4 The Management

Environment

Copyright ©2017 Pearson Education, Ltd. 2-1

 Learning Outcomes
1. Explain what the external environment is
and why it’s important.
2. Discuss how the external environment
affects managers.
3. Define what organizational culture is.
4. Describe how organizational culture
affects managers.

Copyright ©2017 Pearson Education, Ltd. 2-2

 Explain what the
external
environment is and
why it’s important.

Copyright ©2017 Pearson Education, Ltd. 2-3

 External Environment
Factors, forces, situations, and events
outside the organization that affect its
performance.

For example, a volcanic eruption in Iceland in

2010 prevented delivery of auto parts that led
to a shutdown at a BMW plant in South
Carolina and a Nissan Motors facility in Japan.

Copyright ©2017 Pearson Education, Ltd. 2-4

 Components of the
External Environment
1. The economic component
encompasses factors such as interest
rates, inflation, disposable income.
2. The demographic component
includes trends in population
characteristics such as age, race,
gender, education level.
3. The technological component
focuses on scientific and industrial
innovations.
Copyright ©2017 Pearson Education, Ltd. 2-5
 Components of the
External Environment
3. The sociocultural component is concerned
with societal and cultural factors such as
values, lifestyles, beliefs, and tastes.
4. The political/legal component looks at
federal, state, and local laws. It also includes
a political conditions and stability.
5. The global component encompasses
issues associated with globalization and a
world economy.

Copyright ©2015 Pearson Education, Inc. 2-6

 The Sharing Economy
(Renting out unused asset)
Asset owners share with other individuals through
peer-to-peer service, for a set fee, their underutilized
physical assets or their knowledge, expertise, skills,
or time.

Airbnb (lodging), Uber, Zipcar, and SnapGoods

(gadgets) are just a few examples of a fast-growing
phenomenon called the sharing economy; just like
how banks intermediate in borrowing and lending of
funds.

Copyright ©2017 Pearson Education, Ltd. 2-7

 Demographics
• It impacts workforce and consumption.
• Age cohorts
1. Baby Boomers (1946 and 1964.)
2. Gen X (1965 and 1977).
3. Gen Y (1978 and 1994.)
4. Gen Z
• More than 80 percent of babies being born
worldwide are from Africa and Asia.
• By 2050, it’s predicted that China will have
more people age 65 and older than the rest
of the world combined.
Copyright ©2017 Pearson Education, Ltd. 2-8
 Discuss how the
external
environment affects
managers.

Copyright ©2017 Pearson Education, Ltd. 2-9

 How Does External Environment
Affect Managers?
1. Jobs and employment: many employers use
flexible work arrangements and contract
freelancers or temporary workers.
2. Assessing environmental uncertainty:
• a stable environment might have no new
competitors, few technological breakthroughs by
current competitors, etc.
• the degree of environmental complexity, looks
at the number of components (rivals, customers,
suppliers, govt agencies, etc.)
3. Managing stakeholder relationships
Copyright ©2017 Pearson Education, Ltd. 2-10
 Managing Stakeholder
Relationships
Stakeholders:
any constituencies in an organization’s
environment that are affected by that
organization’s decisions and actions.

Starbucks—coffee bean farmers, employees,

specialty coffee competitors, local communities,
government, media, and so forth.

Copyright ©2017 Pearson Education, Ltd. 2-11

 Define what
organizational
culture is.

Copyright ©2017 Pearson Education, Ltd. 2-12

What is Organizational Culture?
Shared values, principles, traditions,
and ways of doing things that
influence the
way an organization’s members act.

Copyright ©2017 Pearson Education, Ltd. 2-13

 Examples of Culture
• Google has created a creative and
innovative culture at their headquarters in
California with an android googleplex, bikes,
and bringing your dog to work.
• Apple’s focus is product innovation (innovation
and risk taking). The company “lives and
breathes” new product development and
employees’ work behaviors support that goal.
• Southwest Airlines has made its employees a
central part of its culture (people orientation) and
shows this through the way it treats them.
Copyright ©2017 Pearson Education, Ltd. 2-14
 Culture is:
 Perceived: It’s not something that can be
physically touched or seen, but employees
perceive it on the basis of what they
experience
 Descriptive: It’s concerned with how
members perceive or describe the culture,
not with whether they like it.
 Shared across levels, departments, etc.

Copyright ©2017 Pearson Education, Ltd. 2-15

Dimensions of Culture

Copyright ©2017 Pearson Education, Ltd. 2-16

Learning Organizational
Culture

Copyright ©2017 Pearson Education, Ltd. 2-17

 Describe how
organizational
culture affects
managers.

Copyright ©2017 Pearson Education, Ltd. 2-18

How Does Organizational
Culture Affect Managers
1. Effect on what employees do and
how they behave
2. Effect on what managers do

Copyright ©2017 Pearson Education, Ltd. 2-19

 How Does Culture Affect What
Employees Do?
Strong culture:
cultures in which the key values are deeply
held and widely shared.
high agreement on what’s important, what
defines “good” employee behavior

Strong Cultures Can:

 Substitute for formal rules and regulations
 Create predictability, orderliness, and
consistency

Copyright ©2017 Pearson Education, Ltd. 2-20

 How Does Culture Affect
What Managers Do?
Organization’s culture constrains what
managers can and cannot do, such
constraints are rarely explicit:
E.g.:
• Look busy even if you’re not.
• If you take risks and fail around here, you’ll pay
dearly for it.
• Before you make a decision, run it by your boss
so that he or she is never surprised.
Copyright ©2017 Pearson Education, Ltd. 2-21