Week 4 External Environtment and Organization Culture

Management
Fourteenth Edition
Chapter 3
Managing the External
Environment and the
Organization’s Culture
Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Learning Objectives
3.1 Contrast the actions of managers according to the
omnipotent and symbolic views.
3.2 Describe the constraints and challenges facing
managers in today’s external environment.
Develop your skill at scanning the environment so you
can anticipate and interpret changes taking place.
3.3 Discuss the characteristics and importance of
organizational culture.
Know how to read and assess an organization’s culture.
3.4 Describe current issues in organizational culture.
The Manager: Omnipotent or Symbolic?
• How much difference does a manager make in how an
organization performs?
• Omnipotent view: managers are directly responsible for
an organization’s success or failure
– Good managers anticipate change, exploit
opportunities, correct poor performance, and lead their
organizations.
– When profits are up, managers take the credit and are
rewarded with bonuses, stock options, and the like
– Consistent with the stereotypical picture of the take-
charge business executive who overcomes any
obstacle in seeing that the organization achieves its
goals.
The Manager: Omnipotent or Symbolic?
• Symbolic view: much of an organization’s success or
failure is due to external forces outside managers’ control
– It’s unreasonable to expect managers to significantly a-
ffect an organization’s performance.
– Performance is influenced by factors over which
managers have little control, such as the economy,
customers, governmental policies, competitors’ actions,
industry conditions, and decisions made by previous
managers.
• Called symbolic because it is based on the belief that
manager symbolize control and environment
Managerial Constraints
• In reality, managers are neither all-powerful nor
helpless. But their decisions and actions are
constrained.
• External constraints come from the organization’s
environment and internal constraints come from
the organization’s culture
External Environment Internal Environment
External Environment (Daft)
• The elements of the world constantly change

• The external organizational environment includes all
outside elements that affect the organization
• General environment:
– Affects organizations indirectly
• Task environment:
– Sectors that conduct transactions with the organization
• Organizational ecosystem:
– Formed by the interaction among a community of
organizations in the environment
• Internal environment:
– Elements within the organization boundaries
External Environment (Daft)
Specific Environment
§ External forces that directly impact managers’
decision and actions and are directly relevant to the
achievement of the organization’s goals
• An organization’s specific environment is unique to
it, consist of:
– Customer: should be responsive (Encyclopædia
Britannica)
– Supplier: A supply chain is a network of multiple
businesses and individuals that are connected through
the flow of products or services. Exp: Toyota
– Competitors: Apple vs Samsung
– Labor Market:
Components of External Environment
Those factors and forces outside the organization
that affect its performance
Exhibit 3-2 shows the different components that make up the external environment.
The Economic Environment
• Managers need to be aware of the economic
context so they can make the best decisions for
their organizations.
– Commodity price, exchange rate, interest rate, inflation,
etc
– Because organizations today are operating in a global
environment, the economic dimension has become
exceedingly complex and creates enormous uncertainty
for managers.
The Global Economy and the Economic
Context
• The lingering global economic challenges began
with the turmoil in the U.S. housing market.
• As credit markets collapsed, businesses were
impacted.
• Credit was no longer readily available to fund
businesses.
• Economic difficulties spread across the globe.
• The fragile economic recovery continues to be a
business constraint.
Economic Inequality and the Economic
Context
• Polls show that in many countries, people believe
that the gap between the rich and poor is
problematic.
• Business leaders need to recognize how societal
attitudes in the economic context also may create
constraints as they make decisions and manage
their businesses.
The Demographic Environment
• What it means is that the size and characteristics of a
country’s population can have a significant effect on what
it’s able to achieve and on virtually every aspect of life
including politics, economics, and culture.
• This should make it obvious why it’s important to examine
demographics.
• Age is a particularly important demographic since the
workplace often has different age groups all working
together
– Baby Boomers: born between 1946 and 1964
– Gen Y (Millennials): 1978 and 1994
• Post-Millennials: basically teens and middle-schoolers.This
group has also been called the iGeneration, Gen Z(?)
Gen Y
Gen Y is an important demographic at Facebook, where most employees
are under 40.
Legal-Political
• Government regulation; state, local, and federal
– Political activities
– Government agencies and regulation
– Impose OSHA, EPA, Antitrust law
• Managers work with lawmakers, educating them
about
– products and services
– legislation’s impact on their business
strategies
Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved 15
Sociocultural
Demographic characteristics, norms,

