CHAPTER 3

ENVIRONMENT OF MANAGEMENT AND ORGANIZATIONAL CULTURE

-The formula for business success requires two elements –the individual and the environment.

-The term 'business environment’ implies those and external forces, factors and institutions that are beyond the control of
individual business organizations and their management and affect the business enterprise.

I. INTERNAL AND EXTERNAL BUSINESS ENVIRONMENT

Business environment may be defined as all those conditions and forces which are external to the business and are beyond
the individual business unit, but it operates within it. These forces are customer, creditors, competitors, government,
socio-cultural organizations, political parties national and international organizations etc. some of those forces affect
the business directly while some others have indirect effect on the business.

A. FEATURES OF BUSINESS ENVIRONMENT:

-Totality of external forces: is the sum total of all things external to business firms and, as such, is aggregative in nature.
-Specific and general forces: business environment includes both specific and general forces.

*Specific forces affect individualenterprises directly and immediately in their day-to-day working.

*General force shaves impact on all business enterprises and thus may affect an individual firm only indirect.

-Dynamic nature: business environment is dynamic in that it keeps on changing whether in terms of technological
improvement, shifts in consumer preferences or entry of new competition in the market.

-Uncertainty: business environment is largely uncertain as it is very difficult to predict future happenings, especially when
environment changes are taking place too frequently as in the case of information technology or fashion industries.
-Relativity: business environment is a relative concept since it differs from country to country and even region to region.

B. TYPES OF ENVIRONMENT:

-On the basis of the extent of intimacy with the firm, the environmental factors may be classified into different types-
internal and external.
1. INTERNAL ENVIRONMENT:
-is the environment that has a direct impact on the business.

The important internal factors which have a bearing on the strategy and other decisions of internal organization

a. Value system: the founders and those at the helm of affairs has important bearing on the choice of business, the mission
and the objectives of the organization, business policies and practices.
b. Mission and vision and objectives:

*Vision means the ability to think about the future with imagination and wisdom. It is an important factor in achieving the
objectives of the organization.

*Mission is the medium through which the objectives are achieved.

c. Management structure and nature: the organizational structure like the composition of board of directors influences
the decisions of business as they are internal factors.

d. Internal power relationships: relationship among the levels of the organization influences business. The mutual co-
ordination among them is an important need for a business. The relationship among the people working in various levels
of the organization should be cordial.

e. Human resource: is the important factor for any organization as it contributes to the strength and weakness of any
organization. The human resource in any organization must have characteristics like skills, quality, high morale,
commitment towards the work attitude, etc.

The involvement and initiative of the people in an organization at different levels may vary from organization to
organization.

f. Company image and brand equity: image of the company in the outside market has the impact on the internal
environment of the company. It helps in raising the finance, making joint ventures, other alliances, expansions and
acquisitions, entering sale and purchase contracts, launching new products, etc. Brand equity also helps the company in
same way.

g. Miscellaneous factors: factors that contribute to the business success or failure are as follows:

- Physical assets and facilities: facilities like production capacity, technology are among the factors which influences
the competitiveness of the firm.

- Research and development: Though R&D department is basically done external environment but it has a direct
impact on the organization. This aspect mainly determines the company‘s ability to innovate and compete.

- Marketing resources: Resources like the organization for marketing, quality of the marketing men, brand equity and
distribution network have direct bearing on marketing efficiency of the company.

- Financial factors: factors like financial policies, financial positions and capital structure are also important internal
environment affecting business performances, strategies and decisions.
B. EXTERNAL ENVIRONMENT:
It refers to the environment that has an indirect influence on the business. The factors are uncontrollable by the business.
There are two types of external environment.

a. Micro Environment

-is also known as the task environment and operating environment because the micro environmental forces have a direct
bearing on the operations of the firm. The micro environment consists of the factors in the company‘s immediate
environment that affects the performance of the company. These include the suppliers, marketing intermediaries,
competitors, customers and the public.

Following are the factors of micro environment:

1. Suppliers: important force in the micro environment of a company is the suppliers, i.e., those who supply the inputs
like raw materials and components to the company.

