Griffin MGMT 13e Ch03

Management
Chapter Three: Understanding the

Organization's Environment
Griffin, Management, 13e©2021 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 1
Learning Objectives (1 of 2)
By the end of this chapter, you should be able to:
3-1: Describe the nature of the organizational environment and the

environments of interest to most organizations.
3-2: Describe the components of the general and task

environments and their impact on organizations.
3-3: Identify the components of the internal environment

and their impact on organizations.
Learning Objectives (2 of 2)
By the end of this chapter, you should be able to:
3-4: Discuss the importance and determinants of an organization’s

culture and how the culture can be managed.
3-5: Describe the multicultural environment of business and

major trends and dimensions of diversity and
multiculturalism.
3-6: Describe how the environment affects organizations

and how organizations adapt to their environment.
3-1 The Organization's Environments
• A key element in effective management is determining the
ideal alignment between the environment and the organization.
• The external environment:

− Everything outside an organization’s boundaries that might affect it
− Suppliers, weather, transportation, government regulation
• The internal environment:

− The conditions and forces within an organization
− Employees, cultures, physical environment
Figure 3.1 The
Organization and
Its Environments
External environment:
• Made up of the task
environment and the
general environment
3-2 The External Environment
• The external environment is made up of two forces:
• General environment:
• Broad dimensions and forces in the surroundings that create its overall
context
• Not necessarily associated with other organizations
• Includes economic, technological, sociocultural, political-legal, and
international dimensions
• Task environment:
• Specific external organizations or groups that influence an organization
• Suppliers, consumers
Figure 3.2
McDonald’s
General
Environment
3-2a The General Environment (1 of 2)
• Economic dimension:
• The overall health and vitality of the economic system in which the
organization operates
• Recessions, high inflation, low interest rates
• Technological dimension:
• Methods available for converting resources into products or services
• Integrated software systems, privacy, and security
• Sociocultural dimension:
• Customs, mores, values, and demographic characteristics of the
society in which the organization functions
3-2a The General Environment (2 of 2)
• Political-legal dimension:
• Government regulations of business and the relationship
between business and government
• Taxes, economic growth and recession, pro- or anti-
business sentiment in government
• International dimension:
• Extent to which an organization is involved in or is affected
by business in other countries
• International competition, global suppliers, international
sales and marketing efforts
3-2b The Task Environment (1 of 3)
• Includes competitors, customers, suppliers, strategic
partners, and regulators
• Competitors:
• Organizations that compete with other organizations for
resources
• Resources include parts, supplies, labor, customers
• Customers:
• Whoever pays money to acquire an organization’s products
or services
• Critical differences in international customer base
• Regulators:
• A unit that has the potential to control, legislate, or otherwise
influence the organization's policies and practices
• Regulatory agency:
• An agency created by the government to regulate business
activities
• OSHA, Food and Drug Administration, EPA
• Interest groups: Groups organized by members to
attempt to influence business
• Safety committee, unions
• Suppliers:
• Organizations that provide resources for other organizations
• Strategies might include buying from one supplier or many
• Strategic partners:
• Organizations that work together with one or more other
organizations in a joint venture or similar arrangement
• Opening stores internationally, working with local
suppliers
Figure 3.3
McDonald’s Task
Environment
Discussion Question #1
• Organizations must address the needs of all customers, which can

be especially difficult. Customers do not need to be people; they
can include institutional customers or other organizations. Consider
McDonald’s. Which types of issues might occur when the customer
is an international customer? Which needs might they have that
local customers might not? Should an organization such as
McDonald’s alter the way it does business to satisfy the needs of
the international customer? Why or why not?
Knowledge Check 1
• What is the advantage of forming a relationship with one

supplier instead of several who supply similar items?
A. Less vulnerability to strikes

B. Increased responsiveness to changes in the market
C. Increased responsiveness to customer needs
D. Lower prices
Knowledge Check 1: Answer
• What is the advantage of forming a relationship with one supplier
instead of several who supply similar items?
C. Increased responsiveness to customer needs
• Common wisdom in the United States used to be that a business

should try to avoid depending exclusively on particular suppliers
because a firm that buys all of a certain resource from one supplier
may be vulnerable if that supplier raises its prices, goes out of
business, or is shut down by a labor strike. This practice can also help
maintain a competitive relationship among suppliers, keeping costs
down. But building ties with only one or two major suppliers enables
them to work together better for their mutual benefit and makes the
supplier more responsive to the customer’s needs.
3-3 The Internal Environment (1 of 2)
• Owners:
• Whoever can claim property rights to an organization
• Investors, stockholders, banks, partners
• Board of directors:
• Governing body elected by a corporation’s stockholders and
charged with overseeing the general management of the firm to
ensure that it is being run in a way that best serves the
stockholders’ interests
• Now has more oversight as the result of recent scandals
• At issue is corporate governance—who is responsible and
accountable for the actions of the business
3-3 The Internal Environment (2 of 2)
• Employees:
• The workforce is becoming increasingly diverse:
• Age, gender, ethnicity, and other dimensions
• Workers also calling for more job ownership
• Increased reliance on temporary workers; greater flexibility
provided for workers and organizations
• Labor unions add a complex layer
• Physical work environment:

