chapter ogh

7/30/2019 Chapter Ogh

1/45

Organizational Environments

External environment everything outsidean organizations boundaries that mightaffect it.

General environment

Task environment

Internal environment the conditions andforces within an organization.

Not all parts of the environment are equallyimportant to all organizations. [small organizations do nothave BoDs, but corporations are required to; private schools worry less about economicconditions as do schools supported by the government, etc]

See Figure 3.1, page 75.


2/45

Figure 3.1

Organizationand Its

Environment


3/45

The External Environment

General environmentis the set of broaddimensions and forces in an

organizations surroundings that create

its overall context.International dimension

Technological dimension

Political-legal dimensionSocio-cultural dimension

Economic dimension


4/45

The External Environment. . .(continued)

Task environment consists of specificorganizations or groups that influence

an organization.Competitors

Customers

Suppliers

Strategic partnersRegulators


5/45

The General Environment

Economic Dimension

Overall health and vitality of the economic

system in which the organization operates.

Usually influenced by economic growth,

inflation interest rates and unemployment.


6/45

The General Environment. . .(continued)

Technological Dimension

Methods available for converting resources

into products or services.

Examples include:

CAD (computer-assisted design) techniques

Assembly-line techniques for car manufacturing and

hamburger assembly at McDonaldsUse of internet in all areas of business

Integrated business software systems


7/45


Socio-cultural Dimension

Customs, values and demographic characteristics of thesociety in which the organization functions.

Socio-cultural processes determine the products,

services and standards of conduct that society is likelyto value.

Consumer tastes change over time preferences forcolor, style, taste, etc change from season to season.[McDonalds response to healthier food selections]

Socio-cultural factors influence how workers feel abouttheir jobs and organizations.

Appropriate business conduct varies from culture toculture.


8/45


Political-Legal Dimension

Refers to government regulation of businessand the relationship between business and

government.The legal system partially defines what anorganization can and cannot do.

In western countries, periods of pro-business andanti-business climates can affect how businesses

operate. [mergers and acquisitions may not be possible due to worryabout organizations becoming too large and running small businesses outof business.]

Political stability with other countries can affectbusinesses willingness to trade with those countries.


9/45


International Dimension

The extent to which an organizations is involved inor affected by business in other countries.

Multinational firms are clearly affected bybusinesses in other countries. [car and aircraftmanufacturers, restaurants, electronics firms, etc]

Advances in transportation and informationtechnology have linked all parts of the world, no

matter how remote.Virtually every organization is affected by theinternational dimension of its general environment.



10/45

Figure 3.2

McDonaldsGeneral

Environment


11/45

The Task Environment

Provides useful information more

readily than does the General

Environment because the manager can

identify environmental factors of

specific interest to the organization.


12/45

Public pressure

groupsSuppliers Customers

Government Labor unions

Competitors

The Organizational Environment

The

Organization


13/45

The Task Environment. . . (continued)

Competitors

Other organizations that compete with our

organization for resources.

Most obvious resource is customer dollars.

Organizations compete for bank loans,

property, quality labor, technological

breakthroughs, patents, scarce raw materials.


14/45


Customers

Whoever pays money to acquire anorganizations products or services.

Customers of major organizations may include:schools, hospitals, government agencies,wholesalers, retailers and manufacturers.

Customers have more discriminating tastesand new products and services expectations.

Companies who expand internationally facecritical differences [no beef served in India, alcohol served inGermany and France as a part of the menu].


15/45


Suppliers

Organizations that provide resources for other

organizations.

McDonalds depends on Heinz for its ketchup

packets and Coca-Cola for its soft drinks.


16/45


Strategic Partners (Allies)

Two or more companies that work together in joint

ventures or similar arrangement.

McDonalds with Wal-Mart and Disney.

Strategic partnerships allow companies to share

expertise they lack, spread risk and open new

market opportunities.

Usually occurs with international firms. [Ford shares adistribution and service center in South America with Volkswagen and builds minivans

in the US with Nissan]


17/45


Regulators

A unit that has the potential to control, legislate orotherwise influence the organization's policies and

practices.Regulatory agencies created by the government toprotect the public from certain business practices or toprotect organizations from one another. [EPA, SEC, FDA,EEOC]

Interest groups organized by their members to attemptto influence organizations. No official power, but use themedia to call attention to their positions. [NOW, MADD, NRA,the Sierra Club, Ralph Naders Center for the Study of Responsive Law,Consumers Union, Better Business Bureau, etc].



