Organizational

Environments
Text: Chapter 3

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3. Organizational environments
 Think about it . . .

Organizations are symbolic entities; they

function according to implicit models in the
minds of their members, and these are culturally
determined.
Geert Hofstede

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3. Organizational environments
Learning objectives
• Explore relationships between stakeholders, strategies,
and global structures
• Recognize strategy-structure relationships in different
geographic regions
• Examine the role of national cultures in organizational
decision-making and strategic implementation
• Explore differences in corporate cultures and their effects
on employee behavior

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3. Organizational environments
What is an organization?
• A system of consciously coordinated activities of two or more
persons aiming to achieve common objectives.
• Organizations prosper or fail in line with the extent to which
they – and their managers – are successful in achieving both
effectiveness and efficiency in the common pursuit of these
goals.
• Organizations serve as a principal command and control
system for focusing human, financial, and physical resources
on the accomplishment of valued tasks.
• Organization designs live or die on the basis of their ability to
assist managers with their responsibilities to meet the demands
of their various stakeholders.
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3. Organizational environments
 Key stakeholders for a typical business organization (Exhibit
3.1)
Owners and
stockholders
Social
Banks and
activists,
other lenders
NGOs

Key
Government stakeholder
agencies and s Management
regulators

Customers and
consumer Employees
advocates and unions

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3. Organizational environments
What are institutional environments?
• The legal-political environment, which either
encourages or discourages individuals and companies
from pursuing certain strategies that governments or
society at large either support or oppose.
• Governments obviously have considerable power to
control organizations through the passage of laws and
policies, technology transfers to favored companies,
financial support, legal strictures on investment policies,
import-export policies and constraints, and so forth.

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3. Organizational environments
Example: Institutional environments in Japan and the US

USA:

• Distant and often adversarial business–government relations are common,

including having the government as the principal regulator.
• Principal purpose of the company is to maximize stockholder wealth.
Investors stress short-term transactions and returns on investment.
• A clear link exists between earnings per share and stock price.
• Managers are frequently offered stock options and large bonuses for
superior performance.
• Finally, undervalued companies are frequently subject to hostile takeovers.

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3. Organizational environments
Example: Institutional environments in Japan and the US

Japan:
• Strong and ongoing cooperative business–government relationship that
permeates the core business environment, including government targeting
of strategic industries and support for local industries.
• Principal purpose of a company is to build value over the long term to
benefit investors, employees, and the nation.
• Investors stress long-term stock appreciation instead of earnings per
share. Dividends are paid at a constant rate as a percentage of the par
value of the stock, not as a percentage of profits.
• Managers are seldom offered stock options or large bonuses for superior
performance. Few outside board members are present to defend
stockholder interests.
• Finally, under-valued companies are typically protected by sister
companies from outside takeovers.
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3. Organizational environments
Example: Institutional environments in Japan and the US
Consequences:
Japanese firms are better positioned to focus their attention on attaining
strategic objectives (such as beating competitors) instead of financial
objectives (such as keeping stockholders happy).
This competitive advantage occurs for three principal reasons.
1. Low profits and high retained earnings support growth.
2. Close relationships with banks allow the use of high levels of debt to
support growth.
3. Japanese stockholders routinely accept low dividends and
management’s absolute control of the firm.

Question: Does this mean Japanese trust their government more than
in the US?
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3. Organizational environments
Regional models of organizing: An overview
What can we say about cultural influences on organization design?
• In a very real sense, organizations are reflections of their
cultures. (For example, the majority of Japanese companies
share some common cultural traits.)
• But, a company’s organization design is like its own unique
fingerprint; no two are never alike and each provides clues about
organizational identify and managerial intent. (For example, Sony
is very different from Toshiba or Mitsubishi.)
So, while culture may help identify organizational and managerial
trends, these are only guideposts that require further analysis.

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3. Organizational environments
 Level of trust in national governments
(Exhibit 3.2)

Country % people who trust their Country % people who trust

government their government

China 84% Germany 43%

India 70% Japan 37%
Turkey 51% United Kingdom 36%
Canada 46% Spain 34%
South Korea 45% France 33%
Russia 44% United States 33%

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3. Organizational environments
 Regional models of organizing (Exhibit 3.5)
German
Characteristics Traditional Chinese Japanese codetermination
investor model family model keiretsu model
model
Primary
beneficiaries

Center of power
and influence

Management
selection

Decision-making
Employee rights
and job security

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3. Organizational environments
Traditional investor model: Frequent characteristics
• Mastery-oriented
• Powerful CEO
• Professional management
• Fluid organization design
• Low employee job security

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3. Organizational environments
Traditional investor model (Exhibit 3.6)

