Chapter 3 - The Environment and Corporate Culture PDF

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2 Chapter 3 Par t © EUROPHOTOS/Shutterstock.com The Environment and Corporate Culture Are You Fit for Managerial After studying this chapter, you should be able to: Chapter Outline Learning Outcomes Uncertainty? 1. Define an organizational ecosystem and how the general and task The External Environment environments affect an organization’s ability to thrive. Task Environment 2. Explain the strategies managers use to help organizations adapt to an General Environment uncertain or turbulent environment. The Organization–Environment 3. Define corporate culture. Relationship Environmental Uncertainty 4. Provide organizational examples of symbols, stories, heroes, slogans, Adapting to the Environment and ceremonies and explain how they relate to corporate culture. The Internal Environment: 5. Describe four types of corporate culture. Corporate Culture 6. Examine the relationship between culture, corporate values, and Symbols Stories business performance. Heroes Slogans 7. Define a cultural leader and explain the tools that a cultural leader Ceremonies uses to create a high-performance culture. Types of Culture Adaptability Achievement Culture Culture Involvement Consistency Culture Culture New Manager Self-Test: Cultural Preference Shaping Corporate Culture for Innovative Response Managing the High-Performance Culture Cultural Leadership Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.  75 1 Introduction Are You Fit for Managerial Uncertainty?1 Instructions: Do you approach uncertainty with an open mind? Think back to how you thought or behaved during a time of uncertainty when you were in a formal or informal leadership position. Please answer whether each of the following items was Mostly True or Mostly False in that circumstance. 2 Mostly True Mostly False Environment 1. Enjoyed hearing about new ideas even when trying to meet a deadline. __________ __________ 2. Welcomed unusual viewpoints of others, even if we were working under __________ __________ pressure. 3. Made it a point to attend industry trade shows and company events. __________ __________ 4. Specifically encouraged others to express opposing ideas and arguments. __________ __________ 5. Asked “dumb” questions. __________ __________ 6. Always offered comments on the meaning of data or issues. __________ __________ 3 7. Expressed a controversial opinion to bosses and peers. __________ __________ Planning 8. Suggested ways of improving my and others’ ways of doing things. __________ __________ Scoring and Interpretation: Give yourself one point for each item that you marked as Mostly True. If you scored less than 5, you might want to start your career as a manager in a stable rather than an unstable environment. A score of 5 or above suggests a higher level of mindfulness and a better fit for a new manager in an organization with an uncertain environment. In an organization in a highly uncertain environment, everything seems to be changing. In that 4 case, an important quality for a new manager is “mindfulness,” which includes the qualities of rganizing being open-minded and an independent thinker. In a stable environment, a manager with a closed mind may perform all right because much work can be done in the same old way. In an uncertain OOrganizing environment, even a new manager needs to facilitate new thinking, new ideas, and new ways of working. A high score on the preceding items suggests higher mindfulness and a better fit with an uncertain environment. 5 Y “ ou sometimes feel like you are chasing cats,” said Georgetown University Associate Leading Vice President Scott Fleming. He was talking about how hard it is to monitor where Hot the T-shirts, sweatshirts, and other apparel the university’s bookstore sells come from. As a result of pressure from student activists and public outrage over recent accidents Topic and worker deaths at overseas textile factories, Georgetown’s bookstore remodeled displays so that garments made by Alta Gracia get pride of place ahead of Nike, Adidas, and other big brands. Why? Alta Gracia is the label of a South Carolina company that is carving a niche by paying above-average wages and promoting safe, humane working conditions at its Domini- can Republic factory. Georgetown belongs to a nationwide apparel consortium that includes 6 180 schools that are pressuring the industry by making a commitment to do business with Controlling companies with ethical and socially responsible practices. The effect has been small but no- ticeable. The threat of losing out on the $4 billion market for apparel branded with university logos has gotten the attention of managers at large multinational corporations. “They target young people with their advertising, but they have not respected us enough to realize we won’t mindlessly consume their product,” said recent Georgetown graduate Natalie Margolis.2 Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 76 Part 2 The Environment of Management Growing concerns over conditions in low-wage overseas factories is a big environmen- tal issue for managers in retail organizations today, as well as for those in manufacturers such as Nike and Apple that use overseas contractors. However, managers face many chal- lenges from both the external and internal environments. This chapter explores in detail components of the external environment and how they affect the organization. The chapter also examines a major part of the organization’s