Understanding Organizational Culture and the External Environment
Organizational Culture and Job Fit
Organizational culture is a critical indicator of "fit" for potential employees, influencing job satisfaction and contribution.
The chapter will first explore the external environment before delving into organizational culture.
The External Environment
Successful organizations and managers must understand the dynamic external environment.
Definition: Refers to factors, forces, situations, and events outside the organization that primarily affect its performance.
Example of Interconnectedness: The Eyjafjallajökull volcano eruption in Iceland caused shutdowns at BMW and Nissan plants due to disruptions in the supply of tire-pressure sensors from Ireland, highlighting the globalized and interconnected nature of the business world.
Components of the External Environment (Exhibit 4-1):
Economic Component: Includes factors like interest rates, inflation, employment/unemployment rates, disposable income, stock market fluctuations, and business cycle stages.
Demographic Component: Focuses on population characteristics such as age, race, gender, education level, geographic location, and family composition.
Technological Component: Concerns scientific or industrial innovations.
Sociocultural Component: Relates to societal and cultural factors like values, attitudes, trends, traditions, lifestyles, beliefs, tastes, and behavior patterns.
Political/Legal Component: Encompasses federal, state, local, and international laws, as well as political conditions and stability.
Global Component: Covers issues associated with globalization and the world economy, such as volcano eruptions, political instability, and terrorist attacks.
This section will provide an in-depth look at the economic and demographic components.
The Economic Component: Characteristics & Challenges
While global economies show signs of recovery, managers constantly face economic challenges related to jobs, incomes, prices, stock markets, and business cycles.
Current Economic Characteristics:
Productivity Slowdown: Moderated globally, but still lags in the United States. Productivity (output per worker per hour) is influenced by innovation, work practices, technology, and workforce education/training.
Global Trade: Grew strongly from the late s to , collapsed during the recession, but is now inching up, particularly in Europe and Asia.
U.S. Employment: Total employment is up, with an unemployment rate holding steady at , its lowest in years. Workers have seen broad-based income and employment gains for over a decade.
Income Volatility: Many U.S. workers with steady jobs may not have reliable incomes due to businesses using flexible work schedules, leading to more volatile paychecks.
Part-time Workers: Businesses in low-wage industries (restaurants, retail, warehousing, services) utilize part-time workers to mitigate the impact of healthcare law mandates.
Economic Inequality and Societal Attitudes:
Public Perception: A Pew Research Center poll found that only of Americans believe the "American dream" (success through hard work) is out of reach. By race/ethnicity: of whites, of blacks, and of Hispanics.
Significant Risk: The World Economic Forum identifies "severe income disparity" as a major risk for business leaders and policymakers over the next decade.
Sensitivity: A Harris Interactive Poll revealed that only of adults think economic inequality is "not a problem at all"; view it as a major problem, and as a minor problem.
Historical Context: While an income gap has always existed, and the U.S. gap has been wider than other developed nations, acceptance of an ever-increasing gap is diminishing, especially as economic growth falters and belief in widespread opportunity wanes.
Managerial Constraint: Business leaders must recognize how societal attitudes regarding economic context create constraints on their decisions and business management.
The Sharing Economy:
Definition: An economic environment where asset owners share underutilized physical assets (e.g., homes, cars, tools) with other individuals through a peer-to-peer service for a fee. Some include the sharing of knowledge, expertise, skills, or time.
Concept: Puts underutilized assets to good use, allowing consumers to access assets they need without purchasing them.
Examples: Airbnb, Uber, Mobike, Dog Vacay, TaskRabbit, Zipcar.
Alternative Terminology: Also known as collaborative economy, on-demand economy, gig economy, freelance economy, peer economy, access economy, crowd economy, digital economy, and platform economy.
"Access Economy" Debate: Some economists argue that these arrangements are "market-mediated" rather than true "sharing," as consumers seek convenient access to assets and are less concerned with business or social relationships with asset owners. This suggests these are more aptly described as an "access economy."
Future Relevance: These new-economy platforms are expected to remain a significant part of the global economic system.
The Demographic Component: Characteristics & Trends
"Demography is Destiny": The size and characteristics of a country's population significantly impact its achievements and future. Experts predict that by , "emerging economies led by India and China will collectively be larger than the developed economies. Small European nations with low birthrates such as Austria, Belgium, Denmark, Norway, and Sweden will drop off the list of the 30 biggest economies."
Definition: Demographics are the characteristics of a population used for social studies, including age, income, sex, race, education level, ethnic makeup, employment status, and geographic location.
Age as a Key Demographic for Managers: The workplace frequently includes multiple age groups, presenting challenges related to generational differences (further discussed in Chapter 10).
