisitions, and alliances.

• Divides the risk [but also the profits].
• Acquisition differs from merger in that in acquisitions one organization
loses its identity and becomes part of another.
• In a merger both organizations lose their identity an become a new
organization

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A Model of
Organizati
onal
Effectiven
ess

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 The Environment and Organizational
Effectiveness
How well the organization understands, reacts to, and influences its
environment.

The systems resources approach: extent to which the organization can

acquire needed resources.

The internal processes approach: internal mechanisms of the organization

and forces on minimizing strain.
The goal approach: how well the firm obtains goals.
Strategic constituencies: groups who have a stake in the organization.

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