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Copyright 2008 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, SharmaSlides prepared by Rob Lawrence, Victoria University (Australia)

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CHAPTER 3

UNDERSTANDING INTERNAL AND EXTERNAL ENVIRONMENTS


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LECTURE OUTLINE• Types of external environment• Analysing environmental conditions• Managing environmental elements• The internal environment:

Organisational Culture(Nature, manifestations, types, culture and

innovation, cultural change)


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EXTERNAL ENVIRONMENT

Major forces outside the organisation with potential to influence significantly the likely success of a product or service.


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EXTERNAL ENVIRONMENT

External environment is made up of:• The mega-environment

The broad conditions and trends in societies in which an organisation operates.

• The task environmentSpecific outside elements with which an organisation interfaces in the course of conducting its business.


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THE MEGA-ENVIRONMENT

The organisation

Sociocultural element

Legal-political element

International element

Technological element

Economic element


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Five major elements:• Technological element

Current state of knowledge regarding production of products & services

• Economic elementSystems of producing, distributing and consuming wealth

• Legal-political elementLegal and governmental systems within which an organisation must function


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• Sociocultural elementAttitudes, values, norms, beliefs, behaviours and associated demographic trends characteristic of a given geographic area

• International elementDevelopments in countries outside of an organisation’s home country with potential to influence the organisation


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THE TASK ENVIRONMENT

Five elements:• Customers and clients

Individuals and organisations purchasing products/services

• CompetitorsOther organisations offering (or with a high potential to offer) rival products/services

• SuppliersOrganisations and individuals supplying resources an organisation needs to conduct its operations


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THE TASK ENVIRONMENT

• Labour supplyIndividuals potentially employable by an organisation (diversity and characteristics of the labour market)

• Government agenciesAgencies providing services and monitoring compliance with laws and regulations at local, state or regional and national levels


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THE TASK ENVIRONMENTKEEPING TABS ON COMPETITORS• Commercial databases• Specialty trade publications• Local newspaper clippings• Advertised vacancies• Published market research• Trade shows and product literature• Personal contacts


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ANALYSING ENVIRONMENTAL CONDITIONSViews on the organisation-

environment interface:• Population ecology model

Argues that environmental factors cause organisations to survive or fail

• Resource dependence modelHighlights the dependence of organisations on environment but argues they attempt to manipulate the environment to reduce this dependence


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CHARACTERISTICS OF THE ENVIRONMENTUncertainty

Condition in which future environmental circumstances affecting an organisation cannot be accurately assessed and predicted

ComplexityNumber of elements in an organisation’s environment and their degree of similarity

DynamismRate and predictability of change in the elements of an organisation’s environment

BountyExtent to which the environment can support sustained growth and stability


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MANAGING ENVIRONMENTAL ELEMENTS Three approaches to managing the environment:• Adaptation

Involves changing internal operations and activities to make the organisation and its environment more compatible

• Favourability influenceInvolves trying to alter environmental elements to make them more compatible with the organisation’s needs

• Domain shiftingChanging product/service mix to create favourable interface


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ADAPTATION• Buffering

Stockpiling either inputs into, or outputs from, a production or service process to cope with environmental fluctuations

• SmoothingTaking actions aimed at reducing the impact of fluctuations, given the market

• ForecastingPredicting changing conditions and future events that significantly affect an organisation’s business

• RationingProviding limited access to a product or service in high demand


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FAVOURABILITY INFLUENCE• Advertising and public relations• Boundary spanning• Recruiting• Negotiating contracts• Co-opting• Strategic alliances• Trade associations• Political activity


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DOMAIN SHIFTS

• Move out of a current product, service or geographic area into a more favourable domain

• Expand current domains through diversification or expansion of products/services offered


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INTERNAL ENVIRONMENT: ORGANSATIONAL CULTURENature of organisational culture:• ‘A system of shared values, assumptions, beliefs

and norms uniting organisational members’ (Smircich 1983; Kilmann 1985).

• ‘The way we do things around here.’• The ‘glue’ binding the disparate parts (or the oil

that keeps them moving).• The interpretive part of organisational behaviour:

it explains, gives direction, sustains energy, commitment, and cohesion.


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MANIFESTATIONS OF CULTURE• Symbols

Objects, acts, events or qualities serving as a vehicle for conveying meaning (logos, office decoration and layout)

• StoriesNarratives based on true events, which may be embellished to highlight intended value

• RitesRelatively elaborate, dramatic, planned sets of activities intended to convey cultural values to participants and, usually, an audience

• RitualsStandard behaviours, like staff meetings, company awards, weekly after-works drinks or socialising

• CeremonialsSystems of rites performed in conjunction with a single occasion or event


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CULTURAL TYPESStrong: clear, explicit principles, widely shared

Often spring from beliefs of a founder or strong leaderGenuine concern for customers, employees and shareholders

Weak: lack widely shared valuesLittle top management commitmentLead to development of sub-culturesHard to implement management strategy

Unhealthy cultures: internal politics, hostile to change, arrogant


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OPERATOR, ENGINEERING AND EXECUTIVE CULTURE (SCHEIN 1996)• Operator culture:

assumes organisation’s actions are actions of people - focus on knowledge, skills, commitment

• Engineering culture: prefers linear thinking, quantitative methods, “people-free” solutions

• Executive culture:focus on need to maintain organisation’s financial health - preoccupied with markets, boards, investors


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CHARACTERISTICS OF ENTREPRENEURIAL CULTURE• Strategic

Focused on identifying opportunities

• Committed to seizing opportunitiesWilling to make major, fast changes

• Commitment of resourcesMany stages with risk assessed for each stage

• Control of resourcesRental or outsourcing of resources for flexibility

• Management structureFew levels, with informal communication


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CHANGING ORGANISATIONAL CULTUREBecause they involve fairly stable values,

beliefs and assumptions, organisations can be difficult to change.

An approach to changing culture:• Surfacing actual norms• Articulating new directions• Establishing new norms• Identifying culture gaps• Closing culture gaps


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HOW LEADERS INFLUENCE CULTURAL CHANGE• Crisis identification

• Communication of a new vision

• Motivation of key staff (to lead cultural change by implementing the new vision and its corresponding strategy)


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LECTURE SUMMARYExternal environment:• Types of external environment

Mega-environment, task environment(Each with five elements)

• Analysing the environmentModels: ecology and resource dependenceEnvironmental uncertainty and bountyComplexity and dynamism

• Managing the environmentAdaptation, favourability influence and domain shifts


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LECTURE SUMMARYInternal environment (culture):

System of shared values, assumption, beliefs and norms uniting organisational members

Manifestations of cultureSymbols, stories, rites, rituals and ceremonies

Promoting innovationEntrepreneurial cultures encourage innovation

Changing culture can be hardA multi-step process

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