Principles and Dynamics of Management

The Environment And Corporate Culture

LEARNING OBJECTIVES

1) Describe the general and task environments and the dimensions of each.

2) Explain the strategies managers use to help organizations adapt to an uncertain or turbulent environment.

3) Define corporate culture and give organizational examples.

4) Explain organizational symbols, stories, heroes, slogans, and ceremonies and their relationship to corporate culture.

5) Describe how corporate culture relates to the environment.

6) Define a cultural leader and explain the tools a cultural leader uses to create a high-performance culture.

2) Manager’s Challenge

The environment surprises many managers and leaves them unable to adopt their companies to new competition, shifting consumer interests, or new technologies.

Example: Xerox was dominant in its industry for many years, but managers missed cues from the environment and got blindsided by rivals Canon and Ricoh when they began selling comparable copy machines at lower prices.

To be effective, managers must monitor and respond to the environment – an open systems view. The events that have the greatest impact on an organization typically originate in the external environment.

Globalization and worldwide societal turbulence affect companies in new ways, making the international environment of growing concern to managers everywhere.

The Organization: Environment Relationship

Why do organizations care so much about factors in the external environment?

The reason is that the environment creates uncertainty for the managers and they must respond by designing the organization to adapt to the environment

Environmental Uncertainty

Organizations must manage environmental uncertainty to be effective

Uncertainty means that the managers do not have sufficient information about environmental factors to understand and predictenvironmental needs and changes

As indicated in below illustration, environmental characteristicsthat influence uncertainty are the numbers of factors that affectthe organization and the extent to which those factors change.

In an organization in a highly uncertain environment everythingseems to be changing.

In that case, an important quality for a new manager is “mindfulness”, which includes the qualities of being open minded and an independent thinker.

In a stable environment, closed minded manager may perform okaybecause much work can be done in the same old way.

In an uncertain environment, even a new manager needs to facilitate new thinking, new ideas and a new ways of working.

ADAPTING TO THE ENVIRONMENT

If an organization faces increased uncertainty with respect to competition, customers, suppliers or government regulations managers can use strategies to adapt these changes, including

boundary-spanning roles,

From Adversarial Orientation

Suspicion, competition, arm’s lengthPrice, efficiency, own profits

Information and feedback limited

Lawsuits to resolve conflict

Minimal involvement and up-front investment Short-term contracts Contracts limit the relationship

inter organizational partnerships, and

Mergers or joint ventures.

Boundary-spanning roles

Roles assumed by people and/or departments that link and coordinate the organization with key elements in the external environment.

Boundary-spanners have two purposes for the organization: 1) Detect and process information about changes in the environment; 2) Represent the organization’s interests to the environment.

Boundary-spanning has many ways/approaches to span the boundary (e.g. Marketing and purchasing departments span the boundary to work with customers and suppliers, both face to face and through market research)

Boundary-spanning is an increasingly important task in organizations because environmental shifts can happen quickly in today’s world.

Managers need good information about their competitors, customers, and other elements of the environment to make good decisions. Thus, the most successful companies involve everyone in boundary-spanning activities.

Inter organizational Partnership

An increasingly popular strategy for adapting the environment is to reduce boundaries and increase collaboration with other organizations.

Managers shift from adversarial orientation to a partnership orientation, as summarized in the exhibit in the next slide.

The Shift to a Partnership Paradigm

To Partnership Orientation

Trust, value added to both sidesEquity, fair dealing, everyone profits E-business links to share information and conduct digital transactions

Close coordination; virtual teams and people onsiteInvolvement in partner’s design and production Long-term contracts Business assistance goes beyond the contract

From Adversarial Orientation

Suspicion, competition, arm’s lengthPrice, efficiency, own profits

Information and feedback limited

Lawsuits to resolve conflict

Minimal involvement and up-front investment Short-term contracts Contracts limit the relationship

Mergers and Joint Ventures

A step beyond strategic partnerships is for companies to becomeinvolve in mergers or joint ventures to reduce environmental uncertainty.

A merger occurs when two or more organizations combine to become one e.g. Wells Fargo merged with Northwest Corp. to form the nation’s fourth largest bank corporation.

A joint venture involves a strategic alliance or program by two or more organizations.

To Partnership Orientation

Trust, value added to both sidesEquity, fair dealing, everyone profits E-business links to share information and conduct digital transactions

Close coordination; virtual teams and people onsiteInvolvement in partner’s design and production Long-term contracts Business assistance goes beyond the contract

A joint venture typically occurs when a project is too complex, expensive, or uncertain for one firm to handle alone.

Many small businesses are also turning to joint ventures with large firms or international partners. A larger partner can provide sales staff, distribution channels, financial resources or a research staff.

