Chapter ThreeThe Environment and Culture of Organizations*

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The Organizations EnvironmentExternal EnvironmentGeneral environment: everything outside an organizations boundarieseconomic, legal, political, socio-cultural, international, and technical forces.Task environment: specific groups and organizations that affect the firm.Internal EnvironmentConditions and forces present and at work within an organization3*

Figure 3.1: The Organization and Its Environments 3*

The External EnvironmentThe General EnvironmentThe set of broad dimensions and forces in an organizations surroundings that create its overall context.Economic dimension Technological dimension Sociocultural dimensionPolitical-legal dimensionInternational dimension3*

Figure 3.2: McDonalds General Environment3*

Figure 3.3: McDonalds Task Environment 3*

The Internal EnvironmentConditions and stakeholder forces within an organizationOwners.Board of directors Employees Physical work environment3*

How Environments Affect OrganizationsChange and ComplexityEnvironmental change occurs in two ways:Degree to which change in environment is occurringDegree of homogeneity or complexity of the environmentUncertaintyA driving force that influences organizational decisions.3*

How Environments Affect Organizations (contd)Competitive ForcesPorters Five Competitive ForcesThreat of new entrants into the marketCompetitive rivalry among present competitorsThreat of substitute productsPower of buyersPower of suppliersEnvironmental TurbulenceUnexpected changes and upheavals in the environment of an organization.3*

Figure 3.4: Environmental Change, Complexity, and Uncertainty 3*Source: From J.D. Thompson, Organizations in Action, 1967. Copyright 1967 The McGraw-Hill Companies, Inc. Reprinted with permission.

Porters Five Competitive ForcesThreat of new entrantsExtent to and ease with which competitors can enter market.Competitive rivalryCompetitive rivalry between firms in an industry.Threat of substitute productsExtent to which alternative products/services may replace the need for existing products/services.Power of buyersExtent to which buyers influence market rivals.Power of suppliersExtent to which suppliers influence market rivals.3*

Figure 3.5: How Organizations Adapt to Their Environments3*

How Organizations Adapt to Their Environments (contd)Information Management in OrganizationsBoundary spannersEnvironmental scanning Information systemsStrategic ResponseMaintaining the status quo, altering the current strategy, or adopting a new strategy.Mergers, Acquisitions, AlliancesFirms combine (merge), purchase (acquisition), or form new venture partnerships or alliances with another firm.3*

How Organizations Respond to Their Environments (contd)Organizational Design and FlexibilityAdapting to environmental conditions by incorporating flexibility in its structural design.Mechanistic firms operate best in stable environments.Organic firms are best suited for dynamic environments.Direct Influence of the EnvironmentAttempting to change the nature of the competitive conditions in its environment to suit its needs.Pursuing new or changed relationships with suppliers, customers, and regulators.3*

Figure 3.6: A Model of Organizational Effectiveness 3*

Table 3.1: Examples of Admired and High-Performing Firms3*

Key Termsinternal environmentexternal environmenttask environmenteconomic dimensiontechnological dimensionsociocultural dimensionpolitical-legal dimensioninternational dimensioncompetitorcustomersupplierinterest groupstrategic partners (strategic allies)ownerboard of directorsorganization cultureuncertaintyfive competitive forces3*

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