CHAPTER 3

UNDERSTANDING
INTERNAL AND EXTERNAL
ENVIRONMENTS

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PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma 3–1
Slides prepared by Rob Lawrence, Victoria University (Australia)
LECTURE OUTLINE
• Types of external environment
• Analysing environmental conditions
• Managing environmental elements
• The internal environment:
Organisational Culture
(Nature, manifestations, types, culture and
innovation, cultural change)

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PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma 3–2
Slides prepared by Rob Lawrence, Victoria University (Australia)
EXTERNAL ENVIRONMENT

Major forces outside the

organisation with potential to
influence significantly the likely
success of a product or service.

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PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma 3–3
Slides prepared by Rob Lawrence, Victoria University (Australia)
EXTERNAL ENVIRONMENT

External environment is made up of:

• The mega-environment
The broad conditions and trends in societies in
which an organisation operates.

• The task environment

Specific outside elements with which an
organisation interfaces in the course of conducting
its business.

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PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma 3–4
Slides prepared by Rob Lawrence, Victoria University (Australia)
THE MEGA-ENVIRONMENT

Technolo Economi
gical c
element element
Legal-
The political
element
organisatio
Internatio
n Sociocult
nal ural
element element
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PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma 3–5
Slides prepared by Rob Lawrence, Victoria University (Australia)
THE MEGA-ENVIRONMENT
Five major elements:
• Technological element
Current state of knowledge regarding production
of products & services
• Economic element
Systems of producing, distributing and consuming
wealth
• Legal-political element
Legal and governmental systems within which an
organisation must function

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PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma 3–6
Slides prepared by Rob Lawrence, Victoria University (Australia)
THE MEGA-ENVIRONMENT
• Sociocultural element
Attitudes, values, norms, beliefs, behaviours and
associated demographic trends characteristic of a
given geographic area

• International element
Developments in countries outside of an
organisation’s home country with potential to
influence the organisation

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PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma 3–7
Slides prepared by Rob Lawrence, Victoria University (Australia)
THE TASK ENVIRONMENT
Five elements:
• Customers and clients
Individuals and organisations purchasing
products/services
• Competitors
Other organisations offering (or with a high potential to
offer) rival products/services
• Suppliers
Organisations and individuals supplying resources an
organisation needs to conduct its operations

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PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma 3–8
Slides prepared by Rob Lawrence, Victoria University (Australia)
THE TASK ENVIRONMENT

• Labour supply
Individuals potentially employable by an
organisation (diversity and characteristics of the
labour market)

• Government agencies
Agencies providing services and monitoring
compliance with laws and regulations at local,
state or regional and national levels

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PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma 3–9
Slides prepared by Rob Lawrence, Victoria University (Australia)
THE TASK ENVIRONMENT
KEEPING TABS ON COMPETITORS
• Commercial databases
• Specialty trade publications
• Local newspaper clippings
• Advertised vacancies
• Published market research
• Trade shows and product literature
• Personal contacts

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PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma 3–10
Slides prepared by Rob Lawrence, Victoria University (Australia)
ANALYSING ENVIRONMENTAL
CONDITIONS
Views on the organisation-
environment interface:
• Population ecology model
Argues that environmental factors cause
organisations to survive or fail

• Resource dependence model

Highlights the dependence of organisations on
environment but argues they attempt to
manipulate the environment to reduce this
dependence
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PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma 3–11
Slides prepared by Rob Lawrence, Victoria University (Australia)
CHARACTERISTICS OF THE
ENVIRONMENT
Uncertainty
Condition in which future environmental circumstances
affecting an organisation cannot be accurately assessed
and predicted
Complexity
Number of elements in an organisation’s environment and
their degree of similarity
Dynamism
Rate and predictability of change in the elements of an
organisation’s environment
Bounty
Extent to which the environment can support sustained
growth and stability

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PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma 3–12
Slides prepared by Rob Lawrence, Victoria University (Australia)
MANAGING ENVIRONMENTAL ELEMENTS
Three approaches to managing the environment:
• Adaptation
Involves changing internal operations and activities to make
the organisation and its environment more compatible
• Favourability influence
Involves trying to alter environmental elements to make them
more compatible with the organisation’s needs
• Domain shifting
Changing product/service mix to create favourable interface

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PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma 3–13
Slides prepared by Rob Lawrence, Victoria University (Australia)
ADAPTATION
• Buffering
Stockpiling either inputs into, or outputs from, a production
or service process to cope with environmental fluctuations
• Smoothing
Taking actions aimed at reducing the impact of fluctuations,
given the market
• Forecasting
Predicting changing conditions and future events that
significantly affect an organisation’s business
• Rationing
Providing limited access to a product or service in high
demand

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PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma 3–14
Slides prepared by Rob Lawrence, Victoria University (Australia)
FAVOURABILITY INFLUENCE
• Advertising and public relations
• Boundary spanning
• Recruiting
• Negotiating contracts
• Co-opting
• Strategic alliances
• Trade associations
• Political activity

