The Environment and Corporate Culture Notes

Learning Outcomes Chapter Outline

• Define an organizational ecosystem and how the general and task environments affect an organization’s ability to thrive.
• Explain the strategies managers use to help organizations adapt to an uncertain or turbulent environment.
• Define corporate culture.
• Provide organizational examples of symbols, stories, heroes, slogans, and ceremonies and explain how they relate to corporate culture.
• Describe four types of corporate culture.
• Examine the relationship between culture, corporate values, and business performance.
• Define a cultural leader and explain the tools that a cultural leader uses to create a high-performance culture.

Are You Fit for Managerial Uncertainty?

• Mindfulness: Being open-minded and an independent thinker is important for managers in uncertain environments.
• New managers need to facilitate new thinking, ideas, and ways of working in uncertain environments.
• Georgetown University's bookstore example: They prioritize garments from Alta Gracia due to their ethical and socially responsible practices, paying above-average wages and promoting safe working conditions.
• Nationwide apparel consortium: Includes 180 schools pressuring the industry to adopt ethical practices.

The External Environment

• The external organizational environment includes elements existing outside the organization's boundary with the potential to affect it.
• Includes competitors, resources, technology, and economic conditions.
• Divided into task and general environments.

Task Environment

• Sectors that conduct day-to-day transactions and directly influence basic operations and performance.
• Includes competitors, suppliers, customers, and the labor market.

General Environment

• Affects organizations indirectly.
• Includes social, economic, legal-political, international, natural, and technological factors.

Organizational Ecosystem

• System formed by the interaction among a community of organizations in the environment.
• Includes organizations in all sectors of the task and general environments.
• Provides resource and information transactions, flows, and linkages necessary for an organization to thrive.

Internal Environment

• Includes elements within the organization’s boundaries.
• Composed of current employees, management, and corporate culture.
• Corporate culture defines employee behavior in the internal environment and how well the organization will adapt to the external environment.
• As an open system, the organization draws resources from the external environment and releases goods and services back to it.

Task Environment Details

Customers

• People and organizations that acquire goods or services from the organization.
• They determine the organization’s success.
• Example: Encyclopædia Britannica transitioned to a digital strategy due to declining sales of its bound volumes. They emphasized K-12 customers and now have many online subscribers.

Competitors

• Organizations in the same industry or type of business that provide goods or services to the same set of customers.
• Constantly battling for customer loyalty.
• Example: Samsung became the world leader in smartphone sales, challenging Apple. Apple maintains strong brand loyalty.

Suppliers

• Provide raw materials that the organization uses to produce its output.
• Supply chain: A network of multiple businesses and individuals connected through the flow of products or services.
• Toyota uses JIT (just-in-time) to organize over 500 global parts suppliers, improving return on investment, quality, and efficiency.
• JIT minimizes investment in idle inventory.
• Downside of JIT: Supply disruptions can halt production. The 2011 earthquake in Japan exposed the fragility of JIT supply chains.
• Toyota's production fell by 800,000 vehicles due to the earthquake.

Labor Market

• Represents people in the environment who can be hired to work for the organization.
• Labor market forces include:
  • Growing need for computer-literate knowledge workers.
  • Continuous investment in human resources.
  • Effects of international trading blocs, automation, outsourcing, and shifting facility locations on labor dislocations.

Costco Wholesale Corporation

• Operates an international chain of membership warehouses offering a limited selection of products at reduced prices.
• Focuses on maintaining its image as a pricing authority.
• Strategies for keeping prices low:
  • Operate efficiently.
  • Offer only around 4,000 unique products.
  • Negotiate low prices with suppliers.
• Has a loyal workforce with low turnover due to good treatment of workers.
• Increasing international presence.

General Environment Details

International

• Includes events originating in foreign countries and opportunities for U.S. companies in other countries.
• Provides new competitors, customers, and suppliers.
• Shapes social, technological, and economic trends.
• T. Friedman argues that the flat world creates opportunities for companies to expand into global markets and build a global supply chain.
• Example: Starbucks faced challenges in France due to sluggish economy, high rent and labor costs, and slow adaptation to the French café culture. It responded with store makeovers and customized beverages.

Technological

• Includes scientific and technological advancements in a specific industry and society at large.
• Drives competition and helps innovative companies gain market share.
• Example: Camera makers, including Fuji, are struggling to adapt to the wireless revolution and smartphone photography.