Age Cohorts in the U.S. Population:
Baby Boomers: Born between and . Their large numbers have significantly impacted all aspects of the external environment (education, entertainment, Social Security, healthcare) throughout their life-cycle stages.
Gen X: Born between and . Known as the "baby bust generation" due to its smaller size following the Baby Boom.
Gen Y (Millennials): Born between and . Children of Baby Boomers, also large in number, and are shaping external environmental conditions and today's workplaces (technology, clothing styles, work attitudes). Now the majority age group in the workforce.
Gen Z: Born between and . The youngest identified group and is huge, with < year-olds representing of the U.S. population. It is the most diverse and multicultural generation in the U.S. Characterized by online social interaction and the reality of "Internet, mobile devices, and social networking."
Impact of Demographic Age Cohorts: Large numbers of people at specific life stages constrain decisions and actions for managers in businesses, governments, educational institutions, and other organizations.
Future Demographic Trends:
Global Birth Rates: More than of babies born worldwide are from Africa and Asia.
India's Youth: Two-thirds of India's billion people are below years of age.
China's Aging Population: By , China is predicted to have more people aged and older than the rest of the world combined.
Aging Global Population: Historically, individuals over rarely exceeded of a country's population; this could reach on average by .
U.S. Older Americans: The population of older Americans is expected to more than double by .
These trends will profoundly impact global organizations and management practices.
How the External Environment Affects Managers
Understanding the external environment and its components is crucial for managers.
Three primary ways the external environment constrains and challenges managers:
Impact on jobs and employment
Environmental uncertainty
Stakeholder relationships
Jobs and Employment:
Constraints: Changes in external environmental conditions significantly constrain managers through their impact on jobs and employment, affecting both poor and good economic conditions.
Global Recession Example: The last global recession painfully demonstrated this power, with millions of jobs eliminated and unemployment reaching multi-year highs.
Managerial Challenges: Managers must balance work demands with having enough people possessing the right skills.
Flexible Work Arrangements: External constraints drive the adoption of flexible work. Many employers use freelancers (as-needed), temporary workers (full-time but non-permanent), and job-sharing.
Managerial Implications: Managers need to recognize how these arrangements affect planning, organizing, leading, and controlling. Flexible work is a pervasive and important management approach.
Assessing Environmental Uncertainty:
Definition: Environmental uncertainty refers to the degree of change, predictability of change, and complexity in an organization's environment, directly affecting organizational outcomes.
Dimensions of Uncertainty:
Degree of Unpredictable Change:
Dynamic Environment: Components change frequently and unpredictably (e.g., recorded music industry with digital formats, streaming, social media releases).
Stable Environment: Minimal and predictable change (e.g., Almarai in Saudi Arabia for food products, facing only ongoing competition and minor government policy changes).
Degree of Environmental Complexity:
Less Complex/Uncertain Environment: Few competitors, customers, suppliers, or government agencies to deal with; requires little information about the environment.
More Complex/Uncertain Environment: Many diverse components, requiring extensive knowledge.
Impact on Managers (Exhibit 4-2 Matrix):
Cell 1 (Stable-Simple Environment): Represents the lowest level of environmental uncertainty; managers have the greatest influence on organizational outcomes.
Cell 4 (Dynamic-Complex Environment): Represents the highest level of environmental uncertainty; managers have the least influence.
Managerial Preference: Managers ideally prefer to operate in less uncertain environments and strive to minimize uncertainty, although they rarely control this choice.
Current Trend: Most industries today face more dynamic change, increasing environmental uncertainty.
Managing Stakeholder Relationships:
Stakeholders Defined: Any constituencies in an organization's environment that are affected by its decisions and actions. These groups have a "stake" or are significantly influenced by the organization, and in turn, can influence the organization (e.g., Starbucks stakeholders: coffee bean farmers, employees, competitors, local communities).
Common Stakeholders (Exhibit 4-3): Include both internal and external groups, as both can affect an organization's operations.
Why Stakeholder Management Matters:
Desirable Organizational Outcomes: Leads to improved predictability of environmental changes, more successful innovations, greater trust among stakeholders, and increased organizational flexibility to reduce impact of change. (Example: Facebook lobbies and meets with government officials to shape its image and avert damaging online privacy laws).
Organizational Performance: Research indicates that managers of high-performing companies consider the interests of all major stakeholder groups when making decisions.
Ethical/Moral Obligation: It is considered the "right" thing to do, as organizations rely on external groups for inputs (resources) and as outlets for outputs (goods and services). This connects to corporate social responsibility and business ethics (discussed in the next chapter).