customs, and values
§ Connected Generation or Generation Z has woven
technology into every aspect of life
§ Young people are also leading the trend toward
widespread social equality
§ Growing diversity has implications for business
§ Changing expectations
Technological
• Scientific and technological advancements in a
specific industry, as well as in society at large
• Massive advancements in a specific industry and
society
• Advances drive competition and help innovative
companies gain market share
• Information technology
Natural
• Organizations must be sensitive to the environment
– the Earth’s diminishing natural resources and the
environmental impact of their products and business
practices.
• Growing importance and pressure
• Natural dimension does not have own voice
• Environmental groups advocate action/policy
– Reduce pollution
– Develop renewable energy
– Global warming
– Sustainable use of scarce resources
• Sustainability: Profit, People and Planet
Global
• Managers must consider the international
dimension
– Events originating in foreign countries
– New opportunities for U.S. companies in other
countries
– New competitors, suppliers, customers
– New technological, social, and economic
trends
– Changing wealth and development in countries
Organization-Environment Relationship
• The environment creates uncertainty for
managers
• Managers must respond and design adaptive

organizations
• Uncertainty – managers do not have sufficient

information about environmental factors to
understand and predict environmental needs
and changes
3.4 External Environment
and Uncertainty
Adapting to the Environment
• Boundary-spanning roles – link and coordinate the
organization with external environment, seek:
§ Business intelligence
§ Big Data analytics
• Boundary spanning is an increasingly important task in

organizations because environmental shifts can happen
quickly in today’s world.
• Managers need good information about their customers,
competitors, and other elements to make good decisions.
• Boundary spanning also includes activities that represent
the organization’s interest in the environment and attempt
to influence elements of the external environment
Adapting to the Environment
• Interorganizational partnerships – reduce
boundaries and begin collaborating with other
organizations
• Mergers – occurs when two or more

organizations combine to become one
• Joint ventures – strategic alliance or program

by two or more organizations
3.5 The Shift to a
Partnership Paradigm
How the External Environment Affects
Managers
• Knowing what the various components of the external
environment are and examining certain aspects of that
environment are important to managers.
• However, understanding how the environment affects
managers is equally as important
• Jobs and Employment: the impact of external factors on
jobs and employment is one of the most powerful
constraints managers face
• The power of this constraint was painfully obvious during
the last global recession as millions of jobs were eliminated
and unemployment rates rose to levels not seen in many
years.
How the External Environment Affects
Managers
• Businesses have been slow to reinstate jobs, creating
continued hardships for those individuals looking for work.
• Not only do changes in external conditions affect the types
of jobs that are available, they affect how those jobs are
created and managed.
• For instance, work tasks may be done by freelancers hired
to work on an as-needed basis, or by temporary workers
who work full-time but are not permanent employees, or by
individuals who share jobs.
Assessing Environmental Uncertainty
• Environmental uncertainty: the degree of change and
complexity in an organization’s environment
– Change: stable to dynamic
§ A stable environment might be one with no new
competitors, few technological breakthroughs by current
competitors, little activity by pressure groups to influence
the organization, and so forth.
§ When we talk about degree of change, we mean change
that’s unpredictable. If change can be accurately
anticipated, it’s not an uncertainty for managers.
– Complexity: simple to complex
§ An organization with fewer competitors, customers, suppliers,
government agencies, and so forth faces a less complex and
uncertain environment. Complexity is also measured in terms
of the knowledge an organization needs about its environment
Exhibit 3-3
Environmental Uncertainty Matrix
Exhibit 3-3 shows the two aspects of environmental uncertainty, change and complexity.
Managing Stakeholder Relationships
• Stakeholders: any constituencies in the
organization’s environment that are affected by an
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.
• Management researchers who have looked at this
issue are finding that managers of high-performing
companies tend to consider the interests of all
major stakeholder groups as they make decisions.
Exhibit 3-4
Organizational Stakeholders
Exhibit 3-4 identifies some of an organization’s most common stakeholders

Benefits of Good Stakeholder Relationships
1. Improved predictability of environmental
changes
2. Increased successful innovations
3. Increased trust among stakeholders
4. Greater organizational flexibility to reduce the
impact of change
• Another reason for managing external stakeholder
relationships is that it’s the “right” thing to do.
• Because an organization depends on these external
groups as sources of inputs (resources) and as outlets for
outputs (goods and services), managers need to consider
their interests as they make decisions.
Organizational Culture
• Just as each individual has a unique personality,
an organization, too, has a personality.
• An organization’s culture can make employees
feel included, empowered, and supported or it can
make them feel the opposite.
• Because culture can be a very powerful agent in
organizations, it is very important for managers to
pay attention to it.
What is Organizational Culture?
• Organizational culture: the shared values, principles,
traditions, and ways of doing things that influence the way
organizational members act and that distinguish the
organization from other organizations
• Aka: how “things are done around here.”
– Culture is a perception. It’s not something that can be
physically touched or seen, but employees perceive it on the
basis of what they experience within the organization.
– Culture is descriptive. It’s concerned with how members
perceive the culture and describe it, not with whether they
like it.
– Finally, even though individuals may have different
backgrounds or work at different organizational levels, they
tend to describe the organization’s culture in similar terms.
That’s the shared aspect of culture.
Dimensions of Organizational Culture
Exhibit 3-5 identifies the seven dimensions of organizational culture.

