978-1305502215 Chapter 2

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CHAPTER 2

THE ENVIRONMENT AND CORPORATE CULTURE

CHAPTER OUTLINE

New Manager Self-Test: Are You Fit for Managerial Uncertainty?

I. The External Environment

A. Task Environment

B. General Environment

II. The Organization–Environment Relationship

A. Environmental Uncertainty

B. Adapting to the Environment

III. The Internal Environment: Corporate Culture

A. Symbols

B. Stories

C. Heroes

D. Slogans

E. Ceremonies

IV. Types of Cultures

A. Adaptability Culture

B. Achievement Culture

C. Involvement Culture

D. Consistency Culture

New Manager Self-Test: Cultural Preference

V. Shaping Corporate Culture for Innovative Response

A. Managing the High-Performance Culture

B. Cultural Leadership

ANNOTATED LEARNING OUTCOMES

After studying this chapter, students should be able to:

1. Define an organizational ecosystem and how the general and task environments affect an

organization’s ability to thrive.

The Environment and Corporate Culture •

political, international, natural, and technological factors that influence all organizations about

equally.

2. Explain the strategies that managers use to help organizations adapt to an uncertain or

turbulent environment.

The environment creates uncertainty for organization managers. Uncertainty means that

3. Define corporate culture.

Culture can be defined as the set of key values, beliefs, understandings, and norms shared by

4. Provide organizational examples of symbols, stories, heroes, slogans, and ceremonies and

explain how they relate to corporate culture.

Fundamental values and corporate culture cannot be observed directly, but they can be

5. Describe four types of culture.

The adaptability culture is characterized by values that support the company’s ability to rapidly

detect, interpret, and translate signals from the environment into new behavior responses. This

6. Examine the relationship between culture, corporate values, and business performance.

7. Define a cultural leader and explain the tools that a cultural leader uses to create a high-

performance culture.

A cultural leader is a manager who uses signals and symbols to influence corporate culture.

The Environment and Corporate Culture •

and reward systems match and reinforce those values. Finally, the cultural leader must be sure to

exemplify high-performance in his or her own work activities.

LECTURE OUTLINE

NEW MANAGER SELF-TEST: ARE YOU FIT FOR MANAGERIAL UNCERTAINTY?

Organizations in uncertain environments find that everything seems to be constantly changing.

Such an environment requires that new managers possess the quality of “mindfulness”—being

open-minded and thinking independently. This exercise helps students determine their levels of

mindfulness, indicating whether they would likely perform better in stable or unstable

environments.

I. THE EXTERNAL ENVIRONMENT Exhibit 2.1

The organizational environment includes all elements existing outside the boundary of the

organization that have the potential to affect the organization. The environment includes

competitors, resources, technology, and economic conditions that influence the organization. It

does not include those events so far removed from the organization that their impact is not

perceived. The organizational environment can be conceptualized as having two layers

surrounding the organization: the general environment and the task environment. The

organization also has an organizational ecosystem formed by interaction among a community

of organizations in the environment and an internal environment that includes the elements

within the organization’s boundaries such as current employees, management, and corporate

culture.

A. Task Environment

1. The task environment is the layer closest to the organization and includes those

sectors that have a direct working relationship with it. The task environment includes

customers, competitors, suppliers, and the labor market.

a. Customers are those people and organizations in the environment that acquire

goods or services from the organization. Customers are important because they

determine the organization’s success. Customers today have even greater power

because of the Internet, which poses threats as well as opportunities for managers.

Discussion Question #4: Contemporary best-selling management books often argue that

customers are the most important element in the external environment. Do you agree? In what

company situations might this statement be untrue?

NOTES________________________________________________________________________

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b. Competitors are organizations in the same industry or type of business that

provide goods or services to the same set of customers. Specific competitive

issues characterize each industry. The recording industry differs from the steel

industry and the pharmaceutical industry.

c. Suppliers are people and organizations that provide the raw materials that the

organization uses to produce its output. A supply chain is a network of multiple

businesses and individuals that are connected through the flow of products or

services. Many companies are using fewer suppliers and building good

relationships with them so that they will receive high-quality goods at lower

prices. These companies are also finding that being cooperative, rather than

adversarial, is the key to saving money, maintaining quality, and speeding

products to market.

d. The labor market represents people in the environment who can be hired to work

for the organization. Labor market factors that impact organizations include:

• the growing need for computer-literate knowledge workers;

• the necessity for continuous investment in human resources through

recruitment, education, and training to meet competitive demands of the

borderless world; and

• the effects of international trading blocs, automation, outsourcing, and shifting

facility locations on labor dislocations, creating unused labor pools in some

areas and labor shortages in others.

