Business Management Lecture 2 PDF

09:12 BUSINESS MANAGEMENT LECTURE 2 Influence of the External Environment and the Organization’s Culture LEARNING OBJECTIVE 1 Contrast the actions of managers...

09:12 BUSINESS MANAGEMENT LECTURE 2 Influence of the External Environment and the Organization’s Culture LEARNING OBJECTIVE 1 Contrast the actions of managers according to the omnipotent and symbolic views  09:12 THE MANAGER: omnipotent or symbolic? How much difference does a manager really In contrast, others have argued that much of an make in how an organization performs? organization’s success or failure is due to external forces outside managers’ control. This The view in management theory and society in perspective is called the symbolic view of general is that managers are directly responsible management. for an organization’s success or failure. We call this perspective the omnipotent view of According to this view, organizational management. performance is influenced by factors such as the economy, customers, governmental policies, Differences in an organization’s performance are competitors’ actions, industry conditions, and assumed to be due to the decisions and actions decisions made by previous managers. of its managers. Good managers anticipate change, exploit opportunities, correct poor performance, and lead their organizations. THE MANAGER: omnipotent or symbolic? Reality Suggests a Synthesis Yet in spite of these constraints, managers are not powerless. There still remains an area of In reality, managers are neither helpless nor all- discretion in which managers can exert a powerful. Internal constraints that restrict a significant amount of influence on an manager’s decision options exist within every organization’s performance—an area in which organization. These internal constraints are good managers differentiate themselves from derived from the organization’s culture. poor ones. In addition, external constraints impinge on the organization and restrict managerial freedom. The external constraints come from the organization’s environment.  09:12 Influence of the External Environment and the Organization’s Culture LEARNING OBJECTIVE 2 Describe the constraints and challenges facing managers in today’s external environment. THE EXTERNAL ENVIRONMENT: constraints and challenges The term environment refers to institutions or If change is minimal, it’s a stable one. A stable forces that are outside the organization and environment might be one with no new potentially affect the organization’s performance. competitors, few technological breakthroughs by current competitors, little activity by pressure The reason the environment is important is groups to influence the organization, and so because not all environments are the same. forth. They differ by what we call their degree of environmental uncertainty. For example: The matrix in Exhibit 3-2 shows these two aspects. The first dimension of uncertainty is the degree If the components in an organization’s of change. environment change frequently, it’s a dynamic environment.  09:12 THE EXTERNAL ENVIRONMENT: constraints and challenges The matrix in Exhibit 3-2 shows these two An organization with fewer competitors, aspects. customers, suppliers, government agencies, and so forth faces a less complex and uncertain The other dimension of uncertainty describes the environment. degree of environmental complexity, which looks at the number of components in an Complexity is also measured in terms of the organization’s environment and the extent of the knowledge an organization needs about its knowledge that the organization has about those environment. components. For example:  09:12 THE EXTERNAL ENVIRONMENT: constraints and challenges How does the concept of environmental Not surprisingly, managers have the greatest uncertainty influence managers? influence on organizational outcomes in Cell 1 and the least in Cell 4. Looking again at Exhibit 3-2, each of the four cells represents different combinations of degree Because uncertainty poses a threat to an of complexity and degree of change. organization’s effectiveness, managers try to minimize it. Cell 1 (stable and simple environment) represents the lowest level of environmental Given a choice, managers would prefer to uncertainty and Cell 4 (dynamic and complex operate in the least uncertain environments. environment), the highest. THE EXTERNAL ENVIRONMENT: constraints and challenges The environment can also be analyzed at The general environment includes everything two levels. The next sections look at those outside the organization. two levels: As shown in Exhibit 3-3, it includes a number of the general environment and the specific different components. The general environment encompasses conditions that may affect the one. organization but whose relevance isn’t clear.  09:12 the general environment All organizations operate in a macroenvironment, The Economy which is defined by general elements in the external environment relevant to strategic The economic environment affects managers’ decisions. ability to function effectively and influences their strategic choices. Interest and inflation rates Top management teams must consider external affect the availability and cost of capital, growth factors before taking action. opportunities, prices, costs, and consumer demand for products. Governments influence economies, for better or worse. The government may be a major employer and customer for business and military goods and services. Some governments spend more money than they receive, making them major borrowers in the financial markets (adding to the national debt). These government activities can increase or decrease a nation’s economic activity. the general environment Technology In addition, new technologies provide new ways to manage and communicate. Cloud computing Today a company cannot succeed without enables businesses to host