Chapter Two
The Changing Environment of Organizations
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Learning Outcomes …………………………………………………………………………………………. 2
Real-World Challenge: Global Diversity at Coca-Cola ……………………………………….. 2
Chapter Outline ………………………………………………………………………………………………. 2
Chapter Overview
The environment of all organizations is changing at an unprecedented rate. People work in different ways
and places than in the past, the workplace is increasingly diverse, ethical challenges are a constant issue,
and globalization is commonplace.
Understanding and addressing the environment of a business has traditionally been the purview of top
managers. But the effects of today’s changing environment permeate the entire organization. Hence, to
truly understand the behavior of people in organizational settings, it is also necessary to understand the
changing environment of business.
Learning Outcomes
After studying this chapter, students should be able to:
1. Describe the nature of diversity in organizations.
Real-World Challenge: Global Diversity at Coca–Cola
Summary: With over 10,300 global employees, and around a third of them outside the United States,
beverage giant The Coca-Cola Company is a global business that operates in a multicultural world both in
the workplace and in the marketplace. The company recognizes that its ability to thrive in a multicultural
world is both critical to its financial performance and consistent with its values. Accordingly, diversity is
recognized by Coca-Cola as an important component of its vision for the company in 2020. The Coca-
Cola Company understands that although it has been recognized as a diversity leader, there is always
more it can do.
Real-World Challenge: Imagine that the company’s leaders ask you for advice on how to build a diverse
and inclusive workforce that allows it to leverage the potential of its diverse employees to enhance the
company’s performance. After reading this chapter, what would you tell them?
Real-World Response: Diversity is taken seriously at all levels in The Coca-Cola Company. Senior
Chapter Outline
I. DIVERSITY AND BUSINESS
Diversity refers to the variety of observable and unobservable similarities and differences among
people.
II. TYPES OF DIVERSITY
A. Types of Diversity
Surface-level diversity refers to observable differences in people, including race, age, ethnicity,
physical abilities, physical characteristics, and gender.
Deep-level diversity refers to individual differences that cannot be seen directly, including
goals, values, personalities, decision-making styles, knowledge, skills, abilities, and attitudes.
Table 2.1 summarizes these five types of diversity.
B. Trends in Diversity
Some short-term demographic trends are strong enough to suggest that the changing
demographic mix in the workforce will continue to increase the importance of understanding
and leveraging diversity.
The Census Bureau projects that by 2020 the U.S. workforce will consist of 62.3 percent White
non-Hispanics, 18.6 percent Hispanics, 12 percent Blacks, and 5.7 percent Asians.
Longer-term U.S. demographic projections further highlight the increasingly diverse character
of the United States:
• The population is projected to become older.
C. Generational Differences
Age-based diversity is a major issue facing many organizations today. Figure 2.2 provides a
clear indicator of why this is true.
Today’s workforce is characterized in terms of four generational groups according to their
range of birth years: seniors (1922–1943); baby boomers (1943–1963); Generation X (1964–
1980); and Generation Y, also referred to as the Millennial Generation (1980–2000).
Increasing conscientiousness and knowledge counteract some of the negative effects of aging
that result from reductions in information processing speed and motivation to learn.
Some organizations are using reverse mentoring to bridge generational differences and transfer
the technology skills younger workers bring to the workplace to more senior employees.
D. Diversity Issues for Managers
Why should we care about diversity? As managers, diversity awareness will enable us to hire,
retain, and engage the best talent, which will help to maximize the organization’s performance.
Diversity also fosters greater creativity and innovation.
