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
2. Describe the constraints and challenges facing managers in today’s external
environment.
4. Describe current issues in organizational culture.
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
a good fit with you is important for your satisfaction at work. Here’s a list of things you
can do to “read” a culture:
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?
5. Ask questions of the people you meet. How is job success
defined/determined? What rituals are important, and what events get
CHAPTER OUTLINE
INTRODUCTION
Managers must realize that organizational culture and organizational
environment have important implications for the way an organization is managed.
Both organizational culture and external forces that can shape an organization
are explored in order to gain a better understanding of the complexities
presented by internal and external environments.
3.1 THE MANAGER: OMNIPOTENT OR SYMBOLIC?
Two perspectives concerning the role that managers play in an organization’s
success or failure have been proposed.
A. The Omnipotent View. This maintains that managers are directly
responsible for the success or failure of an organization.
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
the manager.
B. The Symbolic View. This view of management upholds the view that
much of an organization’s success or failure is due to external forces
outside managers’ control.
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,
4. According to the symbolic view, the actual part that management
plays in the success or failure of an organization is minimal.
C. 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 (see Exhibit 3-1).
3.2 THE EXTERNAL ENVIRONMENT
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
in shaping managers’ endeavors. The external environment consists of those
factors and forces outside the organization that affect the organization’s
performance (see Exhibit 3-2). The external environment includes these broad
external conditions that may affect the organization: economic, political/legal,
sociocultural, demographic, technological, and global conditions. Political/legal
conditions include the general political stability of countries in which an
organization does business and the specific attitudes that elected officials have
toward business. Federal, state, and local governments can influence what
organizations can and cannot do. Sociocultural conditions include the changing
A. The Economic Environment
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 Harris survey showed that 10 percent of adults think that
economic inequality is ‘not a problem at all.’
they make decisions and manage their businesses.
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
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.
C. How the External Environment Affects Managers
1. One of the most important organizational factors affected by
changes in the external environment is jobs and employment. For
2. 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
stable.
b. In a dynamic environment, components of the environment
e. Because uncertainty is a threat to organizational
effectiveness, managers try to minimize environmental
uncertainty.
LEADER MAKING A DIFFERENCE
Akio Toyoda faced a difficult first three years as the President of Toyota. In 2009, the
company experienced their first operating loss in 70 years; in 2010, the company’s
image was damaged by recalls; and in 2011, the tsunami in Japan damaged Toyota’s
global supply chain. Akio was not deterred and sought to make the company react
faster and be more flexible. This meant changing management and refocusing on key
stakeholders. Students are asked what they can learn from Mr. Toyoda. Responses
should include his quick response during a time of crisis and his willingness to adapt
to a changing environment.
What can you learn from this leader making a difference?
3. The more obvious and secure an organization’s relationships are
with external stakeholders, the more influence managers have
over organizational controls.
a. Stakeholders are any constituencies in the organization’s
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
4. Stakeholder relationships are managed using four steps:
a. Identify external stakeholders.
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
values, principles, traditions, and ways of doing things that influence the
way organizational members act. This definition implies:
1. Individuals perceive organizational culture based on what they
see, hear, or experience within the organization.
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
5. Exhibit 3-6 describes how the cultural dimensions can be
combined to create organizations that are significantly different.
B. Strong Cultures
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.
The culture is a result of the interaction between the 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
culture.
D. How Employees Learn Culture
2. Organizational stories are one way that employees learn the
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
5. Language is often used to identify members of a culture. Learning
this language indicates members’ willingness to accept and
denominator to unite members of a particular culture.
E. How Culture Affects Managers. An organization’s culture is important
because it establishes constraints on what managers can do.
1. The link between corporate values and managerial behavior is
fairly straightforward.
3. An organization’s culture, particularly a strong one, constrains a
3.4 CULTURE ISSUES IN ORGANIZATIONAL CULTURE
Four current cultural issues managers should consider:
A. Creating an Innovative Culture
1. What does an innovative culture look like? Swedish researcher
Goran Ekvall provides these characteristics:
• Challenge and involvement
• Freedom
• Debates
• Risk taking
B. Creating a Customer-Responsive Culture
1. What does a customer-responsive culture look like? Research
shows the following six characteristics routinely present in a
customer-responsive culture. (See Exhibit 3-10 for actions
managers can take to make their cultures more customer
responsive.)
• Type of employee
• Type of job environment
customers
C. Spirituality and Organizational
1. Workplace Spirituality is a culture in which organizational values
2. This movement is important for several reasons: employees are
looking for ways to cope with the stresses of a turbulent pace of life,
3. Research shows that spiritual organizations tend to have five cultural
characteristics:
a. Strong sense of purpose
4. Critics of spiritual workplaces focus on its legitimacy and economics.
5. Another criticism surrounds the misinterpretation that spiritualism
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
responsible for the success and failure of the organization. Top CEO’s (and head
football coaches) would be more likely to be held accountable for the entire
3-2. “Businesses are built on relationships.” What do you think this statement means?
