External Environments

• External environments are forces and events outside a company that could influence or affect it.

Learning Objectives

• Discuss how changing environments affect organizations.
• Describe the four components of the general environment.
• Explain the five components of the specific environment.
• Describe the process that companies use to make sense of their changing environments.
• Explain how organizational cultures are created and how they can help companies be successful.

Changing Environments

• Environmental change is the rate at which a company's general and specific environments change.
• Stable environments have a slow rate of environmental change.
• Dynamic environments have a fast rate of environmental change.
• Punctuated equilibrium theory states that companies experience long periods of stability (equilibrium) with incremental changes, followed by short periods of dynamic, fundamental change (revolution), and then a return to stability (new equilibrium).

Environmental Complexity

• Environmental complexity refers to the number and intensity of external factors affecting organizations.
• Simple environments have few factors.
• Complex environments have many factors.

Resource Scarcity

• The 2020-2022 global computer chip shortage is an example of how resource scarcity can impact business.

Environmental Uncertainty

• Environmental uncertainty is the extent to which managers can understand or predict external changes and trends affecting their businesses.
• Uncertainty is low when environmental change and complexity are low and resources are plentiful.
• Uncertainty is high when environmental change and complexity are extensive and resources are scarce.

General Environment

• The general environment affects all organizations indirectly.
• It consists of the following:
• the economy
• technological trends
• sociocultural trends
• political/legal trends

The Economy

• The state of a country's economy affects various business aspects.
• Growing economies see increased consumer spending due to rising wages and employment.
• Managers monitor their environments for potential shifts in economic conditions.
• Business confidence indices can help predict economic activity by measuring managers' confidence in future business growth.

Technological Trends

• Technology includes the knowledge, tools, and techniques used to transform inputs into outputs.
• Technological changes can improve products or production efficiency but can also threaten businesses.
• Companies must embrace new technology for product/service improvement and cost reduction.

Sociocultural Component

• This component includes demographic characteristics, general behavior, attitudes, and beliefs of people in a society which influence organizations.
• Demographic changes affect company staffing.
• Sociocultural changes affect product and service demand e.g. convenience is valued due to longer commutes and working hours.

Political/Legal Component

• The political/legal component includes laws, regulations, and court decisions that govern business behavior and impose responsibilities on companies.
• Managers must be aware of these and educate themselves about laws, regulations, to avoid penalties or legal charges.

Specific Environment

• The specific environment is unique to each organization's industry and directly affects its business.
• It includes the following:
• customers
• competitors
• suppliers
• industry regulation
• advocacy groups

Customer Component

• Customers buy products and services, and companies need their support to exist.
• Monitoring changing customer wants and needs is critical for business success.
• Reactive strategies address trends/problems after they occur.
• Closely listen to complaints, then respond appropriately.
• Proactive monitoring identifies needs, trends, and issues before they arise.

Competitor Component

• Competitors are companies in the same industry that sell similar products/services.
• Conducting competitive analysis is a process for monitoring the competition by identifying competitors, anticipating their moves, and determining their strengths/weaknesses.

Supplier Component

• Suppliers provide material, human, financial, and informational resources.
• Supplier dependence is the degree to which a company relies on the supplier because of importance and difficulty in finding alternatives.

Industry Regulation Component

• Agencies affect business by creating and enforcing rules and regulations to protect consumers, employees, or society.
• Managers consider government regulations as demanding and frustrating.

Advocacy Groups

• These are groups of concerned people who join together to try to influence the business practices of specific industries, businesses, and professions.
• Public communications relies on voluntary participation by the news media and advertising industry.
• Media advocacy frames concerns as public issues, exposes questionable practices, and creates likely-to-be-covered controversy.

Making sense of changing environments

• External conditions may be unstable, unclear, and complex, impacting the need to detect changes.
• Companies use a 3-step process to make sense of external environments:
• environmental scanning
• interpreting environmental factors
• acting on threats and opportunities

Environmental Scanning

• Actively scan the environment, watching patterns to stay on top of important factors.
• Scan environments to reduce uncertainty and stay relevant for market fluctuations

Internal Environments

• By contrast, the internal environment consists of the trends and events within an organization that affect the management, employees and organizational culture.

Organizational Culture

• The organizational culture are the values, beliefs and attitudes shared by organizational members.
• Creating, maintaining, and changing organizational culture matters because research shows that positive, consistent cultures improve company performance.

Organisational cultures: creation, success and change

• How organisational cultures are created and maintained.
• The characteristics of successful organisational cultures.
• How companies can accomplish the difficult task of changing organisational cultures.

Creation and maintenance of organisational cultures

• Company founders create organizations in their likeness with founder beliefs, attitudes, and values.
• Stories and heroes sustain values after the founders have gone.

Successful organisational cultures

• Preliminary research shows that organisational culture is related to organizational success.
• A clear vision, involvement, adaptability and consistency can help improve employee satisfaction.

Adaptability

• Being able to notice and react to change is important.
• Cultures should reinforce important values and behaviors, but a culture becomes dysfunctional if it prevents change.

Company Mission

• In organizational cultures with a clear company vision, the organization's strategic purpose and direction are apparent to everyone in the company.

Consistent Organisational Cultures

• In consistent organisational cultures, the company actively defines and teaches organisational values, beliefs and attitudes.

Changing organisational cultures

• Surface level: Reflections that can be seen and observed, such as behaviors and symbolic artifacts.
• Next level: Values and beliefs expressed by people in the company.
• Deepest level: Unconscious assumptions and beliefs held among employees.
• Use behavioral addition, use behavioral substitution, change visible artifacts, and hiring and selecting people with proper values for the change.