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3. Organizational environments
Chinese family model: Typical characteristics
• Confucianism (guanxi, face, rank, harmony)
• Flat informal structure
• Relationship-based
• Family management
• Business as private property
• Family revenue

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3. Organizational environments
Chinese family model (Exhibit 3.7)

Family Head/CEO

Flat organization structure

with family owner- Guanxi network
managers
Based on long-term mutual
Absolute loyalty, relationship-
based, centralized top-down exchange and benefit
management

Supervisors
Employees
Seniority-based, group incentives,
subservience, low wages and job
security

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3. Organizational environments
Management application 3.3
Organization and management in China
1. Why are family businesses so common in the world? What do you
think are their benefits and disadvantages, compared to
multinationals?
2. As a foreign company trying to enter the Chinese market, how would
you go about trying to compete with gong-si businesses? What might
be your competitive edge? What will be your shortcomings?
3. If your foreign company sought to form a partnership with a gong-si,
what cautions might be in order? What would you do to reduce
potential problems?
4. Do you think the Chinese family model (gong-si) could be successful
in cultures not heavily influenced by Confucianism? If so, what other
conditions would need to be present?
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3. Organizational environments
Japanese keiretsu model: Typical characteristics
• Internal financing
• Trading companies
• Executives as consensus builders
• Long-term employees
• Enterprise unions

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3. Organizational environments
 Japanese keiretsu model (Exhibit 3.8)
Member construction
company (kaisha) with
affiliated supplier
networks
 
Member insurance Member steel
company (kaisha) with company (kaisha) with
affiliated supplier KEIRETSU GROUP
affiliated supplier
networks MANAGEMENT
networks
 

Member financial Main Principal

Member mining
institution (kaisha) bank industrial company (kaisha) with
with affiliated supplier c company affiliated supplier
networks networks
  Sogo  
shosha
(trading Member plastics
Member real estate
company (kaisha) with
company (kaisha) with company) affiliated supplier
affiliated supplier
networks
networks
Member  
  Member
manufacturing manufacturing
company (kaisha) with Member company (kaisha) with
affiliated supplier manufacturing affiliated supplier
networks company (kaisha) with networks
  affiliated supplier  
networks
 

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3. Organizational environments
Kirin Brewery: Japanese kaisha (Mitsubishi keiretsu) (Exhibit 3.7)

Mitsubishi
Construct.
Mitsubishi
Mitsubishi
Trading
Aluminum
Company

KIRIN
BREWERY
Mitsubishi (kaisha) Mitsubishi
Motors Plastics
Mitsubishi
(keiretsu)

Asahi Mitsubishi
Glass Paper
Bank of
Tokyo-
Mitsubishi

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3. Organizational environments
German codetermination model: Typical
characteristics
• Supervisory and management boards
• Codetermination and works councils
• Role of meister
• Importance of technik

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 German codetermination model (Exhibit 3.10)

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3. Organizational environments
Management application 3.4
Organization and management in China
1. Based on what you have learned, what are the principal
advantages and disadvantages of a typical Japanese keiretsu
system compared to a traditional investor organization found in
the West? Explain.
2. What are the principal advantages and disadvantages of a
typical German codetermination model compared to a traditional
Chinese family business? Explain.
3. How do each of the four organization models (investor, family,
keiretsu, and codetermination) affect managerial work
responsibilities?
4. Under which model would you prefer to work or manage? Why?
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3. Organizational environments
Participation and decision-making (Exhibit 3.11)

Traditional and family decision Ringi-sei decision process Codetermination decision process
process

1 Problem identification somewhere 1 Problem identification somewhere 1 Problem identification somewhere

in hierarchy. in hierarchy. in hierarchy.

2 Problem sent up hierarchy and 2 Nemawashi: Broad-based 2 Lower-level employees begin

then assigned to specific managerial discussion--often on the shop floor-- working with supervisors to help
level for analysis and resolution. of problem and possible solutions. identify underlying cause of problem,
as well as possible solutions.

3 Managers take lead in analyzing 3 Expert advice added to mix; drive 3 Department heads, section chiefs,
problem and possible solutions; for consensus as to future actions. and supervisors meet to develop
discussions may include affected possible solutions.
employees.

