CHAPTER 3
The Environment and Culture of Organizations
Part II of this book is entitled THE ENVIRONMENTAL CONTEXT OF MANAGEMENT. Its
fundamental purpose is to describe the environment in which organizations and managers operate.
Part II consists of four chapters. Chapter 3 provides an overview of the environment of business
organizations, including a discussion of organization culture. Chapters 4 through 6 deal with especially
CHAPTER SUMMARY
Chapter 3 focuses on the general environmental context of management. Note from the outline that the
LEARNING OBJECTIVES
After covering this chapter, students should be able to:
1. Discuss the nature of the organizational environment and identify the environments of interest to
most organizations.
2. Describe the components of the general and task environments and discuss their impact on
organizations.
The opening case describes why NetApp, a Sunnyvale, California-based data-management company has
perennially come out high on Fortune magazine’s “100 Best Companies to Work For” list. Its
organizational is a key factor in this – its open-door culture and collaborative work processes, in
particular.
Discussion Starter: Ask students what do they look for in an employer? Would a company such as
NetApp be appealing to them? Why or why not?
Chapter 3: The Environment and Culture of Organizations
LECTURE OUTLINE
Managers must develop and maintain a deep understanding and appreciation of the environment in which
they and their organization function.
I. THE ORGANIZATION’S ENVIRONMENTS
The external environment is everything outside an organization that might affect it.
Teaching Tip: Stress the fact that an organization’s boundaries are not always clear and precise. As a
Teaching Tip: Point out again the “fuzziness” that may exist regarding boundaries. For example,
although this book treats a corporation’s owners as part of the internal environment, it could also be
II. THE EXTERNAL ENVIRONMENT
The general environment of an organization is the set of broad dimensions and forces in its
surroundings that create its overall context.
The task environment of an organization consists of specific organizations or groups that are likely
to affect it.
A. The General Environment
Group Exercise: Divide your class into small groups and have each group develop a diagram similar
The general environment of a business has five dimensions: economic, technological,
sociocultural, political-legal, and international.
1. The economic dimension—the overall health of the economic system in which the
organization operates. Factors of interest include inflation, interest rates, unemployment,
and demand.
Management Update: Note that the generally strong economy of the United States through much of
Extra Example: Note how economic conditions have affected your college or university. Specific points
Chapter 3: The Environment and Culture of Organizations
2. The technological dimension—refers to the methods available for converting resources
into products or services.
Extra Example: Note that Kodak has been hurt by the shift to digital photography. For long, Kodak
3. The sociocultural dimension—includes the customs, mores, values, and demographic
characteristics of the society in which the organization functions. The sociocultural
processes determine the products, services, and standards of conduct that society values.
Extra Example: The text notes that the sociocultural dimension of the general environment affects
5. The international dimension—refers to the extent to which an organization is involved in
or affected by business in other countries.
Cross-Reference: International issues are discussed in more detail in Chapter 5.
B. The Task Environment
The task environment, as defined earlier, consists of specific organizations or groups that are
2. Customers—whoever pays money to acquire an organization’s product or service
Discussion Question: Ask students to identify the customers of your college or university. Should
parents of students be included if they are financing their child’s education?
4. Regulators—units in the task environment that have the potential to control, regulate, or
influence an organization’s policies and practices
Two types of regulators are regulatory agencies and interest groups.
Regulatory agencies are created by the government to protect the public from certain
Chapter 3: The Environment and Culture of Organizations
Discussion Question: Ask students if they can identify interest groups that specifically affect your
college or university.
5. Strategic partners (also called strategic allies) are two or more companies that work
together in joint ventures.
III. THE INTERNAL ENVIRONMENT
A. Owners
Owners are whoever can claim property rights on an organization. In smaller businesses, the
B. Board of Directors
A board of directors is required of organizations that are incorporated; however, many other
firms have them. The board of directors is elected by the stockholders and is charged with
Group Exercise: Assign groups of students to a company and have them identify the members who
serve on its board of directors. Are the members likely to provide an effective oversight in protecting
stockholders’ interests? Why or why not?
C. Employees
D. Physical Work Environment
The physical work environment includes the facility location as well as its design and layout.