internal environment—corporate culture. Corporate culture is both shaped by the external environment and shapes how managers respond to changes in the external environment. The External Environment The external organizational environment includes all elements existing outside the boundary of the organization that have the potential to affect the organization.3 The environment includes competitors, resources, technology, and economic conditions that influence the organization. It does not include those events so far removed from the orga- nization that their impact is not perceived. The organization’s external environment can be conceptualized further as having two components: task and general environments, as illustrated in Exhibit 3.1.4 The task environment is closer to the organization and includes the sectors that conduct day- to-day transactions with the organization and directly influence its basic operations and performance. It is generally considered to include competitors, suppliers, customers, and the labor market. Students and suppliers are major elements of the task environment for university bookstores, for example. The general environment affects organizations indi- rectly. It includes social, economic, legal-political, international, natural, and technological factors that influence all organizations about equally. Changes in federal regulations or an economic recession are part of the organization’s general environment, as are shifting social attitudes toward matters such as how and where the products we use are made. These events do not directly change day-to-day operations, but they do affect all organizations eventually. A new view of the environment argues that organizations are now evolving into busi- ness ecosystems. An organizational ecosystem is a system formed by the interaction among a community of organizations in the environment. An ecosystem includes organi- zations in all the sectors of the task and general environments that provide the resource and information transactions, flows, and linkages necessary for an organization to thrive.5 For example, Apple’s ecosystem includes hundreds of suppliers and millions of customers for the products that it produces across several industries, including consumer electronics, Internet services, mobile phones, personal computers, and entertainment.6 exhibit 3.1 General Environment Dimensions of the Organi- Technological zation’s General, Task, and Task Environment Internal Environments Customers Natural Competitors Internal Environment Sociocultural Employees Culture Suppliers Economic Management Labor Market Legal/Political International Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Chapter 3 The Environment and Corporate Culture 77 The organization also has an internal environment, which includes the elements within the organization’s boundaries. The internal environment is composed of current employees, management, and especially corporate culture, which defines “It is not the strongest of employee behavior in the internal environment and how well the organization will adapt to the external environment. the species that survives, Exhibit 3.1 illustrates the relationship among the task, general, nor the most intelligent and internal environments. As an open system, the organization draws resources from the external environment and releases goods that survives. It is the one 2 and services back to it. We will first discuss the two components that is the most adaptable Environment of the external environment in more detail. Later in the chapter, we examine corporate culture, the key element in the internal to change.” environment. Other aspects of the internal environment, such —Charles Darwin (1809–1882), naturalist as structure and technology, are covered in later chapters of this book. Task Environment The task environment includes those sectors that have a direct working relationship with the organization, among them customers, competitors, suppliers, and the labor market. Customers Those people and organizations in the environment that acquire goods or services from the organization are customers. As recipients of the organization’s output, customers are important because they determine the organization’s success. Organizations have to be responsive to marketplace changes. Consider Encyclopædia Britannica, where sales of the set of 32 bound volumes declined from 100,000 in 1990 to barely 3,000 in 1996. Customers no longer had time for door-to-door salespeople and no longer wanted a 129-pound set of books. Managers knew something had to be done. They followed a carefully planned strategic transition to remake Encyclopædia Britannica into a totally different organization by 2012, when the last bound volumes were printed and the com- pany’s digital strategy was fully in place. Managers placed heavy emphasis on their K–12 customers, where Britannica’s high editorial quality had always been appreciated. Con- tent is updated every 20 minutes by teams of scholars from around the world. Today, more than half of U.S. students and teachers have access to online Britannica content, and the service is growing even faster overseas. The company also has around 500,000 household subscribers, who prefer quality and credibility over Wikipedia’s quantity and free access.7 Competitors Organizations in the same industry or type of business that provide goods or services to the same set of customers are referred to as competitors. Competitors are con- stantly battling for loyalty from the same group of