Management

Chapter 3
Understanding External and Internal Environments

Objectives

To understand the external and internal environment of a

firm

To get an overview of models that managers use in

analyzing environmental conditions and how they manage
environmental elements

Environments
External environment
Mega forces outside the organization influence the
success of failure of the organization & its products /
services
Internal environment
General conditions within a firm also influence the
success of failure of the organization & its products /
services

Forces in the External Environment

General/external
Environment
Technological
Forces
Global
Forces

Task/Internal
Environment
Competitors

Suppliers

Sociocultural
Forces

Customer
s

Firm

Economic
Forces

Distributors
Political &
Demographic
Legal Forces
Forces

Analyzing environmental conditions-1

We will look at 3 models for analyzing environmental

conditions:

1.

The Population ecology model

Resource Dependence model
The Perceived Environmental Uncertainty model

2.
3.

Analyzing environmental conditions-2

Senior Managers, strategic and Top managers use similar

models when planning.

These kinds of modeling are of special interest when

assessing the risk involved in doing business in an area, a
country or a region

Large corporation and leading multinationals use intricate

models on uncertainty and resource dependency for
assessing the risk they are likely to face

Population Ecology Model

This is based partly on Darwins natural selection

model applied to the environment, suggests that firms
with appropriate characteristics are more likely to survive
than others without them

Darwins natural selection argues that the environment is

based on the survival of the fittest, whereby only species
with appropriate characteristics will survive

Resource Dependency model

Pfieffers Resource Dependency model argues that

organizations dependence on the environment for
resources will lead it to try to manipulate the
environment in order to survive.

Perceived Environmental Uncertainty

The concept was original pioneered by Duncan (1972) &

Dess & Beard (1984) modified it
The model looks at the complexity and dynamism levels
of the environment
As environmental uncertainty increases, managers must
monitor, act, assess the complexity & dynamism levels as
required

Duncans Perceived Environmental

Uncertainty framework (exhibit 3.4 p75)

Managing Environmental elements-1

We look at 3 ways to do this =
Approach 1: Adaptation
This uses buffering, smoothing, forecasting, rationing

Approach 2: Domain shift

In this the firm diversifies or/and changes the domain (e.g.:
product mix)

Managing Environmental elements-2

Approach 3: Favourability Influence

The firm undertakes all those activities that may

favourably influence its position in the environment (p.7879)

The Internal Environment

Corporate environment =
Organizational environment

The symbols Organizational culture are:

Symbols, stories, rites/ceremonies

The Internal Environment

Exercise: Class work for discussion

Do Exercise 1 & Exercise 2 and let us discuss it for 5

minutes before the break

BREAK

Management
Chapter 4
Corporate Social Responsibility
& Ethics

Objectives

To learn what is Corporate Social Responsibility

To learn about the approaches, issues and perspectives of

Corporate Social Responsibility

To learn about the Equator Principles & SRI approaches in

Corporate Social Responsibility

What do we mean by Corporate Social

Responsibility (CSR)?

CSR refers to a companys obligation to act to protect and

improve societys welfare as well as its own interests
There are 3 major perspectives to CSR:
1. The invisible hand
2. The hand of government
3. The hand of management

CSR Perspectives-1
1.

Milton Friedmans views that a firms only responsibility is to

make as much money for shareholders are possible. Thus
free market forces guide CSR. This is the Invisible Hand

2.

Kenneth Galbraith argued that a regulatory hand of

government was needed to guide business to manage its
possible negative effects by enforcing various labour and
product safety protections and pollution controls

CSR Perspectives -1

The hand of management argues that companies must

act to protect and improve societys welfare. It is based
on 3 arguments:

1. Anti-Freeloader
2. Capacity
3. Enlightened self interest

CSR Approaches
Approach

Relevance

Activist

Sustainability

Stakeholder

Multiple shareholder concerns

Market

Response to customers

Legal

Environmental conservation

Issues in CSR

Is CSR is a theory or set of theories;

which stakeholder relationships are more important?
whether business commit CSR for moral, ethical, societal
or economic reasons?
Does business get any benefit out of it?
And is getting a benefit necessary?

Other approaches to CSR

Francesc Relao, (2011) of ESCEM Business School

(France) takes a social welfare approach.

He believes that it is possible for banks to be both

socially responsible and profit maximizing but divides
banks into social banks and Green washing banks

The Equator Principles & SRI

Developed by private sector banks: led by Citi, ABN

AMRO, Barclays and West Lb launched June 2003,
modelled on environmental standards of World Bank &
IFC. By Oct 2009, 67 FIs had adopted these

SRI are Socially responsible Investments that firms must

make in their environment

Class exercise
Take 15 minutes to think for discussion now:
1. Does Social Responsibility pay? If so how and if not, is
that a good thing?
2. How do organizations monitor social demands/
expectations?
3. What sort of Internal Social response
mechanisms do companies have?
All this is on pp102-107 but it would be better if you expressed
you own opinions & thoughts

Management
Chapter 4 continues
Business Ethics

What is Ethics?

1.
2.
3.

Ethics: It is a set of beliefs about right and wrong

Managerial Ethics: We may consider 3 types:
Immoral Management
Amoral Management
Moral Management

Ethical Models
Social Ethics:
Legal rules, customs

Organizations
Code of Ethics

Professional Ethics:
Values in workplace

Individual Ethics:
Family influence

Mechanisms for Ethical management

Organizations sometimes employ these tools for ethics:
1. Top management commitment
2. Codes of Ethics
3. Ethics Committees
4. Ethics audits
5. Ethics training
6. Ethics hotlines
7. Awareness of diversity

Reporting unethical Behaviour

Whistleblowers: a person reporting illegal or unethical acts.

Whistleblowers now protected by law in most cases.

Social audit: managers specifically take ethics and business

into account when making decisions. This is similar to the
Equator Principles in CSR

Exercise:

1. Let us read Exercise 2, p. 122 What do you think should

be done?

2. Let us discuss which organizations you consider as

having any one of the three types of managerial ethics