Chapter 4

Influence of the External Environment and the Organization’s Culture

THE MANAGER: Omnipotent or Symbolic?
I. Omnipotent View of Management: The perspective that managers are directly responsible for an organization's
success or failure.

According to the omnipotent view, managers are held accountable for organizational results. Their actions and decisions are
seen as the primary drivers of success or failure. Good managers are expected to:

• Anticipate changes
• Exploit opportunities
• Correct poor performance
• Lead organizations to achieve goals

When performance is good, managers are rewarded with bonuses, promotions, and recognition. Conversely, when
performance declines, managers are often replaced, regardless of external factors.
This view is common not just in business but also in sports, where coaches are frequently changed based on team
performance. Example : When Satya Nadella became CEO of Microsoft in 2014, the company was struggling to keep up with
competitors like Apple and Google. Nadella made major strategic changes, including shifting focus to cloud computing (Azure)
and promoting a growth mindset culture.
As a result, Microsoft’s market value skyrocketed, and he was widely credited for the company's transformation.
This supports the omnipotent view, where the leader’s actions are seen as the major reason behind success.

II. Symbolic View of Management: The perspective that much of an organization’s success or failure is due to external
forces beyond managers' control.

The symbolic view suggests that external factors play a larger role in determining organizational outcomes than management
actions. These factors include:

• Economic conditions
• Customers' preferences
• Governmental regulations
• Competitors' actions
• Industry trends
• Decisions by previous managers

In this view, managers have limited ability to affect substantive outcomes. Instead, they focus on shaping symbolic outcomes,
providing meaning and a sense of control amid uncertainty. Managers serve as figures for praise during success and blame
during failure, although their actual impact may be limited. Example : Before COVID-19, Zoom was just one of many video
conferencing platforms. However, during the pandemic, remote work and virtual meetings became necessary, and Zoom’s
user base exploded—from 10 million daily users in December 2019 to over 300 million by 2021.
This growth was driven mostly by external forces (pandemic lockdowns), not by any major change in management strategy.
This supports the symbolic view, where external factors, not management actions, determine success.
Reality: A Synthesis : In practice, neither the omnipotent nor the symbolic view fully captures reality. Managers operate
within constraints:

• Internal constraints arise from organizational culture.

• External constraints come from the broader environment.

Despite these limitations, managers still retain an area of discretion where they can make meaningful decisions. Effective
managers differentiate themselves by how well they operate within these constraints. Managers are important, but they are
not all-powerful. Their effectiveness is shaped by both internal organizational culture and external environmental pressures.

Understanding the Environment and Environmental Uncertainty

Environment: Institutions or forces outside the organization that can affect its performance.

Environmental Uncertainty: How much change and complexity exist in the organization’s environment.
Two factors determine it:

1. Degree of Change:

§ Stable environment: Little change (e.g., paint industry).

§ Dynamic environment: Unpredictable, fast change (e.g., music industry with streaming services).

2. Degree of Complexity:

§ Simple environment: Few external components, minimal knowledge needed.

§ Complex environment: Many components, lots of knowledge needed (e.g., Amazon managing various suppliers and
laws).

Þ Cell 1: Stable + Simple → Least uncertainty.

Þ Cell 2: Dynamic + Simple.

Þ Cell 3: Stable + Complex.

Þ Cell 4: Dynamic + Complex → Highest uncertainty.

Impact on Managers:

o Managers have the most control in stable and simple environments (Cell 1) and the least in dynamic and complex ones
(Cell 4).

o Managers prefer stable environments to reduce risks and threats.

• Levels of Environment:

1. General environment: Broad external factors like economy, technology, laws.

2. Specific environment: Directly affects how the organization operates (competitors, customers, suppliers).

Monitoring the External Environment : Businesses must monitor two types of environments:

• General Environment: Broad forces that indirectly affect the organization.

• Specific Environment: Immediate forces that directly affect an organization's success.

1. The General Environment : The general environment includes everything outside the organization. It contains several
components:

Component What It Includes Importance Examples

Economic Interest rates, inflation, disposable Affects consumer - High inflation reduces consumers'
income changes, stock market spending and business purchasing power.
trends, stages of the business cycle investments. - Recession leads to lower business
investments.

