EXTERNAL ENVIRONMENT AND
ORGANIZATIONAL CULTURE
Principles of Management
2
Learning Objectives
➢ Identify key elements in the external environment of
organizations.
➢ Discuss how organizations pursue value creation and
competitive advantage in a dynamic environment.
➢ Describe how organizations pursue innovation in a dynamic
environment.
➢ Explain key issues of sustainability as an environmental
priority.
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The general environments of the organization
including:
Economic
health of the economy
Legal-political
philosophy/objectives of political party running the government
Socio-cultural
norms, customs, social values
Technological
development and availability of technology
Natural environment
nature and conditions of environment
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Figure 4.1 Sample elements in the general
environments of organizations
.
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The External Environment
▸ Economic conditions
▹ overall health of economy in terms of
financial markets, inflation, income
levels, and job outlook
▹ Offshoring – outsourcing of jobs to
foreign locations
▹ Reshoring – return of jobs from foreign
locations
.
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The External Environment
▸ Legal-political conditions
▹ laws and regulations, government
policies, and the objectives of political
parties
▹ vary from one country to the next
▹ Internet censorship - deliberate
blockage of public access to
information posted on the Internet
.
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The External Environment
▸ Sociocultural conditions
▹ diversity issues relating to educational
opportunity, access to technology,
housing/job options
▹ norms, human rights, demographics, and
societal values
▹ Generational cohorts -- people born
within a few years of one another and
who experience somewhat similar life
events during their formative years
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The External Environment
▸ Technological conditions
▹ social media, features and “apps” on
smart phones
▹ brings both opportunities and
problems
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The External Environment
▸ Natural environment conditions
▹ nuclear plant failure, oil spill, hurricane
▹ “carbon neutral,” “green”,
“sustainability”
▹ Sustainable business – meets both
the needs of customers and protects
the natural environment
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Environment and Value Creation
The specific (task) environment - actual
organizations, groups, and persons with whom an
organization interacts and conducts business
• Includes important stakeholders such as:
Customers Suppliers Competitors Regulators Owners
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Multiple stakeholders in the
environment of an organization
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Environment and Value Creation
▸ Competitive advantage
▹ a core competency that clearly sets an
organization apart from competitors and gives it
an advantage over them in the marketplace
▹ Companies may achieve competitive advantage
in many ways, including:
▹ Costs
▹ quality
▹ delivery
▹ flexibility
Inc.
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Environment and Value Creation
▸ Environmental uncertainty
▹ a lack of complete information regarding
what exists and what developments may
occur in the external environment
▸ Two dimensions of environmental
uncertainty:
▹ Degree of complexity
▹ Rate of change
Inc.
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Figure 4.2 Dimensions of uncertainty
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Environment and Innovation
▸ Innovation - process of putting new
ideas into practice
▸ Business innovations
▹ Product innovation
▹ Process innovation
▹ Business model innovation
.
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Environment and Innovation
▸ Social business innovations – find ways
to use business models to address
important social problems
.
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Environment and Innovation
The innovation process:
Step 1: Imagining
Step 2: Designing
Step 3: Experimenting
Step 4: Assessing
Step 5: Scaling
Reverse innovation – innovation can come from
lower organizational levels in the organization and
diverse locations
.
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Disruptive innovation
creates products/services that become so
widely used that they largely replace prior
practices and competitors
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Environment and Sustainability
▸ Sustainability – commitment to protect
the rights of present and future
generations as co-stakeholders of
present-day natural resources
.
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Environment and Sustainability
▸ Sustainable development
▹ makes use of environmental
resources to support societal needs
today while also preserving and
protecting them for future generations
.
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Environment and Sustainability
▸ Environmental capital – natural
resources used to sustain life and
produce goods and services for society
▹ Land
▹ atmosphere
▹ Water
▹ Minerals
.
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Environment and Sustainability
Triple Bottom Line: Three P’s of
organizational performance
Profit
Planet People
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Environment and Sustainability
▸ Sustainable business – operates in ways
that meets the needs of consumers
while protecting the environment
▸ Sustainable/green innovations – help
reduce an organization’s negative
impact; enhance positive impact on the
natural environment
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Environment and Sustainability
▸ Human sustainability – concern for the effect
of management practices on employee
physical and psychological well-being
▹ Health and wellness programs
▹ Stress management
▹ Minimizing work-family conflict
▹ Control over work
▹ Fair wages and opportunities