2. Customer: major task of a business is to create and sustain customers. A business exists only because of its customers.
The choice of customer segments should be made by considering a number of factors including the relative profitability,
dependability, and stability of demand, growth prospects and the extent of competition.
3. Competition: not only include the other firms that produce same product but also those firms which compete for the
income of the consumers.

Generic competition- competition that satisfies a particular category desire.

4. Marketing Intermediaries: include middlemen such as agents and merchants that help the company find customers or
close sales with them. The marketing intermediaries are vital links between the company and the final consumers.

5. Financiers: are also important factors of internal environment. Along with financing capabilities of the company their
policies and strategies, attitudes towards risk, ability to provide non-financial assistance etc. are very important

6. Public: can be said as any group that has an actual or potential interest in or on an organization‘s ability to achieve its
interest. Public include media and citizens. Growth of consumer public is an important development affecting business.

b. Macro Environment:

- is also known as General environment and remote environment. Macro factors are generally more uncontrollable than
micro environment factors. When the macro factors become uncontrollable, the success of company depends upon its
adaptability to the environment. Some of the macro environment factors are discussed below;

1. Economic Environment: refers to the aggregate of the nature of economic system of the country, business cycles, the
socio-economic infrastructure etc. The successful businessman visualizes the external factors affecting the business;
anticipating prospective market situations and makes suitable to get the maximum with minimize cost.
2. Social Environment: the value system of the society which, in turn affects the functioning of the business. Sociological
factors such as cost structure, customs and conventions, mobility of labor etc. have far- reaching impact on the
business. These factors determine the work culture and mobility of labor, work groups etc.

3. Demographic Environment: is the study of human populations in terms of size, density, location, age, sex, race,
occupation, and other statistics. Changes in the demographic environment can result in significant opportunities and
threats presenting themselves to the organization.
4. Political Environment: is influenced by the political organizations such as philosophy of political parties, ideology of
government or party in power, nature and extent of bureaucracy influence of primary groups etc. The political
environment of the country influences the business to a great extent.

5. Legal Environment: includes flexibility and adaptability of law and other legal rules governing the business. It may
include the exact rulings and decision of the courts. These affect the business and its managers to a great extent.

6. Technical Environment: The business in a country is greatly influenced by the technological development. The
technology adopted by the industries determines the type and quality of goods and services to be produced and the type
and quality of plant and equipment to be used. Technological environment influences the business in terms of investment
in technology, consistent application of technology and the effects of technology on markets.

7. Ecosystem Environment: refers to natural systems and its resources that are needed as inputs by marketers or that are
affected by marketing activities.

II. ORGANIZATION AND ENVIRONMENTAL RELATIONSHIP

-Organizations are open systems and must relate to their environments. They must acquire the resources and information
needed to function; they must deliver products or services that are valued by customers.

- Organizations can devise a number of responses for managing environmental interfaces, from internal administrative
responses, such as creating special units to scan the environment, to external collective responses, such as forming
strategic alliances with other organization.

-The change in the business environment brings both opportunities and threats for the organization. To overcome this
business dynamism, companies require certain predictability mechanisms which can guard them against the unanticipated
threats or overlooked business opportunities.

-Environmental scanning which refers to the process of monitoring and evaluating the business
environment. It helps in adjusting the business tactics in case of a change in the business environment.
Organizational environments are everything beyond the boundaries of organizations that can directly or indirectly affect
performance and outcomes. That includes external agents that directly affect the organization, such as suppliers,
customers, regulators, and competitors, as well as indirect influences in the wider cultural, political, and economic
context.
-The general environment consists of all external forces that can influence an organization. Each of these forces can
affect the organization in both direct and indirect ways.

-The task environment consists of the specific individuals and organizations that interact directly with the organization
and can affect goal achievement: customers, suppliers, competitors, producers of substitute products or services, labor
unions, financial institutions, and so on.

III. ORGANIZATIONAL CULTURE

Each of us has a unique personality—traits and characteristics that influence the way we act and interact with others.
When we describe someone as warm, open, relaxed, shy, or aggressive, we’re describing personality traits. An
organization, too, has a personality, which we call its culture. And that culture influences the way employees act and
interact with others

What Is Organizational Culture?