Sociocultural

• Represents demographic characteristics, norms, customs, and values of the general population.
• Important sociocultural characteristics include geographical distribution, population density, age, and education levels.
• Sociocultural trends:
  • New generation of technologically savvy consumers (Gen Z, Post-Millennials) who integrate technology into every aspect of their lives.
  • Shift toward widespread social equality.
  • Increasing diversity with more than half of all babies born in 2011 belonging to minority groups.

Economic

• Represents the general economic health of the country or region in which the organization operates.
• Includes consumer purchasing power, the unemployment rate, and interest rates.
• KeyCorp reports an uneven turnaround, with a mix of both good and bad news.

Legal-Political

• Includes government regulations at the local, state, and federal levels, as well as political activities designed to influence company behavior.
• The U.S. political system encourages capitalism, but government laws specify rules.
• Examples: OSHA, EPA, fair trade practices, consumer protection and privacy legislation.
• Patient Protection and Affordable Care Act (Obamacare) requires companies to provide health insurance for employees or pay penalties.
• Facebook has befriended top lawmakers, hired former political aides, and increased lobbying efforts.

Natural

• Includes all elements that occur naturally on Earth, including plants, animals, rocks, and resources such as air, water, and climate.
• Protection of the natural environment is a critical policy focus.
• Nations with the best environmental performance get most of their power from renewable sources.
• Environmental groups advocate for pollution reduction, renewable energy, and sustainable use of resources.
• Examples: promoting use of cloth carrying bags like these is just one example of how retailers can help minimize the amount of trash going into the world’s landfills.
• Greek mythology, Nike was the winged goddess of victory.
• Nike CSR staff spearheaded GreenXchange, which brought together companies to explore opportunities, share information, and keep abreast of trends and issues.

The Organization–Environment Relationship

• The environment creates uncertainty for organization managers, and they must respond by designing the organization to adapt to the environment.

Environmental Uncertainty

• Means that managers do not have sufficient information about environmental factors to understand and predict environmental needs and changes.
• Influenced by the number of factors that affect the organization and the extent to which those factors change.
• High uncertainty: When external factors change rapidly (e.g., telecommunications, aerospace, computer, and Internet firms).
• Low uncertainty: When an organization deals with only a few external factors and these factors are relatively stable (e.g., soft-drink bottlers or food processors).

Adapting to the Environment

• Managers continuously scan the business horizon for environmental changes (strategic issues) and identify those that require strategic responses.
• Strategies to adapt:
  • Business intelligence applications
  • Attempts to influence the environment
  • Creating interorganizational partnerships
  • Mergers or joint ventures

Business Intelligence

• Organizations depend on information.
• Boundary spanning links and coordinates the organization with key elements in the external environment.
• Business intelligence results from using sophisticated software to search through data to spot patterns, trends, and relationships.
• Big data analytics search and examine massive, complex sets of data to uncover hidden patterns and correlations.
• Example: Airlines use RightETA to eliminate gaps between estimated and actual flight arrival times.
• Business intelligence is also related to competitive intelligence (CI), which refers to activities to get information about one’s rivals.

Influence the Environment

• Boundary spanning is an increasingly important task in organizations because environmental shifts can happen quickly.
• General Electric (GE) spends more than $39 million on political lobbying.

Interorganizational Partnerships

• Organizations often join together to adapt to or influence the environment.
• Hyundai, Chrysler, and Mitsubishi jointly run the Global Engine Manufacturing Alliance to build four-cylinder engines.
• Managers shift from an adversarial orientation to a partnership orientation based on trust.
• Partnerships are characterized by information sharing, e-business links, person-to-person interaction, and involvement in product design and production.

Mergers and Joint Ventures

• A step beyond strategic partnerships.
• A merger occurs when two or more organizations combine to become one.
• Example: Avis Budget Group bought Zipcar.
• A joint venture involves a strategic alliance or program by two or more organizations.
• Sikorsky Aircraft and Lockheed Martin teamed up to bid on a new contract for a fleet of Marine One helicopters.

The Internal Environment: Corporate Culture

• Includes corporate culture, production technology, organization structure, and physical facilities.
• Corporate culture is important to competitive advantage.
• The internal culture must fit the needs of the external environment and company strategy.
• Culture guides how people within the organization interact with one another and how the organization interacts with the external environment.
• Culture: The set of key values, beliefs, understandings, and norms shared by members of an organization.
• Although strong corporate cultures are important, they can also promote negative values and behaviors.
• Values and behaviors of top leaders have the potential to shape decisions made by employees.
• Culture can be analyzed at two levels:
  • Visible artifacts (dress, office layout, symbols, slogans, ceremonies)
  • Values and beliefs (not observable, but discerned from how people explain and justify what they do).
    -The cultural values encourage and support everyone feeling that they are pulling together.