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3. Organizational environments
Participation and decision-making (Exhibit 3.11)
4 Manager recommends solution for
approval by superior. If approved,
decision announced.
Impact:
Traditional: Rapid managerial
decision, but often slow acceptance
and slow implementation due to low
employee participation, lack of
company loyalty, and individualistic
culture
Family-owned: Rapid managerial
solution and often broad acceptance
and rapid implementation due to
moderate employee loyalty,
incentives, and collectivistic
hierarchical culture.
3. Organizational environments
4 Ringi-sho document developed,
reviewed, and approved by
successive levels of command as it
moves up hierarchy.
5 Ringi-sho document reaches upper
management with broad-based
support from rank-and-file employees;
decision announced.
Impact:
Broad decision acceptance and often
rapid implementation due largely to
employee participation and ownership
of decision, company loyalty, and
collectivistic hierarchical culture.
4 Technical experts and works council
members consulted to achieve the
best possible outcome.
5 Problem and possible solution
passed up hierarchy. Management
discusses the problem and possible
solution widely and then makes a
formal decision, often in consultation
with works council and local union.
Impact:
Broad decision acceptance due
largely to high employee and union
participation, company loyalty, and
egalitarian culture, but often relatively
slow implementation due to
widespread and time-consuming
involvement at all levels in hierarchy.
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 Corporate culture and collective behavior
• The behavioral manifestations of organization design and strategic plans are
brought to life through a firm’s corporate culture (also known as
organizational culture).
• Corporate cultures reflect the personality of organizations, not just their
skeletons. As goal-directed entities, managers of organizations set forth rules,
procedures, control systems, and other means aimed at facilitating goal
attainment and operational efficiencies.
• But the resulting cultures are not solely a manifestation of an organization’s
design or its policies. They also reflect the national culture where the facility is
located, the nature and quality of the organization’s employees, the industry in
which the facility operates, and the technologies in use.
• In the final analysis, however, these factors come together through the actions,
standards, and symbolism of the managers. As such, leadership must be
recognized as a key factor in the creation and sustainability of corporate
cultures.
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3. Organizational environments
Antecedents and consequences of corporate culture
(Exhibit 3.12)

Influences on
corporate cultures Potential influences
Characteristics of
- Organization design on employees
corporate cultures
- Business sector - Self-efficacy and self-
- Symbols and patterns
- Management policies image
of behavior
and practices - Group commaraderie
- Power distribution
- Characteristics of - Employee commitment
- Problem-solving
workforce and - Effort and performance
processes
workplace - Absenteeism and
- Esprit or team spirit
- Company history and departures
traditions

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3. Organizational environments
Management application 3.5
Mt. Fuji and corporate culture at Dentsu
1. How would you describe the corporate culture of Dentsu? What makes it
unique? What makes it successful?
2. Culturally, why is Japan’s Mt. Fuji so important in creating a suitable Corporate
culture for Dentsu?
3. As a manager, do you believe that this culture serves Dentsu’s long-term
corporate objectives? Explain.
4. How is it possible for a company like Dentsu to retain its corporate culture for
such a long time?
5. Recently, the president of Dentsu resigned to take responsibility for the suicide
of a 25-year-old employee who complained repeatedly about overwork and
alleged harassment by her bosses. On the month prior to her death, she
logged over 100 hours of overtime, making her average workday close to 14
hours. Now what is your evaluation of the corporate culture at Dentsu?
Explain. 28
3. Organizational environments
 Strategies for working with global organizations
(Exhibit 3.13)
1. Understand relationships
between stakeholders,
strategies, and structures
• Understand how culture can
shape stakeholder composition
and interests, along with the
managerial implications of these
differences.
• Consider the role of cultural
differences in strategy-structure
relationships.
• Learn how organization designs
evolving around the world.
3. Organizational environments
2. Understand dynamic
processes within organizations
• Understand how decisions are
typically made in different
regions of the world, including
the role of employee
involvement.
• Understand cultural constraints
on organizational decision-
making processes and
outcomes.
• Understand differences in
corporate cultures across
regions and companies,
including power distributions and
problem-solving mechanisms.
3. Build multicultural and global
management skills
• Learn more about the
relationship between your own
culture and local organizations,
including your own.
• Use this understanding to
compare your situation with
comparable situations in other
regions of the world.
• Continue to develop your
multicultural skills to be prepared
for differing environments.
• Ask yourself what specific
management skills would help
you do a better job globally.
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Key concepts
konzern
Chinese family model management board
codetermination meister
Confucianism mittelstand firms
corporate culture nemawashi
enterprise unions organization
face organizational environment
gapjil ringi-sei
German codetermination model ringi-sho
gong-si
guanxi
sogo shosha
hone vs. tatamai stakeholders
institutional environment supervisory board
Japanese keiretsu model technik
kaisha traditional investor model
keiretsu works councils
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Closing thought . . .
As the world moves towards increased globalization, will
the powerful cultural attributes that differentiate many of
today’s organizations remain or will organizations move
towards increasingly homogenous—or global—organizing
frameworks? In other words, will cultural differences play a
less important role in the organizations of tomorrow?

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3. Organizational environments