• Issues include location, design, and layout
• Many moving to more open environments, with small rooms for
private business
• Do you see any advantages to the movement of more open office

spaces? What? How about disadvantages? How do you feel about
the idea of going to work every day and not having your own
dedicated work area? Why do you feel this way?
3-4a The Importance of Organization Culture
• Organization culture: Set of values, beliefs, behaviors,
customs, and attitudes that help members understand what it
stands for, how it does things, and what it considers important
• It determines the feel of the organization
• Not every area of the organization has the same culture.
• Culture is a powerful force that helps shape the firm’s overall

effectiveness and long-term success.
3-4b Determinants of Organization Culture
• Typically develops over a long period of time
• Corporate success and shared experiences shape culture.
• Managers must understand current culture and decide to maintain or

change
• If it is in the best interests of the firm, managers should reward

behavior consistent with the culture.
• If the current culture needs changing, managers must identify the

culture they prefer, bring in outsiders, adopt new slogans, and tell
new stories to support the new culture.
Knowledge Check 2
• When might it be important to consider changing the culture
of an organization?
A. When two companies merge

B. When rival factions are eliminated
C. When new employees are hired
D. During times of rapid growth
Knowledge Check 2: Answer
• When might it be important to consider changing the culture of an
organization?
A. When two companies merge
• Culture problems sometimes arise from mergers or the growth of rival

factions within an organization. One major way to shape culture is by
bringing outsiders into important managerial positions. The choice of a
new CEO from outside the organization is often a clear signal that
things will be changing.
3-5 The Multicultural Environment
• Multiculturalism:
− The broad issues associated with differences in values,
beliefs, behaviors, customs, and attitudes held by people
in different cultures
• Diversity:
− Exists in a group or organization when its members differ
from one another along one or more important
dimensions, such as age, gender, or ethnicity
Figure 3.4 Trends in Diversity and
Multiculturalism
The most fundamental trend is that we are becoming more diverse and multicultural.
3-5b Dimensions of Diversity and
Multiculturalism (1 of 2)
• Age:
− Age of the average worker is increasing and is expected to do so for
the next several years
− Declining birth rates, longer life expectancy
− Improved health and medical care
− Lack of funds for retirement
• Gender:
− Increasing number of women in traditionally male jobs
− Glass ceiling: a perceived barrier in some organizations that hinders
women from advancing to top management positions
3-5b Dimensions of Diversity and
Multiculturalism (2 of 2)
• Diversity dimensions: • Multicultural differences:
− Physical mobility − Some organizations actively
− Religious beliefs enhance their multiculturalism.
− Single parents − Soon, all companies may
− Dual-career couples become multicultural, due to
− Sexual orientation changes in the external labor
− Dietary preference market.
− Political ideologies − Increased immigration: In 2019
1.2 million immigrants arrived
in the United States.
3-6a How Environments Affect Organizations
• Change and complexity:
− Focuses on two dimensions:
1. Rate of change: The extent to which the environment is
relatively stable or dynamic
2. Degree of homogeneity: The extent to which the
environment is relatively simple or relatively complex
• Uncertainty:
• The unpredictable driving force that influences organizational
decisions
• Unpredictability created by environmental change and
complexity
Figure 3.5 Environmental Change,
Complexity, and Uncertainty
Activity #1
• Diversity and multiculturalism mean many things to many
people. Brainstorm a list of diverse and multicultural
groups in your class.
3-6a Competitive Forces
Five competitive forces in the environment:
1. Threat of new entrants: Extent to which new competitors can easily enter a
market
2. Competitive rivalry: The nature of competitive relationships between
dominant firms in the industry
3. Threat of substitute products: Extent to which alternative products or
services affect the need for existing products or services
4. Power of buyers: Extent to which buyers in an industry can influence the
suppliers
5. The power of suppliers: Extent to which suppliers can influence potential
buyers
3-6b How Organizations Adapt to Their
Environment (1 of 3)
• Information management
• Boundary spanner: An employee who spends much of his or
her time in contact with others outside the organization to learn
about what other organizations are doing
• Environmental scanning: Actively monitoring the

environments through activities such as observation and reading
• Information systems: Used to gather and organize relevant

information to assist in summarizing information for each manager’s
needs
• Strategic response:
• Realizing something has changed and determining what action, if
any, is needed
• Altering strategy, adopting an entirely new strategy
• Mergers, acquisitions, and alliances:

