Chapter 3

Organisational

environments and

cultures

Learning outcomes

By the end of this chapter you should be able to:

1. discuss how changing environments affect organisations

2. describe the four components of the general environment

3. explain the five components of the specific environment

4. describe the process that companies use to make sense

of their changing environments

5. explain how organisational cultures are created and how

they can help companies be successful

External environments

All events outside a company

that have the potential to

influence or affect it.

Changing environments

Characteristics of changing external environments:

• Environmental change

• Environmental complexity

• Resource scarcity

• Environmental uncertainty for organisational managers

created by environmental change, environmental

complexity and resource scarcity

Environmental change

The rate at which a company’s

general and specific

environments change.

Changing environments

• Environmental changes can be seen as:

o Stable: if the rate of change is slow

o Dynamic: if the rate of change is fast

• Punctuated equilibrium whereby organisations may

face a relatively long, stable period (equilibrium)

followed by a short, rapid (evolutionary) period, before

returning to equilibrium

Environmental complexity

Refers to the number and intensity of environmental

factors that affect organisations:

• Simple: few factors environmental factors

• Complex: many environmental factors

Resource scarcity

The abundance or scarcity of critical

organisational resources in an

organisation’s external environment

affects productivity and prices.

Environmental uncertainty

How much managers can

understand or predict which

environmental changes and

trends will affect business.

Environmental change,

complexity & resource scarcity

General and specific

environments

General and specific

environments

Economy

Technology

Sociocultural trends

Political/legal trends

Economy

• In a growing economy:

o more people are working and wages are growing

o consumers have relatively more money to spend

o more products are bought and sold

o business expands.

• In a shrinking economy, the opposite is more likely.

Technology

Knowledge, tools and techniques to transform input

into output.

• Companies must embrace new technology and find

effective ways to use it to improve their products and

services or decrease costs.

• If not, they will lose out to their competitors.

Sociocultural trends

• Refers to the demographic characteristics, general

behaviour, attitudes and beliefs of people in a society

• Demographic changes affect how companies staff their

businesses

• Sociocultural changes in behaviour, attitudes and

beliefs also affect the demand for a business’ products

and services

Political/legal trends

• Includes society’s legislation, regulations and court

decisions that govern and regulate business behaviour

• Organisations need to adhere to legislation: e.g. anti-

discrimination acts

• Failure to do so can incur fines

Specific environmental

factors

Customers

Competitors

Suppliers

Industry regulation

Advocacy groups

Customers

• Without its customers, an organisation would not exist

• Customer monitoring can be:

o Reactive: identifying and addressing customer trends

and problems after they occur

o Proactive: identifying and addressing customer

needs, trends and issues before they occur

Competitors

• Companies in the same industry that sell similar

products or services to customers

• Organisations need to perform a competitive analysis:

A process for monitoring the competition that involves

identifying competition, anticipating their moves and

determining their strengths and weaknesses

Suppliers

• Suppliers provide material, human, financial and

informational resources to other companies

• Supplier dependence:

How much a company relies on a supplier because of

the importance of their product and the difficulty of

finding other sources

• Buyer dependence:

How much a supplier relies on a buyer because of their

importance and the difficulty of finding others

Suppliers (cont.)

A high degree of buyer or seller dependence can lead to:

• Opportunistic behaviour:

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 component

Regulatory agencies affect

businesses by creating and

enforcing rules and regulations to

protect consumers, employees or

society as a whole.

Advocacy groups

• Concerned people who work together to influence the

practices of specific industries, businesses and

professions (also known as lobby groups)

• Public communications:

Relies on voluntary participation by news media and the

advertising industry to get the message out

Advocacy groups (cont.)

• Media advocacy:

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:

Actively trying to persuade consumers not to purchase a

company’s product or service

• Environmental scanning:

Searching the environment for important events or issues

that might affect an organisation

• Interpreting environmental factors:

Are they threats or opportunities?

• Acting on threats and opportunities:

Using cognitive maps to visually summarise the

perceived relationships between environmental factors

and possible organisational actions

Making sense of changing

environments

Making sense of changing

environments (cont.)

The internal environment

The events and trends inside

an organisation that affect

management, employees

and organisational culture

Organisational culture

Organisation culture concerns

the values, beliefs and attitudes

shared by organisational

members.

When employees enjoy the

space they work in, it helps to

foster a positive organisational

culture.

Creation and maintenance of

organisational cultures

Company founder

Imprint beliefs,

attitudes and values

on the company and

is instrumental in

creating the

organisational

culture

Organisational stories

Told to make sense

of internal events

and changes, and to

emphasise cultural

assumptions,

decisions and

actions

Organisational heroes

People celebrated

for their qualities and

achievements within

an organisation

Adaptability

The ability to notice

and respond to

changes in the

organisation’s

environment

Employee involvement

Help employees feel

a greater sense of

ownership and

responsibility

Company vision

A business’ purpose

or reason for existing

Consistent organisational

cultures

When a company

actively defines and

teaches

organisational

values, beliefs and

attitudes

Successful organisational

cultures

Behavioural addition

Having managers and

employees perform new

behaviours that are

central to and symbolic

of a desired new

organisational culture

Behavioural substitution

Having managers and

employees perform new

behaviours central to the

‘new’ organisational

culture in place of

behaviours that were

central to the ‘old’

organisational culture

Visible artefacts

Visible signs of an

organisation’s culture,

e.g. office layout, dress

code and benefits/perks

like stock options,

personal parking spaces

or the private company

dining room

Changing organisational

cultures

Changing organisational

cultures (cont.)

Video links:

Corporate culture Apple example:

https://www.youtube.com/watch?v=EcHpgsTg458

Simon Sinek: how great leaders inspire action:

http://www.ted.com/talks/simon_sinek_how_great_leaders

_inspire_action?language=en