Chapter 3: The Environment and Culture of Organizations
IV. THE ORGANIZATION’S CULTURE
Organization culture is the set of values, beliefs, behaviors, customs, and attitudes that helps an
organization’s members understand what it stands for, how it does things, and what it considers
important.
A. The Importance of Organization Culture
Extra Example: Firms with strong cultures include GE, 3M, Coca-Cola, UPS, and Wal-Mart.
Discussion Starter: Ask students to discuss the culture that exists in your college or university.
B. Determinants of Organization Culture
Culture develops and blossoms over a long period of time. It often starts with the
C. Managing Organization Culture
In order to manage corporate culture, managers must first understand the current culture.
If the culture is one that is in the best interests of the firm, managers can reward behavior that
is consistent with the existing culture in order to reinforce it.
V. ORGANIZATION-ENVIRONMENT RELATIONSHIPS
A. How Environments Affect Organizations
The environment affects organizations in many different ways.
1. Environmental change and complexity—The level of change—a great amount (dynamic)
or a little amount (stable)—and the degree of homogeneity of the environment—simple
(few elements, little segmentation) or complex (many elements, much segmentation)—
Discussion Question: Ask students to identify other examples of organizations that fit into each cell of
Thompson’s model.
Chapter 3: The Environment and Culture of Organizations
Discussion Question: Ask students to think about organizations that may have recently moved from
one cell to another cell. That is, identify organizations that have experienced changes in their relative
degree of environmental uncertainty.
2. Competitive forces
a) The threat of new entrants is determined by the extent to which new competitors
can easily enter the market or market segment.
potential buyers.
Group Exercise: Have students working in small groups identify other examples of organizations for
which the various competitive forces are especially relevant.
3. Environmental turbulence consists of changes in the organization’s environment that
may or may not be expected. Crisis is the most common form of turbulence.
Discussion Question: Ask students to identify recent examples of organizational crises that managers
Cross-Reference: Note that social responsibility is given more extensive coverage in Chapter 4.
1. Information management—collecting, monitoring, and reading the information available
to the firm. There are various techniques available to manage information.
Cross-Reference: Note that information management is the subject of Chapter 22.
a) Boundary spanner—someone who spends much of his or her time in contact with
others outside the organization.
3. Mergers, acquisitions, and alliances
a) A merger occurs when two or more firms combine to form a new firm.
Extra Example: Other examples of mergers include the joining of Newell and Rubbermaid, and the
merger of Chrysler with Daimler-Benz that created DaimlerChrysler.
b) An acquisition occurs when one firm buys another but the acquired firm operates as
Global Connection: Most airlines enter into alliances with travel-related businesses overseas in order
to increase their ability to serve customers traveling across borders. For example, American Airlines
Extra Example: Under the leadership of former CEO, Anne Mulcahy, Xerox changed its organization
design in an effort to become more flexible and adaptive.
5. Direct influence of the environment—Firms may try to influence their environments. For
example, firms can sign long-term contracts with suppliers to control prices, or acquire
firms that produce their needed resources in order to ensure a continuous supply.
VI. THE ENVIRONMENT AND ORGANIZATIONAL EFFECTIVENESS
A. Models of Organizational Effectiveness
1. The systems resource approach focuses on the extent to which the organization can
acquire the resources it needs.
Teaching Tip: Use Figure 3.6 to show the process by which the four basic models of effectiveness can
be integrated. Note that most organizations use all four of these approaches simultaneously.
Chapter 3: The Environment and Culture of Organizations
Group Exercise: Have teams of students update the information in Table 3.1 and discuss similarities
and differences.
END OF CHAPTER QUESTIONS
Questions for Review
1. Consider the three environments of a firm. Which of the environments has the most direct and
immediate impact on the firm? Which of the environments has a more diffuse and delayed impact?
Explain.
The internal environment, because it consists of various groups within the organization, has the
2. Describe the organization’s general environment. For each dimension, give at least one specific
example, other than the examples mentioned in your text.
The general environment has five dimensions. The international dimension includes events such as
3. What are the major forces that affect organization-environment relationships? Describe those
factors.
Environmental factors that affect an organization include the degree of uncertainty that exists (as
4. Describe the four approaches to organizational effectiveness. Give a specific example of something
that a company should measure in order to evaluate its effectiveness under each approach.
