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Chapter 3
Managing the External Environment and the
Organization’s Culture
The components of an organization’s culture are as complex as the different aspects of
an individual’s personality. Today’s managers must understand how the force of an
organization’s internal and external environments may influence, and sometimes
constrain, its productivity.
LEARNING OBJECTIVES
LEARNING OBJECTIVES
1. Contrast the actions of managers according to the omnipotent and symbolic views.
2. Describe the constraints and challenges facing managers in today’s external
3. Discuss the characteristics and importance of organizational culture.
• Know how to read and assess an organization’s culture.
4. Describe current issues in organizational culture.
It’s Your Career
It’s Your Career
Reading an Organization’s Culture: Find One Where You’ll Be Happy
Wouldn’t it be nice to one day find a job you enjoy in an organization you’re excited to go
to every day (or at least most days!)? Organizational cultures vary and finding one that’s
1. Do background check. Are the company’s values and mission statement listed?
What do current news items tell you about the company? You might also talk with
2. Observe the physical surroundings and corporate symbols. What do logos,
posters, pictures, style of dress, length of hair, and other factors tell you about
the company? Could you see yourself working there and enjoying it?
3. How would you characterize the people you meet? Are they formal? Casual?
Serious? Jovial? Open? What do these things say about the organization’s
values?
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5. Ask questions of the people you meet. How is job success
defined/determined? What rituals are important, and what events get
commemorated? What do these things say about what the organization values?
3.1 THE MANAGER: OMNIPOTENT OR SYMBOLIC?
1. This view of managers as being omnipotent is consistent with the
2. When organizations perform poorly, someone must be held
accountable. According to the omnipotent view, that “someone” is
1. The influence that managers do have is seen mainly as a
symbolic outcome.
2. Organizational results are influenced by factors outside of the
control of managers, including the economy, customers,
3. The manager’s role is to create meaning out of randomness,
confusion, and ambiguity.
4. According to the symbolic view, the actual part that management
plays in the success or failure of an organization is minimal.
3.2 THE EXTERNAL ENVIRONMENT
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The impact of the external environment on a manager’s actions and behaviors
cannot be overemphasized. Forces in the external environment play a major role
1. The Global Economy and the Economic Context
a. Context. The lingering global economic challenges—
once described as the “Great Recession” by some
analysts—began with turmoil in the home mortgage
2. Economic Inequality and the Economic Context
a. A Pew Research Center poll found that majorities in each
of 44 countries surveyed believe that the gap between rich
and poor is a “big problem,” and in 28 of the nations,
B. The Demographic Environment.
1. Demographic conditions, including physical characteristics of a
population (e.g., gender, age, level of education, geographic loca-
2. Baby Boomers. Born between 1946 and 1964, the sheer numbers
3. Gen Y (or the “Millennials”). Born between 1978 and 1994, this
Copyright © 2018 Pearson Education, Inc.
45
age group is also large in number and making its imprint on
external environmental conditions from technology to clothing
styles to work attitudes.
4. Post-Millennials. The youngest identified age group has also been
called the iGeneration, primarily because they’ve grown up with
technology that customizes everything to the individual.
FUTURE VISION: Tomorrow’s Workforce: More Diverse Than Ever
Demographic projections for the United States point to two major changes in the next
twelve years: an increase in Hispanics and senior citizens. The growing number of
Hispanics will be more evident in the southern part of the country. This could entail
work force changes including a growing number of younger workers and an increasing
use of Spanish in the work place. The graying of society, a term used to describe the
growing number of retired workers, will have a strong impact on Social Security and
other retirement funds. Ask students if they see other effects of these two changes.
How do they view the future demographic composition of the United States? Will
greater diversity be an advantage or disadvantage?
The following discussion questions are posed:
Talk About It 1: Why is it important for managers to be aware of demographic
changes?
Talk About It 2: What can managers do to stay on top of demographic changes?
Student answers to these questions will vary.
FUTURE VISION: Tomorrow’s Workforce: More Diverse Than Ever
Demographic projections for the United States point to two major
changes in the next twelve years: an increase in Hispanics and senior
citizens. The growing number of Hispanics will be more evident in the
southern part of the country. This could entail work force changes
including a growing number of younger workers and an increasing use
of Spanish in the work place. The graying of society, a term used to
describe the growing number of retired workers, will have a strong
impact on Social Security and other retirement funds. Ask students if
they see other effects of these two changes. How do they view the
future demographic composition of the United States? Will greater
diversity be an advantage or disadvantage?
