Managing the Environment: Organisational Culture
This chapter examines the organisational environment in detail and the effects organisational culture has on it. We describe what is meant by ‘environment’ and identify the principal forces—both task and general—that create pressure, influence managers and thus affect the way organisations operate. Next, we discuss several methods that managers can use to help organisations adjust and respond to forces in the organisational environment. We will also need to consider the role of organisational culture and management’s importance in facilitating a positive and constructive climate from which to respond to the environment
What is the organisational environment?
The organisational environment is a set of forces and conditions outside of the organisation’s boundaries that affects the way it operates and shapes its behaviour. These forces change over time and thus present managers with opportunities and threats. To identify opportunities or threats caused by forces in the environment, it helpful for managers to distinguish between the task environment and the more encompassing general environment. The task environment is the set of forces and conditions that affect an organisation’s ability to obtain inputs and dispose of its outputs. It consists of the organisation’s suppliers, customers, distributors, and competitors, and has the most immediate and direct effect on managers. The general environment includes the wide-ranging economic, technological, socio-cultural, demographic, political and legal, and global forces that affect the organisation and its task environment.
The task environment
Suppliers are the individuals and organisations that provide the input resources needed by and organisation in order to produce its goods and services. In exchange for providing an organisation with inputs, the supplier is compensated. Inputs may include raw materials, component parts, or employees. Changes in the nature, number or type of suppliers may result in opportunities and threats to which managers must respond. Depending upon these factors, a supplier’s bargaining position may be either strong or weak. A supplier’s bargaining position is strong when: The supplier is the sole source of an input.
The input is vital to the organisation.
At a global level, managers have the opportunity to buy products from foreign suppliers or to become their own supplier and manufacture their own products abroad. It is important that managers recognise the opportunities and threats associated with managing a global supply chain.
Although the purchasing activities of global companies have become increasing complicated as a result of the development of skills and competencies in different countries around the world, the Internet often eases the process of coordinating complicated international transactions. Most large global companies utilise global outsourcing, which is the process by which organisations purchase inputs from other companies or produce inputs themselves throughout the world, for the purpose of lowering production costs and improving the quality or design of their products.
Distributors are organisations that help other organisations sell their goods or services to customers. Changes among distributors and distribution methods can create opportunities or threats for managers. The changing nature of distributors and distribution methods can also bring opportunities and threats to managers. The power of a distributor may be strengthened or weakened depending upon its size and the number of distribution options available. The structure of a country’s distribution system may serve as an opportunity or threat for a manager.
Customers are individuals and groups that buy goods and services that an organisation produces. An organisation’s success depends on its ability to respond to the needs of its customers. Changes in the number and types of customers or in customers’ tastes and needs can result in opportunities or threats for managers.
The most obvious opportunity associated with expanding into the global environment is the prospect of selling goods and services to new customers. Today, once distinct national markets are merging into one huge marketplace where the same basic product can be sold to customers worldwide. However, differences in national cultures may require managers to customise product in order to suit local preferences.
Competitors are organisations that produce goods and services that are similar to a particular organisation’s goods and services. In other words, competitors are vying for the same customers. Rivalry between competitors is usually the most threatening and problematic force with which managers must deal.
Potential competitors are the organisations that are not presently in a task environment but could enter if they so chose. The probability of new competitors entering an industry is a function of that industry’s barriers to entry. Barriers to entry are factors that make it difficult and costly for an organisation to enter a particular task environment. The greater the barriers to entry, the smaller the number of competitors. Barriers to entry result from three sources: economies of scale
Economies of scale are the cost advantages associated with large operations. They may result from manufacturing products in large quantities, buying inputs in bulk, or by fully utilising the skills and knowledge of employees. Brand loyalty is a customers’ preference for the products of organisations currently existing in the task environment. If established organisations enjoy significant brand loyalty, a new entrant will find it difficult and costly to obtain market share. At the national and global level, government regulations sometimes function as administrative roadblocks that create barriers to entry and limit the imports of goods from foreign nations.
The general environment
An organisation’s general environment can have profound effects upon its task environment which may not be evident to managers. Therefore, managers must constantly analyse forces in the general environment because these forces affect ongoing planning and decision-making.
Economic forces, such as interest rates, inflation, unemployment, and economic growth, affect the general health and well being of a nation or region of the world. Economic forces produce many opportunities and threats for managers. Strong macroeconomic conditions, such as low levels of unemployment and falling interest rates, often create opportunities for organisations. Worsening macroeconomic conditions, such as recession or rising inflation rates, often pose a threat to organisations because they limit management’s ability to gain access to the resources they need. The recent global economic crisis has even global organisations re-evaluating their existing operations. The recent global economic crisis has even global organisations re-evaluating their existing operations.
