Chapter 3 - The Environment and Corporate Culture PDF

## Chapter 3 - The Environment and Corporate Culture ### Chapter Outline - Are You Fit for Managerial Uncertainty? - The External Environment - The Organization-Environment Relationship - The Task Environment - The General Environment: Corporate Culture - Types of Culture -...

## Chapter 3 - The Environment and Corporate Culture ### Chapter Outline - Are You Fit for Managerial Uncertainty? - The External Environment - The Organization-Environment Relationship - The Task Environment - The General Environment: Corporate Culture - Types of Culture - Learning Outcomes ### Learning Outcomes After studying this chapter, you should be able to: 1. Define an organizational ecosystem and how the general and task environments affect an organization's ability to thrive. 2. Explain the strategies managers use to help organizations adapt to uncertain or turbulent environment. 3. Define corporate culture. 4. Provide organizational examples of symbols, stories, heroes, slogans and ceremonies and explain how they relate to corporate culture. 5. Describe four types of corporate culture. 6. Examine the relationship between culture, corporate values, and business performance. 7. Define a cultural leader and explain the tools that a cultural leader uses to create a high-performance culture. ### Are You Fit for Managerial Uncertainty? **INSTRUCTIONS:** 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. 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. 7. Expressed a controversial opinion to bosses and peers. 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 case, an important quality for a new manager is "mindfulness," which includes the qualities of 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 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. ### 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. The environment includes competitors, resources, technology, and economic conditions that influence the organization. It does not include those events so far removed from the organization 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. 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 indirectly. 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 business ecosystems. An **organizational ecosystem** is a system formed by the interaction among a community of organizations in the environment. An ecosystem includes organizations in all the sectors of the task and general environments that provide the resources and information transactions, flows, and linkages necessary for an organization to thrive. 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. ### The 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 company'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. Content 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. #### 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 constantly 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 flagship 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. #### Suppliers: Suppliers provide the raw materials that the organization uses to produce its output. A candy manufacturer, for example, may use suppliers from around the globe for ingredients such as cocoa beans, sugar, and cream. A supply chain is a network of multiple businesses and individuals that are connected through the flow of products or services. For Toyota, the supply chain includes over 500 global parts suppliers organized by a production strategy called just-in-time (JIT). JIT improves an organization's return on investment, 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 supply management solutions at consultant Dun & Bradstreet. Lawton points out that there is a downside, however-one that became dramatically clear after a March 2011 earthquake in Japan: "If supply is disrupted, as in this situation, there's nowhere to get product." The quake, which triggered massive tsunami waves and caused the second-worst nuclear disaster in history, at the Fukushima power plant along the Pacific coastline, revealed the 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. #### 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 necessity 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 tremendous 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. ### The Internal Environment 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 employee behavior in the internal environment and how well the organization will adapt to the external environment. Exhibit 3.1 illustrates the relationship among the task, general, and internal environments. As an open system, the organization draws resources from the external environment and releases goods and services back to it. We will first discuss the two components of the external environment in more detail. Later in the chapter, we examine corporate culture, the key element in the internal environment. Other aspects of the internal environment, such 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 company'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. Content 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. #### 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 constantly 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 flagship 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. #### Suppliers Suppliers provide the raw materials that the organization uses to produce its output. A candy manufacturer, for example, may use suppliers from around the globe for ingredients such as cocoa beans, sugar, and cream. A supply chain is a network of multiple businesses and individuals that are connected through the flow of products or services. For Toyota, the supply chain includes over 500 global parts suppliers organized by a production strategy called just-in-time (JIT). JIT improves an organization's return on investment, 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 supply management solutions at consultant Dun & Bradstreet. Lawton points out that there is a downside, however-one that became dramatically clear after a March 2011 earthquake in Japan: "If supply is disrupted, as in this situation, there's nowhere to get product." The quake, which triggered massive tsunami waves and caused the second-worst nuclear disaster in history, at the Fukushima power plant along the Pacific coastline, revealed the 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. #### 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 necessity 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 tremendous 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. ### The General Environment The dimensions of the general environment include international, technological, sociocultural, economic, legal-political, and natural. #### 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. A flat world, Friedman argues, creates opportunities for companies to expand into global markets and build a global supply chain. To expand into global markets, they have to consider the international environment as well as the external environment, which provides new opportunities for U.S. companies operating in foreign countries, as well as new competitors, customers, and suppliers and shapes social, technological, and economic trends as well. Consider the mixed results Starbucks experienced as it expanded into European markets. 