Organizational culture has been described as the shared values, principles, traditions, and ways of doing things that
influence the way organizational members act. In most organizations, these shared values and practices have evolved
over time and determine, to a large extent, how “things are done around here.”

- First, culture is a perception. It’s not something that can be physically touched or seen, but employees perceive it on the
basis of what they experience within the organization.

- Second, organizational culture is descriptive. It’s concerned with how members perceive the culture and describe it, not
with whether they like it.

-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.

Seven dimensions that can be used to describe an organization’s culture.

1. Attention to detail- degree to which employees are expected to exhibit precision, analysis, and detail analysis.

2. Outcome orientation- degree to which manager focus on results or outcome rather than how these outcomes are
achieved.

3. People orientation- degree to which management decisions take into account the effects on people in the organization.

4. Team orientation- degree to which work is organized around team rather than individual.

5. Aggressiveness- degree to which employees are aggressive and competitive rather than cooperative.
6. Stability- degree to which organizational decision and action emphasize in maintaining the status
quo.

7. Innovation and Risk taking- degree to which employees are encouraged to be innovative and to take risk.
All organizations have cultures, but not all cultures equally influence employees’ behaviors and actions.

Strong cultures—those in which the key values are deeply held and widely shared—have a greater influence on
employees than do weaker cultures.

Most organizations have moderate to strong cultures; that is, there is relatively high agreement on what’s important, what
defines “good” employee behavior, what it takes to get ahead, and so forth. The stronger a culture becomes, the more it
affects the way managers plan, organize, lead, and control.

Strong Culture (Exhibit 2-7 contrasts strong and weak cultures.)

1. Widely shared.

2. Culture conveys messages that is important.

3. Most employees can tell stories about company history.

4. Employees strongly identifies culture.

5. Strong connection between shared values and behavior.

Weak Culture

1. Values limited on few people.

2. Cultures sends contradictory messages about what is important.

3. Employees have little knowledge of company history or heroes.

4. Employees have little identification in culture.

5. Little connection between shared values and behavior.

Why is having a strong culture important?

-with strong cultures, employees are more loyal than are employees in organizations with weak cultures.

- strong cultures are associated with high organizational performance.

- strong culture also might prevent employees from trying new approaches especially when conditions are changing
rapidly.
Where Culture Comes From and How It Continues

-the original source of the culture usually reflects the vision of the founders.

-once the culture is in place, however, certain organizational practices help maintain it.

- the actions of top managers also have a major impact on the organization’s culture.

- through what they say and how they behave, top managers establish norms that filter down through the organization and
can have a positive effect on employees’ behaviors.

- Finally, organizations help employees adapt to the culture through socialization, a process that helps new employees
learn the organization’s way of doing things.

One benefit of socialization is that employees understand the culture and are enthusiastic and knowledgeable with
customers. Another benefit is that it minimizes the chance that new employees who are unfamiliar with the organization’s
culture might disrupt current beliefs and customs.

How Employees Learn Culture

Employees “learn” an organization’s culture in a number of ways. The most common are stories, rituals, material
symbols, and language.

STORIES

Organizational “stories” typically contain a narrative of significant events or people including such things as the
organization’s founders, rule breaking, reactions to past mistakes, and so forth.

RITUALS

In the early days of Facebook, founder Mark Zuckerberg had an artist paint a mural at company headquarters showing
children taking over the world with laptops. Also, he would end employee meetings by pumping his fist in the air and
leading employees in a chant of “domination.”

That’s the power that rituals can have in shaping what employees believe is important.

Corporate rituals are repetitive sequences of activities that express and reinforce the important values and goals of the
organization.

-One of the best-known corporate rituals is Mary Kay Cosmetics’ annual awards ceremony for its sales representatives.

-Looking like a cross between a circus and a Miss America pageant, the ceremony takes place in a large auditorium, on a
stage in front of a large, cheering audience, with all the participants dressed in glamorous evening clothes.
-Salespeople are rewarded for sales goal achievements with an array of expensive gifts including gold and diamond pins,
furs, and pink Cadillac.