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PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma 3–15
Slides prepared by Rob Lawrence, Victoria University (Australia)
DOMAIN SHIFTS

• Move out of a current product,

service or geographic area into a
more favourable domain

• Expand current domains through

diversification or expansion of
products/services offered

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PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma 3–16
Slides prepared by Rob Lawrence, Victoria University (Australia)
INTERNAL ENVIRONMENT:
ORGANSATIONAL CULTURE
Nature of organisational culture:
• ‘A system of shared values, assumptions, beliefs
and norms uniting organisational members’
(Smircich 1983; Kilmann 1985).
• ‘The way we do things around here.’
• The ‘glue’ binding the disparate parts (or the oil
that keeps them moving).
• The interpretive part of organisational behaviour: it
explains, gives direction, sustains energy,
commitment, and cohesion.

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PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma 3–17
Slides prepared by Rob Lawrence, Victoria University (Australia)
MANIFESTATIONS OF CULTURE
• Symbols
Objects, acts, events or qualities serving as a vehicle for
conveying meaning (logos, office decoration and layout)
• Stories
Narratives based on true events, which may be embellished
to highlight intended value
• Rites
Relatively elaborate, dramatic, planned sets of activities
intended to convey cultural values to participants and,
usually, an audience
• Rituals
Standard behaviours, like staff meetings, company awards,
weekly after-works drinks or socialising
• Ceremonials
Systems of rites performed in conjunction with a single
occasion or event
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PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma 3–18
Slides prepared by Rob Lawrence, Victoria University (Australia)
CULTURAL TYPES
Strong: clear, explicit principles, widely shared
Often spring from beliefs of a founder or
strong leader
Genuine concern for customers, employees
and shareholders
Weak: lack widely shared values
Little top management commitment
Lead to development of sub-cultures
Hard to implement management strategy
Unhealthy cultures: internal politics, hostile to
change, arrogant

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PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma 3–19
Slides prepared by Rob Lawrence, Victoria University (Australia)
OPERATOR, ENGINEERING AND
EXECUTIVE CULTURE (SCHEIN 1996)
• Operator culture:
assumes organisation’s actions are actions of
people - focus on knowledge, skills, commitment
• Engineering culture:
prefers linear thinking, quantitative methods,
“people-free” solutions
• Executive culture:
focus on need to maintain organisation’s financial
health - preoccupied with markets, boards,
investors

Copyright  2008 McGraw-Hill Australia Pty Ltd

PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma 3–20
Slides prepared by Rob Lawrence, Victoria University (Australia)
CHARACTERISTICS OF
ENTREPRENEURIAL CULTURE
• Strategic
Focused on identifying opportunities
• Committed to seizing opportunities
Willing to make major, fast changes
• Commitment of resources
Many stages with risk assessed for each stage
• Control of resources
Rental or outsourcing of resources for flexibility
• Management structure
Few levels, with informal communication

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PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma 3–21
Slides prepared by Rob Lawrence, Victoria University (Australia)
CHANGING ORGANISATIONAL
CULTURE
Because they involve fairly stable values,
beliefs and assumptions, organisations can
be difficult to change.

An approach to changing culture:

• Surfacing actual norms
• Articulating new directions
• Establishing new norms
• Identifying culture gaps
• Closing culture gaps

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PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma 3–22
Slides prepared by Rob Lawrence, Victoria University (Australia)
HOW LEADERS INFLUENCE
CULTURAL CHANGE
• Crisis identification

• Communication of a new vision

• Motivation of key staff

(to lead cultural change by implementing
the new vision and its corresponding
strategy)

Copyright  2008 McGraw-Hill Australia Pty Ltd

PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma 3–23
Slides prepared by Rob Lawrence, Victoria University (Australia)
LECTURE SUMMARY
External environment:
• Types of external environment
Mega-environment, task environment
(Each with five elements)
• Analysing the environment
Models: ecology and resource dependence
Environmental uncertainty and bounty
Complexity and dynamism
• Managing the environment
Adaptation, favourability influence and domain shifts

Copyright  2008 McGraw-Hill Australia Pty Ltd

PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma 3–24
Slides prepared by Rob Lawrence, Victoria University (Australia)
LECTURE SUMMARY
Internal environment (culture):
System of shared values, assumption, beliefs and norms
uniting organisational members
Manifestations of culture
Symbols, stories, rites, rituals and ceremonies
Promoting innovation
Entrepreneurial cultures encourage innovation
Changing culture can be hard
A multi-step process

Copyright  2008 McGraw-Hill Australia Pty Ltd

PPTs t/a Management: A Pacific Rim Focus 5e by Bartol, Tein, Matthews, Sharma 3–25
Slides prepared by Rob Lawrence, Victoria University (Australia)