What are implications for managing the external environment?
Organizations depend on their environment and their stakeholders as a source of inputs
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?
In Organization A, strong attention would be given to detail, with little innovation and risk
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
organization’s culture and its performance. Today, we know that the strength of an
organization’s culture is more closely tied to acceptance of an organization’s values.
Exhibit 3-7 gives five employee related outcomes of strong vs. weak cultures. In the
end, strong cultures aid a manager in fulfilling their functions: planning, organizing,
3-7. Using Exhibit 3-8, explain how a culture is formed and maintained.
Culture is established and maintained through the transmission and adoption of values.
Following the figure from left to right, we see that the founder, through the values they
3-8. Explain why workplace spirituality seems to be an important concern.
This movement is important for several reasons. First, as work becomes more hectic
and jobs uncertain, employees are looking for ways to cope with the stresses of a
Student answers to these questions will vary.
Student answers to these questions will vary.
The field of sports has seen many technological advancements – new training methods,
food supplements, equipment, clothing. In this case, students are asked to give their
opinion on the ethical use of technology in sporting events. Have students discuss the
concept of fairness with regard to the use of this new technology. Does it take away
from the competition where it becomes a game of who has the most money to buy the
technology? Encourage students to think about a point where the use of technology
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)
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.
Have students work in teams of three or four. Students may want to refer to the following
sites for help in selecting two companies:
Aerospace
Have students use the form below to identify the environmental factors for the two
companies they have selected. How are these components similar and different for each
company? Using the same two companies, get students to think about who are the
important stakeholders for each company.
General
Environmental
Force/Factor
Company 1
Company 2
Economic Conditions
Political/Legal
Conditions
Sociocultural
Global
Technological
Conditions
• 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
• 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
• Pick two organizations that you interact with frequently (as an employee or as a
customer) and assess their culture by looking at the following aspects:
Physical design (buildings, furnishings, parking lot, office or store design)—
Where are they located and why? Where do customers and employees park?
What does the office/store layout look like? What activities are encouraged or
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?
Policies and activities (rituals, ceremonies, financial rewards, policies for how
customers or employees are treated)—(Note: You may be able to assess this
one only if you’re an employee or know the organization well.) What activities are
rewarded? Ignored? What kinds of people succeed? Fail? What rituals are
important? Why? What events get commemorated? Why? What do these things
say about what the organization values?
• 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
who does and evaluate it using the same questions.
• Steve’s and Mary’s suggested readings: Terrence E. Deal and Allan A. Kennedy,
Corporate Culture: The Rites and Rituals of Corporate Life (Perseus Books
Group, 2000); Edgar H. Schein, The Corporate Culture Survival Guide (Jossey-
Bass, 1999); and Kim S. Cameron and Robert E. Quinn, Diagnosing and
Changing Organizational Culture (Jossey-Bass, 2005).
• Find one example of a company that represents each of the current issues in
organizational culture. Describe what the company is doing that reflects its
commitment to this culture.
• In your own words, write down three things you learned in this chapter about
being a good manager.
• Self-knowledge can be a powerful learning tool. Go to mymanagementlab and
complete any of these self-assessment exercises: What’s the Right
Organizational Culture for Me? How Well Do I Respond to Turbulent Change?
and Am I Experiencing Work/Family Conflict? Using the results of our
assessments, identify personal strengths and weaknesses. What will you do to
reinforce your strengths and improve your weaknesses?
Student answers to these questions will vary.
Going to Extremes
3-16. Find a list of all 10 of Zappos’ corporate values. Pick two of the values and explain
how you think those values would influence the way employees do their work.
Zappo’s values are now called ‘Family Core Values’ and are posted on their Web site.
3-17. Using this list of corporate values and Exhibit 3-5, describe Zappos’ organizational
culture. In which areas would you say that Zappos’ culture is very high (or typical)?
Explain.
3-18. How did Zappos’ corporate culture begin? How is Zappos’ corporate culture
maintained?
Most corporate cultures in the beginning are strongly influenced by the founder(s). In
3-19. The right culture with the right values will always produce the best organizational
performance. What do you think of this statement? Do you agree? Why or why not?
3-20. What could other companies learn from Tony Hsieh and Zappos’ experiences?
Students’ answers may vary, but most will focus on the fun atmosphere that the CEO
Student answers to these questions will vary.
Not Sold Out
3-21. Using Exhibit 3-2, what external components might be most important for
managers in movie theater chains to know about? Why?
3-22. According to the case, what external trends do managers at the movie theater
chains have to deal with?
3-23. How do you think these trends might constrain decisions made by managers at
the movie theater chains?
3-24. 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
ADDITIONAL CHAPTER INFORMATION
Ask students to look for different examples of organizational culture in business