Contrasting Organizational Culture
• At Tesla Motors, the focus is product innovation
(innovation and risk taking).
• In contrast, Southwest Airlines has made its
employees a central part of its culture.
Exhibit 3-6
Contrasting Organizational Culture
• Risk-taking and change discouraged
• Creativity discouraged
• Close managerial supervision
• Work designed around individual employees
• Risk-taking and change rewarded

• Creativity and innovation rewarded
• Management trusts employees
• Work designed around teams
Strong Cultures
• Strong cultures: organizational cultures in which
the key values are intensely held and widely
shared
• The more employees accept the organization’s
key values and the greater their commitment to
those values, the stronger the culture
• The stronger a culture becomes, the more it aff-
ects the way managers plan, organize, lead, and
control.
• Organizations with strong cultures, employees are
more loyal than employees in organizations with
weak cultures.Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Strong Versus Weak Cultures
Strong Cultures Weak Cultures
Values widely shared Values limited to a few people – usually
top management
Culture conveys consistent messages Culture sends contradictory messages
about what’s important about what’s important
Most employees can tell stories about Employees have little knowledge of
company history or heroes company history or heroes
Employees strongly identify with culture Employees have little identification with
culture
Strong connection between shared Little connection between shared values
values and behaviors and behaviors
• Research also suggests that strong cultures are associated with

high organizational performance.
• However, the drawback is that a strong culture also might
prevent employees from trying new approaches, especially when
conditions change rapidly.
Where Culture Comes From and How it
Continues
• The original source of the culture usually reflects
the vision of the founders.
• Once the culture is in place, certain organizational
practices help maintain it.
• The actions of top managers also have a major
impact on the organization’s culture.
Exhibit 3-8
Establishing and Maintaining Culture
Exhibit 3-8 illustrates how an organization’s culture is established and maintained.

© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
41
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
42
Adaptability Culture
• The adaptability culture emerges in an environment that
requires fast response and high risk decision making.
• Managers encourage values that support the company’s
ability to rapidly detect, interpret, and translate signals from
the environment into new behaviors.
• Employees have the autonomy to make decisions and act
freely to meet new needs, and responsiveness to
customers is highly valued.
• Managers also actively create change by encouraging and
rewarding creativity, experimentation, and risk taking.
• Exp: Aaron Levie co-founded Box, a company that
provides online file storage for businesses
Achievement Culture
• The achievement culture is suited to organizations
concerned with serving specific customers in the external
environment, but without the intense need for flexibility and
rapid change.
• This results-oriented culture values competitiveness,
aggressiveness, personal initiative, cost cutting, and
willingness to work long and hard to achieve results.
• An emphasis on winning and achieving specific ambitious
goals is the glue that holds the organization together.
• Exp: Oracle and EMC
Involvement Culture
• The involvement culture emphasizes an internal focus on
the participation of employees to adapt rapidly to changing
needs from the environment.
• This culture places a high value on meeting the needs of
employees, and the organization may be characterized by
a caring, family like atmosphere.
• Managers emphasize values such as cooperation,
consideration of both employees and customers, and
avoiding status differences.
• Exp: Four Seasons Hotel and Resorts
Consistency Culture
• The final category of culture, the consistency culture, uses
an internal focus and a consistency orientation for a stable
environment.
• Following the rules and being thrifty (hemat) are valued,
and the culture supports and rewards a methodical,
rational, and orderly way of doing things.
• In today’s fast-changing world, few companies operate in a
stable environment, and most managers are shifting
toward cultures that are more flexible and in tune with
changes in the environment.
• Exp: Pacific Edge Software (now part of Serena Software)
How Employees Learn Culture
• Stories
• Rituals
• Material Artifacts and Symbols
• Language
How Culture Affects Managers
• Because an organization’s culture constrains what
they can and cannot do and how they manage, it’s
particularly relevant to managers.
• Such constraints are rarely explicit. They’re not
written down. It’s unlikely they’ll even be spoken
• “ready-aim-fire” culture: managers will study and
analyze proposed projects endlessly before
committing to them.
• However, in a “ready-fire-aim” culture, managers
take action and then analyze what has been done.
Exhibit 3-9
Types of Managerial Decisions Affected by Culture
Creating an Innovative Culture
• Challenge and involvement
• Freedom
• Trust and openness
• Idea time
• Playfulness/humor
• Conflict resolution
• Debates
• Risk taking
Exhibit 3-10
Creating a Customer Responsive Culture
Characteristics of Customer Suggestions for Managers
Responsive Culture
Type of employee Hire people with personalities and attitudes consistent with
customer service: friendly, attentive, enthusiastic, patient,
good listening skills
Type of job environment Design jobs so employees have as much control as possible
to satisfy customers, without rigid rules and procedures
Empowerment Give service-contact employees the discretion to make day-