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. The international environment will be discussed in more detail in the next chapter. #### Technological: The technological dimension of the general environment includes scientific and technological 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. Managers 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 hurting 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. #### Sociocultural The sociocultural dimension of the general environment represents the demographic characteristics, norms, customs, and values of the general population. Important sociocultural characteristics are geographical distribution and population density, age, and education 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 managers may want to consider how the following sociocultural trends are changing the consumer 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 communicate, shop, travel, and earn college credits. This generation will make up 40 percent of the population in the United States and Europe by 2020 and will constitute the largest cohort of consumers worldwide. Predictions of what they will value as consumers include brands that are trustworthy and products and companies that show a commitment to environmental, social, and fiscal responsibility. 2. Young people are also leading the trend toward widespread social equality. Polls show that views about social mores and lifestyles are shifting. The percentage saying society should encourage greater tolerance of people with different lifestyles and backgrounds increased from 29 percent in 1999 to 44 percent in 2013. Support for gay marriage increased to 53 percent from 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 citizenship for illegal immigrants, and 48 percent 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 region in which the organization operates. Consumer purchasing power, the unemployment rate, and interest rates are part of an organization’s economic environment. Because organizations 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 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 regions 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 government influences organizations through the Occupational Safety and Health Administration (OSHA), Environmental Protection Agency (EPA), and many other laws and statutes, including environmental protection, trade practices, libel statutes, product safety requirements, import and export restrictions, and information and labeling requirements. 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 example, Facebook had been quietly befriending the 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 advocacy 101," said Rey Ramsey, CEO of TechNet, 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 advocates, organizations have become increasingly sensitive to the Earth’s diminishing natural resources and the environmental impact of their products and business practices. As a result, the natural dimension of the external environment is growing in importance. The natural dimension includes all elements that occur naturally on Earth, including plants, animals, rocks, and resources 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 environment is different from other sectors of the general environment because it has no voice of its own. Influence on managers to meet needs in the natural environment may come from other sectors, such as government regulation, consumer concerns, and 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 the Gulf of Mexico in 2010 brought environmental issues to the forefront. Months after the 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 Marine Laboratory. "And there's not much we can do about it." The effects of the devastating spill are likely to continue for dozens of years. ### The Organization-Environment Relationship Why do organizations care so much about factors in the external environment? The reason 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 environmental factors to understand and predict environmental needs and changes. 25 As indicated in Exhibit 3.4, environmental characteristics that influence uncertainty are the number of factors that affect the organization and the extent to which those factors change. ### The Internal Environment: Corporate Culture The internal environment within which managers work includes corporate culture, production technology, organization structure, and physical facilities. Of these, corporate culture surfaces as being extremely important to competitive advantage. The internal culture must fit the needs of the external environment and company strategy. When this fit occurs, highly committed employees create a high-performance organization that is tough to beat. 46 Most people don't think about culture; it's just "how we do things around here" or "the way things are here." However, managers have to think about culture. Culture guides how people within the organization interact with one another and how the organization interacts with the external environment, thus playing a significant role in organizational success. Organizational culture has been defined and studied in many and varied ways. For the purposes of this chapter, we define culture as the set of key values, beliefs, understandings, and norms shared by members of an organization. 