customers. For example, in early 2013, Samsung became the world leader in smartphone sales, topping Apple in several countries, and the competition has gotten even hotter as Samsung has stepped up the challenge in the U.S. market. The company held its first promotional event for its flag- ship smartphone, the Galaxy S4, at a packed event at New York’s Radio City Music Hall. Apple’s iPhone still has strong brand loyalty, but the buzz at the moment is on Samsung’s side. A survey found that first-time smartphone buyers preferred Samsung by about a 3-to-1 margin. “This is Samsung’s time right now,” said Gene Munster, an analyst at Piper Jaffray.8 Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 78 Part 2 The Environment of Management Concept Connection Suppliers provide the raw materials that Suppliers At the Hyundai Motor Company manufacturing the organization uses to produce its output. plant in Alabama, auto parts A candy manufacturer, for example, may use are sourced from nearly 20 suppliers from around the globe for ingredi- suppliers located in that ents such as cocoa beans, sugar, and cream. A same state. While some parts are sourced locally, others supply chain is a network of multiple busi- come from great distances, nesses and individuals that are connected and Hyundai deliberately through the flow of products or services. For seeks out women- and Toyota, the supply chain includes over 500 minority-owned businesses across the globe. The company global parts suppliers organized by a produc- is committed to maintaining tion strategy called just-in-time ( JIT).9 JIT diversity in its supply chain. improves an organization’s return on invest- ment, quality, and efficiency because much less money is invested in idle inventory. In the 1970s, the Japanese taught U.S. companies how to boost profit by keeping inventories lean through JIT. “Instead of months’ worth of inventory, there are now days and even hours of inventory,” says Jim Lawton, head of Hyundai supply management solutions at consultant Dun & Bradstreet. Lawton points out that there is a downside, however—one that be- came dramatically clear after a March 2011 earthquake in Japan: “If supply is disrupted, as in this situation, there’s nowhere to get product.”10 The quake, which triggered massive tsunami waves and caused the second-worst nuclear Hot disaster in history, at the Fukushima power plant along the Pacific coastline, revealed the Topic fragility of today’s JIT supply chains. Japanese parts suppliers for the global auto industry were shut down, disrupting production at auto factories around the world. “Even a missing $5 part can stop an assembly line,” said a Morgan Stanley representative. Because of this natural disaster, Toyota’s production fell by 800,000 vehicles—10 percent of its annual output. Despite the potential for such disruptions, most companies aren’t willing to boost inventories to provide a cushion. Even a slight increase in inventory can cost companies millions of dollars.11 Labor Market The labor market represents people in the environment who can be hired to work for the organization. Every organization needs a supply of trained, qualified personnel. Unions, employee associations, and the availability of certain classes of employees can influence the organization’s labor market. Labor market forces affecting organizations right now include (1) the growing need for computer-literate knowledge workers; (2) the neces- sity for continuous investment in human resources through recruitment, education, and training to meet the competitive demands of the borderless world; and (3) the effects of international trading blocs, automation, outsourcing, and shifting facility locations on labor dislocations, creating unused labor pools in some areas and labor shortages in others. Changes in the various sectors of the general and task environments can create tre- mendous challenges, especially for organizations operating in complex, rapidly changing industries. Costco Wholesale Corporation, with warehouses throughout the world, is an example of an organization operating in a highly complex environment. Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Chapter 3 The Environment and Corporate Culture 79 Costco Wholesale Corporation, a no-frills, self-service warehouse club, operates an interna- Innovative tional chain of membership warehouses offering a limited selection of products at reduced Way prices. Costco’s complex environment is illustrated in Exhibit 3.2. Costco Wholesale Costco’s business model focuses on maintaining its image as a pricing authority, consis- Corporation tently providing the most competitive prices. “Everything we do is to provide goods and ser- vices to the customer at a lower price,” said Jim Sinegal, co-founder and recently retired CEO. New CEO Craig Jelinek has vowed that a low-price philosophy will continue to guide the company. Costco warehouses are designed to operate efficiently and to communicate value to members.The warehouse decor—high ceilings, metal roofs, exposed trusses—keeps costs 2 low and contributes to the perception that Costco is for serious shoppers seeking serious Environment bargains. Other strategies for keeping prices low include offering only around 4,000 unique products at a time (by contrast, Walmart offers over 100,000) and negotiating low prices with suppliers. Only about 28 percent of sales come from outside the United States, but same store sales in overseas markets have been growing about four times faster than those in the United States. The