• Merger: Two or more firms combine to form a new firm
• Acquisition: One firm buys another, sometimes against its will
(hostile takeover). Firm taken over ceases to exist
• Alliance: Firm forms a new venture with another company
• Organization design and flexibility:
• How an organization adapts to environmental conditions by
incorporating flexibility
• Direct influence:
• Some firms can directly influence their environment
• Signing long-term contracts with suppliers
• Vertical integration
• Lowering prices
• Creating new products
• Finding new customers
• Does one environment have more impact on the organization than

the others? Which? Why or why not? Can this change over time?
As a new manager, which environment do you think you would deal
with the most? Would this change as you take on more
responsibilities?
Summary (1 of 2)
Now that the lesson has ended, you will have learned how to:
• 3-1: Describe the nature of the organizational environment and
the environments of interest to most organizations.
• 3-2: Describe the components of the general and task

environments and their impact on organizations.
• 3-3: Identify the components of the internal environment and

their impact on organizations.
Summary (2 of 2)
Now that the lesson has ended, you will have learned how to:
• 3-4: Discuss the importance and determinants of an
organization’s culture and how the culture can be managed.
• 3-5: Describe the multicultural environment of business and

major trends and dimensions of diversity and multiculturalism.
• 3-6: Describe how the environment affects organizations and

how organizations adapt to their environment.
Key Terms
• Board of directors: Governing body elected by a corporation’s stockholders and charged with
overseeing the general management of the firm to ensure that it is being run in a way that best serves
the stockholders’ interests.
• Competitor: An organization that competes with other organizations for resources.
• Customer: Whoever pays money to acquire an organization’s products or services.
• Diversity: Exists in a group or organization when its members differ from one another along one or
more important dimensions, such as age, gender, or ethnicity.
• Economic dimension: The overall health and vitality of the economic system in which the
organization operates.
• Ethnicity: The ethnic composition of a group or organization.
• External environment: Everything outside an organization’s boundaries that might affect it.
Key Terms
• Five competitive forces: The threat of new entrants, competitive rivalry, the threat of substitute
products, the power of buyers, and the power of suppliers.
• General environment: The set of broad dimensions and forces in an organization’s surroundings
that create its overall context.
• Glass ceiling: A perceived barrier in some organizations that keeps women from advancing to top
management positions.
• Interest group: A group organized by its members to attempt to influence business.
• Internal environment: The conditions and forces within an organization.
• International dimension: The extent to which an organization is involved in or is affected by
business in other countries.
• Multiculturalism: The broad issues associated with differences in values, beliefs, behaviors,
customs, and attitudes held by people in different cultures.
• Organization culture: The set of values, beliefs, behaviors, customs, and attitudes that helps the
members of the organization understand what it stands for, how it does things, and what it considers
important.
Key Terms
• Owner: Whoever can claim property rights to an organization.
• Political-legal dimension: The government regulation of business and the relationship between
business and government.
• Regulator: A unit that has the potential to control, legislate, or otherwise influence the organization’s
policies and practices.
• Regulatory agency: An agency created by the government to regulate business activities.
• Sociocultural dimension: The customs, mores, values, and demographic characteristics of the
society in which the organization functions.
• Strategic partners (strategic allies): Organizations that work together with one or more other
organizations in a joint venture or similar arrangement.
• Supplier: An organization that provides resources for other organizations.
• Task environment: Specific organizations or groups that influence an organization.
• Technological dimension: The methods available for converting resources into products or services.
• Uncertainty: Unpredictability created by environmental change and complexity.

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Griffin MGMT 13e Ch03

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Management

Chapter Three: Understanding the

3-1: Describe the nature of the organizational environment and the

3-2: Describe the components of the general and task

3-3: Identify the components of the internal environment

3-4: Discuss the importance and determinants of an organization’s

3-5: Describe the multicultural environment of business and

3-6: Describe how the environment affects organizations

• The external environment:

• The internal environment:

• Organizations must address the needs of all customers, which can

• What is the advantage of forming a relationship with one

A. Less vulnerability to strikes

C. Increased responsiveness to customer needs

• Common wisdom in the United States used to be that a business

• Physical work environment:

• Do you see any advantages to the movement of more open office

• It determines the feel of the organization

• Not every area of the organization has the same culture.

• Culture is a powerful force that helps shape the firm’s overall

• Managers must understand current culture and decide to maintain or

• If it is in the best interests of the firm, managers should reward

• If the current culture needs changing, managers must identify the

A. When two companies merge

A. When two companies merge

• Culture problems sometimes arise from mergers or the growth of rival

• Environmental scanning: Actively monitoring the

• Information systems: Used to gather and organize relevant

• Mergers, acquisitions, and alliances:

• Does one environment have more impact on the organization than

• 3-2: Describe the components of the general and task

• 3-3: Identify the components of the internal environment and

• 3-5: Describe the multicultural environment of business and

• 3-6: Describe how the environment affects organizations and

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