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Chapter 2 – The Management Environment
CHAPTER 2 THE
MANAGEMENT
ENVIRONMENT
LEARNING OUTCOMES
After reading this chapter, students should be able to:
2-1. Explain what the external environment is and why it’s important.
2-2. Discuss how the external environment affects managers.
2-3. Define what organizational culture is and explain why it’s important.
2-4. Describe how organizational culture affects managers.
Management Myth
MYTH: It doesn’t matter what an organization’s culture is like. I can be happy working
anywhere.
TRUTH: To be happy, don’t just “settle” for a job…find a workplace and a culture that “fits”
you!
SUMMARY
An organization’s culture can be an important indicator of “fit” – will I like working here and
does this seem like a place where I can fit in and contribute? Anyone who thinks they can be
happy working in any type of organizational setting might be in for a big surprise! Even
working at a company rated as a “Best Company to Work For” isn’t for everyone.
Organizational cultures differ and so do people.
Teaching Tips:
Have students think about the organizational cultures at several companies that have been
identified as “best place to work” organizations. How are the cultures in these companies
similar? How are they different? Ask students to think about which company they would be
most comfortable in and why. Then, ask students to reflect on what their responses tell them
about the type of employee that will be most successful at the organization.
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Chapter 2 – The Management Environment
I. WHAT IS THE EXTERNAL ENVIRONMENT AND WHY IS IT IMPORTANT?
A. Introduction
1. The term external environment refers to factors, forces, situations, and events
outside the organization that affect its performance.
2. Exhibit 2-1 shows the five components of the external environment.
a) The economic component encompasses factors such as interest rates, inflation,
employment/unemployment rates, exchanges in disposable income, stock market
fluctuations, and business cycle stages.
b) The demographic component is concerned with trends in population
characteristics such as age, race, gender, education level, geographic location,
income, and family composition.
c) The technological component is concerned with scientific or industrial
innovations.
d) The sociocultural component is concerned with societal and cultural factors such
as values, attitudes, trends, traditions, lifestyles, beliefs, tastes, and patterns of
behavior.
e) The political/legal component looks at federal, state, and local laws, as well as
laws of other countries and global laws.
f) The global component encompasses those issues associated with globalization
and a world economy.
B. What is the Economy Like Today?
1. After several years in crisis mode, the U.S. economy and other global economies
seem to have turned the corner. However, it’s not smooth sailing for managers.
a) The slowdown in productivity has moderated globally although it continues to lag
in the United States. Global trade continues to be sluggish. Some analysts
wonder if this is an indicator that the world economy is becoming less connected.
b) Total U.S. employment is up, but the strongest employment growth has been in
low-wage jobs and many U.S. workers are trapped in part-time jobs, unable to
find full-time work.
c) Many businesses in low-wage industries are using part-time workers to soften the
impact of health-care law mandates.
d) A New York Times poll found that only 64 percent of Americans state that they
still believe in the American dream – work hard and you can achieve success and
riches.
e) The World Economic Forum identified a significant risk facing business leaders
and policy makers over the next decade: “severe income disparity.”
2. Economic Inequality and the Economic Context
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Chapter 2 – The Management Environment
a) People are becoming more discontented with the income gap between the rich and
everyone else.
b) People’s belief that anyone can achieve prosperity is waning.
c) Business leaders need to recognize how social attitudes in the economic context
affect business decisions.
3. The Sharing Economy
a) Companies including Uber, Zipcar, and SnapGoods are part of a fast-growing
phenomenon called the sharing economy – an economic environment in which
asset owners share with other individuals through a peer-to-peer services, for a set
fee, their underutilized physical assets or their knowledge, expertise, skills, or
time.
From the Past to the Present
Just how much difference does a manager make in how an organization performs? Management
theory proposes two perspectives in answering this question: the omnipotent view and the
symbolic view. The Omnipotent View maintains that managers are directly responsible for the
success or failure of an organization. The Symbolic View of management upholds the view that
much of an organization’s success or failure is due to external forces outside managers’ control.
Reality suggests a synthesis – managers are neither helpless nor all powerful. Instead, the more
logical approach is to see the manager as operating within constraints imposed by the
organization’s culture and environment.
Teaching Tips:
Questions for students to consider:
Why do you think these two perspectives on management are important?
How are these views similar? Different?