their websites, build incorporating into its strategy the myriad Internet applications, track invoices, and protect technologies that continually evolve. applications from data loss or disruption among Technological advances create new products and many other uses. services, more efficient production and delivery Videoconference platforms like Skype, Zoom, techniques, and better ways of managing and and Cisco’s WebEx allow managers and communicating. employees to collaborate easily and efficiently. As technologies evolve, new industries, markets, Strategies developed around new technological and competitive niches develop. advances create a competitive advantage; Advances in technology also permit companies strategies that ignore or lag behind competitors’ to enter markets that otherwise would be technologies lead to obsolescence and extinction unavailable to them.  09:12 the general environment Laws and Regulations For example: Government policies impose strategic constraints Public policy may prevent or limit new foreign or on organizations but may also provide domestic competitors from entering an industry. opportunities through tax laws, economic Government may subsidize failing companies or policies, and international trade rulings. provide tax breaks to some. Regulators are government agencies that have Legislation may be passed to support industry the power to investigate company practices, take prices, thereby guaranteeing profits or survival. legal action to ensure compliance with laws. The government may even intervene to ensure the survival of certain key industries or companies, as it has done to help auto companies, airlines, and agricultural businesses. the general environment Demographics The education and skill levels of the workforce are crucial demographic factors. Many Proactive managers consider workforce companies must invest in training entry-level demographics in formulating their human workers, who may not possess adequate resource strategies. technical, teamwork, writing, or problem-solving Demographics are measures of various skills. characteristics of the people who make up A more diverse workforce has many advantages, groups or other social units. but managers are legally required to be inclusive Population changes influence the size and regarding women, underrepresented racial and composition of the labor force. For example, the ethnic groups, and others with respect to number of young workers will decline while the employment, advancement opportunities, and fastest-growing age group will be workers who compensation. are 55 and older, who are expected to represent They must make strategic plans to recruit, retain, over one fourth of the labor force in 2026 train, motivate, and effectively deploy people of diverse demographic backgrounds who have the skills to achieve the company’s mission.  09:12 the specific environment The bulk of management’s attention is usually The specific environment for most organizations given to the organization’s specific include one or more of the following: suppliers, environment. customers, competitors, government agencies, and special-interest groups. This is the part of the environment that is directly relevant to the achievement of an organization’s Let’s briefly elaborate on each and why it’s goals. important. It consists of the crucial constituencies or stakeholders that can positively or negatively influence an organization’s effectiveness. the specific environment SUPPLIERS Suppliers include any entity that Management seeks to ensure a steady flow of provides the organization with labor, materials, needed inputs at the lowest price possible. and equipment. Because these inputs represent uncertainties— For pizza restaurants, it would include those that is, their unavailability or delay can sources that provide flour, tomatoes, meats, significantly reduce the organization’s vegetables, and sodas. It would also probably effectiveness— management typically goes to include banks, insurers, and maybe labor unions. great efforts to ensure a steady reliable flow.  09:12 the specific environment SUPPLIERS Organizations are at a disadvantage if they become overly dependent on a powerful supplier. Suppliers are important beyond merely “providing” resources. The resources they supply may be outstanding For example: or defective. Switching costs are the fixed costs buyers face They can provide excellent or poor-quality if they change suppliers. service. Once a buyer learns how to use a supplier’s Suppliers can raise their prices. equipment, such as a data analytics application, the buyer faces both economic and psychological Powerful suppliers’ price increases can reduce costs in changing to a new supplier. an organization’s profits, particularly if the organization cannot pass them on to its customers. the specific environment CUSTOMERS Without customers to purchase its Like suppliers, customers are important to goods or services, a company won’t survive. organizations for reasons other than the money they pay for goods and services. Customers can be intermediate (wholesalers and retailers) or final (end users), depending on Customers can demand lower prices, higher where they are in the value chain. quality, unique product specifications, or better service. You are a final consumer when you upgrade to a new iPhone. They also can play competitors against one another, as occurs when a car buyer (or a Intermediate consumers buy raw materials or purchasing agent) collects offers from different wholesale products and then sell to final dealerships and negotiates for the best price. consumers, as when Lenovo, Dell, and Hewlett- Packard buy processors from Intel to put in their A company is at a disadvantage if it depends too laptop computers. heavily on powerful customers. Customers are powerful if they make large purchases or if they can easily find alternative places to buy.  09:12 the