Exhibit 2.2

Discussion Question #2: Would the task environment for a wireless provider such as U.S.

Cellular contain the same elements as that for a government welfare agency? Discuss the

similarities and differences.

NOTES________________________________________________________________________

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B. General Environment Exhibit 2.3

1. The dimensions of the general environment include international, technological,

sociocultural, economic, natural, and legal-political.

a. The international dimension represents events originating in foreign countries

and opportunities for American companies in other countries. This dimension

influences all other aspects of the external environment. This provides new

competitors, customers, and suppliers and shapes social, technical, and economic

trends.

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b. The technological dimension includes scientific and technological advancements

in a specific industry as well as in society at large. Technology has created

massive changes for organizations and industries. Today, computer networks,

Internet access, hand-held devices, videoconferencing capabilities, cell phones,

and laptops are the minimum tools for doing business. Advances in technology

drive competition and help innovative companies gain market share, and they

have the potential to transform consumer expectations of an entire industry.

c. The sociocultural dimension represents the demographic characteristics, norms,

customs, and values of the general population. Important sociocultural

characteristics are geographical distribution, population density, age, and

education levels. Today’s demographic profiles are the foundation of tomorrow’s

work force and customers.

d. The economic dimension represents the general economic health of the country

or region in which the organization operates. Components of the economic

dimension include consumer purchasing power, the unemployment rate, and

interest rates. In the last few years, the weakened U.S. economy has had a

devastating effect on small businesses. Nevertheless, there is still tremendous

vitality in the small business sector of the economy.

e. The legal-political dimension includes federal, state, and local government

regulations and political activities designed to influence company behavior.

Government regulations influence organizations through a variety of legislation

such as Occupational Safety and Heath Administration (OSHA), the

Environmental Protection Agency (EPA), fair trade practices, and others.

Pressure groups are interest groups that work within the legal-political framework

to influence companies to behave in socially responsible ways. For example,

Wal–Mart has been pushed to improve workers’ wages and health care benefits.

f. The natural dimension is different from other sectors of the general environment

because it has no voice of its own. It includes all elements that occur naturally on

earth, including plants, animals, rocks, and natural resources such as air, water,

and climate. Influence on managers to meet needs in the natural environment

may come from other sectors, such as government regulation, consumer concerns,

the media, competitors’ actions, or even employees.

NOTES________________________________________________________________________

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II. THE ORGANIZATION-ENVIRONMENT RELATIONSHIP

A. Environmental Uncertainty Exhibit 2.4

1. Environmental uncertainty must be managed to make the organization more effective.

Uncertainty means that managers do not have sufficient information about

environmental factors to understand and predict environmental needs and changes.

The Environment and Corporate Culture •

Environmental characteristics that influence uncertainty are the number of factors that

affect the organization and the extent to which those factors change.

2. When external factors change rapidly, the organization experiences very high

uncertainty (e.g., telecommunications firms, computer firms, and electronics firms).

When an organization deals with a few external factors that are stable, managers

experience low uncertainty (e.g., soft-drink bottlers or food processors).

Discussion Question #3: What strategic issues have the potential to create environmental

uncertainty in the following four industries: (a) automobile; (b) social media; (c) newspaper;

and (d) medical services?

NOTES________________________________________________________________________

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B. Adapting to the Environment

1. Boundary-spanning roles link to and coordinate the organization with key elements

in the external environment. Boundary spanners serve two purposes for the

organization: they detect and process information about changes in the environment,

and they represent the organization’s interests to the environment.

a. People in departments such as marketing and purchasing span the boundary to

work with customers and suppliers through face-to-face and market research.

Business intelligence results from using sophisticated software to search through

large amounts of internal and external data to spot patterns, trends, and

relationships that might be significant is a recent approach to boundary spanning.

For example, Verizon uses business intelligence to actively monitor customer

interactions and fix problems almost immediately.

b. Competitive intelligence refers to activities designed to get as much information

as possible about one’s rivals. For example, Harley-Davidson hires an outside

research firm to search through massive amounts of data and reveal patterns that

help decipher and predict competitors’ actions.

Exhibit 2.5

2. A popular strategy for adapting to the environment is by reducing boundaries and

increasing collaboration with other organizations through interorganizational

partnerships. Companies are joining together to become more effective and share

scarce resources. Many companies are engaged in e-business relationships with

suppliers and partners, aided by digital network connections and the Internet. The

new model is characterized by information sharing, including e-business linkages for

automatic ordering, payments, and other transactions.