C. What Role Do Demographics Play?
1. The size and characteristics of a country’s population can have a significant effect on
what it’s able to achieve.
2. Demographics, the characteristics of a population used for purposes of social studies,
can and do have a significant impact on how managers manage.
3. Demographic characteristics of concern to organizations include: age, income, sex,
race, education level, ethnic makeup, employment status, and geographic location.
4. Age is a particularly important demographic for managers since the workplace often
has different age groups all working together.
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a) Baby Boomers are those individuals born between 1946 and 1964. The sheer
numbers of people in that cohort means they’ve had a significant impact on every
aspect of the external environment – including the Social Security System.
b) Gen X is used to describe those individuals born between 1965 and 1977. This
age group has been called the baby bust generation since it followed the baby
boom and is one of the smaller age cohorts.
c) Gen Y (or the “Millennials”) is an age group typically considered to encompass
those individuals born between 1978 and 1994. As the children of the Baby
Boomers, this age group is large in number and making its imprint on external
environmental conditions as well.
d) Gen Z describes the group born between 1995 and 2010. Gen Z is huge – those
under age 20 represent 25.9 percent of the U.S. population. This is the most
diverse and multicultural of any generation in the United States. It’s the first
group whose only reality revolves around the “Internet, mobile devices, and social
networking.”
II. HOW DOES THE EXTERNAL ENVIRONMENT AFFECT MANAGERS?
A. One of the important organizational factors affected by changes in the
external environment is jobs and employment. For example, economic downturns
result in higher unemployment and place constraints on staffing and production
quotas for managers. Not only does the external environment affect the number
of jobs available, but it also impacts how jobs are managed and created. Changing
conditions can create demands for more temporary work and alternative work
arrangements.
Technology and the Manager's Job
Can Technology Improve the Way Managers Manage?
Technology includes the equipment, tools, or operating processes to make work more efficient.
In some cases, human labor has been replaced by electronic and computer equipment.
Technology has also impacted information enabling work to be done anywhere and anytime. In
turn, management is impacted by technology while attempting to manage virtual employees in
the way they plan, organize, lead and control.
Teaching Tips:
Many students assume that the loss of jobs to technology is a bad thing. What they may not
think about are the positives dynamics that technology can create for the average worker.
Questions for students to consider:
Is management easier or harder with all the available technology?
What benefits does technology provide and what problems does technology pose for (a)
employees and (b) managers?
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B. Environments differ in their amount of environmental uncertainty, which relates to (1)
the degree of change in an organization’s environment and (2) the degree of complexity
in that environment (see Exhibit 2-2).
1. Degree of change is characterized as being dynamic or stable.
2. In a dynamic environment, components of the environment change frequently. If
change is minimal, the environment is called a stable environment.
3. The degree of environmental complexity is the number of components in an
organization’s environment and the extent of an organization’s knowledge about those
components.
4. If the number of components and the need for sophisticated knowledge is minimal,
the environment is classified as simple. If a number of dissimilar components and a
high need for sophisticated knowledge exist, the environment is complex.
5. Because uncertainty is a threat to organizational effectiveness, managers try to
minimize environmental uncertainty.
C. The more obvious and secure an organization’s relationships are with external
stakeholders, the more influence managers have over organizational controls.
1. Stakeholders are any constituencies in the organization’s external environment that
are affected by the organization’s decisions and actions. (See Exhibit 2-3 for an
identification of some of the most common stakeholders.)
2. Stakeholder relationship management is important for two reasons:
a) It can lead to improved predictability of environmental changes, more successful
innovation, greater degrees of trust among stakeholders, and greater or-
ganizational flexibility to reduce the impact of change.
b) It is the “right” thing to do, because organizations are dependent on external
stakeholders as sources of inputs and outlets for outputs and the interest of these
stakeholders should be considered when making and implementing decisions.
A Question of Ethics
A popular mobile traffic software app by Google has law enforcement officers across the country
worried. The app provides real time traffic guidance and warnings about traffic congestion,
construction zones, speed traps, stalled vehicles, unsafe weather conditions, and so on. Law
enforcement groups are asking Google to turn off the feature that warns drivers when police are
nearby, arguing that it puts their officers at risk for attack. To date, there has been no connection
between the use of the app and attacks, and Google has worked with the New York City Police
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Department and others by sharing information.
