Slide 3.1 Boddy, Management: An Introduction PowerPoints on the Web, 6 th edition © Pearson...

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Boddy, Management: An Introduction PowerPoints on the Web, 6th edition © Pearson Education Limited 2014

Part 2 THE ENVIRONMENTOF MANAGEMENT

Chapter 3ORGANISATION CULTURES

AND CONTEXTS

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• The environments of managing• Cultures and their components• Types of culture• Competitive environment – Porter’s five forces • General environment – PESTEL analysis• Stakeholders and corporate governance• Integrating themes • Cases and examples

– Nokia, Bosch, Unilever, Iris

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Environmental influences

Figure 3.1 Environmental influences on the organisation

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Why study the environmentof managing?

• Organisations depend on their environmentfor inputs and to take outputs.

• Managers act on assumptions about:– culture– competitive environment– general environment– stakeholders.

• These assumptions affect what they do.• Are they valid, and how would alternative

views lead to different actions?

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Organisational cultures

• Belief that culture affects performance.• Schein (2010): culture develops as people work

together, and develop shared beliefs about what works, which is transmitted to successive generations (Figure 3.2).

• Beliefs relate to: – mission, goals, ways of achieving goals and

how to measure performance.

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How culture develops

Figure 3.2 The stages of cultural formation

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Components of culture

• Artefacts– Surface level – visible features: dress, layout.

• Espoused beliefs and values– Beliefs members hold about their work and the

situations with which they deal.

• Basic underlying assumptions– Deeply held ideas about the way people work

together, and the sources of their success.

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Types of culture (Quinn et al. 2003)

Figure 3.3 Types of organisational cultureSource: Based on Quinn et al. (2003).

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Multiple cultures

• Martin (2002) challenged the view that culturetakes a unified form. Suggested three perspectives:– Integration: members have consistent beliefs and

values

– Differentiation: conflicting beliefs, by function or level

– Fragmentation: fluid, transient views about events,not related to functions or levels

• Shown empirically by Ogbonna and Harris(1998, 2002), (see Table 3.1).

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External forces

• Competitive environment• General environment• Stakeholders• Managers

– interpret these forces (not objective realities)

– respond by changing internal environment

• Forces in Figure 3.4 affect industry profitability.

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Threat of new entrants

Fewer new entrants = more profit• Entry barriers include:

– high costs of equipment and facilities;

– lack of distribution facilities;

– customers loyal to established brands;

– small companies lack economies of scale;

– subsidies/regulations favour existing firms.

Examples of products with entry barriers include patent protection for drugs, presentation software (Powerpoint).

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Intensity of rivalry amongst competitors

Greater rivalry = less profit • Rivalry increases when:

– many firms, but none dominant;

– market growing slowly, so firms fight for share;

– high fixed costs encourage overproduction;

– loyalties (family businesses or political support)prolong overcapacity.

• Examples include airline and newspaper industries.

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Power of buyers (customers)

Greater power of buyers = less profit to seller• Power of buyer increases if:

– buyer takes high percentage of supplier’s sales;

– many alternative products or suppliers available;

– product is a high percentage of buyer’s costs, creating incentive to seek alternatives;

– cost of switching to other suppliers is low.

• Examples include products sold online, and major supermarkets like Wamart, Tesco.

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Bargaining power of suppliers

High power of supplier = less profit to buyer• Power of supplier is high if:

– buyer takes small percentage of sales;

– few alternative products or suppliers (distinctive product keeps buyers loyal);

– product a low percentage of buyer’s costs, little incentive to seek alternatives;

– cost of switching suppliers high.

• Examples include luxury brands, business software.

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Threat of substitutes

Easy to substitute = less profit to supplier• Substitution becomes easier if:

– buyers willing to change buying habits;

– technological developments enable newproducts and services;

– transport costs fall;

– new suppliers enter the market.• For example, online media, new materials.

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Managing the five forces

• Subjective interpretation as well as objective realities

• Forces contradict/balance each other• Managers can consciously try to shape them as

part of their strategy• Competitive forces affected by those in the general

environment.

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General environment

Figure 3.5 Identifying environmental influences – PESTEL analysis

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Political and economic

• Political– Governments shape what businesses can do

• Taxation, pollution, regulation

– Businesses lobby to influence government.

• Economic– Wealth and stage of development

• Wage levels, interest rates, consumer confidence• Managers time investment to suit economic growth

prospects.

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Social and technological

Socio-cultural• Demographic trends, family structures consumer

tastes, ‘Grown Up Digital’.

Technological• Physical infrastructure, transportation,

communications technologies• For example, convergence of data, video and

voice technologies opening vast markets – Table 3.2.

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Environmental and legal

Environmental (natural)• Natural resources, pollution and the effects of

climate change on business (threats and opportunities).

Legal• The framework within which companies operate

– employment, financial or governance regulations.

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Using PESTEL

• As in five forces, subjective interpretation aswell as objective realities.

• Forces in the general environment affect public organisations as much as private.

• The value is NOT a long list of factors, but agreement on critical ones that stakeholders may use to stimulate internal change.

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Change and complexity

Figure 3.6 Types of environment

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Stakeholders

• People or groups with expectations of the organisation– Customers, communities, government

• How to manage their conflicting interests – Illustrated in Figure 3.7

• Companies seek to influence stakeholders.

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Corporate governance

• Interests of professional managers often diverge from those of owners and/or citizens who use and pay for public services.

• Governance refers to rules and processes intended to ensure transparency and accountability of those in charge.

• Substance includes:– internal controls

– mechanisms to limit power of individuals

– process to manage relationships between groups.

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Integrating themes

EntrepreneurshipSeeing external opportunities is a key skill, supported by experience, networks and creativity.

SustainabilityClimate change leading managers to seek ways to run organisations more sustainably.

InternationalisationInternational organisation can benefit from the many cultural perspectives of employees.

GovernanceSome cultures encourage excessive risks, which governance systems can discourage.

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Summary

• The assumptions managers make about their environment affects what they do.

• The cultures, five forces, PESTEL and stakeholder models help managers to analyse their contexts.

• The models enable you to question– The assumptions that guide action

– Whether they accurately reflect the context

– Possible alternative views

– The limitations of any one view.

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