The systems resource approach concentrates on the successful acquisition of raw materials and other
inputs. Under this approach, a firm should measure, for example, the price it pays for inputs relative
Chapter 3: The Environment and Culture of Organizations
Questions for Analysis
5. Elements from the general environment affect all organizations, but they may not affect all
organizations in the same way. Choose an industry and discuss the impact of at least two different
elements from the general environment on firms in that industry. Are all firms affected equally?
Explain.
Students’ answers will depend on the industry they choose. Here’s an example answer: “In the auto
6. Which of the firm’s environments is most readily changed by the firm? Which of the firm’s
environments is least amenable to change by the firm? How does this influence the actions that
firms take?
Firms have the most control over the internal environment, some degree of control over the task
environment, and little ability to impact the general environment. Therefore, when a firm is faced
Questions for Application
7. Go to Hoover’s Online at www.hoovers.com. Enter a company name in the Search boxes. When
that company’s profile is shown, go to “Top Competitors.” Here you can learn who the firm’s top
competitors are. Were you surprised by the list? How do you think Hoover’s determines the list?
If, for example, a student searched for the competitors for Boeing, Hoover’s Online would identify
8. Go to the library or online and research a company. Characterize its level of effectiveness according
to each of the four basic models. Share your results with the class.
Students’ answers will vary depending on the company selected. However, it is important that all
Chapter 3: The Environment and Culture of Organizations
9. Interview a manager from a local organization about his or her organization’s internal environment,
including owners, directors, employees, the physical work environment, and the organization
culture. How do these various elements interact?
Answers should include some information about every aspect of the internal environment. Students
10. Consider an organization with which you are familiar. Outline its environments in detail. Then
provide specific examples to illustrate how each dimension affects your organization.
END OF CHAPTER EXERCISES
Building Effective Time Management Skills
I. Purpose
This exercise is designed to help students develop their understanding of time-management skills by
II. Format
This exercise, focusing on time-management skills, is designed to include both individual and group
III. Follow-Up
There are no follow-up questions for this exercise, but students could be asked to describe what
Building Effective Communication Skills
I. Purpose
II. Format
This exercise is best done outside of class by individual students, and it requires about 20–30
minutes.
III. Follow-Up
A. Go back to your office (or your dorm room, the library, or your kitchen table) and compose a
Chapter 3: The Environment and Culture of Organizations
some good reasons why the marketing department should follow through on your proposal.
(Hint: Telling him bluntly that he’s wrong is unlikely to be effective.)
B. Now review what you’ve written. Do you think your boss will change his mind? If yes, which
of your reasons is most likely to persuade him? If no, what might be your next move in trying
MANAGEMENT AT WORK
GOLDMAN SACHS BANKS ON CULTURAL CAPITAL
Goldman Sachs, one of America’s largest investment banks, survived and prospered during the recent
sub-prime mortgage crisis. It was one of a few financial services firms that did so. Its culture – that
fostered aggressiveness and team work, among others – and its flat organizational structure are cited as
the main reasons for its continued dominance.
1. Case Question 1: What forces in Goldman Sach’s external environment have accounted most for
“fortunes of fate” that the company – indeed, the investment banking industry – has experienced
since 2008?
The current global economic crisis has not left Goldman Sachs unaffected. It had to change from an
2. Case Question 2: Explain the roles of Goldman’s partners, both as owners and as employees, in
forming and managing its internal environment.
While Goldman Sachs is a publicly owned company, its partners manage the company. Partners
3. Case Question 3: Which models of organizational effectiveness are evident in Goldman’s approach
to management?
The four types of organizational effectiveness described in the text are: the systems resource approach,
Chapter 3: The Environment and Culture of Organizations
4. Case Question 4: In 2008, citing Goldman as one of the “Top 20 Most admired Companies” in the
United States, Fortune magazine characterized the firm’s culture as “an impossible–to–replicate mix
of extreme aggression, deep paranoia, individual ambition, and robot-like teamwork.” Judging from
our case, how valid do you regard this characterization? If you were a top manager at Goldman, how
would you deal with the apparent conflict between “individual ambition” and “robot–like
teamwork”?
The characterization is valid because as Lisa Endlich, a former employee, says, the climb to