Culture – The set of key values, beliefs, understandings and norms that members of an organization share. The concept of culture helps managers to understand the hidden, complex aspects of organizationallife. Culture is a pattern of shared values and assumptions about how things are done within the organization. This pattern is learnedby members as they cope with external and internal problems and taught to new members as the correct way to perceive, think, and feel.

The fundamental values that characterize an organization’s culture canbe understood through the visible manifestations of the following:

Symbol – An object, act or event that conveys meaning to others. Symbols can be considered a rich, nonverbal language that vibrantly conveys the organization’s important values concerninghow people relate to one another and interact with the environment.

Stories – A narrative based on the true events and repeated frequently and shared among organizational employees.

Heroes – A figure who exemplifies the deeds, character and attributes of a strong corporate culture. Heroes are role models for employees to follow.

Slogans – A phrase or sentence that succinctly express corporate value.

Ceremonies - A planned activity at a special event that is conducted for the benefit of an audience.

ENVIRONMENT AND CULTURE

A big influence on internal corporate culture is the external environment. Cultures can vary widely across organization; however, organizations within the same industry often reveal similar cultural characteristics because they are operating in similar environments. The internal culture should embody what it takes to succeed in the environment.

Adaptive Cultures

Research at Harvard on 207 U.S. firms illustrated the critical relationship between corporate culture and the external environment. The study found out that a strong corporate culture alone did not ensure business success unless the culture encouraged healthy adaptation to the external environment. As illustrated in Exhibit 3.6, adaptive corporate cultures have different values and behavior from unadaptive cultures.

Visible

Behavior

Expressed Values

Managers pay close attention to all their constituencies, especially customers, and initiate change when needed to serve their legitimate interests, even if it entails taking some risks.

Managers care deeply about customers, stockholders, and employees. They strongly value people and processes that can create useful change (e.g. leadership initiatives up and down the management hierarchy.

Exhibit 3.6: Environmentally Adaptive versus Unadaptive Corporate Culture

Managers tend to behave somewhat insularly, politically, and bureaucratically. As a result, they do not change their strategies quickly to adjust to or take advantage of changes in their business environment.

Managers care mainly about themselves, their immediate work group, or some product (or technology) associated with that work group. They value the orderly and risk-reducing management process much more highly than the leadership initiatives.

Adaptive Corporate Cultures Unadaptive Corporate Cultures

TYPES OF CULTURESThere are four categories or types of culture as illustrated below in Exhibit 3.7. These categories are based on two dimensions: (1) the extent to which external environment requires flexibility or stability; and (2) the extent to which a company’s strategic focus is internal or external.

Four Types of Corporate Cultures

Flexibility

1. Adaptability Culture2. Involvement Culture

Stability3. Achievement Culture4. Consistency Culture

The four categories associated with these differences are adaptability, achievement, involvement and consistency.

Adaptability Culture – emerges in an environment that requires fast response and high-risk decision making. A culture characterized by values that support the company’s ability to interpret and translate signals from the environment into new behavior responses.

Achievement Culture – A results-oriented culture that values competitiveness, aggressiveness, personal initiative and achievements. An emphasize on winning and achieving specific ambitious goals is the glue that holds the organization together.

Involvement Culture – emphasizes an internal focus on the involvement and participation of employees rapidly adapt the changing needs of the environment. A culture that places high value on meetings the needs of employees and values cooperation and equality.

Consistency Culture – uses internal focus and consistency orientation for a stable environment. A culture that values and rewards a methodical, rational, orderly way of doing things.

Managing the High-Performance Culture

High-Performance Culture - A culture based on a solid organizational mission or purpose that uses shared adaptive values to guide decisionsand business practices and to encourage individual employee ownership of both bottom-line results and the organization’s cultural backbone.

Cultural Leadership – A primary way in which managers shaped cultural norms and values to build a high-performance culture. Managers must overcommunicate to ensure that employees understand the new culture values, and they signal these values in actions as well as words.

A cultural leader defines and uses signals and symbols to influence corporate culture. They influence two key areas:

1. The cultural leader articulates a vision for the organizational culture that employees canbelieve in.

2. The cultural leader heeds the day-to day activities that reinforce the cultural vision.

Interpretation:

A company in Quadrant A pays little attention to either values or business results and is unlikely to survive for long.

Managers in Quadrant B organizations are highly focused on creating a strong cohesive culture, but they don’t tie organizational values directly to goals and desired business results.

Quadrant C represents organizations that are focused primarily on bottom-line results and pay little attention to organizational values.This approach may be profitable in the short run, but the success is difficult to sustain over the long-term - the reason behind is that

the “glue” that holds the organization together – that is, shared cultural values- is missing.