biggest part of Jelinek’s plan is to increase Costco’s international presence. In a 2013 interview, he said that the company would open its first locations in France and Spain within the next two years, and that two-thirds of Costco’s expansion over the next five years would be international, with a focus on Japan, Taiwan, and South Korea. Costco’s biggest competitive advantage is its loyal workforce. “Costco compensates em- ployees very well—well above the industry in terms of wages and benefits,” says R. J. Hot- tovey, a retail analyst at Morningstar. When the economic downturn worsened in late 2009 and many retailers cut wages and issued layoffs, Costco handed out raises. The happiness and morale of employees is often overlooked in the retail industry, but not at Costco. Thanks to its good treatment of workers, Costco has one of the lowest turnovers in the retail industry (around 5 percent), and since 2009, sales have grown 39 percent and the stock price has doubled.12 Remember This The organizational environment, consisting of both The internal environment includes elements within the task and general environments, includes all elements organization’s boundaries, such as employees, manage- existing outside the boundary of the organization that ment, and corporate culture. have the potential to affect the organization. Customers are part of the task environment and ­include An organizational ecosystem includes organizations in people and organizations that acquire goods or services all the sectors of the task and general environments that from the organization. provide the resource and information transactions, flows, Competitors are organizations within the same and linkages necessary for an organization to thrive. ­industry or type of business that vie for the same set The general environment indirectly influences all of customers. organizations within an industry and includes five Suppliers provide the raw materials the organization dimensions. uses to produce its output. The task environment includes the sectors that conduct The labor market represents the people available for day-to-day transactions with the organization and hire by the organization. directly influence its basic operations and performance. General Environment The dimensions of the general environment include international, technological, sociocul- tural, economic, legal-political, and natural. Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 80 Part 2 The Environment of Management exhibit 3.2 General Environment The External Environment Technological of Costco Wholesale E-commerce Web sites in U.S. Corporation and Canada generated $2.1 million in 2012 sales; added a Web site in the United Kingdom Uses technology to manage store and corporate operations Introduced mobile apps for Apple and Android in 2012 Task Environment Natural Greenhouse inventories to track Customers emission trends 69.9 million members Energy-efficient building design 30% are small business owners Committed to aggressive Appeals to customers seeking environmental protection in the gasoline business high volume and low price 89% membership renewal Sociocultural Focuses on bulk needs of families Competitors in suburban communities Targets wide range of customers Vigorous and widespread Average customer income is Sam’s Club, BJ’s Wholesale Club, $57,000 Walmart, The Home Depot, Lowe’s Costco Wholesale Growing threat from online Corporation competition, including Amazon.com Economic Negatively affected by economic slowdown Suppliers Susceptible to fluctuating Brand-name vendors, such as currency exchange rates P&G, Kraft, and Whirlpool Value pricing drives customer Builds close supplier relationships traffic to keep prices low Supplier Diversity Program for minority- and women-owned businesses Legal/Political Managers pushing for increase in government-mandated minimum wage Offers government-required Labor Market health insurance for employees 172,000 loyal, highly Supports privatization of liquor productive employees sales (license states) Considers employees a competitive advantage Lean and stable executive ranks Labor & benefits comprise 70% of operating costs International Strong growth expected in Asian markets 28% of sales from countries outside the U.S. SOURCES: Costco Wholesale Annual Report 2012, Costco Wholesale Corporation Investor Relations Web site, http://phx.corporate-ir.net/phoenix.zhtml?c=83830&p=irol-reportsannual (accessed August 26, 2013); Brad Stone, “Costco CEO Craig Jelinek Leads the Cheapest, Happiest Company in the World,” Bloomberg Businessweek (June 6, 2013), http://www.businessweek.com/articles/2013-06-06/costco-ceo-craig-jelinek-leads-the-cheapest -happiest-company-in-the-world (accessed August 26, 2013); “Costco Wholesale Corporation,” Marketline (April 30, 2012): 3–9; Alaric DeArment, “Costco’s Lobbying Changes WA’s Liquor Laws: Who Is Next?” Drug Store News, (December 12, 2011): 12; and Sharon Edelson, “Costco Keeps Formula as It Expands,” Women’s Wear Daily (January 30, 2012): 1. Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Chapter 3 The Environment and Corporate Culture 81 International In his book The World Is Flat, Thomas Friedman challenges managers to view global markets as a level playing field where geographical divisions are irrelevant.13 A flat world, Friedman argues, creates opportunities for companies to expand into global markets and build a global supply chain. As managers expand into global markets, they have to con- sider the international dimension of the external environment, which includes events originating in foreign countries, as well as new opportunities for U.S. companies in other countries. The international environment provides new competitors, customers, and sup- pliers and shapes social, technological, and economic trends as well. 2 Consider the mixed results Starbucks experienced as it expanded into European mar- Environment kets. Starbucks fans packed stores in Germany and the United Kingdom, for example, but sales and profits in the company’s French stores were disappointing. In fact, after eight years operating 63 stores, Starbucks never turned a profit in France. What international factors could be hindering the company’s success in France? First, a sluggish economy and Europe’s debt crisis hurt sales. Plus, Starbucks faced high rent and labor costs in France, which eroded profits. The company was also slow to tailor the Starbucks experience to the French café culture. Whereas a New Yorker might grab a paper cup of coffee to go, the French prefer to linger over a large, ceramic mug of coffee with friends in a café-style environment. To respond to these challenges, Starbucks launched a multimillion-dollar campaign in France that includes an upscale makeover of stores, with more seating and customized beverages and blends that appeal to local tastes.14 The international environ- ment will be discussed in more detail in the next chapter. Technological The technological dimension of the general environment includes scientific and tech- nological advancements in a specific industry, as well as in society at large. Advances in technology drive competition and help innovative companies gain market share. However, some industries have failed to adapt to technological shifts and are facing decline. Manag- ers at Fuji got high marks for seeing the trend toward digital cameras and responding faster than Kodak, but even they didn’t anticipate or prepare for the wireless revolution. Adding WiFi technology for Internet connectivity is common in many consumer electronics, but for the most part, digital cameras remain stand-alone devices. It’s an oversight that is hurt- ing not only Fuji, but also Panasonic, Olympus, Canon, and other camera makers. The number of photos being taken is soaring, but most people are using their smartphones so they can easily share photos on Facebook, Instagram, and other social media. Shipments of compact digital cameras plummeted 42 percent in the first five months of 2013. “It’s the classic case of an industry that is unable to adapt,” said Christopher Chute, a digital imaging analyst at research firm IDC.15 Sociocultural The sociocultural dimension of the general environment represents the demographic characteristics, norms, customs, and values of the general population. Important socio- cultural characteristics are geographical distribution and population density, age, and edu- cation levels. Today’s demographic profiles are the foundation of tomorrow’s workforce and consumers. By understanding these profiles and addressing them in the organization’s business plans, managers prepare their organizations for long-term success. Smart manag- ers may want to consider how the following sociocultural trends are changing the con- sumer and business landscape: 1. A new generation of technologically savvy consumers, variously called Gen Z, Re- Gens, the Connected Generation, or simply Post-Millennials, has intimately woven technology into every aspect of their lives. Mobile devices shape the way they commu- nicate, shop, travel, and earn college credits. This generation will make up 40 percent of Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 82 Part 2 The Environment of Management Concept Connection   the population in the United States and Europe by 2020 and will constitute the Shrewd home builders are responding to shifts in the largest cohort of consumers worldwide. sociocultural dimension. Predictions of what they will value as Aging baby boomers have consumers include brands that are trust- been a mainstay of the worthy and products and companies that housing market during the economic downturn, and what show a commitment to environmental, they want are smaller houses social, and fiscal responsibility.16 designed with features to help them stay in their own 2. Young people are also leading the trend homes as long as possible. For toward widespread social equality. Polls example, this award-winning show that views about social mores and Green Lake Residence in lifestyles are shifting. The percentage say- Seattle, Washington, designed by Emory Baldwin of ZAI, Inc., ing society should encourage greater toler- offers an efficient, adaptable ance of people with different lifestyles and plan that includes no-step backgrounds increased from 29 percent in entries and closets stacked on 1999 to 44 percent in 2013. Support for Jay Clendenin / Aurora Photos top of each other that can be converted into an elevator gay marriage increased to 53 percent from shaft if necessary. 