1. The Business Case for Diversity
One reason that organizations should promote diversity is performance. Recent research
has found that firm performance increases when employees have more positive attitudes
2. Barriers to Inclusion
Given both the performance benefits and legal imperatives of diversity, then, what prevents
a. The “Like Me” Bias
b. Stereotypes
A stereotype is a belief about an individual or a group based on the idea that everyone
c. Prejudice
Even if an organization has a strong commitment to inclusion, it is possible that the
beliefs and actions of individual employees or managers are inconsistent with the
organization’s policies and values.
d. Perceived Threat of Loss
As voluntary efforts are made by companies to promote inclusion, members of groups
e. Ethnocentrism
Ethnocentrism reflects the belief that one’s own language, native country, and cultural
rules and norms are superior to all others. Ethnocentrism often has less to do with
prejudice and more to do with inexperience or ignorance about other people and
environments.
f. Unequal Access to Organizational Networks
All organizations have formal and informal networks. These organizational networks
3. Managing Diversity
The most important element in effectively leveraging the positive potential of diversity is
top management support for diversity and for diversity initiatives.
Case Study: Diversity at Wegmans
Summary: East coast grocer Wegmans views diversity as more than just a legal or moral obligation or
business necessity—to them it is a business opportunity. The company strives to attract and retain a
workforce that reflects different backgrounds, experiences, and viewpoints and mirrors the communities
in which it operates. Wegmans believes that to be a great place to shop, they must first be a great place to
work. Wegmans emphasizes diversity in hiring to refresh stores with new ideas. Corporate values
including respect, caring, empowerment, and high standards have helped the company repeatedly appear
on Fortune’s list of the 100 Best Companies to Work For. (The company was ranked number 2 in 2017.)
1. In what ways can diverse employees contribute to Wegmans’ business performance?
Research finds that firm performance increases when employees have positive attitudes toward
and innovation that can create a competitive advantage.
2. What types of diversity do you think Wegmans should focus on? Why?
Wegmans should focus on deep-level diversity, which is individual differences that cannot be seen
3. What are the downsides, if any, of building a diverse workforce?
As employees, the better we are able to work with all types of people, the more effective we will be in
III. GLOBALIZATION AND BUSINESS
Another environmental factor that affects OB is globalization, the internationalization of business
activities and the shift toward an integrated global economy. From a business standpoint, the
widespread effects of globalization are relatively new, at least in the United States.
A. Trends in Globalization
In 2018, the volume of international trade in current dollars was about 50 times greater than the
amount in 1960.
B. Cultural Competence
One of the worst, yet easiest, mistakes people can make is to assume that other people are just
like them. People from different cultures see and do things in different ways. Cultural
competence is the ability to interact effectively with people of different cultures.
There are four components of cultural competence:
1. Awareness of our own cultural worldview and of our reactions to people who are different.
C. Cross-Cultural Differences and Similarities
We now turn our attention to differences and similarities in behavior across cultures.
1. General Observations
Cultural and national boundaries do not necessarily coincide. Given this basic assumption,
one major review of the literature on international management reached five basic
conclusions.
Global Issues: Cultural Etiquette Quiz
Summary: The text offers twelve questions or statements about business cultures and students are asked
to answer the quiz questions to get an idea of how aware they are of the business cultures of other areas of
the world. Answers provided at the bottom of the quiz.
2. Specific Cultural Issues
Geert Hofstede, a Dutch researcher, studied workers and managers in sixty countries and
found that specific attitudes and behaviors differed significantly because of the values and
beliefs that characterized those countries. Table 2.3 shows how Hofstede’s categories help
us summarize differences for several countries.
unknown situations and prefer to be in clear and unambiguous situations.
Masculinity, which might be more accurately called assertiveness or materialism, is the
extent to which the dominant values in a society emphasize aggressiveness and the
acquisition of money and other possessions as opposed to concern for people, relationships
among people, and overall quality of life.
D. Global Perspective
A global perspective is distinguished by a willingness to be open to and learn from the
alternative systems and meanings of other people and cultures and a capacity to avoid assuming
that people everywhere are the same.
IV. TECHNOLOGY AND BUSINESS
Technology refers to the methods used to create products, including both physical goods and
intangible services.
A. Manufacturing and Service Technologies
Manufacturing is a form of business that combines and transforms resources into tangible
outcomes that are then sold to others.
Manufacturing was once the dominant technology in the United States. During the 1970s,
manufacturing entered a long period of decline, primarily because of foreign competition. Over
the last decade or so, U.S. manufacturing has regained a competitive position in many different
industries.