specific environment COMPETITORS Competitors may include Competitors within an industry must consider one 1. small domestic firms, especially in tiny, another when making strategic decisions. premium markets; When organizations compete for the same 2. strong regional competitors; customers and try to win market share at the others’ expense, all must react to and anticipate 3. big new domestic companies exploring new their competitors’ actions. markets; As a first step in understanding their competitive 4. overseas firms, especially those that try to environment, organizations must know their competitors. solidify their position in small niches (a traditional Japanese tactic) or draw on an After identifying competitors, the next step is to inexpensive labor force on a large scale (as in analyze how they compete for customers. China); and Competitors use tactics such as price reductions, 5. newer entries, such as firms offering their new-product introductions, and traditional and social media advertising campaigns. products on the web. the specific environment GOVERNMENT Federal, state, and local governments influence what organizations can and cannot do. Organizations spend a great deal of time and money to meet government regulations. But the effects of these regulations go beyond time and money. They also reduce managerial discretion. They limit the choices available to managers. PRESSURE GROUPS Managers must recognize the special-interest groups that attempt to influence the actions of organizations.  09:12 Influence of the External Environment and the Organization’s Culture LEARNING OBJECTIVE 3 Discuss the characteristics and importance of organizational culture. ORGANIZATIONAL CULTURE: constraints and challenges Each of us has a unique personality—traits and Organizational culture has been described as characteristics that influence the way we act and the shared values, principles, traditions, and interact with others. ways of doing things that influence the way organizational members act and that distinguish An organization, too, has a personality, which we the organization from other organizations. call its culture. In most organizations, these shared values and And that culture influences the way employees practices have evolved over time and determine, act and interact with others. to a large extent, how “things are done around here.  09:12 ORGANIZATIONAL CULTURE: constraints and challenges Our definition of culture implies three things. Second, organizational culture is descriptive. It’s concerned with how members perceive the First, culture is a perception. It’s not something culture and describe it, not with whether they like that can be physically touched or seen, but it. employees perceive it on the basis of what they experience within the organization. Finally, even though individuals may have different backgrounds or work at different organizational levels, they tend to describe the organization’s culture in similar terms. That’s the shared aspect of culture. ORGANIZATIONAL CULTURE: constraints and challenges Research indicates six dimensions that appear to 4. People orientation—The degree to which capture the essence of an organization’s culture: management decisions consider the effect of outcomes on people within and outside the 1. Adaptability—The degree to which organization. employees are encouraged to be innovative and flexible and to take risks and experiment. 5. Team orientation—The degree to which collaboration is encouraged and work activities 2. Attention to detail—The degree to which are organized around teams rather than employees are expected to exhibit precision, individuals. analysis, and focus on details. 6. Integrity—The degree to which people exhibit 3. Outcome orientation—The degree to which honesty and high ethical principles in their work. management emphasizes results rather than on the techniques and processes used to achieve them.  09:12 ORGANIZATIONAL CULTURE: constraints and challenges Exhibit 3-7 illustrates how an organization’s The original source of the culture usually reflects culture is established and maintained. the vision of the founders. ORGANIZATIONAL CULTURE: constraints and challenges Once the culture is in place, however, certain The explicit goal of the selection process is to organizational practices help maintain it. The identify and hire individuals with the knowledge, selection process is one of these. skills, and abilities to perform successfully.  09:12 ORGANIZATIONAL CULTURE: constraints and challenges The selection process also provides information to applicants. Those job candidates who perceive The final decision, however, includes a judgment a conflict between their values and those of the call: How well will the individual fit into the organization can self-select themselves out of organization? the applicant pool. In essence, the organization seeks to identify Selection thus becomes a two-way street, individuals whose values are consistent with at allowing both the organization and job least a good portion of the organization’s. candidates to avoid a mismatch and sustain the organization’s culture by weeding out those who might undermine or attack its core values. ORGANIZATIONAL CULTURE: constraints and challenges The actions of top managers also have a major Through words and actions, senior executives impact on the organization’s culture. establish norms that filter through the organization about, for instance, whether risk- taking is desirable; how much freedom managers give employees; appropriate dress; and what actions earn pay raises, promotions, and other rewards.  