Chapter 2 – The Management
Environment
Learning Objectives
•
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.
Environment
•
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.
What Is External
Environment?
External
environment is the factors, forces, situations, and events outside the
organization that affect its performance.
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.
As shown here in Exhibit 2-1, the external environment includes six components:
•
The economic
component encompasses factors such as interest rates, inflation, changes in
disposable income, stock market fluctuations, and business cycle stages.
•
The demographic
component includes trends in population characteristics such as age, race,
gender, education level, geographic location, income, and family composition.
•
The technological
component focuses on scientific and industrial innovations.
•
The sociocultural
component is concerned with societal and cultural factors such as values,
attitudes, trends, traditions, lifestyles, beliefs, tastes, and patterns of
behavior.
•
The political/legal
component looks at federal, state, and local laws, as well as other
countries’ laws and global laws. It also includes a country’s political
conditions and stability.
•
The global
component encompasses issues associated with globalization and a world
economy.
How Has the Economy
Changed?
•
Began
with turmoil in mortgage markets
•
Spread
to businesses when broader credit markets collapsed
•
Called
the “Great Recession”
•
Characterized
by foreclosures, high rates of unemployment, huge public debt, and widespread
social problems
•
The
current U.S. economic crisis, which began with turmoil in mortgage markets and
spread to businesses when broader credit markets collapsed, has been called the
“Great Recession” by some analysts. Due to our global society, economic
troubles in the United States spread to other countries.
•
With
rising numbers of foreclosures and bankruptcies, a huge public debt, a U.S.
unemployment rate over nine percent, 25 million unemployed globally, and
widespread social problems from job losses, it’s clear that the U.S. and global
economic environments are changing.
•
What
led to the massive problems? Experts cite a long list of factors including
excessively low interest rates for an extended time, flaws in the U.S. housing
market, and massive global liquidity. These factors led businesses and
consumers to become highly leveraged until credit dried up and the worldwide
economic system nearly collapsed.
How Will Business
Change?
•
Role of
government in financial markets and in consumer protection
•
Government
spending comparable to World War II levels
•
Additional
regulations and increased enforcement and oversight of current regulations
What Role Do Demographics
Play?
Demographics refers to the characteristics of a
population used for purposes of social studies.
It has a
significant impact on how managers manage and include such factors as age,
income, sex, race, education level, ethnic makeup, employment status,
geographic location, and more.
How Does External
Environment Affect Managers?
There are three
ways that the external environment affects managers:
- Its impact on jobs and employment
- The amount of environmental
uncertainty, and
- The nature of stakeholder
relationships.
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.
Assessing
Environmental Uncertainty
Environmental
uncertainty refers to the
degree of change and complexity in an organization’s environment
Managing
Stakeholder Relationships
The nature of
stakeholder relationships is another way in which the environment influences
managers. 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.
Why Manage
Stakeholder Relationships?
•
Good
stakeholder relationships can:
•
Positively
affect organizational performance
•
Be
recognized as “doing the right thing” and show corporate social responsibility
•
Create
and reinforce a positive image of the organization among its stakeholders and
community
There are a number
of benefits to managing external stakeholder relationships.
•
According
to management researchers, 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.
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.
In the years ahead,
it’s not going to be “business as usual” for either organizations or managers.
Managers will 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.
Organizational
Stakeholders
•
Managers
benefit from good management of stakeholder relationships because stronger
relationships can improve the predictability of environmental changes, lead to
more successful innovations, foster a greater degree of trust among
stakeholders, and increase organizational flexibility to reduce the impact of
change.
What Is
Organizational Culture?
Organizational
culture is the shared values, principles, traditions, and ways of doing things
that influence the way organizational members act.
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.
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.
Defining Culture
and Its Impact
•
Culture
is a perception.
•
Organizational culture isn’t concerned with whether members
like it.
Employees describe
the culture in similar terms despite their diversity
Note that our definition
of “culture” implies three things:
- Culture is a perception that
cannot be physically touched or seen, but is perceived based on what
employees experience within the organization.
- Organizational culture is concerned with
how members perceive or describe the culture, not with whether they like
it.
- 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.
How Can Culture Be
Assessed?
Research suggests
that an organization’s culture can be described using the seven dimensions
shown here in Exhibit 2-4: Attention to Detail, Outcome Orientation, People
Orientation, Team Orientation, Aggressiveness, Stability, and Innovation and
Risk Taking.
These dimensions
range from low (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.
How Do Employees
Learn the Culture?
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.
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:
- The founders’ biases and assumptions, and
- What the first employees subsequently
learn from their own experiences.
How Do Employees
Learn the Culture?
•
Organizational
stories recount significant
events or people.
•
Corporate
rituals are
repetitive activities that express and reinforce the important values and goals
of the organization.
•
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.
•
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.
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.
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 also challenged to bring your best self.”
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.
•
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.
The link between
values such as these 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 culture conveys a basic distrust of employees, managers are
more likely to use an authoritarian leadership style rather than a democratic
one because the culture establishes appropriate and expected behavior for
managers.
As shown here in
Exhibit 2-5, a manager’s decisions are influenced by the culture in which he or
she operates. An organization’s culture, especially a strong one, influences
and constrains the way managers plan, organize, lead, and control.
For example, the
culture influences managerial planning about the degree of risk that
plans should contain, whether plans should be developed by individuals or
teams, or the amount of environmental scanning in which management will engage.
With organizing activities,
culture influences how much autonomy should be designed into employees’ jobs,
whether tasks should be done by individuals or in teams, and the degree to
which department managers interact with each other
When it comes to leading,
organization culture helps determine the degree to which managers try to
increase employee job satisfaction, appropriate leadership styles, and whether
all disagreements—even constructive ones—should be eliminated.
Finally, the
culture influences managers’ controlling activities: for example,
whether they impose external controls or to allow employees to control
their own actions, which criteria should be emphasized in employee performance
evaluations, and the repercussions for exceeding one’s budget.
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