-This “show” acts as a motivator by publicly acknowledging outstanding sales performance

-It conveys to her salespeople that reaching their sales goals is important and through hard work and encouragement, they
too can achieve success.

-The contagious enthusiasm and excitement of Mary Kay sales representatives make it obvious that this annual “ritual”
plays a significant role in establishing desired levels of motivation and behavioral expectations, which is, after all, what
management hopes an organization’s culture does.

MATERIAL ARTIFACTS AND SYMBOL

When you walk into different businesses, do you get a “feel” for what type of work environment it is— formal, casual,
fun, serious, and so forth? These reactions demonstrate the power of material symbols or artifacts in creating an
organization’s personality. The layout of an organization’s facilities, how employees dress, the types of automobiles
provided to top executives, and the availability of corporate aircraft are examples of material symbols.

LANGUAGE
Many organizations and units within organizations use language as a way to identify and unite members of a culture. By
learning this language, members attest to their acceptance of the culture and their willingness to help preserve it.

MANAGERIAL DECISION AFFECTED BY CULTURE (exhibit 2-9)

Planning- the degree of risk that plan should contain. Whether it is by team or individual.
Organizing- the degree in which the department managers interact with each other.
Leading- to which manager are concern in employee job satisfaction.Controlling- whether to impose external controls or
to allow employees to control their actions.

Current issues in organizational culture

Let’s look at three current cultural issues: creating an innovative culture, creating a customer responsive culture, and
nurturing workplace spirituality.
1. Creating an Innovative Culture
And you might actually own and use products from another well-known innovative organization—Apple. From its
founding in 1976 to today, Apple has been on the forefront of product design and development. They’ve brought us Mac,
iPod, iTunes, iPhone, and the iPad tablet device that is changing the way you read materials such as this textbook.
Although both these companies are in industries where innovation is critical to success, the fact is that any successful
organization needs a culture that supports innovation.

What does an innovative culture look like? According to Swedish researcher Goran Ekvall, it would be characterized by
- Challenge and involvement – Are employees involved in, motivated by, and committed to long-term goals and success
of the organization?
- Freedom – Can employees independently define their work, exercise discretion, and take initiative in their day-to-day
activities?
- Trust and openness – Are employees supportive and respectful to each other? - Idea time – Do individuals have time to
elaborate on new ideas before taking action?
- Playfulness/humor – Is the workplace spontaneous and fun?
- Conflict resolution – Do individuals make decisions and resolve issues based on the good of
the organization versus personal interest?
- Debates – Are employees allowed to express opinions and put forth ideas for consideration and review?
- Risk-taking – Do managers tolerate uncertainty and ambiguity, and are employees rewarded for taking risks?

Spirituality and Organizational Culture

Organizations with a spiritual culture recognize that people have a mind and a spirit, seek to find
meaning and purpose in their work, and desire to connect with other human beings and be part of a community.
Workplace spirituality seems to be important now for a number of reasons.
- Employees are looking for ways to cope with the stresses and pressures of a turbulent pace of life.
- Contemporary lifestyles—single-parent families, geographic mobility, temporary jobs, technologies that create distance
between people—underscore the lack of community that many people feel.
- As humans, we crave involvement and connection. In addition, as baby boomers navigate mid-life issues,

Five cultural characteristics.

1. Strong sense of purpose. Spiritual organizations build their cultures around a meaningful purpose. While profits are
important, the on individual development that they are not the primary values of the organization.
2. Focus Spiritual organizations recognize the worth and value of individuals. They aren’t just providing jobs; they seek
to create cultures in which employees can continually grow and learn.
3. Trust and openness. Spiritual organizations are characterized by mutual trust, honesty, and openness. Managers
aren’t afraid to admit mistakes. And they tend to be extremely upfront with employees, customers, and suppliers.
4. Employee empowerment. Managers trust employees to make thoughtful and conscientious decisions.
5. Toleration of employee expression. that differentiates spiritually based organizations is that they don’t stifle employee
emotions. They allow people to be themselves—to express their moods and feelings without guilt or fear of reprimand.

Critics of the spirituality movement have focused on two issues:

 legitimacy (Do organizations have the right to impose spiritual values on their employees?)
 economics (Are spirituality and profits compatible?).