30 percent in 2004, and a number of states already have passed laws allowing same- sex marriage.17 Another poll shows that 57 percent of people support a path to citi- zenship for illegal immigrants, and 48 per- cent support the legalization of marijuana.18 3. The most recent U.S. census data show that more than half of all babies born in 2011 were members of minority groups, the first time that has happened in U.S. history. Hispanics, African Americans, Asians, and other minorities represented 50.4 percent of births in 2011. The nation’s growing diversity has huge implications for business.19 Economic The economic dimension represents the general economic health of the country or re- gion in which the organization operates. Consumer purchasing power, the unemployment rate, and interest rates are part of an organization’s economic environment. Because organi- zations today are operating in a global environment, the economic dimension has become exceedingly complex and creates enormous uncertainty for managers. In the United States, many industries, such as banking, are finding it difficult to make a comeback despite the slowly rebounding economy. KeyCorp, one of the nation’s largest banking-based financial services organizations, reports an uneven turnaround, with a mix of both good and bad news. While KeyCorp faces a reduction in total assets, a drop in revenue, and a decline in the profit margin in the lending business, it also reports fewer delinquent loans and strong demand from corporate customers for new loans. With banks stretching from Alaska to Maine, KeyCorp has benefited from geographic diversity because some re- gions of the United States rebounded faster than others. “As we are in economic recovery... our business model, our size, our geographic diversity is an advantage,” said Beth Mooney, KeyCorp’s CEO. “Conventional wisdom five years ago would have said differently.”20 Legal-Political The legal-political dimension includes government regulations at the local, state, and federal levels, as well as political activities designed to influence company behavior. The U.S. political system encourages capitalism, and the government tries not to overregulate business. However, government laws do specify rules of the game. The federal govern- ment influences organizations through the Occupational Safety and Health Administra- tion (OSHA), Environmental Protection Agency (EPA), fair trade practices, libel statutes Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Chapter 3 The Environment and Corporate Culture 83 Green Power Reaching Mythical Proportions In Greek mythology, Nike was the winged goddess Victory in sustainability also means influenc- of victory. With headquarters in Portland, Oregon— ing other companies. Nike CSR staff spearheaded 2 considered one of the world’s “greenest” cities— GreenXchange, which brought together compa- Environment Nike, Inc. has a corporate culture centered around nies to explore opportunities, share information, a commitment to victory, both on the athletic field and keep abreast of trends and issues. As Nike’s sus- and as one of the top 100 most sustainable corpora- tainability influence grows, its cultural mantra re- tions. Some companies give a nod to sustainability flects the winged deity: “There is no finish line for by reducing toxins, but Nike goes further. The com- environmental efforts—we can always go further.” pany’s predictive tool, the Considered Design Index, monitors the total environmental impact of the Sources: Marc J. Epstein, Adriana Rejc Buhovac, and Kristi Yuthas, “Why running shoe production cycle, scoring everything Nike Kicks Butt in Sustainability,” Organizational Dynamics 39 (2010): 353–356; and “Sustainable Business at Nike, Inc.,” Nike corporate Web from fabric to reducing waste. site, http://nikeinc.com/pages/responsibility (accessed July 24, 2012). allowing lawsuits against business, consumer protection and privacy legislation, product safety requirements, import and export restrictions, and information and labeling require- ments. One of the most recent challenges in the legal-political dimension is the Patient Protection and Affordable Care Act, sometimes called Obamacare (passed in 2010 and upheld by the Supreme Court as constitutional in 2012). The act requires that companies provide health insurance for employees or pay penalties.21 Managers in many companies work closely with national lawmakers, educating them about products and services and legislation’s impact on their business strategies. Long before its NASDAQ debut in May 2012, for ex- ample, Facebook had been quietly befriending the Concept Connection nation’s top lawmakers. Managers hired former political aides with access to top leaders in both parties and had them lead training sessions on using Facebook to communicate with voters. In addition, Facebook stepped up its lobbying efforts and set up a political action committee. “It’s smart Ariel Skelley/Blend Images/Getty Images advocacy 101,” said Rey Ramsey, CEO of Tech- Net, an industry group that includes Facebook. What you ultimately want is for a legislator to understand the consequences of their actions.”22 Natural In response to pressure from environmental ad- vocates, organizations have become increasingly Whether they are motivated by a desire to preserve natural sensitive to the Earth’s diminishing natural re- resources, to impress their customers with their social responsibility, sources and the environmental impact of their or to comply with new legislation, many companies are looking for products and business practices. As a result, the ways to treat the natural environment better. Some are doing it by switching to renewable energy sources, while others are trying natural dimension of the external environment is to reduce pollution. Promoting the use of cloth carrying bags like growing in importance. The natural dimension these is just one example of how retailers can help minimize the includes all elements that occur naturally on Earth, amount of trash going into the world’s