Technological forces: Technology is the combination of skills and equipment that managers use in the design, production, and distribution of goods and services. Technological forces are the outcomes of changes in the technology that managers use to design, produce, or distribute goods and services and can have profound implications for managers and organisations. Technological change can create a threat to organisations by making established products obsolete. It can also create a host of opportunities for the development of new products or processes. Managers must often move quickly to respond to such technological change if their organisations are to survive and prosper. Changes in information technology are also changing the very nature of work itself. Telecommuting, videoconferencing, email networks, and video cameras attached to personal computers have changed the way managers within many companies communicate with each other.
Sociocultural forces are pressures emanating from the social structure of a country or from its national culture. Social structure is the arrangement of relationships between individuals and groups within a society. National culture is the set of values that a society considers important and the norms of behaviour that are approved or sanctioned in that society. A society’s social structure and national culture can also change over time. For example, in the United States, attitudes toward the role of women, love, sex, and marriage have changed in past decades. Throughout much of Eastern Europe, new values emphasising individualism and entrepreneurship are replacing communist values based upon collectivism and obedience to the state.
Demographic forces are outcomes of changes in, or changing attitudes toward the characteristics of a population, such as age, gender, ethnic origin, race, sexual orientation, and social class. Demographic forces present managers with opportunities and threats and can have major implications for organisations. For example, most industrialised nations are experiencing the aging of their populations as a consequence of falling birth and death rates and the aging of the baby boom population. This demographic change has led to increasing opportunities for organisations that cater to older people.
The aging of the population also has several implications for the workplace, such as the relative decline in the number of young people joining the workforce and the willingness of older employees to postpone retirement past the age of 65 (see Figure 3.3 p.84).
Political and legal forces are outcomes of changes in laws and regulations resulting from political and legal developments within a nation, world region, or across the world. A nation’s political processes shape laws that constrain the operations of organisations and managers, thereby creating both opportunities and threats. The movement toward deregulation and privatisation of organisations formerly owned or controlled by the state is an example of this. The increasing political integration around the world that has been taking place during the past decades is another important political and legal force affecting managers. The growth of the EU is an example of this. The fall in legal trade barriers can create both opportunities and threats.
Organisational culture describes the set of beliefs, expectations, values, norms, and work routines that influence how members of an organisation relate to each other and work together to achieve organisational goals. When members share an intense commitment to goals, a strong organisational culture exists. When the opposite is true, the organisation’s culture is weak. When an organisation’s culture is very strong it is often referred to as the organisation’s ‘personality’ because it influences the way its members behave. Organisational culture is an important way of managing the environment for two reasons. First, it makes management possible in situations where managers cannot be constantly supervising employees. Second, and more importantly, when a strong and cohesive set of organisational values and norms is in place, employees focus on thinking about what is best for the organisation in the long run—so all their decisions and actions become oriented towards helping the organisation perform well.
Values and norms: Creating a strong organisational culture
Values are beliefs and ideas about the kinds of goals members of a society should pursue, and about the kinds or modes of behaviour people should use to achieve these goals. Norms are unwritten, informal rules or guidelines that prescribe appropriate behaviour in particular situations. Norms emerge from values. In an organisation, values and norms inform organisational members about what goals they should pursue and how they should behave to reach those goals.
Values of the founder: From the ASA model previously discussed, it is clear that founders can have a profound and long-lasting effect on organisational culture.
Organisational socialisation: This is the process by which newcomers learn an organisation’s values and norms and acquire the work behaviours necessary to perform jobs effectively. As a result, organisational values and norms are internalised.
Ceremonies and rites. Another way in which managers can attempt to create or influence an organisational culture is by developing organisational ceremonies and rites. These are formal events that recognise incidents of importance to the organisation as whole and to specific employees. The most common rites that organisations use to transmit cultural norms and values to their members are rites of passage, of integration, and of enhancement. See Table 3.1 p.88 for examples of the rites listed next. Rites of passage determine how individuals enter, advance within, or leave an organisation. Rites of integration build and reinforce common bonds among organisational member. Rites of enhancement let organisations publicly recognise and reward employee contributions and thus strengthen their commitment to organisational values.
Stories and language: Stories frequently told within an organisation, either fact or fiction, provide important clues about values and norms. The slang or jargon that people within an organisation use to frame and describe events also provides important clues about norms and values. The concept of organisational language encompasses not only spoken language but how people dress, the offices they occupy, the cars they drive and the degree of formality they use when they address one another.
How managers influence organisational culture
Managers play a particularly important part in influencing organisational culture. This is most evident in the start-up of new companies. Management researcher Benjamin Schneider developed a model called the Attraction-Socialisation-Attrition (ASA), which posits that entrepreneurs tend to hire employees whose personalities are similar to their own. In addition to personality, other personal characteristics of managers shape organisational culture; these include managers’ values, attitudes, moods and emotions, and their emotional intelligence (EI). Research suggests that job satisfaction and organisational commitment can be affected by the influence of others. Managers are in a particularly strong position to engage in social influence, given their multiple roles (interpersonal, informational, and decisional).