3. Mergers and joint ventures also reduce environmental uncertainty. A merger occurs

when two or more organizations combine to become one. A joint venture is a

strategic alliance by two or more organizations that occurs when the project is too

The Environment and Corporate Culture •

complex, expensive, or uncertain for one firm to handle alone.

Discussion Question #6: Why are interorganizational partnerships so important for today’s

companies? What elements in the current environment might contribute to either an increase or

decrease in interorganizational collaboration? Discuss.

NOTES________________________________________________________________________

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III. THE INTERNAL ENVIRONMENT: CORPORATE CULTURE Exhibit 2.6

The internal environment includes: corporate culture, production technology, organization

structure, and physical facilities. Corporate culture is extremely important in an organization

attempting to achieve a competitive advantage. The internal culture must fit the needs of the

external environment and company strategy.

Culture is defined as the set of key values, beliefs, understandings, and norms shared by

members of an organization. Culture is a pattern of shared values and assumptions about how

things are done within the organization. It can be analyzed at two levels, with each level

becoming less obvious. At the surface level are visible artifacts, which include all the things one

can see, hear, and observe by watching members of the organization. At a deeper, less obvious

level are the expressed values and beliefs, which are not observable but can be discerned from

how people explain and justify what they do. Some values become so deeply embedded in a

culture that members are no longer consciously aware of them. These basic, underlying

assumptions and beliefs are the essence of culture and subconsciously guide behavior and

decisions.

NOTES________________________________________________________________________

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A. Symbols

1. A symbol is an object, act, or event that conveys meaning to others. Symbols

associated with corporate culture convey the organization’s important values.

B. Stories

1. A story is a narrative based on true events that is repeated and shared among

organizational employees. Stories are told to new employees to keep the

organization’s primary values alive.

C. Heroes

1. A hero is a figure who exemplifies the deeds, character, and attributes of a strong

corporate culture. Heroes are role models for employees to follow.

The Environment and Corporate Culture •

D. Slogans

1. A slogan is a phrase or sentence that succinctly expresses a key corporate value.

E. Ceremonies

1. A ceremony is a planned activity that marks up a special event and is conducted for

the benefit of an audience.

NOTES________________________________________________________________________

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IV. TYPES OF CULTURE Exhibit 2.7

In considering what cultural values are important for the organization, managers consider the

external environment, as well as the company’s strategy and goals. Studies suggest that the right

fit between culture, strategy, and the environment is associated with four categories or types of

culture, based on two dimensions: (1) the extent to which the external environment requires

flexibility or stability; and (2) the extent to which a company’s strategic focus is internal or

external.

A strong corporate culture alone does not ensure business success unless the culture encourages

healthy adaptation to the external environment. Healthy cultures help companies adapt to the

environment. A strong, but unhealthy, culture may encourage the organization to march

resolutely in the wrong direction.

A. Adaptability Culture

1. The adaptability culture is characterized by values that support the company’s

ability to rapidly detect, interpret, and translate signals from the environment into new

behavior responses. This culture emerges in an environment that requires fast

response and high-risk decision-making.

B. Achievement Culture

1. The achievement culture is a results-oriented culture that values competitiveness,

aggressiveness, personal initiative, cost cutting, and willingness to work long and

hard to achieve results. It is suited to organizations concerned with serving specific

customers in the external environment, but without the intense need for flexibility and

rapid change. An emphasis on winning and achieving specific ambitious goals is the

glue that holds the organization together.

C. Involvement Culture

1. The involvement culture places high value on meeting the needs of employees and

values cooperation and equality. This culture has an internal focus on the

The Environment and Corporate Culture •

involvement and participation of employees to adapt rapidly to changing needs from

the environment. Managers emphasize values such as cooperation, consideration of

both employees and customers, and avoiding status differences.

D. Consistency Culture

1. The consistency culture values and rewards a methodical, rational, orderly way of

doing things. This culture uses an internal focus and a consistency orientation for a

stable environment.

NOTES________________________________________________________________________

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NEW MANAGER SELF-TEST: CULTURAL PREFERENCE

The fit between a new manager and organizational culture can determine success and

satisfaction. This exercise helps students determine their preferences with regard to organization

culture. Scores indicate the degree to which students will be comfortable and effective in four

types of culture: involvement, adaptability, achievement, and consistency.

Instructions: The fit between new manager and organizational culture can determine success

and satisfaction. To understand your culture preference, rank the items below from 1 to 8 based

on the strength of your preference (1 = strongest preference).