landfills. including plants, animals, rocks, and resources Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 84 Part 2 The Environment of Management such as air, water, and climate. Protection of the natural environment is emerging as a critical policy focus around the world. Governments are increasingly under pressure to explain their performance on pollution control and natural resource management. Nations with the best environmental performance, along with some comparison countries, are listed in Exhibit 3.3. Note that the top performer is Switzerland, which gets most of its power from renewable sources—hydropower and geothermal energy. The natural dimension is different from other sectors of the general environment be- cause it has no voice of its own. Influence on managers to meet needs in the natural envi- ronment may come from other sectors, such as government regulation, consumer concerns, the media, competitors’ actions, or even employees.23 For example, environmental groups advocate various action and policy goals that include reduction and cleanup of pollution, development of renewable energy resources, reduction of greenhouse gases such as carbon dioxide, and sustainable use of scarce resources such as water, land, and air. The oil spill in Hot the Gulf of Mexico in 2010 brought environmental issues to the forefront. Months after a Topic BP-Transocean rig at the Deepwater Horizon oil well exploded, hundreds of thousands of gallons of oil were still flowing into open water each day, adding to the millions of gallons already contaminating the water and beaches along the coast of Louisiana, Mississippi, Alabama, and Florida, and threatening the region’s fish, birds, turtles, and vegetation. “One of the last pristine, most biologically diverse coastal habitats in the country is about to get wiped out,” said Felicia Coleman, who directs the Florida State University Coastal and exhibit 3.3 2012 Environmental Rank Country Score Performance Index 1 Switzerland 76.69 2 Latvia 70.37 3 Norway 69.92 4 Luxembourg 69.2 5 Costa Rica 69.03 6 France 69 7 Austria 68.92 8 Italy 68.9 9 Sweden 68.82 10 United Kingdom 68.82 11 Germany 66.91 12 Slovakia 66.62 13 Iceland 66.28 14 New Zealand 66.05 15 Albania 65.85 37 Canada 58.41 49 United States 56.59 116 China 42.24 125 India 36.23 132 Iraq 25.32 SOURCE: 2012 Environmental Performance Index, Yale Center for Environmental Law and Policy, Yale University, http://epi.yale.edu/epi2012/rankings; and Center for International Earth Science Information Network, Columbia University. Note: The scores for each country are based on 25 performance indicators covering both environmental public health and ecosystem vitality, such as air pollution and greenhouse gas emissions. Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Chapter 3 The Environment and Corporate Culture 85 Marine Laboratory. “And there’s not much we can do about it.” The effects of the devastat- ing spill are likely to continue for dozens of years.24 Remember This The international dimension of the external The economic dimension represents the general environment represents events originating in foreign economic health of the country or region in which countries, as well as opportunities for U.S. companies the organization operates. 2 in other countries. The legal-political dimension includes government Environment The technological dimension of the general environ- regulations at the local, state, and federal levels, as ment includes scientific and technological advances in well as political activities designed to influence society. company behavior. The sociocultural dimension includes demographic The natural dimension includes all elements that characteristics, norms, customs, and values of a popula- occur naturally on Earth, including plants, animals, tion within which the organization operates. rocks, and natural resources such as air, water, and climate. The Organization–Environment Relationship Why do organizations care so much about factors in the external environment? The rea- son is that the environment creates uncertainty for organization managers, and they must respond by designing the organization to adapt to the environment. Environmental Uncertainty Uncertainty means that managers do not have sufficient information about environmen- tal factors to understand and predict environmental needs and changes.25 As indicated in Exhibit 3.4, environmental characteristics that influence uncertainty are the num- ber of factors that affect the organization and the extent to which those factors change. High exhibit 3.4 The External Environment High and Uncertainty Adapt to Uncertainty Environment Rate of Change in Factors in Environment Low Uncertainty Low Low High Number of Factors in Organization Environment Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 86 Part 2 The Environment of Management Managers at a large multinational like Costco must deal with thousands of factors in the external environment that create uncertainty. When external factors change rapidly, the organization experiences high uncertainty; examples of companies that often face such problems are telecommunications and aerospace firms, computer and electron- Refer to your score ics companies, and Internet organizations. Consider the uncertainty that Nintendo on the opening managers face with a deluge of downloadable inexpensive games for smartphones questionnaire to and tablets. Traditional console game makers like Nintendo are confronting a sea of see how well you change in technologies and