Questions for students to consider:
Is there are ethical issue here? Why or why not?
What stakeholders might have a vested interest in this issue and what do you think their
position might be? How can identifying stakeholders help a manager decide the most
responsible approach?
II. WHAT IS ORGANIZATIONAL CULTURE?
A. Just as individuals have a personality, so too, do organizations. We refer to an organiza-
tion’s personality as its culture.
B. What is Organizational Culture?
1. Organizational culture is the shared values, principles, traditions, and ways of doing
things that influence the way organizational members act. This definition implies:
a) Individuals perceive organizational culture based on what they see, hear, or
experience within the organization.
b) Organizational culture is a descriptive term. It describes, rather than evaluates.
c) Organizational culture is shared by individuals within the organization.
C. How can Culture Be Described?
1. Seven dimensions of an organization’s culture have been proposed (see Exhibit 2-4).
a) Innovation and risk taking (the degree to which employees are encouraged to
be innovative and take risks).
b) Attention to detail (the degree to which employees are expected to exhibit
precision, analysis, and attention to detail).
c) Outcome orientation (the degree to which managers focus on results or
outcomes rather than on the techniques and processes used to achieve those
outcomes).
d) People orientation (the degree to which management decisions take into
consideration the effect on people within the organization).
e) Team orientation (the degree to which work activities are organized around
teams rather than individuals).
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f) Aggressiveness (the degree to which employees are aggressive and com-
petitive rather than cooperative).
g) Stability (the degree to which organizational activities emphasize maintaining
the status quo in contrast to growth).
D. Where Culture Comes From?
1. The original source of an organization’s culture is usually a reflection of the vision or
mission of the organization’s founders.
2. Founders project an image of what the organization should be and what its values are.
3. Founders “impose” their vision on employees.
4. Organizational members create a shared history or “who we are.”
E. How Do Employees Learn the Culture?
A. Culture is transmitted principally through stories, rituals, material symbols, and
language. Organizational stories typically involve a narrative of significant events or
people.
a) Corporate rituals are repetitive sequences of activities that express and
reinforce the key values of the organization, which goals are most important,
and which people are important or expendable.
b) The use of material symbols and artifacts is another way in which
employees learn the culture, learn the degree of equality desired by top
management, discover which employees are most important, and learn the
kinds of behavior that are expected and appropriate.
c) Language is often used to identify members of a culture. Learning this
language indicates members’ willingness to accept and preserve the culture.
This special lingo acts as a common denominator to unite members of a
particular culture.
IV. HOW DOES ORGANIZATIONAL CULTURE AFFECT MANAGERS?
1. An organization’s culture is important because it establishes constraints on what
employees and managers can do.
A. How Does Culture Affect What Employees Do?
a. Strong cultures are found in organizations where key values are intensely held
and widely shared.
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b. Most organizations have moderate-to-strong cultures. In these organizations, high
agreement exists about what is important and what defines “good” employee
behavior, for example.
c. Strong cultures can create predictability, orderliness, and consistency without the
need for written documentation.
B. How Does Culture Affect What Managers Do?
a) Constraints from organizational culture are rarely explicit.
b) The link between corporate values and managerial behavior is fairly
straightforward.
c) The culture conveys to managers what is appropriate behavior.
d) An organization’s culture, particularly a strong one, constrains a manager’s
decision making options in all managerial functions (see Exhibit 2-5).
REVIEW AND APPLICATIONS
CHAPTER SUMMARY
2-1 Explain what the external environment is and why it’s important. The
external environment refers to factors, forces, situations, and events outside the
organization that affects its performance. It includes economic, demographic,
political/legal, sociocultural, technological, and global components. The external
environment is important because it poses constraints and challenges to managers.
2-2 Discuss how the external environment affects managers. There are three ways
that the external environment affects managers: its impact on jobs and
employment, the amount of environmental uncertainty, and the nature of
stakeholder relationships.
2-3 Define what organizational culture is and explain why it’s important.
Organizational culture is the shared values, principles, traditions, and ways of
doing things that influence the way organizational members act. It’s important
because of the impact it has on decisions, behaviors, and actions of organizational
employees.
2-4 Describe how organizational culture affects managers. Organizational culture
affects managers in two ways: through its effect on what employees do and how
they behave, and through its effect on what managers do as they plan, organize,
lead, and control
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