Company in Quadrant D put high emphasis on both culture and solid business performance as drivers of organizational success. Managers inthese organization align values with the company’s day-to-day operations – hiring practices, performance management, budgeting, criteria for promotions and rewards. Quadrant D organization representhigh-performance culture.

CASE ANALYSIS

Rio Grande Supply Co.

Relevant Facts (1 of 3)

Jasper Hennings, president of Rio Grande Supply Co., knew full well a company’s top executives were largely responsible for determining a firm’s corporate culture. That’s why he took such personal pride in the culture of his Texas-based wholesale plumbing supply company. It didn’t just pay lip service to the values it espoused: integrity, honesty, and a respect for each individual employee. His management team set a good example by living those principles.

The importance of Jasper attached to respecting each individual was apparent in the company’s Internet use policy. It was abundantly clear that employees weren’t to use Rio Grande’s computers for anything but business-related activities. However,Jasper himself had vetoed the inclusion of what was becoming a standard provision in such policies that management had the rightto access and review anything employees created, stored, sent, orreceived on company equipment. He cut short any talk of installing software filters that would prevent abuse of the corporate computer system. Still, the company reserved the rightto take disciplinary action, including the possible termination,and to press criminal charges if an employee was found to have violated the policy.

Henry Darger, his hard-working chief of operations and a member of his church, had summarily fired a female employee for having accessed another worker’s e-mail surreptitiously. She hadn’t taken her dismissal well. “Just ask Darger what he’s up to when he shuts his office door,” she snarled as she stormed out of Jasper’s office. She made what Jasper hoped was an idle threat to hire a lawyer. When Jasper asked Henry what the fired employee could possibly have meant, tears began to roll down the operations chief’s face. He admitted that ever since a young nephew had committed suicide the year before and a business helped his wife start had failed, he’d increasingly been seeking escape from his troubles by logging onto adult pornography sites.At first, he’d indulged at home, but of late he’d found himself spending hours at work visiting pornographic sites, the more explicit the better.

Henry’s immediate dismissal of the woman who’d tapped into another employee’s e-mail when the operations chief was violatingthe Internet policy himself was hypocritical. The person chargedwith enforcing that policy needed to be held to the highest standards.

Jasper knew that Rio Grande employees routinely used computers attheir desks to check personal e-mail, do banking transactions,

check the weather, or make vacation arrangements. The company had turned a blind eye because it didn’t seem worth the effort ofenforcing the ahrd-and-fast policy for such minor infractions.

Henry was a valued, if clearly troubled, employee. Replacing himwould be costly and difficult. If Jasper decided to keep him on,the president clearly had no choice but to cross the line and getinvolved in Henry’s private life, and he would be treating Dargerdifferently from the treatment the female employee received.

Question#1-A: What environment factors have helped to create the situation Jasper Hennings faces?

The following environment factors have helped to create the situation Jasper Hennings faces:

Technological (External Environment) – considering the technology advancement, it is probable that the company’s employee do non-work related matters such us downloading and research using the internet.

Internal Environment – the company did not adjust to the technology advancement. The company should have taken measure i.e. installing software filters that would have prevented abuse of the company’s computer system.

Question#1-B: What factors does Jasper need to consider when deciding on his course of action?

Jasper needs to consider the following factors on his course of action?

The company’s policies.

The people that will be affected by the his decision. This includes the people of the company who might be affected either positively or negatively.

The possible consequences of his decision.

Question#2-A : Analyze Rio Grande’s culture. In addition to the expressed cultural values and beliefs, what other subconscious values and beliefs do you detect?

In addition to the expressed cultural values and beliefs, following are Rio Grande’s subconscious values and beliefs

Empathy/compassion

Self preservation

Right to decide on things which are favorable to the company

Question#2-B : Are conflicting values present? When values are in conflict , how would you decide which ones takes precedence?

Yes, the following values are in conflict:

Honesty vs. Self preservation – Prior to the termination of thefemale employee, some employee’s of the company including the terminated female employee were already aware of “Henry Darger’s illegal access to adult pornography sites” but they did not report it to Jasper probably because of fear of losing their job.

Right to decide on things which are favorable to the company vs. Respect for each employee of the company – Jasper vetoed the inclusion of what was becoming a standard provision in the company’s internet and computer use policies that management had the right to access and review anything employees created, stored, sent, or received on company equipment. This is in conflict with the “respect for each employee’s privacy” value of the company.

Respect for the company policy versus compassion – Jasper’s struggle whether to punish Henry in accordance with the company’spolicy or to keep him to the company.