09:12 ORGANIZATIONAL CULTURE: constraints and challenges Finally, organizations help employees adapt to Popular socialization processes include the culture through socialization, a process that apprenticeships, internships, formal orientation helps new employees learn the organization’s programs, appointing mentors to guide and way of doing things. advise new entrants, training programs, rotating assignments, and assigning new entrants a high- performing performing employee to shadow and learn from. ORGANIZATIONAL CULTURE: constraints and challenges STORIES Organizational “stories” typically contain a narrative of significant events or people, including such things as the How Employees Learn Culture organization’s founders, rule breaking, reactions Employees “learn” an organization’s culture in a to past mistakes, and so forth. number of ways. The most common are stories, RITUALS Rituals are repetitive sequences of rituals, material artifacts and symbols, and activities that express and reinforce the key language. values and goals of the organization. Fraternities and sororities are famous for putting pledges through initiation rituals to develop camaraderie and discipline.  09:12 ORGANIZATIONAL CULTURE: constraints and challenges MATERIAL ARTIFACTS AND SYMBOLS When LANGUAGE Many organizations and subunits you walk into different businesses, do you get a within organizations use language as a way to “feel” for what type of work environment it is— identify and unite members of a culture. uptight, casual, fun, serious, and so forth? These By learning this language, members attest to reactions demonstrate the power of material their acceptance of the culture and their symbols or artifacts in creating an organization’s willingness to help preserve it. personality. Over time, organizations develop unique terms to The layout of an organization’s facilities, the size describe equipment, locations, key personnel, of offices, the elegance of furnishings, what suppliers, customers, processes, or products pictures or personal objects are displayed on related to its business. desks, how employees dress, the types of automobiles provided to top executives, the While new employees are frequently availability of corporate aircraft, and perks overwhelmed with acronyms and jargon, after a offered are examples of material symbols. short period of time these terms become a natural part of their language. And once learned, this language acts as a common denominator that bonds members. ORGANIZATIONAL CULTURE: constraints and challenges How Culture Affects Managers As we’ve learned, all employees of As shown in Exhibit 3-8, a manager’s decisions organizations— including managers—are are influenced by the culture in which he or she influenced by the organization’s culture. operates. That influence—in shaping how decisions are An organization’s culture, especially a strong made, what kind of behaviors to exhibit, the one, shapes and constrains the way managers proper dress attire, and the like—doesn’t have to plan, organize, lead, and control. be written down. In fact, it rarely is.  09:12 Culture and Managerial Action While founders and managers play a critical role in developing, maintaining, and communicating organizational culture, the same culture shapes and controls the behavior of all employees, In contrast, top managers in an organization with including managers themselves. conservative values are likely to emphasize formal top-down planning. PLANNING Top managers in an organization with an innovative culture are likely to encourage Suggestions from lower-level managers are likely lower-level managers to participate in the to be subjected to a formal review process, which planning process and develop a flexible can significantly slow decision making. approach to planning. Although this deliberate approach may improve They are likely to be willing to listen to new ideas the quality of decision making in a nuclear power and to take risks involving the development of plant, it can have unintended consequences in new products. other organizations.  09:12 Culture and Managerial Action ORGANIZING What kinds of organizing will managers in innovative and in conservative cultures encourage? Valuing creativity, managers in innovative In contrast, managers in a conservative culture cultures are likely to try to create few levels in the are likely to create a well-defined hierarchy of hierarchy, and one in which employees are authority and establish clear reporting encouraged to work together to solve ongoing relationships so employees know exactly whom problems. to report to and how to react to any problems that A product team structure may be suitable for an arise. organization with an innovative culture. Culture and Managerial Action LEADING In an innovative culture, managers are In contrast, managers in a conservative culture likely to lead by example, encouraging are likely to use management by objectives and employees to take risks and experiment. to constantly monitor employees’ progress toward goals, overseeing their every move. They are supportive regardless of whether employees succeed or fail.  09:12 Culture and Managerial Action CONTROLLING The ways in which managers evaluate and take actions to improve performance differ depending on whether the organizational culture emphasizes formality and caution or innovation and change. Thus, they are less concerned about employees’ In contrast, managers in cultures that emphasize performing their jobs in a specific, predetermined caution and maintenance of the status quo often manner and in strict adherence to preset goals set specific, difficult goals for employees, and more concerned about employees’ being frequently monitor progress toward these goals, flexible and taking the initiative to come up with and develop a clear set of rules that employees ideas for improving performance. are expected to adhere to. Managers in innovative cultures are also more concerned about longterm performance than short-term targets because they recognize that real innovation entails much uncertainty that necessitates flexibility. MAIN COURSEBOOK 38  09:12 Other textbooks used in the lectures 39 Other textbooks used in the lectures 40