Symbols

• An object, act, or event that conveys meaning to others.
• At Menlo Innovations, the open workplace is a physical symbol.
• Used physical symbols to give people hope and motivation.
• Caring for employees.

Stories

• A narrative based on true events that is repeated frequently and shared among organizational employees.
• Example: A UPS employee who ordered an extra Boeing 737 to ensure timely delivery of Christmas packages was rewarded rather than punished.

Heroes

• A figure who exemplifies the deeds, character, and attributes of a strong culture.
• Example: Steve Jobs exemplified creativity, innovation, risk-taking, and boundary-breaking thinking at Apple.

Slogans

• A phrase or sentence that succinctly expresses a key corporate value.
• Example: Disney uses the slogan “The happiest place on earth.”

Ceremonies

• A planned activity at a special event that is conducted for the benefit of an audience.
• Example: Southwest Airlines rolled out a specialty plane called the “Lone Star One” to mark its 20th anniversary.
  -Around the offices of Tradesy, the high-fashion consignment e-commerce site that blossomed into a $10 million business in just about three years, employees like to tell the story of how Tracy DiNunzio started her business.
  -At Menlo, the goal for each person is not to get the right answer, make the right con- nection, be the smartest, or know the most, but rather to bring out the best in one’s partner.
  -The goal for each person is not to get the right answer, make the right con- nection, be the smartest, or know the most, but rather to bring out the best in one’s partner.

Types of Culture

• A big influence on internal corporate culture is the external environment.
• Four types of culture based on the extent to which the external environment requires flexibility or stability and the extent to which a company’s strategic focus is internal or external:
  • Adaptability
  • Achievement
  • Involvement
  • Consistency

Adaptability Culture

• Emerges in an environment that requires fast response and high-risk decision-making.
• Values support the company’s ability to rapidly detect, interpret, and translate signals from the environment into new behaviors.
• Example: Box, a company that provides online file storage for businesses, is based on the values of an adaptability culture.
  -The open workplaces are a physical symbol.

Achievement Culture

• Suited to organizations concerned with serving specific customers in the external environment, but without the intense need for flexibility and rapid change.
• Values competitiveness, aggressiveness, personal initiative, cost-cutting, and willingness to work hard to achieve results.
• Example:
  -Oracle and EMC.

Involvement Culture

• Emphasizes an internal focus on the participation of employees to adapt rapidly to changing needs from the environment.
• Places a high value on meeting the needs of employees and is characterized by a caring, family-like atmosphere.
• Example: Four Seasons Hotels and Resorts.

Consistency Culture

• Uses an internal focus and a consistency orientation for a stable environment.
• Values following the rules and being thrifty.
• Example: Pacific Edge Software implemented elements of a consistency culture to ensure that all its projects stayed on time and under budget.

Shaping Corporate Culture for Innovative Response

• Research indicates that the one factor that increases a company’s value the most is people and how they are treated.
• Organizational culture is the most important mechanism for attracting, motivating, and retaining talented employees.

Managing the High-Performance Culture

• Companies that succeed in a turbulent world are those in which managers are evaluated and rewarded for paying careful attention to both cultural values and business performance.
• High attention to values and low Business Performance: Managers do not meet performance goals but do uphold cultural values.
• Low attention to values and Business Performance: Managers do not meet performance goals or uphold cultural values.
• Low attention to values and high Business Performance: Managers meet performance goals but fail to uphold cultural values.
• High attention to values and Business Performance: Managers achieve performance goals and uphold desired cultural values is a high-performance Workplace.

Cultural Leadership

• A primary way in which managers shape cultural norms and values to build a high-performance culture.
• Cultural leader: Defines and uses signals and symbols to influence corporate culture. Clarifies what the new culture should be and crafts a story that inspires people to change.
• Influence culture in two key areas:
  • Articulates a vision for the organizational culture that employees can believe in.
  • Heeds the day-to-day activities that reinforce the cultural vision.
    -For the company to succeed in a rapidly changing world, managers needed to pay careful attention to both cultural values and business performance.
    -During difficult times- uphold cultural value to get through it.