B. Technology and Competition
Technology is the basis of competition for some firms, especially those whose goals include
being the technology leaders in their industries. But because of the rapid pace of new
developments, keeping a leadership position based on technology is becoming increasingly
challenging.
C. Information Technology and Social Media
Most people are very familiar with the swift advances in information technology.
Breakthroughs in information technology have resulted in leaner organizations, more flexible
V. ETHICS AND CORPORATE GOVERNANCE
Ethics and related issues have also engendered renewed interest in recent years. One special aspect
of business ethics, corporate governance, has also taken on increased importance. Ethics also
increasingly relate to information technology.
A. Framing Ethical Issues
1. How an Organization Treats Its Employees
This area includes policies such as hiring and firing, wages and working conditions, and
employee privacy and respect.
2. How Employees Treat the Organization
Numerous ethical issues also stem from how employees treat the organization, especially in
regard to conflicts of interest, secrecy and confidentiality, and honesty.
3. How Employees and the Organization Treat Other Economic Agents
Managerial ethics also come into play in the relationship between the firm and its
employees with other economic agents. As shown in Figure 2.3, the primary agents of
interest include customers, competitors, stockholders, suppliers, dealers, and unions.
B. Ethical Issues in Corporate Governance
A related area of emerging concern relates to ethical issues in corporate governance—the
oversight of a public corporation by its board of directors.
The board of a public corporation is expected to ensure that the business is being properly
C. Ethical Issues and Information Technology
Another set of issues that have emerged in recent times involves information technology.
Among the specific questions in this area are individual rights to privacy and the potential
abuse of information technology by companies.
D. Corporate Social Responsibility
A related business challenge relevant to OB is adopting a broader stakeholder perspective and
looking beyond shareholder value or the short-term stock price. In general, this view is called
social responsibility. Definitions of corporate social responsibility often include businesses
living and working together for the common good and valuing human dignity. An important
part of this is how employers treat their employees.
VI. NEW EMPLOYMENT RELATIONSHIPS
A final significant area of environmental change that is particularly relevant for businesses today
involves what we call new employment relationships.
Two particularly important areas today involve the management of knowledge workers and the
outsourcing of jobs to other businesses, especially when those businesses are in other countries.
Managing temporary and contingency workers and tiered workforces is also becoming increasingly
complex. The nature of psychological contracts is also changing.
A. The Management of Knowledge Workers
Traditionally, employees added value to organizations because of what they did or because of
B. Outsourcing and Offshoring
C. Temp and Contingent Workers
Another trend that has impacted employment relationships in business involves the use of
contingent or temporary workers.
D. Tiered Workforce
Yet another emerging issue in new employment relationships is what we call the tiered
workforce. A tiered workforce exists when one group of an organization’s workforce has a
E. The Changing Nature of Psychological Contracts
A final element of the business environment that both affects and is affected by employment
relationships such as those discussed earlier is the psychological contract.
Summary and Application
Diversity is much more than demographics and can reflect combinations of characteristics in addition to a
single attribute. There are many types of diversity, including surface-level and deep-level diversity.
Diversity affects individual and organizational outcomes through processes including social integration,
differences in status and power, task conflict, relationship conflict, inclusion, and information processing.
Barriers to inclusion include the “like me” bias, stereotypes, prejudice, perceptions of loss by persons who
feel threatened by diversity initiatives, ethnocentrism, and unequal access to organizational networks.
Organizations promote diversity through top management commitment, staffing, training, and mentoring.
Technological change has become a major driver for other forms of organizational change. It also has
widespread effects on the behaviors of people inside an organization.
Although ethics has long been relevant to businesses and managers, one special aspect of business ethics,
corporate governance, has also taken on increased importance. Ethics also increasingly relate to
information technology.
Discussion Questions
1. Which do you think is more important to team performance: surface-level or deep-level
diversity? Why?
