The Environmental Context

of Management
The Organization’s Environment
 External Environment
 General Environment
 Task Environment

 Internal Environment

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External Environment
 The General Environment: The set of broad
dimensions and forces in an organization’s
surroundings that create its overall context.
 Economic dimension is the overall health and
vitality of the economic system in which the
organization operates.-inflation, interest rates,
unemployment
 Technological dimension refers to the
methods available for converting resources into
products or services.-Firming method

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Continued…
 Socio-cultural dimension includes the
customs, mores, values, and demographic
characteristics of the society in which the
organization functions.-Designer clothes, tastes,
bribers, age.
 Political-legal dimension is the extent of
government regulation of business and the
general relationship between business and
government.-regulations, pro vs. anti business
sentiment, political stability.
 International dimension is the extent to
which the organization is affected by business in
other countries.-global competition.

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Continued…
 The Task Environment: Specific groups
affecting the organization
 Competitors

 Customers

 Suppliers

 Regulators

 Strategic partners (allies)

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Internal Environment
 Conditions and stakeholder forces within an
organization

 Owners: with legal property rights to a

business.-individual, partners, public and private
Ltd.
 Board of directors: elected by the stockholders
to oversee the general management of the firm
to best serve the stockholders’ interest.
 Employees: who work for the firm and have a
vested interest in its continued operation and
existence.

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 The Organization and Its Environments

International Technological
dimension dimension

Competitors

Regulators Owners Customers

Employees
Physical environment
Board of directors
Culture
Political-
Economic
legal
dimension Strategic dimension
Suppliers
partners

Internal environment
Task environment External Sociocultural
dimension
General environment environment

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Organization-Environment
Relationship
 Questions to be faced
 How does environment affect
organizations?
 How do organizations adapt to
environment?

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How environments affect
organizations
 Three perspectives are
 Environmental change and complexity
 Competitive force
 Environmental turbulence

04/15/09 S. M. Towhidur Rahman 9

Continued…
 Environmental change and complexity
 Proponent: James D. Thompson

 Envt. Can be analyzed along two dimensions

 Degree of change (stable vs. dynamic)

 Degree of homogeneity (simple vs.

complex)
 Level of uncertainty, a driving force that

influence organization’s decision, is

determined from the interaction of these two
dimensions

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Figure: Environmental change, complexity and
uncertainty
Simple

Least Moderate
Degree of homogeneity

uncertainty uncertainty

Moderate Most
uncertainty uncertainty

Complex

Stable Degree of change Dynamic

04/15/09 S. M. Towhidur Rahman 11

Continued…
 Competitive force
 Five factor model
(Proponent: Michael E
porter)
 Threat of new
entrants
 Competitive rivalry-
 Threat of substitute
products
 Power of buyers
 Power of suppliers

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Continued…
 Environmental turbulence
 Unexpected changes and upheavals

04/15/09 S. M. Towhidur Rahman 13

How organizations adapt to their
environments
 Information management
 Boundary spanner

 Environmental scanning

 Information systems

 Strategic response
 Mergers, takeovers, acquisitions, and alliances
 Organization design and flexibility
 Direct influence of the environment

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How Organizations and
Environments Interact

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Organizational Effectiveness
 Models of organizational effectiveness
 Systems resource approach
 Internal process approach
 Goal approach
 Strategic constituencies approach

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Organizational Culture
 Organization Culture: The collection of
values, beliefs, behaviors, customs, and
attitudes that characterize a community of
people.
 The Importance of Organization Culture
 Culture determines the overall “feel” of the
organization, although it may vary across
different segments of the organization.
 Culture is a powerful force that can shape
the firm’s overall effectiveness and long-
term success.

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Determinants of culture
 Organization’s founder (personal values and
beliefs).
 Symbols, stories, heroes, slogans, and
ceremonies that embody and personify the
spirit of the organization.
 Corporate success that strengthens the
culture.
 Shared experiences that
bond organizational members
together.

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Managing Organizational Culture
 Understand the current culture to understand
whether to maintain or change it.
 Articulate the culture through slogans,
ceremonies, and shared experiences.
 Reward and promote people whose behaviors
are consistent with desired
cultural values.

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Changing Organizational Culture
 Develop a clear idea of what kind of culture you
want to create.
 Bring in outsiders to important managerial
positions.
 Adopt new slogans, stories, ceremonies, and
purposely break with tradition.

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 The Ethical and Social Context
of Management

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Individual Ethics in Org.
 Ethics: An individual’s personal beliefs
regarding what is right and wrong or good and
bad.
 Three implications
 In the context of individual-people have
ethic and org do not.
 Ethical behavior varies from one person to
another.
 Conforms to generally accepted social
norms.

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The Formation of Individual
Ethics

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Managerial Ethics
 Standards of behavior that guide individual
managers in their work.

 Areas of concerns for managers

 How an org. treats its employees

 How employees treat the org.

 How the org. treats other economic agent.

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Managing Ethical Behavior
 Begins with top management which establishes
the organization’s culture and defines what will
and will not be acceptable behavior.
 Includes training on how to handle different
ethical dilemmas.
 Developing a code of ethics.
 Written statement of

the values and ethical

standards that guide
the firm’s actions.

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Social Responsibility and Org.
 The set of obligations (to behave responsibly)
that an organization has to protect and
enhance the social context in which it
functions.
 It is the awareness that business activities
have an impact on society, and the
consideration of that impact by firms in
decision making.

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Areas of Social Responsibility
 Stakeholders: customers, employees, and
investors.
 The natural environment:
environmentally sensitive products,
recycling, and public safety.
 The general social welfare: charitable
contributions, and support for social issues
such as child labor and human rights.

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 Arguments For and Against SR
Arguments For Social Responsibility Arguments Against Social Responsibility

1. Business creates problems and 1. Business lacks the expertise to

should therefore help solve them. manage social programs.

2. Corporations are citizens in our 2. Involvement in social programs

society. gives business too much power.
Social
Responsibility
3. Business often has the resources 3. There is potential for conflicts
necessary to solve problems. of interest.

4. Business is a partner in our 4. The purpose of business in U.S.

society, along with the govern- society is to generate profit
ment and the general population. for owners.

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Organizational Approaches to SR
 Social obstruction: An approach to social
responsibility in which firms do as little as
possible to solve social or environment
problems. (higher price charge)

 Social Obligation: A social responsibility

stance in which an organization does
everything that is required of it legally but
nothing more. (install pollution control
equipment but inferior quality)

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Continued…
 Social Response: A social responsibility
stance in which an organization meets its basic
legal and ethical obligations and also goes
beyond social obligation in selected cases.
(donation school, college, university )

 Social Contribution: A social responsibility

stance in which an organization views itself as
a citizen in a society and proactively seeks
opportunities to contribute to that society.
Medical center, scholarship etc.

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 The Govt. and SR
The govt. influences business through
•Envt. protection legislation
The •Consumer protection legislation
Government •Employee protection legislation
•Securities legislation
•The tax codes
Business influences the Govt. through
•Personal contacts and networks
•Lobbying
•Favor and other influence tactics Business

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Managing Social Responsibility
 Formal organizational decision
 Legal compliance

 Ethical compliance

 Philanthropic giving

 Informal organizational decision

 Organizational leadership and culture

 Whistle blowing

 Social audit

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