When values are in conflict , the value that takes precedence is the onethat produce the greatest net benefit for the greatest number.

Questions#3 : Assume you are Jasper. What are the first two action steps you would take to handle the Henry Darger situation? How would your roleas a cultural leader influence your decision? What message will your solution send to the other managers and rank-and-file employees?

If I were jasper, I will do the following to handle Henry Darger’s situation:

1) Terminate Henry – so that “his actions” will not be a precedent to other employees.

2) Meet the management team to analyze the root cause of the incident and identify possible improvements of the company’s current processes and internal controls to prevent same incident to happen again.

As a cultural leader, I am pressured to make the best possible decision because the people of the company look up to me. I am expected to perform my duties and responsibilities in accordance with the standards of the company.

Terminating Henry is in accordance with the company’s policies. Thus, this would bring a message to every employee that I’m serious in implementing the company’s policies. Thus, every employees will uphold strict compliance to the policies and procedures of the company.

CHAPTER 4

Managing in a Global Environment

LEARNING OBJECTIVES

1. Describe the merging borderless world

2. Define international management and explain how it differs from the management of domestic business operations

3. Indicate how dissimilarities in the economic, sociocultural, and legal-political environments throughout the world can affect business operations

4. Describe the market entry strategies that business use to developforeign markets

5. Describe the characteristics of a multinational corporation

6. Explain the challenges of managing in a global environment

A Borderless World

Business is becoming a unified, global field

Companies that think globally have a competitive edge

Domestic markets are saturated for many companies

Consumers can no longer tell from which country they are buying

Four Stages of Globalization

The process of globalization typically passes through four

distinct stages

Domestic stage:

market potential is limited to the home country

production and marketing facilities located at home

International stage:

exports increase

company usually adopts a multi-domestic approach

Multinational stage:

marketing and production facilities located in many countries

more than 1/3 of its sales outside the home country

Global (or stateless) stage:

making sales and acquiring resources in whatever country offers the best opportunities and lowest cost

ownership, control, and top management tend to be dispersed

The International Business Environment

It is the management of business operations conducted in more than one country.

It applies the same basic management functions of planning, organizing, leading and controlling.

The Economic Environment

Represents the economic conditions in the country where the international organization operates

This includes factors as

Economic development

Infrastructure

Resource and product markets

Exchange Rates

Inflation

Interest Rates

Economic Growth

The Economic Environment

Economic Development

Countries categorized as “developing” or “developed”

Criterion used to classify is per capita income

Developing countries have low per capita incomes

LDCs located in Asia, Africa, and South America

Developed are North America, Europe, & Japan

Driving global growth in Asia, Eastern Europe, & Latin America

Infrastructure

A country’s physical facilities that support economic activities like

Airports, highways, and railroads

Energy-producing facilities

Communication facilities

Resource and Product Markets

Managers must evaluate market demand

To develop plants, resource markets must be available – raw materials and labor

Exchange Rate

Rate at which one country’s currency is exchanged for another country’s

Has become a major concern for companies doing business internationally

Changes in the exchange rate can have major implications forprofitability of international operations

The Legal-Political Environment

Major legal-political factors affecting international business are

Political risk

Political instability

Laws and regulations

Political risk

Defined as a company’s risk of loss of assets, earning power, or managerial control due to politically based eventsor actions by the host governments

Political instability

Events such as riots, revolutions, or government upheavals that affect the operations of an international company Laws and regulations

Laws and Regulations

This pertains to legislations which differ from country to country

The Social Environment

A nation’s culture includes the shared knowledge, beliefs and values, as well as the common modes of behavior and ways of thinking, among members of society

There are 4 dimensions of national value systems that influence organization and employee working relationship. (Hofstede’s ValueDimension)

Power distance

Uncertainty avoidance

Individualism and collectivism

Masculinity/femininity

Long-term orientation vs short-term orientation

Hofstede’s Value Dimension

Power distance

Refers to the degree distance means people accept inequalityin power among institutions, organizations, and people

Uncertainty avoidance

High uncertainty avoidance means that members of a society feel uncomfortable with uncertainty and ambiguity

Individualism and collectivism

Individualism reflects a value for a loosely knit social framework in which individuals are expected to take care of themselves

Collectivism means a preference for a tightly knit social framework in which individuals look after one another and organizations protect their members interest

Masculinity/femininity

Masculine cultures stress the importance of achievement, heroism, assertiveness, and material success

Feminine cultures value relationships, modesty, caring for the weak, and quality of life

Long-term orientation vs short-term orientation

Long-Term Orientation is found China and other Asian countries includes a greater concern for the future and highly values thrift and perseverance

Short-Term Orientation means that people expect fairly rapidfeedback from decisions, expect quick profits, frequent job evaluations and promotions, etc.

