The Environment and Culture of

Organizations
 The External Environment
• An organization’s external environment
consists of two parts.
• The general environment of an
organization is the set of broad
dimensions and forces in its surroundings
that create its overall context.
• The task environment consists of specific
external organizations or groups that
influence an organization.
 The General Environment
• The general environment of most
organizations has economic,
technological, sociocultural, political-
legal, and international dimensions.
 The Economic Dimension
• The overall health and vitality of the
economic system in which the
organization operates
• Important economic factors for business
are general economic growth, inflation,
interest rates, and unemployment.
• A favorable economic climate generally
represents opportunities for growth in
many industries.
 The Technological Dimension
• The methods available for converting resources
into products or services.
• Technological change can make established
products obsolete overnight and simultaneously
create a host of new product possibilities. Thus
technological change is both creative and
destructive—both an opportunity and a threat.
• The success of many organizations depends on
how well they identify and respond to external
technological changes.
 The Sociocultural Dimension
• The sociocultural dimension of the
general environment includes the
customs, mores, values, and
demographic characteristics of the
society in which the organization
functions.
• The sociocultural dimension is
especially important because it
determines the goods, services, and
standards that society values.
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• Demographics are measures of the various
characteristics of the people and social groups
who make up a society. Age, gender, and income
are examples of commonly used demographic
characteristics.
• PepsiCo was able to gain market share from its
rival Coca-Cola by being the first to introduce diet
cola and fruit-based soft drinks.
• Health trend has created a threat for many
industries. The tobacco industry, for example, is
in decline as a direct result of greater customer
awareness of the health implications of smoking.
 The Political-Legal Dimension
• The government regulation of business
and the relationship between business
and government
• Political parties create or influence laws,
and business owners must abide by
these laws. Tax policies, trade
regulations, and minimum wage
legislation are just a few examples of
political and legal issues that may affect
the way an organization operates.
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• This dimension is important for three
basic reasons.
– First, the legal system partially defines what
an organization can and cannot do.
– Second, pro- or antibusiness sentiment in
government influences business activity.
– Finally, political stability has ramifications
for planning. No business wants to set up
shop in another country unless trade
relationships with that country are relatively
well defined and stable.
 The International Dimension
• The extent to which an organization is
involved in or affected by business in other
countries.
• Even firms that do business in only one
country may face foreign competition at
home, and they may use materials or
production equipment imported from abroad.
• Virtually every organization is affected by
the international dimension of its general
environment.
 The Task Environment
• An organization’s task environment
includes its competitors, customers,
suppliers, strategic partners, and
regulators.
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• Competitor
– An organization’s competitors are other
organizations that compete with it for
resources.
– The most obvious resources that competitors
fight for are customer dollars.
– Organizations may also compete for different
kinds of resources besides customer dollars.
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– For example, two totally unrelated
organizations might compete to acquire a
loan from a bank that has only limited funds
to lend.
– Two retailers might compete for the right to
purchase a prime piece of real estate in a
growing community.
• Customer
– Whoever pays money to acquire an
organization’s products or services.
• Supplier
– An organization that provides resources
for other organizations.
– Motorola provides its principal suppliers
with access to its own renowned quality
training program and evaluating the
performance of each supplier as a way of
helping that firm boost its own quality.
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• Strategic Partners (Strategic Allies)
– An organization working together with one or more
other organizations in a joint venture or similar
arrangement.
– Strategic partnerships help companies get from other
companies the expertise they lack. They also help
spread risk and open new market opportunities. Indeed,
most strategic partnerships are actually among
international firms.
– For example, Sony (a Japanese firm) and Samsung (a
South Korean company) are fierce competitors in many
sectors of the electronics industry but are also co-
owners of a $2 billion factory that makes flat panel
televisions and computer monitors.
• Regulator
– A unit that has the potential to control,
legislate, or otherwise influence the
organization’s policies and practices.