consumer tastes. In 2012, Nintendo posted the first loss might adapt as a in its history as a video game company.26 new manager in an When an organization deals with only a few external factors and these factors uncertain environment. are relatively stable, such as those affecting soft-drink bottlers or food processors, managers experience low uncertainty and can devote less attention to external issues. Adapting to the Environment Environmental changes may evolve unexpectedly, such as shifting customer tastes for video and computer games or social media sites, or they may occur violently, such as the devastating Japanese earthquake and tsunami in 2011. The level of turbulence created by an environmental shift will determine the type of response that managers must make in order for the organization to survive. Managers continuously scan the business horizon for both subtle and dramatic environmental changes, also called strategic issues, and identify those that require strategic responses. Strategic issues are “events or forces either inside or outside an organization that are likely to alter its ability to achieve its objectives.” As en- vironmental turbulence increases, strategic issues emerge more frequently.27 Managers use several strategies to adapt to these strategic issues, including business intelligence appli- cations, attempts to influence the environment, creating interorganizational partnerships, and mergers or joint ventures. Business Intelligence Organizations depend on information, and companies that most effectively acquire, inter- pret, disseminate, and use information come out as winners. Managers have learned the importance of not only being aware of what’s going on inside the organization, but also getting a handle on what’s going on in the external environment. Boundary spanning links to and coordinates the organization with key elements in the external environment.28 One area of boundary spanning is the use of business intelligence, which results from using sophisticated software to search through internal and external data to spot patterns, trends, and relationships that might be significant. The fastest-growing segment of busi- ness intelligence is big data analytics. As described in Chapter 2, big data analytics refers to searching and examining massive, complex sets of data to uncover hidden patterns and correlations and make better decisions.29 Big data analytics is becoming a driving force in many organizations, with 85 percent of Fortune 500 companies reporting in 2012 that they have launched big data initiatives.30 One of the best-known examples of the use of data analytics among the general popula- tion is in the sports world. The popular book Moneyball: The Art of Winning an Unfair Game, later made into a movie starring Brad Pitt, tells the story of how the Oakland Ath- letics general manager Billy Beane built a winning team by analyzing previously ignored player statistics.31 Today, most sports teams use sophisticated data analytics programs to analyze player statistics. Similarly, businesses use big data analytics to gain insights that can improve performance. Some airlines use a service called RightETA, from PASSUR Aerospace, a provider of decision support technologies for the aviation industry, to elimi- nate gaps between estimated and actual flight arrival times. PASSUR collects a wide range of multidimensional data and can analyze patterns spanning more than a decade to Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Chapter 3 The Environment and Corporate Culture 87 understand what happens under specific conditions. The company says that enabling airlines to know when planes are going to land and plan accordingly can save several million dollars a year.32 Banks such as Capital One analyze customers based on credit Read the “Ethical risk, usage, and multiple other criteria to match customer characteristics with appro- Dilemma” on page 102, priate product offerings. Kaiser Permanente collects petabytes of health data on its which pertains to 8 million members. Some of that data was used in a study sponsored by the U.S. CI. Do you have the Food and Drug Administration (FDA) that identified a greater risk of heart attacks courage to risk your among users of the pain medication Vioxx.33 job by challenging the Business intelligence and big data analytics are also related to the growing area of boss’s inappropriate 2 boundary spanning known as competitive intelligence (CI), which refers to activities to use of confidential Environment get as much information as possible about one’s rivals.34 information? Influence the Environment Boundary spanning is an increasingly important task in organizations because environ- mental shifts can happen quickly in today’s world. Managers need good information about their customers, competitors, and other elements to make good decisions. Boundary span- ning also includes activities that represent the organization’s interest in the environment and attempt to influence elements of the external environment.35 General Electric (GE) spends more than $39 million on political lobbying to influence government officials to take actions that positively affect the company’s business performance. GE’s political lob- byists span the boundary between the organization and the government, a critical aspect of the external environment.36 One currently intense area of lobbying relates to the online sales tax bill in the U.S. Congress. Several states have passed laws requiring that consumers pay the so-called e-sales