The Social Environment

The GLOBE (Global Leadership and Organizational Behavior Effectiveness) Project Value dimension identified 9 dimensions that explain cultural differences

Assertiveness

Future orientation

Uncertainty avoidance

Gender differentiation

Power distance

Societal collectivism

Individual collectivism

Performance orientation

Human orientation

The GLOBE Project Value Dimensions

Assertiveness

A high value on assertiveness means a society encourages toughness, assertiveness, and competitiveness while low assertiveness means that people value tenderness and concernfor other over being competitive

Future orientation

This refers to the extent to which a society encourages and rewards planning for the future over short-term results and quick gratification

Uncertainty avoidance

This is the degree to which members of a society feel uncomfortable with uncertainty and ambiguity

The GLOBE Project Value Dimensions

Gender differentiation

This refers to the extent to which a society maximizes gender role differences

Power distance

This refers to the degree to which people expect and accept equality or inequality in relationships and institutions

Societal collectivism

Is the degree to which practices in institutions encourage atightly-knit collectivist society in which people are important part of a group, or a highly individualistic society

Individual collectivism

This dimensions looks at the degree to which individuals take pride in being members of a family, close circle of friends, team, or organization

Performance orientation

High performance orientation places high emphasis on performance and rewards people for performance improvements

Low performance orientation means people pay less attention to performance andmore attention to loyalty, belonging and background

Human orientation

This refers to the degree to which society encourages and rewards people for being fair, altruistic, generous, and caring

The Social Environment

Other cultural characteristics that influence international organizations are

Language

Religion

Attitudes

Social organization

Education

International Trade Alliances

One of the visible changes in the international business environment has been the development of regional trading alliances and international trade agreements.

GATT and the World Trade Organization

European Union

North America Free Trade Agreement

Other Trade Alliances

The Global Backlash

GATT and the World Trade Organization

General Agreement on Tariffs and Trade (GATT)

Signed by 23 nations in 1947 as a set of rules

Ensured nondiscrimination, clear procedures, negotiation of disputes, and participation of lesser developed countries ininternational trade

Today, 147 member countries abide by the rules

Primary tools WTO uses on tariff concessions, countries agree to limit level of tariffs on imports from other WTO members

Most favored nation clause

World Trade Organization (WTO)

Goal, is to guide and sometimes urge the nations of the world toward free trade and open markets

Encompasses GATT and all of its agreements

Has legal authority to arbitrate disputes on 400 trade issues

Partly responsible for backlash against global trade

European Union

Formed in 1957 to improve economic and social conditions

Has grown to 25-nation alliance

Initiative Europe ’92 called for creation of open markets for Europe’s 340 million consumers

Biggest expansion in 2004 – 10 new members from southern and eastern Europe

Observers feared EU would become a trade barrier

EU’s monetary revolution, introduction of the Euro

North America Free Trade Agreement

Went into effect on January 1, 1994

Merged the United States, Canada, and Mexico with more that 421 million consumers

Breaks down tariffs and trade restrictions on most agriculture and manufactured products

August 12, 1992 agreements in number of key areas include: agriculture, autos, transport, & intellectual property

Getting Started Internationally

Small and medium-size companies have a couple of ways to become involved internationally.

Global Outsourcing

Exporting

Licensing

Direct Investing

This are called market entry strategies because they represent ways to sell products and services in foreign markets

Exporting

An entry strategy in which the organization maintains its production facilities within its own country and transfers its products for sale in foreign countries

Licensing

An entry strategy in which an organization in one country makes certain resources available to companies in another in order to participate in the production and sale of its products abroad

Franchising

A form of licensing in which an organization provides its foreign franchisees with a complete package of materials and services

Joint Venture

A variation of direct investment in which an organization shares costsand risks with another firm to build a manufacturing facility, developnew products, or set up a sales and distribution network

Acquisition

A foreign subsidiary over which an organization had complete control

Greenfield Venture

The most risky type of direct investment, whereby a company builds a subsidiary from scratch in a foreign country

Multinational Corporations (MNC)

An MNC are companies that receives >25% total sales revenues from operations outside parent company’s home country

Also called global corporation or transnational corporation

MNCs has the following distinctive managerial characteristics:

Managed as integrated worldwide business system

Controlled by single management authority

Top managers exercise global perspective

Managing in a Global Environment

Managing in a foreign country is particularly challenging

Managers should be sensitive to cultural subtleties and understand that the ways to provide proper leadership, decision making, motivation and control vary in different cultures