The following discussion questions are posed:
Talk About It 1: Why is it important for managers to be aware of
demographic changes?
Talk About It 2: What can managers do to stay on top of demographic
changes?
Student answers to these questions will vary.
C. How the External Environment Affects Managers.
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1. Jobs and Employment. One of the most important organizational
factors affected by changes in the external environment is jobs
and employment. For example, economic downturns result in
2. Assessing Environmental Uncertainty. 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 3-3).
a. Degree of change is characterized as being dynamic or
e. Because uncertainty is a threat to organizational
effectiveness, managers try to minimize environmental
uncertainty.
LEADER MAKING A DIFFERENCE
When Indra Nooyi took the reins of PepsiCo nine years ago, she insisted on
developing the company’s product line to respond to shifts in the external
environment as the trend toward healthier eating grew. Three categories of products
were introduced including one for the organization’s traditional junk food products,
one for healthier versions of the same products, and one for healthy products such as
oatmeal. Under Nooyi’s leadership, PepsiCo has experienced continued growth and
Nooyi was recognized on Fortune’s list of Most Powerful Women. Students are asked
what they can learn from Indra Nooyi. Responses should include her willingness to
adapt to a changing environment and demand for flawless execution and attention to
detail.
What can you learn from this leader making a difference?
3. Managing Stakeholder Relationships. The more obvious and
secure an organization’s relationships are with external
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stakeholders, the more influence managers have over
organizational controls.
a. Stakeholders are any constituencies in the organization’s
external environment that are affected by the
organization’s decisions and actions. (See Exhibit 3-4 for
an identification of some of the most common
stakeholders.)
b. Stakeholder relationship management is important for two
reasons:
1) It can lead to improved predictability of
environmental changes, more successful
2) It is the “right” thing to do because organizations
are dependent on external stakeholders as sources
3.3 ORGANIZATIONAL CULTURE: CONSTRAINTS AND CHALLENGES
Just as individuals have a personality, so, too, do organizations. We refer to an
organization’s personality as its culture.
A. What is Organizational Culture? Organizational culture is the shared
2. Organizational culture is shared by individuals within the
organization.
4. Seven dimensions of an organization’s culture have been
proposed (see Exhibit 3-5):
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
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g. Stability (the degree to which organizational activities
emphasize maintaining the status quo in contrast to
growth)
5. Exhibit 3-6 describes how the cultural dimensions can be
1. Strong cultures are found in organizations where key values are
intensely held and widely shared.
2. Whether a company’s culture is strong, weak, or somewhere in
4. Most organizations have moderate-to-strong cultures. In these
5. Studies of organizational culture have yielded various results. One
study found that employees in firms with strong cultures were
6. Exhibit 3-7 contrasts strong cultures vs. weak cultures.
C. Where Culture Comes From and How it Continues.
1. The original source of an organization’s culture is usually a
reflection of the vision or mission of the organization’s founders.
2. An organization’s culture continues when:
a. A culture is in place, practices help to maintain it.
3. Exhibit 3-8 shows how organizations establish and maintain
2. Stories are one way that employees learn the culture. These
stories typically involve a narrative of significant events or people.
3. Rituals are repetitive sequences of activities that express and
4. The use of material symbols and artifacts is another way in
which employees learn the culture, learn the degree of equality
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5. Language is often used to identify members of a culture. Learning
this language indicates members’ willingness to accept and
2. The culture conveys to managers what is appropriate behavior.
3. An organization’s culture, particularly a strong one, constrains a
3.4 CURRENT ISSUES IN ORGANIZATIONAL CULTURE
1. What does an innovative culture look like? Swedish researcher
1. What does a customer-responsive culture look like? Research
shows the following six characteristics routinely present in a
• Employees who are conscientious in desire to please
customers
C. Creating a Sustainability Culture.
2. Rituals can be used to create and maintain sustainability cultures.
Another way to develop a sustainability culture is through rewards.
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ANSWERS TO REVIEW AND DISCUSSION QUESTIONS
ANSWERS TO REVIEW AND DISCUSSION
QUESTIONS
Student answers to these questions will vary.
3-1. Describe the two perspectives on how much impact managers have on an
organization’s success or failure.
In Section 3.1 of Chapter 3, the omnipotent and symbolic views of management are
presented. The omnipotent view supports the idea that a manager is directly
3-2. “Businesses are built on relationships.” What do you think this statement means?
What are implications for managing the external environment?
3-3. Refer to Exhibit 3-6. How would a first-line manager’s job differ in these two
organizations? How about a top-level manager’s job?