1. The organization is very personal, much like an extended family. Score-1

2. The organization is dynamic and changing, where people take risks. Score-3

3. The organization is achievement oriented, with the focus on competition and getting jobs

done. Score-4

4. The organization is stable and structured, with clarity and established procedures. Score-3

5. Management style is characterized by teamwork and participation. Score-1

6. Management style is characterized by innovation and risk taking. Score-2

7. Management style is characterized by high performance demands and achievement. Score-4

8. Management style is characterized by security and predictability. Score-3

Scoring and interpretation: Each question pertains to one of the four types of culture in Exhibit

2.7. To compute your preference for each type of culture, add together the scores for each set of

two questions as follows:

A lower score means a stronger culture preference. You will likely to be more comfortable and

more effective as a new manger in a corporate culture that is compatible with your personal

preferences. A higher score means the culture would not fit your expectations, and you would

The Environment and Corporate Culture •

have to change your style and preference to be comfortable. Review the text discussion of the

four culture types. Do your cultural preference seems correct to you? Can you think of

companies that fit your culture preference?

The cultural preference indicated by the scores above is the involvement culture. Adobe Systems

Inc., Google, Chevron Corporation, and Facebook are some companies with high involvement

culture that would fit the above culture preference.

V. SHAPING CORPORATE CULTURE FOR INNOVATIVE RESPONSE

Research shows that one factor that increases a company’s value the most is people and how they

are treated. Corporate culture has become increasingly important to managers as they recognize

its importance in attracting, motivating, and keeping good employees. Culture plays a key role

in creating an organizational climate that enables learning and innovative responses to threats

from the external environment, challenging new opportunities, or organizational crises.

A. Managing the High-Performance Culture Exhibit 2.8

1. Companies that succeed in a turbulent world are those that pay careful attention to

both cultural values and business performance. Cultural values can energize and

motivate employees by appealing to higher ideals and unifying people around shared

goals. Values boost performance by shaping and guiding employee behavior, so that

everyone’s actions are aligned with strategic priorities. Four organizational outcomes

are possible based on the relative attention managers pay to cultural values and

business performance.

a. Companies that pay little attention to either values or business results are unlikely

to survive for long.

b. Companies that focus on values but pay little attention to business results are

likely to miss important environmental changes, eventually resulting in loss of

market share.

c. Companies that focus primarily on bottom-line results but pay little attention to

organizational values will find it difficult to survive in times of crisis.

d. Companies that emphasize both culture and business performance will develop a

strong organizational culture that gives employees a sense of identity, holds the

company together during tough times, and helps it adapt quickly to a changing

environment. These companies represent the high-performance culture that:

• is based on a solid organizational mission or purpose;

• embodies shared adaptive values that guide decisions and business practices;

and

• encourages individual employee ownership of both bottom-line results and the

organization’s cultural backbone.

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NOTES________________________________________________________________________

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B. Cultural Leadership

1. One-way managers change norms and values to build a high-performance culture is

through cultural leadership. A cultural leader defines and uses signals and symbols

to influence corporate culture by:

a. articulating a vision for the organizational culture that employees can believe in;

and

b. heeding the day-to-day activities that reinforce the cultural vision.

2. Managers widely communicate the cultural values through words and actions. Value

statements that aren’t reinforced by management behavior are meaningless. Cultural

leaders also uphold their commitment to values during difficult times or crises.

Maintaining consistency with the cultural values helps organizations weather the

storm and come out stronger on the other side. Cultural leaders let everyone in the

organization know what really counts.

NOTES________________________________________________________________________

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SUGGESTED ANSWERS TO END–OF-CHAPTER DISCUSSION

QUESTIONS

1. Surveys reveal dramatic shifts in social attitudes toward issues such as gay marriage and

citizenship for illegal immigrants. How do you think these changing attitudes might affect the

manager’s job over the next few years?

2. Would the task environment for a wireless provider such as U.S. Cellular contain the same

elements as that for a government welfare agency? Discuss the similarities and differences.

There are three components of the task environment: competitors, suppliers, and customers. An

analysis of each of these components for the two organizations illustrates the differences in their

3. What strategic issues have the potential to create environmental uncertainty in the following

four industries: (a) automobile; (b) social media; (c) newspaper; and (d) medical services?

The forces influencing the environment are competitors, resources, technology, and economic

4. Contemporary best-selling management books often argue that customers are the most

important element in the external environment. Do you agree? In what company situations

might this statement be untrue?

Companies in the public and private sector must be customer driven to remain competitive.