Surface-level diversity refers to observable differences in people, including race, age, ethnicity,
2. How can diversity create a competitive advantage for a firm?
Diversity can enhance a firm’s competitive advantage because it enables all employees to contribute
3. If a subordinate came to you and said that they felt the company’s new diversity hiring
initiative was unfair and would compromise their well-deserved opportunities for advancement,
how would you respond?
I would say that the company makes sure that highly qualified job candidates are diverse. Then I
4. What can leaders do to be effective when team members are from different cultures and have
different expectations about how the leaders should behave?
Leaders can develop cultural awareness. This requires honestly examining their prejudices and biases,
5. Identify at least three ways in which the globalization of business affects businesses in your
community.
Students probably will recognize that international business affects almost every aspect of business in
6. What roles do changing technologies play in your daily activities?
7. Do you think that concerns regarding ethics will become more or less important in business?
Why?
Concerns about ethics will likely remain fresh in the minds of current managers and business
8. What are your personal opinions about international outsourcing in the garment industry? Do
you think that lower prices are worth sending U.S. jobs to other countries? Explain your
answer.
If one has never lost one’s job due to international outsourcing, the opinion might be very positive—it
Understand Yourself Exercise—Global Perspective
1. Do you think that you were equally able to think and act locally as you interacted with people
from other cultures?
2. What did you do well and what could you have done better in these interactions?
Student answers will vary, but all students should share at least one thing they did well and one area
3. What multicultural experiences can you seek out to enhance your global perspective?
Student answers will vary depending on their backgrounds, where they live, and their academic and
Group Exercise—What Does Culture Mean To You?
Learning Objective: Explain how societal culture affects how people interpret others and how others
interpret them.
Summary: This exercise is done as a class, and the instructor plays the role of class secretary. First
working alone, students think about what “societal culture” means. For five minutes, they think about
placing the ideas. They then answer the following questions as a class.
Task:
1. How might multiculturalism create a competitive advantage for an organization?
4. What does your list suggest that managers wanting to promote a multicultural workplace might do?
Video Exercises
Videos and questions can be found in the eBook and MindTap video folder.
Ethical Decision Making at Black Diamond Equipment
Summary: Black Diamond Equipment specializes in climbing and skiing equipment. The global
company looks for employees who share the company’s attitude, values, and passion toward outdoor
1. How does Black Diamond integrate social responsibility into its culture?
The founders of Black Diamond began a culture of respect for people and the Earth early in the
2. How does the global nature of the company and its markets influence how it thinks about
employee diversity?
Black Diamond naturally has to take a global view of its market in order to have a viable market size.
3. How would you describe Black Diamond’s ethics in terms of how it treats its employees at the
company’s factory partners in Vietnam, China, and Bangladesh? Do you think that it is
appropriate for firms like Black Diamond to scrutinize its partner factories like this? Why or
why not?
Black Diamond holds high ethical standards for the treatment of its employees in the company’s
factory partners. Black Diamond runs a certification program for these factories that must pass certain
Now What?
Imagine trying to write a project status report for Happy Time Toys with three other team members when
an older team member tries to take the project over, believing that you’re too inexperienced to do a good
job. What do you say or do? Go to this chapter’s “Now What?” video, watch the challenge video, and
choose a response. Be sure to also view the outcomes of the two responses you didn’t choose.
OB Concepts Applied: surface-level diversity; relational demography; managing age in the workplace;
Discussion Questions
1. What type(s) of barriers to inclusion exist for this group?
Relational demography refers to a group member’s similarities to and differences from other group
members. Bill is older and more experienced than Allison and Alex and perceives himself to be
2. How can diversity be leveraged as a source of competitive advantage for this group?
Diversity can be a source of competitive advantage because group members can use their diverse
backgrounds to develop a more comprehensive view of a problem, create a broader list of possible
3. If you were the CEO of Happy Time Toys, how would you create a culture of inclusion to help
your company realize the benefits of not only age-related diversity but all types of diversity?
If diverse employees are excluded from decision making or are marginalized (incorrect response #2),
their potential contributions are not realized. Alex says to Bill, “You do have more experience than
we do writing this report. It probably will be better if you write it.” However, Bill didn’t have a good