Managers must recognize that current business is not "business as usual" and understand how external environmental changes will impact their organizational and management experiences.
How Organizational Culture Affects Managers
Ambrosia Humphrey, VP of Talent at Hootsuite, exemplifies how leaders actively shape culture (e.g., through "Ask Me Anything" discussions, "hackathons," and embracing social media for transparency).
Two Main Effects of Organizational Culture on Managers:
Its effect on what employees do and how they behave.
Its effect on what managers do.
Strong vs. Weak Cultures:
Strong Cultures: Key values are deeply held and widely shared. They have a greater influence on employees' actions than weaker cultures. The more employees accept and commit to key values, the stronger the culture.
Characteristics of Strong Cultures: Most organizations have moderate to strong cultures, with high agreement on what is important and what constitutes "good" behavior. Strong cultures can substitute for formal rules and regulations, creating predictability, order, and consistency through internalized guides.
Weak Cultures: Lack dominant shared values, resulting in a less clear effect on employee behavior.
How Culture Affects What Managers Do:
Organizational culture constrains what managers can and cannot do and how they manage.
Implicit Constraints: These constraints are rarely explicit, unwritten, or openly spoken, but managers quickly learn them.
Examples of Implicit Values from Real Organizations:
"Look busy even if you're not."
"If you take risks and fail around here, you'll pay dearly for it."
"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."
Impact on Managerial Behavior:
Decision-Making Styles: A "ready-aim-fire" culture leads managers to extensively study projects before commitment, while a "ready-fire-aim" culture promotes action followed by analysis.
Strategic Focus: A culture valuing cost-cutting and slow, steady quarterly earnings growth is unlikely to support innovative, risky, long-term, or expansionary programs.
Leadership Style: A culture conveying basic distrust of employees may lead managers to adopt an authoritarian leadership style instead of a democratic one.
Winegardner & Hammons Example: This hotel management firm built a "Winning Workplace Culture" focused on a positive work environment, selecting the "right" employees, an employee engagement program for managers, and a strengths-based workplace. This led to lower employee turnover and higher profitability, demonstrating the positive outcomes of paying attention to culture.
Influence on Core Management Functions: An organization's culture, especially a strong one, influences and constrains how managers plan, organize, lead, and control (as shown in Exhibit 4-5).
Current Cultural Issues Managers are Focusing On: Corporate leaders increasingly recognize organizational culture as a critical business issue, driving employee productivity, engagement, and retention.
Creating a Customer-Responsive Culture: Critically important. Leads to more satisfied employees and customers, impacting performance. Exhibit 4-6 outlines characteristics and managerial actions to achieve this.
Creating an Innovative Culture: A supportive culture is the most important driver of innovation (over half of senior executives surveyed). While half of employees believe management support for innovation is vital, only perceive it.
Goran Ekvall's Perspective on Innovative Culture:
Challenge and involvement: Employees are involved, motivated, and committed to long-term goals.
Freedom: Employees define their work independently, exercise discretion, and take initiative.
Trust and openness: Employees are supportive and respectful.
Idea time: Individuals have time to develop new ideas before action.
Playfulness/humor: The workplace is spontaneous and fun.
Conflict resolution: Decisions and issues are resolved for the good of the organization, not personal interests.
Debates: Employees can express opinions and suggest ideas for consideration.
Risk taking: Managers tolerate uncertainty, and employees are rewarded for taking risks.
Creating a Sustainability Culture: Incorporating sustainability into the overall culture (e.g., Johnson & Johnson). Strategies include:
Involving everyone in defining sustainability for the organization.
Engaging employees (individuals/teams) in finding sustainable practices.
Creating rituals (e.g., sustainability-themed day/week, starting meetings with sustainability topics).
Using rewards (e.g., tying bonuses to sustainability goals, prizes for supportive actions).
Embedding these practices ensures the culture reinforces them, making it a defining trait.
Creating an Ethical Culture: A workplace where the shared concept of right and wrong reflects core organizational values and influences ethical decision-making. Requires clear ethical standards, leaders modeling ethical behavior, and open discussion/reinforcement of ethical actions. (Further explored in the next chapter).
Creating a Learning Culture: Essential in today's fast-changing business environment, requiring adaptable employees who can think, relate, learn, and adapt continuously. Starts with top-level buy-in and commitment.
Characteristics: Shared vision, recognition of inter-relationships among processes and environment, strong sense of community, caring, and trust.
Encourages: Employees to communicate openly, share, experiment, and learn without fear of criticism or punishment.
Personal Application: Developing employability skills and continuous learning helps individuals stand out as top candidates and star employees.