47 The concept of culture helps managers understand the hidden, complex aspects of organizational life. Culture is a pattern of shared values and assumptions about how things are done within the organization. This pattern is learned by members as they cope with external and internal problems and taught to new members as the correct way to perceive, think, and feel. Although strong corporate cultures are important, they can also sometimes promote negative values and behaviors. When the actions of top leaders are unethical, for instance, the entire culture can become contaminated. Consider what happened at News Corporation, a corporate giant with a lucrative string of media properties all over the world. Rupert Murdoch, chairman and CEO, has been accused of frequently applying unethical, sometimes seedy tactics in his business dealings. In addition, Murdoch has allegedly used "blunt force" spending to silence critics with multimillion dollar payoffs. "Bury your mistakes," Murdoch was fond of saying. 48 But he couldn't bury the scandal that rocked the organization after journalists working for News Corporation newspapers allegedly hacked private voice-mail messages and offered bribes to police in the pursuit of hot scoops. As reported in *The New York Times*, journalists went so far as to hack the voice mail of a murdered 13-year-old girl, Milly Dowler, while she was still listed as missing. 49 As this example illustrates, the values and behaviors of top leaders have the potential to shape significantly the decisions made by employees throughout the organization. Mark Lewis, the lawyer for the family of the murdered girl, pointed out: "This is not just about one individual, but about the culture of an organization."50 Culture can be analyzed at two levels, as illustrated in Exhibit 3.6.51 At the surface level are visible artifacts, which include things such as manner of dress, patterns of behavior, physical symbols, organizational ceremonies, and office layout. Visible artifacts are all the things one can see, hear, and observe by watching members of the organization. At deeper, less obvious level are values and beliefs, which are not observable but can be discerned from how people explain and justify what they do. Members of the organization hold some values at a conscious level. These values can be interpreted from the stories, language, and symbols that organization members use to represent them. Some values become so deeply embedded in a culture that members are no longer consciously aware of them. These basic, underlying assumptions and beliefs are the essence of culture and subconsciously guide behavior and decisions. In some organizations, a basic assumption might be that people are essentially lazy and will shirk their duties whenever possible; thus, employees are frequently supervised and given strict orders. Organizations operate on the basic assumption that people want to do a good job; in these organizations, employees are given freedom and responsibility, for example, which promotes trust and work cooperation. At innovative companies, the corporate culture promotes trust, reward bossless organizations that promote innovation, and colleagues that value the bossless trend. This chapter's "Manager's Shoptalk" further describes Menlo Innovations, founded in 2001, became one of Inc. 500's fastest-growing privately held firms in the United States. Menlo's bossless hiring process is called "extreme interviewing," and it bears a striking resemblance to speed dating. Applicants sometimes five for each open position-are brought into the offices for a series of rapid-fire interviews with a range of current employees. The emphasis is on "kindergarten skills": geniality, curiosity, generosity. Technical proficiency is less important than a candidate’s "ability to make [his or her] partner look good." (Sample interview question: "What is the most challenging bug that you helped someone else fix?") #### Symbols A symbol is an object, act, or event that conveys meaning to others. Symbols can be considered a rich, nonverbal language that vibrantly conveys the organization's important values concerning how people relate to one another and interact with the environment. 53 At Menlo Innovations, the open workplace is a physical symbol. Mindy Grossman, CEO of HSN Inc., found that sometimes even mundane things can be highly symbolic. When she became CEO, Grossman found a business that was fundamentally broken and employees who were beaten down and uninspired. To fix it, she needed to change the culture. She used physical symbols to give people hope and motivation. One day, Grossman brought in Dumpsters to headquarters and told people to start throwing away all the broken-down furniture and clutter. Then, she had the buildings pressure-washed and painted and bought everyone a new Herman Miller Aeron chair. 54 For employees, these acts symbolized a new company value of caring for employees. #### Stories A **story** is a narrative based on true events that is repeated frequently and shared among organizational employees. Stories paint pictures that help symbolize the firm's vision and values and help employees personalize and absorb them. 55 A frequently told story at UPS concerns an employee who, without authorization, ordered an extra Boeing 737 to ensure timely delivery of a load of Christmas packages that had been left behind in the holiday rush. As the story goes, rather than punishing the worker, UPS rewarded his initiative. By telling this story, UPS workers communicate that the company stands behind its commitment to worker autonomy and customer service. 56 #### Heroes: A hero is a figure who exemplifies the deeds, character, and attributes of a strong culture. Heroes are role models for employees to follow. Heroes with strong legacies may continue to influence a culture even after they are gone. Many people have wondered if the culture that Steve Jobs created at Apple would be sustained after his death in 2011. Jobs exemplified the creativity, innovation, risk taking, and boundary-breaking thinking that made the company famous. 57 When Jobs's health began to fail, Apple's board began considering replacements who could sustain the fertile culture that Jobs created. They chose Tim Cook, who long had served as second-in-command. Cook is trying to nurture a culture that reflects the values and behaviors of Apple's hero, Steve Jobs. "Apple has a culture of excellence that is, I think, so unique and so special. I’m not going to witness or permit the change of it," he said. 58 #### Slogans: A slogan is a phrase or sentence that succinctly expresses a key corporate value. Many companies use slogans or sayings to convey special meaning to employees. For example, Disney uses the slogan "The happiest place on earth." The Ritz-Carlton adopted the slogan, "Ladies and gentlemen taking care of ladies and gentlemen" to demonstrate its cultural commitment to take care of both employees and customers. "We're in the service business, and service comes only from people. Our promise is to take care of them, and provide a happy place for them to work," said general manager Mark DeCocinis, who manages the Portman Hotel in Shanghai, recipient of the "Best Employer in Asia" award for three consecutive years. 