18/45

Figure 3.3

McDonaldsTask

Environment


19/45

The Internal Environment

Internal Environment consists of:

Owners

Board of Directors

Employees

Physical Work Environment

Organizational Culture


20/45

The Internal Environment.. .(continued)

Owners

People who can claim property rights to anorganization.

Single individual who establishes and runs a smallbusiness.

Partners who jointly own a business.

Shareholders who own shares of stock in acorporation or other organization.

Companies who own other companies which are runas wholly owned subsidiaries by the parentcompanies. [McDonalds owns bakeries that supply it with buns andhave partial ownership in other chains.]


21/45


Board of Directors

Governing body elected by a corporation's

stockholders and charged with overseeing the

general management of the firm to ensure that

it is being run in a way that best serves the

stockholders interests.


22/45


Employees

The nature of the workforce is changing in terms of

gender, ethnicity, age, etc.

Workers are also demanding more job ownership partial ownership in the company or more say in how

they perform their jobs.

Companies are relying on temps more less salary and

benefits cost but no company loyalty.

Labor unions are presenting management with anotherlayer with which to deal some companies deal with

more than one union.


23/45


Physical Work Environment

An important consideration for many businesses.

Construction supervisors may rely on wireless

communication equipment to keep in touch with variouswork crews.

Facilities may be spread out among various buildings in

the city, in rural or suburban areas, or in campus-like

facilities.

Some facilities have traditional offices on each side of ahall, some modular cubicles with partial walls, or an even

more open arrangement.


24/45


Culture

A set of values, beliefs, behaviors, customs

and attitudes that helps the members of the

organization to understand what it stands for,

how it does things and what it considers

important.

Plays an important part in shaping

management behavior.


25/45

Organization-Environment Relationships

Three basic perspectives can be used

to describe how environments affect

organizations:

1. Environmental change and complexity

2. Competitive forces

3. Environmental turbulence


26/45

1. Environmental Change and Complexity

J ames D Thompson theorized that organizationalenvironment can be described along twodimensions:

Degree of change the extent to which the

environment is relativelystableor relativelydynamic.Degree of homogeneity the extent to which theenvironment is relatively simple (few elements, littlesegmentation) or relatively complex (many elements,much segmentation).

Thesetwo dimensionsinteract to determine the levelof uncertainty faced by the organization.


27/45

Environmental Change and Complexity. . .(continued)

Uncertainty unpredictability createdby environmental change andcomplexity.

Least environmental uncertainty is faced byorganizations with stable and simpleenvironments. [Subway and Taco Bell focus on certain segments of theconsumer market, produce a limited product line, have a constant source of suppliersand face relatively consistent competition]

Organizations with dynamic but simpleenvironments generally face a moderatedegree of uncertainty [clothing manufacturers and certain CDproducers who target a certain kind of clothing or CD buyer but are alert to changingtastes]


28/45

Environmental Change and Complexity. . .(continued)

Moderate amount of uncertainty results in

organizations with stability and complexity.[automobile manufacturers must interact with many suppliers, regulators,

consumer groups and competitors, yet change occurs quite slowly in this

industry despite changes in the styles of cars]

Very dynamic and complex environmental

conditions create a high degree of uncertainty.occurs in the technology area due to rapid rate of innovation and change in

consumer markets which affect the industry, their suppliers and theircompetitors. Intel, Sony, Compaq, IBM, Apple and internet-based firms like

eBay and Amazon.com face high levels of uncertainty]



29/45

Figure 3.4: Environmental Change,

Complexity, and Uncertainty


30/45

2. Competitive Forces

Michael E Porter proposes thatmanagers should view the

organizational environments in terms

of five competitive forces:The threat of new entrants

Competitive rivalry

The threat of substitute productsThe power of buyers

The power of suppliers


31/45

Competitive Forces. . .(continued)

The threat of new entrants

The extent to which new competitors can easily enter a

market or market segment.

Entrance is easier for market requiring a small amount ofcapital to open. [dry cleaner, pizza, hamburger or sandwich shop, etc.]

More difficult when it takes a tremendous investment in

plant, equipment and distribution systems [automobile

market, etc.]

The internet has reduced the costs and other barriers ofentry into many market segments so the threat has

increased for many firms.


32/45


Competitive rivalry

The nature of the competitive relationshipbetween firms in the industry.

Large firms, dominant in the field, engage inprice wars, comparative advertising and new-product introductions.

Examples include: Coke and Pepsi; AmericanExpress and Visa; Kodak and Fuji; US and foreign

auto makers.Small establishments, in contrast, do notgenerally engage in such practices.