3-4. Classrooms have cultures. Describe your class culture using the seven dimensions
of organizational culture. Does the culture constrain your instructor? How?
Answers to this question will vary. Have students look at the seven dimensions of
organizational culture described in the text and rate them from high to low for the class.
One point you might want to explore: What role does the instructor play in establishing
the culture of the classroom? Ask students to relate this information to the role a
3-5. Can culture be a liability to an organization? Explain.
3-6. Discuss the impact of a strong culture on organizations and managers.
At one time, researchers supported a direct connection between the strength of an
3-7. What are the four common ways an organization communicates its culture to
employees?
3-8. What kind of organization would benefit from an innovative culture?
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3-11. What do you think? Is this an ethical use of technology?
3-12. What if your school (or country) was competing for a championship and couldn’t
afford to outfit athletes in such equipment and it affected your ability to compete? Would
that make a difference?
3-13. What ethical guidelines might you suggest for such situations?
(LO: 2, Describe the constraints and challenges facing managers in today’s external
environment, AACSB: Ethical understanding and reasoning)
SKILLS EXERCISE: DEVELOPING YOUR ENVIRONMENTAL SCANNING SKILL
SKILLS EXERCISE: DEVELOPING YOUR
ENVIRONMENTAL SCANNING SKILL
Environmental scanning is an important managerial skill. In this exercise, students are
asked to practice this skill using five suggestions:
• Decide which type of environmental information is important to your work.
• Regularly read and monitor pertinent information.
WORKING TOGETHER: TEAM EXERCISE
WORKING TOGETHER: TEAM EXERCISE
Have students work in teams of three or four. Student responses will vary.
The most common ways to learn organizational culture is through stories, rituals,
material artifacts and symbols, and language. Some questions that students might ask
discouraged by the physical layout? What do these things say about what the
organization values?
• Symbols (logos, dress codes, slogans, philosophy statements)—What values are
highlighted? Where are logos displayed? Whose needs are emphasized? What
concepts are emphasized? What actions are prohibited? What actions are
encouraged? Are any artifacts prominently displayed? What do those artifacts
symbolize? What do these things say about what the organization values?
• Words (stories, language, job titles)—What stories are repeated? How are
employees addressed? What do job titles say about the organization? Are
jokes/anecdotes used in conversation? What do these things say about what the
organization values?
MY TURN TO BE A MANAGER
MY TURN TO BE A MANAGER
• Find two current examples in any of the popular business periodicals of the
omnipotent and symbolic views of management. Write a paper describing what
you found and how the two examples you found represent the views of
management. (LO: 1, Contrast the actions of managers according to the
omnipotent and symbolic views, AACSB: Reflective thinking)
• Consider a business that you frequent (for example, a restaurant or coffee shop)
and review the six aspects of the external environment discussed in the text.
Create a list of factors in the external environment that could affect the
management of the business you selected. (LO: 2, Describe the constraints and
challenges facing managers in today’s external environment, AACSB: Analytical
thinking)
• Choose an organization you’re familiar with or one that you would like to know
more about. Create a table identifying potential stakeholders of this organization.
Then indicate what particular interests or concerns these stakeholders might
have. (LO: 4, Describe current issues in organizational culture, AACSB:
Reflective thinking)
• If you belong to a student organization, evaluate its culture. How would you
describe the culture? How do new members learn the culture? How is the culture
maintained? If you don’t belong to a student organization, talk to another student
3-14. Would you want to work at Netflix? Why or why not?
Responses to this question will depend on the student’s preferences and opinions. (LO:
3, Discuss the characteristics and importance of organizational culture, AACSB:
Analytical thinking)
3-15. Does Netflix have characteristics of an innovative culture?
3-16. Do you agree that Netflix’s culture contributes to the organization’s success? Why
or why not?
3-17. Could another company copy Netflix’s culture successfully?
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3-18. Using Exhibit 3-2, what external components might be most important for
managers in movie theater chains to know about? Why?
3-19. According to the case, what external trends do managers at the movie theater
chains have to deal with?
3-20. How do you think these trends might constrain decisions made by managers at
the movie theater chains?
3-21. What stakeholders do you think might be most important to movie theater chains?
What interests might these stakeholders have?
Students could potentially make a case for all of the eleven stakeholders listed in
Exhibit 3-4. However, the groups that are the most influential to their immediate
situation are customers, suppliers, the media, and competitors. With regard to
customers, movie theaters ultimately depend upon their dollars to keep the theater
