Lesson 4: Organizational Environments and Cultures

Chapter 2

Discuss how changing environments affect organizations.

* $Environmental change$ is the rate at which conditions or events cause change in a business.


* $Environmental complexity$ is the number and intensity of external factors in an external environment.
* $Resource scarcity$ is the scarcity or abundance of resources available in the external environment.

As rates of environmental change increase, as the environment becomes more complex, and as resources become scarce, managers become less confident that they can understand, predict, and react effectively to the trends affecting their businesses. According to punctuated equilibrium theory, companies experience periods of stability followed by short periods of dynamic, fundamental change, followed by a return to periods of stability.

Describe the four components of the general environment.

Describe the four components of the general environment. The general environment consists of events and trends that affect all organizations. Because the economy influences basic business decisions, managers often use economic statistics and business confidence indices to predict future economic activity. Changes in technology, which transforms inputs into outputs, can be a benefit or a threat to a business. Sociocultural trends such as changing demographic characteristics affect how companies run their businesses, whether they are competing domestically or in international markets. Similarly, sociocultural changes in behaviour, attitudes, and beliefs affect the demand for a business's products and services. Court decisions and new federal and provincial laws have imposed much greater political/legal responsibility on companies. The best way to manage legal responsibilities is to educate managers and employees about laws and regulations as well as potential lawsuits in domestic or foreign markets that could affect a business.

Explain the five components of the specific environment.

Explain the five components of the specific environment. The specific environment is made up of the customer, competitor, supplier, industry regulation, and advocacy group components. Companies can monitor customers' needs by identifying customer problems after they occur or by anticipating problems before they occur. Because they tend to focus on well-known competitors, managers often underestimate their competition or do a poor job of identifying future competitors. Suppliers and buyers are very dependent on each other, and that dependence sometimes leads to opportunistic behaviour, in which one benefits at the expense of the other. Regulatory agencies affect businesses by creating rules and then enforcing them. Advocacy groups cannot regulate organizations' practices, but through public communications, media advocacy, and product boycotts, they try to convince companies to change their practices.

Describe the process that companies use to make sense of their changing environments.

Describe the process that companies use to make sense of their changing environments. Managers use a three-step process to make sense of external environments: scanning the environment, interpreting information, and acting on the information. Managers scan their environments based on their organizational strategies, their need for up-to-date information, and their need to reduce uncertainty. When managers identify environmental events as threats, they take steps to protect the company from harm. When managers identify environmental events as opportunities, they formulate alternatives for taking advantage of them to improve company performance. Using cognitive maps can help managers visually summarize the relationships between environmental factors and the actions they might take to deal with them.

Explain how organizational cultures are created and how they can help companies succeed.

Explain how organizational cultures are created and how they can help companies succeed. Organizational culture is the set of key values, beliefs, and attitudes shared by members of an organization. Organizational cultures are often created by company founders and then sustained by telling organizational stories and celebrating organizational heroes. Adaptable cultures that promote employee involvement, make clear the organization's strategic purpose and direction, and actively define and teach organizational values and beliefs can help companies achieve higher sales growth, return on assets, profits, quality, and employee satisfaction. Organizational cultures exist on three levels: the surface level, where cultural artifacts and behaviours can be observed; just below the surface, where values and beliefs are expressed; and deep below the surface, where unconsciously held assumptions and beliefs exist. Managers can begin to change company cultures by focusing on the top two levels.

External environments

All events outside a company that have the potential to influence or affect it.

Environmental change

The rate at which a company's general and specific environments change.

Stable environment

An environment in which the rate of change is slow.

Dynamic environment

An environment in which the rate of change is fast.

Punctuated equilibrium theory

A theory according to which companies go through long, simple periods of stability (equilibrium), followed by short periods of dynamic, fundamental change (revolution), and ending with a return to stability (new equilibrium).

Environmental complexity

The number of external factors in the environment that affect organizations.

Simple environment

An environment with few environmental factors.

Complex environment

An environment with many environmental factors.

Resource scarcity

The abundance or shortage of critical organizational resources in an organization's external environment.

Uncertainty

The extent to which managers can understand or predict which environmental changes and trends will affect their businesses.

General environment

The economic, technological, sociocultural, and political trends that indirectly affect all organizations.

Specific environment

The customers, competitors, suppliers, industry regulations, and advocacy groups that are unique to an industry and directly affect how a company does business.

Business confidence indices

Indices that show managers' level of confidence about future business growth.

Technology

The knowledge, tools, and techniques used to transform input into output.

Competitors

Companies in the same industry that sell similar products or services to customers.

Competitive analysis

A process for monitoring the competition that involves identifying competition, anticipating their moves, and determining their strengths and weaknesses.

Suppliers

Companies that provide material, human, financial, and informational resources to other companies.

Supplier dependence

The degree to which a company relies on a supplier because of the importance of the supplier's product to the company and the difficulty of finding other sources for that product.

Buyer dependence

The degree to which a supplier relies on a buyer because of the importance of that buyer to the supplier and the difficulty of finding other buyers for its products.

Opportunistic behavior

A transaction in which one party in the relationship benefits at the expense of the other

Relationship behaviour

mutually beneficial, long-term exchanges between buyers and suppliers

Industry regulation

regulations and rules that govern the business practices and procedures of specific industries, businesses, and professions

Advocacy groups

groups of concerned citizens who band together to try to influence the business practices of specific industries, businesses, and professions

Public communications

an advocacy group tactic that relies on voluntary participation by the news media and the advertising industry to get the advocacy group’s message out

Media advocacy

an advocacy group tactic that involves framing issues as public issues; exposing questionable, exploitative, or unethical practices; and forcing media coverage by buying media time or creating controversy that is likely to receive extensive news coverage

Product boycott

an advocacy group tactic that involves protesting a company’s actions by convincing consumers not to purchase its product or service

Environmental scanning

searching the environment for important events or issues that might affect an organization

Internal environment

the events and trends inside an organization that affect management, employees, and organizational culture

Organizational culture

the key values, beliefs, and attitudes shared by members of the organization

Organizational stories

stories told by members to make sense of events and changes in an organization and to emphasize culturally consistent assumptions, decisions, and actions

Organizational heroes

people celebrated for their qualities and achievements within an organization

Company vision

a business’s purpose or reason for existing