33/45


The threat of substitute products

The extent to which alternative products or

services may take the place of or diminish the

need for existing products and/or services.

Personal computers (PCs) have virtually

eliminated the need for calculators, typewriters

and large mainframe computers.

Sugar and salt substitutes are used more often.

DVD players will render VCRs obsolete in the

next few years.


34/45


The power of buyers

The extent to which buyers of the products or

services in an industry have the ability to

influence the suppliers.

Relatively few potential buyers for aircraft.

Therefore, buyers have considerable influence

over the price they are willing to pay, the

delivery date of the order, etc.

Buyers have virtually no power with products

that have very many willing buyers.


35/45


The power of suppliers

The extent to which suppliers have the ability

to influence potential buyers.

The power of the supplier depends on the

product being offered. The more restricted the

service or product, the more power to the

supplier. [electricity providers, telephone/internet access]

Small wholesaler of vegetables has little power,

since if people do not like the product, they can

easily find an alternative supplier.


36/45

3. Environmental Turbulence

Environmental change or turbulence whichoccurs with no warning at all.

Most common is an organizational crisis of somesort.

9/11 affected travel, international and domesticbusinesses.

Workplace violence unhappy or dismissedworkers assault other workers.

Spread of computer viruses that can shut down

businesses around the world. [Love Bug virus in 2000]Far too few organizations have developed crisisplans and special teams to deal with such events.


37/45

How Organizations Adapt to

Their Environment

Basic Techniques for Adapting

Information Technology

Strategic Response

Mergers, Acquisitions and Alliances

Organization Design and Flexibility

Direct Influence

Social Responsibility


38/45

Adapting Information Technology

Important when forming an initialunderstanding of the environment andwatching for signs of change.

Boundary Scanner is an employee[sales rep or purchasing agent] whospends much time in contact withothers outside the organization. Cankeep up with what is going on in otherorganizations.


39/45

Adapting Information Technology

Environmental Scanning managersmonitor the environments through

observation and reading.

Management Information Systems

[MIS] within the organization must

gather and organize information

valuable to all managers or specialists.


40/45

Adapting Strategic Response

Strategic Options may include:

Maintaining the present course

Expanding the business [going international]

Shrinking the business or shutting down

certain areas


41/45

Adapting Mergers, Acquisitions and Alliances

Merger two or more firms cometogether under one name.[Banoco and Bapco]

Acquisition one firm buys another

firm out.[Starbucks and Seattle Coffee Company]Hostile Takeover a firm takes another firmover by force.

Alliance two or more firms undertake

a venture together, but each keeps itsown identity. [British Airways and American Airlines; McDonalds withDisney and Wal-Mart]


42/45

Adapting Organization Design and Flexibility

Mechanistic Organization Design:Firms operating in low levels of uncertainty whooperate under rigid rules, regulations andstandard operating procedures [SOPs].

Managers have little flexibility with decisionmaking.

Organic Organization Design:Firms operating in high levels of uncertainly who

operate with relatively few SOPs.Managers have great flexibility with decisionmaking and can react quickly to environmentalchanges.


43/45

AdaptingDirect Influence

Suppliers may be influenced to sign long-term contracts

with fixed prices.

Companies may become their own suppliers. [McDonalds ownsbakeries; Campbells makes its own soup cans, etc.]

Certain activity may affect an organizations competitors. [carmanufacturer discounts and upgrades in warranties, electronic products warranty and

price changes, etc]

Advertising to show people new uses for products, finding

new customers, taking customers from competitors, etc.

Lobbying and bargaining with government and other

regulating agencies to influence decisions that might affectthe organization/industry.


44/45

AdaptingSocial Responsibility

Social Responsibilityis the set of obligationsan organization has to protect and enhance

the societal context in which it functions.

Organizational stakeholdersinclude:Person or organization directly affected by the practices

of an organization and has a stake in its performance suppliers, employees, customers, creditors, interest groups, trade

associations, local community.

Natural environment air, water, noise pollution, recycling, wastecontrol, etc.

General social welfare charities, supporting events, boycottingproducts from certain countries.

See Figure, 3.5, page 93.

O


45/45

How Organizations Adapt to Their

Environments:

Information

management

Social

responsibility

Strategic

responses

The

Organization

Direct

influence

Organization

design and

flexibility

Taskenvironment

General environment

Mergers,

takeovers

acquisitions,

alliances

chapter ogh

Documents