59 Cultural values can also be discerned in written public statements, such as corporate mission statements or other formal statements that express the core values of the organization. At DreamHost, a Web-hosting company where the culture reflects a serious commitment to democracy, the CEO (who was elected by employees), asked a team of workers to draft a mission statement and constitution to guide how the company makes decisions. 60 #### Ceremonies A ceremony is a planned activity at a special event that is conducted for the benefit of an audience. Managers hold ceremonies to provide dramatic examples of company values, create a bond among people by allowing them to share an important event, and anoint and celebrate heroes. 61 In a ceremony to mark its 20th anniversary, Southwest Airlines rolled out a specialty plane called the "Lone Star One," which had the Texas state flag painted on it to signify the company’s Texan roots. Later, when the National Basketball Association (NBA) chose Southwest Airlines as the league’s official airline, Southwest launched another specialty plane, the "Slam Dunk One," colored blue and orange with a large basketball painted on the nose of the plane. Today, ten specialty planes celebrate significant milestones in Southwest’s history and demonstrate key cultural values. 62 ### The Organization-Environment Relationship Why do organizations care so much about factors in the external environment? The reason 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 environmental factors to understand and predict environmental needs and changes. 25 As indicated in Exhibit 3.4, environmental characteristics that influence uncertainty are the number of factors that affect the organization and the extent to which those factors change. ### Goal Setting and Planning Overview A goal is a desired future circumstance or condition that the organization attempts to realize. Goals are important because organizations exist for a purpose, and goals define and state that purpose. A plan is a blueprint for goal achievement and specifies the necessary resource allocations, schedules, tasks, and other actions. Goals specify future ends; plans specify today's means. The concept of planning usually incorporates both ideas; it means determining the organization's goals and defining the means for achieving them. ### Levels of Goals and Plans Exhibit 7.1 illustrates the levels of goals and plans in an organization. The planning process starts with a formal mission that defines the basic purpose of the organization. Especially for external audiences The mission is the basis for the strategic (company) level of goals and plans, which in turn shapes the tactical (divisional) level and the operational (departmental) level. That is, a broad higher-level mission, such as "Improve the lives of families by providing consumer-preferred paper products for kitchen and bathroom," provides the framework for establishing more specific goals for top managers, such as "improve company profits by 5 percent next year." This might translate into "increase sales by 10 percent next year" for the manager of the Northwest sales division," and an individual salesperson might have a goal of calling on 10 percent more customers. Top managers are typically responsible for establishing strategic goals and plans that reflect a commitment to both organizational efficiency and effectiveness, as described in Chapter 1. Tactical goals and plans are the responsibility of middle managers, such as the heads of major divisions or functional units. A division manager will formulate tactical plans that focus on the major actions that the division must take to fulfill its part in the strategic plan set by top management. Operational plans identify the specific procedures or processes needed at lower levels of the organization, such as individual departments and employees. Frontline managers and supervisors develop operational plans that focus on specific tasks and processes and that help meet tactical and strategic goals. Planning at each level supports the other levels. ### The Organizational Planning Process The overall planning process, illustrated in Exhibit 7.2, prevents managers from thinking only in terms of day-to-day activities. First, managers formulate contingency and scenario plans, translating the strategic plan into action, which involves devising operational plans and operational factors needed to achieve major competitive issues. Third, managers lay out the operational factors needed to achieve major competitive issues. Third, they determine operational goals and plans, selecting the measures and targets that will be put into action. Tools for executing the plan include management-by-objectives (MBO), performance dashboards, single-use plans, and decentralized responsibility. Finally, managers periodically review plans to learn from results and shift plans as needed, starting a new planning cycle. ### Remember This - Planning is the most fundamental of the four management functions. - A goal is a desired future circumstance or condition that the organization wants to realize. - Planning is the act of determining goals and defining the means of achieving them. - A plan is a blueprint specifying the resource allocations, schedules, and other actions necessary for attaining goals. - Planning helps managers think about the future rather than thinking merely in terms of day-to-day activities. ### Goal Setting in Organizations The overall planning process begins with a mission statement and goals for the organization as a whole. Goals don't just appear by their own in organizations. Generally, managers typically have different ideas about what the goals should be. As A.G. Lafley, CEO of Procter & Gamble, puts it, "Everyone selects and interprets data about the world and comes to a unique conclusion about the best course of action. Each person tends to embrace a strategic choice as the right answer." Thus, the role of the top executive is to get people thinking as a team and negotiating about which goals are the important ones to pursue. The "Manager's Shoptalk" describes the process of coalition building that often occurs during goal setting.