to-day decisions on job-related activities
Role clarity Reduce uncertainty about what service-contact employees

can and cannot do by continual training on product
knowledge, listening, and other behavioral skills
Consistent desire to satisfy Clarify organization’s commitment to do whatever it takes,
and delight customers even if it’s outside an employee’s normal job requirements
Creating a Sustainability Culture
• For many companies, sustainability is developed
into the organization’s overall culture.
• Companies can create rituals to create and
maintain sustainability cultures
• Management begins each corporate meeting with
the topic of sustainability.
• Employees’ bonuses are tied to meeting
sustainability goals
Managing the High-Performance Culture
• Bottom-line strategies are successful in the short
term
• Successful companies balance culture and

business performance
• Culture is the “glue” that holds the organization

together
High-Performance Culture
• Based on solid organizational mission/purpose
• Shared adaptive values that guide decisions and
practices
• Encourages individual employee ownership
– Bottom-line results
– Organization’s culture
Combining Culture and Performance (Daft)
Cultural Leadership
Defines and uses signals and symbols to influence
corporate culture
• Articulate a vision for the organizational culture

that employees can believe in
• Heeds the day-to-day activities that reinforce the

cultural vision
• Leaders communicate through words and actions
Review Learning Objective 3.1
• Contrast the actions of managers according to
the omnipotent and symbolic views.
– Omnipotent view: Managers are directly responsible for
the organization’s success or failure.
– Symbolic view: Much of the organization’s success or
failure is due to external forces outside of the
manager’s control.
– The two constraints on managers' discretion are
organizational culture (internal) and the environment
(external).
• Describe the constraints and challenges
facing managers in today’s external
environment.
– The external environment includes those factors and forces
outside the organization that affect its performance).
– The main components of the external environment are
economic, demographic, political/legal, sociocultural,
technological, and global.
– These components can constrain and challenge managers
because they have an impact on jobs, environmental
uncertainty, and stakeholder relationships.
• Discuss the characteristics and importance of
organizational culture.
– The seven dimensions of culture are: attention to detail, outcome
orientation, people orientation, team orientation, aggressiveness,
stability, innovation, and risk taking.
– The stronger the culture, the greater the impact on the way
managers plan, organize, lead, and control.
– The original source of the organizational culture reflects the
founder’s vision.
– Culture is transmitted through stories, rituals, material symbols,
and language.
• Describe current issues in organizational
culture.
– The characteristics of an innovative culture are challenge and
involvement, freedom, trust and openness, idea time,
playfulness/humor, conflict resolution, debates, and risk taking.
– A customer responsive culture has five characteristics: outgoing
and friendly employees; jobs with few rigid rules, procedures, and
regulations; empowerment; clear roles and expectations; and
employees who are conscientious in their desire to please the
customer.
– Companies that achieve business goals and increase long-term
share-holder value by integrating economic, environmental, and
social opportunities into business strategies may develop
sustainability into the organization’s overall culture.
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Management

External Environment Internal Environment

• The elements of the world constantly change

Demographic characteristics, norms,

• Managers must respond and design adaptive

• Uncertainty – managers do not have sufficient

• Boundary spanning is an increasingly important task in

• Mergers – occurs when two or more

• Joint ventures – strategic alliance or program

Exhibit 3-4 identifies some of an organization’s most common stakeholders

Exhibit 3-5 identifies the seven dimensions of organizational culture.

• Risk-taking and change rewarded

• Research also suggests that strong cultures are associated with

Exhibit 3-8 illustrates how an organization’s culture is established and maintained.

Empowerment Give service-contact employees the discretion to make day-

Role clarity Reduce uncertainty about what service-contact employees

• Successful companies balance culture and

• Culture is the “glue” that holds the organization

• Articulate a vision for the organizational culture

• Heeds the day-to-day activities that reinforce the

• Leaders communicate through words and actions

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