Chapter 3 - Environment & Corporate Culture

Chapter 3 - THE ENVIRONMENT AND CORPORATE CULTURE

External Environment

1) General environment (outer layer) - These events do not directly change day-to-day operations, but they do affect all organizations eventually

a. Technological

b. Socio cultural

c. Economic

d. Legal/political

e. International

2) Task environment

a. Customers

b. Competitors

c. Suppliers

d. Labor market

e. The growing need for computer-literate knowledge workers

f. The necessity for continuous investment in human recourses through recruitment, education, and training to meet the competitive demands of the borderless world

g. The effects of international trading blocs, automation, outsourcing, and shifting facility location upon labor dislocations, creating unused labor pools in some areas and labor shortages in others

3) Internal environment

a. Culture

b. Employees

c. Management

Organization-Environment Relationship

1) Environment creates uncertainty for organization mangers, and they must respond by designing the organization to adapt to the environment. Organizations must manage environmental uncertainty to be effective.

2) Uncertainty means that mangers do not have sufficient information about environmental factors to understand and predict environmental needs and changes.

Adapting to the Environment

If an organization faces increased uncertainty with respect to competition, customers or government, regulation managers can use several strategies to these changes including boundary spanning roles, inter-organizational partnerships and mergers or joint ventures.

1) Boundary spanning roles – They link and coordinate the organization with the key elements in the external environment. 2 purposes

a. Detect and process information about changes in the environment

b. Represent organization interest to the environment

c. Engineers scan for technical changes, marketing people do market research. Internet is used as a new medium to stay in touch with customers

2) Inter-Organizational Partnership – An increasingly popular strategy for adapting to the environment is to reduce boundaries and increase collaboration with other organizations

3) Mergers and Joint Ventures - To reduce environmental uncertainty companies’ become involved in mergers. A merger occurs when two or more organizations combine to become one.

4) The Internal Environment: Corporate culture

a. The internal environment within which managers work include corporate culture, production technology, organization structure and physical facilities. Of these corporate culture surfaces as extremely important.

b. The internal culture must fit the needs of the external environment and company strategy. The concept of culture helps managers understand the hidden, complex aspects of the organizational life. Culture is a pattern of shared values and assumption on how things are done within the organization. Culture has 3 levels –

i. Visible(culture can be seen at the surface level) - Artifacts such as dress, office layout , symbols , slogans ceremony

ii. Invisible (Deeper values and shared understandings held by organization member - Expressed values such as Penney Idea, The HP way

iii. Underlying assumptions and deep beliefs such as “People here care about one another like family”

c. The fundamental values that characterize an organizations culture can be understood through the visible manifestation of symbols stories, heroes, slogans and ceremonies.

i. Environment and Culture – A big influence of internal corporate culture is the external environment. Culture can vary widely across organizations however within the same industry, often reveals similar cultural characteristics because they are operating in similar environments.

ii. Adaptive Culture – Research study found that a strong corporate culture alone did not ensure business success unless the culture encouraged healthy adaptation to the external environment. In un-adaptive corporate culture, managers are concerned about themselves and their values tend to discourage risk taking and change. The Adaptability culture emerges in an environment that requires fast response and high risk decision making. Mangers encourage values that support the company’s ability to rapidly detect, interpret and translate signals from the environment into new behavior responses.

iii. Achievement Culture – It is concerned with the organization concerned with serving specific customers in the external environment but without intense need for flexibility and rapid change.

iv. Involvement Culture - It emphasizes on internal focus on the involvement and participation of employees to rapidly adapt to changing needs from the environment. The culture places high value on meeting the needs of the employees and the organization may be characterized by a caring, family like atmosphere.

v. Consistency Culture - Uses an internal focus and the culture supports and consistency orientation for a stable environment. In today’s world most managers are shifting towards cultures that are more flexible and tune with the changes in the environment.

Shaping Corporate Culture for Innovative Response

1) People and their treatment are the factors that increase a company’s value

2) Organizational Culture is the most important mechanism for attracting, motivating and retaining talented employees (a direct correlation between culture and financial performance)

3) This in turn enables learning and innovative responses to threats from external environment

Managing the High-Performance Culture

1) Right amount of attention to cultural values & business performance helps companies succeed

2) Cultural values motivate employees, boost performance, hence give a common direction to everyone’s actions

3) Figure on Pg. 97 (Exhibit 3.8)

4) Quadrant A business would not last long

5) Quadrant B business stresses more on values and less on business performance (Levi’s Jeans struggled to adapt quickly to the changing environment)

6) Quadrant C business stresses less on values and more on quick profits

7) Quadrant D business gives high priority to both values and bottom-line (Umpqua Bank)

8) Managers create & influence organizational culture to meet strategic goals, positively affecting the bottom-line (Caterpillar Inc.)