5. What do you see as the primary advantage of using big data analytics—understanding the

environment or influencing the environment? Why?

The Environment and Corporate Culture •

are also things that happen in the environment that cannot reasonably be predicted. By

definition, uncertainty means that managers lack sufficient information about environmental

factors to understand and predict needs and changes, but big data analysis can help both in

understanding the environment and influencing it.

6. Why are interorganizational partnerships so important for today’s companies? What

elements in the current environment might contribute to either an increase or decrease in

interorganizational collaboration? Discuss.

7. Consider the factors that influence the environmental uncertainty (rate of change in factors

and number of factors in the environment) that are presented in Exhibit 2.4. Classify each of

the following organizations as operating in either (a) a low-uncertainty environment or (b) a

high-uncertainty environment: Hyundai, Facebook, a local Subway franchise, FedEx, a

cattle ranch in Oklahoma, and McDonald’s. Explain your reasoning.

In a high uncertainty environment, the external factors change rapidly whereas in a low

8. Distribution center managers for Anheuser-Busch InBev frequently start the day with a sort

of pep rally, reviewing the day’s sales targets and motivating people to get out and sell more

beer. What does this suggest about the type of culture the company’s managers promote?

9. As a manager, how would you use symbols to build an adaptability culture that encourages

teamwork and risk-taking? What kinds of symbols could you use to promote the values of an

involvement culture?

10. Do you think it is wise for a top executive to fire a manager who is bringing in big sales and

profits for the company but not living up to a cultural value of “showing respect for

employees”? Explain.

This question pertains to cultural leadership. A top executive should fire a manager who does not

APPLY YOUR SKILLS: SELF-LEARNING

Working in an Adaptability Culture

Although this exercise deals with culture in the workplace, some students may not have much

experience with workplace cultures, so it may be useful to ask students about norms on their

campus—a culture with which they may be more familiar. Are there styles of dress, books, bags,

hangout places, modes of talking, drinking, and dressing or fitness, that govern what reaction

students give to one another? You might also ask them about the clubs or organizations to which

they belong. If there are strong norms, then there is a strong culture, whether it is a positive or

negative one. Often sororities and fraternities have strong cultures, and they have been criticized

for that in recent years because of harsh “hazing” practices. Ask them to compare, if possible, a

club or organization with a strong culture and one with a weaker culture and see what the

differences are. The discussion of norms on campus and in clubs or other organizations can then

be compared to culture in work organizations.

APPLY YOUR SKILLS: GROUP LEARNING

Organizational Culture in the Classroom and Beyond

This exercise asks students to identify cultural norms from their own experiences in three

different settings, then discuss the identified norms in groups of four to six students and group

the norms by common themes and give each group of norms a title. Students will also discuss

the origins of norms, the difference between espoused norms and enacted norms, and

responsibility for establishing norms.

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APPLY YOUR SKILLS: ETHICAL DILEMMA

Competitive Intelligence Predicament

1. Go ahead and use the documents to the company’s benefit, but make clear to your boss that

you don’t want him passing confidential information to you in the future. If he threatens to

fire you, threaten to leak the news to the press.

2. Confront your boss privately and let him know you’re uncomfortable with how the documents

were obtained and what possession of them says about the company’s culture. In addition to

the question of the legality of using the information, point out that it is a public relations

nightmare waiting to happen.

3. Talk to the company’s legal counsel and contact the Society of Competitive Intelligence

Professionals for guidance. Then with their opinions and facts to back you up, go to your

boss.

APPLY YOUR SKILLS: CASE FOR CRITICAL ANALYSIS

Not Measuring Up

1. Do you think Zeitland’s desire for changes in culture are related to changes in the external

environment? Explain.

The task environment component of the external organizational environment includes

2. What additional investigation might Wheeling and Zeitland undertake before settling on a

plan of action?

3. In which quarter of Exhibit 2.8 would you place Cam? What are some steps you would

recommend that Cam consider to better connect with the employees who report to him?

ON THE JOB VIDEO CASE ANSWERS

Camp Bow Wow

1. What aspects of Camp Bow Wow’s corporate culture are visible and conscious? What

aspects are invisible and unconscious?

Visible aspects of Camp Bow Wow’s culture include the company logo, the presence of dogs in

workspaces, the dress code, the camp imagery, and Heidi Ganahl’s life story, which is told and

2. Why did Camp Bow Wow have to change its culture when it became a national franchise?

3. What impact does Heidi Ganahl’s story have on employees at Camp Bow Wow?

The story of Heidi Ganahl is famous at all levels of the Camp Bow Wow organization.