"The MGMT Solution," Vocabulary from Chapter 3

External environments are the forces and events outside a company that have the potential to influence or affect it.

Although you might think that a company’s external environment would be either stable or dynamic, research suggests that companies often experience both.

According to punctuated equilibrium theory, companies go through long periods of stability (equilibrium) during which incremental changes occur, followed by short, complex periods of dynamic, fundamental change (revolutionary periods), finishing with a return to stability (new equilibrium).

Environmental complexity refers to the number and the intensity of external factors in the environment that affect organizations.

Resource scarcity is the abundance or shortage of critical organizational resources in an organization’s external environment.

environmental change, environmental complexity, and resource scarcity affect environmental uncertainty, which is how well managers can understand or predict the external changes and trends affecting their businesses.

The general environment consists of the economy and the technological, sociocultural, and political/legal trends that indirectly affect all organizations.

Each organization also has a specific environment that is unique to that firm’s industry and directly affects the way it conducts day-to-day business.

Because the economy influences basic business decisions, such as whether to hire more employees, expand production, or take out loans to purchase equipment, managers scan their economic environments for signs of significant change.

Because economic statistics can be poor predictors, some managers try to predict future economic activity by keeping track of business confidence. Business confidence indices show how confident actual managers are about future business growth.

Companies must embrace new technology and find effective ways to use it to improve their products and services or decrease costs.

First, changes in demographic characteristics, such as the number of people with particular skills or the growth of or decline in the number of people with particular population characteristics (marital status, age, gender, ethnicity) affect how companies staff their businesses.

The political/legal component of the general environment includes the legislation, regulations, and court decisions that govern and regulate business behavior.

Reactive customer monitoring involves identifying and addressing customer trends and problems after they occur.

Proactive monitoring of customers means identifying and addressing customer needs, trends, and issues before they occur.

Consequently, companies need to keep close track of what their competitors are doing. To do this, managers perform a competitive analysis, which involves deciding who your competitors are, anticipating competitors’ moves, and determining competitors’ strengths and weaknesses.

Supplier dependence is the degree to which a company relies on that supplier because of the importance of the supplier’s product to the company and the difficulty of finding other sources for that product. Buyer dependence is the degree to which a supplier relies on a buyer because of the importance of that buyer to the supplier’s sales and the difficulty of finding other buyers of its products.

Whereas the political/legal component of the general environment affects all businesses, the industry regulation component consists of regulations and rules that govern the practices and procedures of specific industries, businesses, and professions.

The nearly 100 federal agencies and regulatory commissions can affect almost any kind of business.

Advocacy groups are groups of concerned citizens who band together to try to influence the business practices of specific industries, businesses, and professions.

A media advocacy approach typically involves framing the group’s concerns as public issues (affecting everyone); exposing questionable, exploitative, or unethical practices; and creating controversy that is likely to receive extensive news coverage.

A product boycott is a tactic in which an advocacy group actively tries to persuade consumers not to purchase a company’s product or service.

Environmental scanning involves searching the environment for important events or issues that might affect an organization. Managers scan the environment to stay up-to-date on important factors in their industry.

Typically, managers view environmental events and issues as either threats or opportunities.

By contrast, when managers interpret environmental events as opportunities, they consider strategic alternatives for taking advantage of those events to improve company performance.

Because it is impossible to comprehend all the factors and changes, managers often rely on simplified models of external environments called cognitive maps. Cognitive maps summarize the perceived relationships between environmental factors and possible organizational actions.

Internal environments are important because they affect what people think, feel, and do at work. The key component in internal environments is organizational culture, or the set of key values, beliefs, and attitudes shared by members of the organization.

Although company founders are instrumental in the creation of organizational cultures, eventually founders retire, die, or choose to leave their companies.

When the founders are gone, how are their values, attitudes, and beliefs sustained in the organizational culture? Answer: stories and heroes.

cultures based on adaptability, involvement, a clear mission, and consistency can help companies achieve higher sales growth, return on assets, profits, quality, and employee satisfaction.

Company mission is the business’s purpose or reason for existing.

In organizational cultures with a clear company mission, the organization’s strategic purpose and direction are apparent to everyone in the company.

Finally, unconsciously held assumptions and beliefs about the company are buried deep below the surface. These are the unwritten views and rules that are so strongly held and so widely shared that they are rarely discussed or even thought about unless someone attempts to change them or unknowingly violates them.

One way of changing a corporate culture is to use behavioral addition or behavioral substitution to establish new patterns of behavior among managers and employees.

Behavioral addition is the process of having managers and employees perform a new behavior, while behavioral substitution is having managers and employees perform a new behavior in place of another behavior.

Another way in which managers can begin to change corporate culture is to change the visible artifacts of their old culture, such as the office design and layout, company dress code, and recipients (or nonrecipients) of company benefits and perks like stock options, personal parking spaces, or the private company dining room.

It's not just that pool tables and go-karts give employees a fun atmosphere to be in but that a culture of play provides stimulation for innovation and creativity, relieves tension, raises morale, helps attract and retain top talent, and helps employees accept each other and be more open to different kinds of people.

"It's the companies that work hard to establish cultures of play that attract great people, continuously push the boundaries of innovation, and ultimately win."

The second step is to ensure that applicants fit with the culture by using selection tests, instruments, and exercises to measure these values and beliefs in job applicants.

Consequently, there is no guarantee that any one approach—changing visible cultural artifacts, using behavioral substitution, or hiring people with values consistent with a company’s desired culture—will change a company’s organizational culture.