Demographic Population characteristics: age, race, Helps businesses - Aging population boosts demand for
gender, education, income, location, adjust healthcare services.
family structure products/services to - Urbanization increases demand for
customer profiles. apartment housing.

Political/Legal Laws at local, state, federal, and Regulations and legal - GDPR regulations in Europe affecting
international levels, political stability conditions set how companies handle customer data.
boundaries and - Political unrest impacting international
opportunities. business operations.

Sociocultural Social values, attitudes, traditions, Influences customer - Growing preference for eco-friendly
lifestyles, beliefs, tastes, behaviors behavior and products.
marketing strategies. - Health trends increasing demand for
organic food.

Technological Scientific and industrial innovations Can create new - Rise of AI technology transforming
markets or destroy customer service with chatbots.
existing ones.

Global Globalization-related issues, Opportunities and - Supply chain disruptions due to global
worldwide economic trends threats from events (e.g., COVID-19 pandemic).
international markets.
2. The Specific Environment : The specific environment consists of stakeholders directly affecting an organization’s success. It
demands most of management’s focus. Key groups include:

Group Description Importance Examples

Suppliers Entities providing labor, Reliable suppliers ensure - Pizza restaurants rely on suppliers for
materials, equipment steady production; delays or flour and tomatoes.
shortages can hurt operations. - Hospitals depend on medical
suppliers for drugs and equipment.

Customers People or organizations Their preferences dictate - Big brands like PepsiCo and Procter &
consuming the final business success; loss of Gamble are losing customers to
product or service customers leads to revenue cheaper private-label brands at
decline. Walmart and Aldi.

Competitors Other organizations Competitive moves (pricing, - USPS competes with FedEx, UPS, and
offering similar products or innovation) can erode market even email and messaging services.
services share if not monitored. - TV networks (ABC, CBS, NBC) lost
viewers to cable, Netflix, and Hulu.

Government Federal, state, local Regulatory compliance is - Americans with Disabilities Act (ADA)
agencies making laws and mandatory; new laws can raise forced businesses to change hiring
regulations operational costs or change practices and facility designs.
processes. - State-level minimum wage increases
affected businesses hiring entry-level
workers.

Investors Shareholders and potential Investor expectations push - Focus shifting from only profits to ESG
investors companies to perform (Environmental, Social, and
financially and socially (via ESG Governance) efforts.
strategies). - IKEA creating reusable, longer-lasting
products to meet ESG demands.

Special-Interest Organizations seeking to Pressure from these groups - Coalition to Stop Gun Violence
Groups influence corporate can force companies to adopt influencing gun manufacturers.
behavior (e.g., new practices or policies. - Climate change protesters influencing
environmental activists) the energy industry (e.g., BP's CEO
acknowledging transition to clean
energy).

Final Summary:

• General environment = Broad forces (economy, laws, tech, global trends) → Indirect effects.

• Specific environment = Immediate forces (customers, competitors, suppliers, government, investors, activists) →
Direct effects on success.

• Management’s focus = Mostly on the specific environment but must stay alert to general environment changes too.
Managing the Environment : Organizations are open systems—they rely on their environment for inputs (like labor,
materials) and serve as a recipient of outputs (goods and services to customers).
They must also comply with laws, respond to interest groups, and adapt to constraints while actively trying to manage
external influences.

How Managers Lessen Environmental Constraints:

• Identify Key External Constituencies:

Build strong relationships (e.g., Lockheed hiring military officers to lobby for defense contracts).

• Strengthen Customer Loyalty:

Respond to competitors (e.g., Kraft Heinz advertising against lower-priced store brands).

• Diversify Supplier Networks:

Secure critical inputs (e.g., Apple building relationships with multiple suppliers for memory modules).

• Environmental Scanning:
Monitor for external shifts and trends to adjust strategy early (e.g., chocolate makers monitoring climate impacts on
cocoa supply).

By scanning the environment, managers can spot opportunities and threats early and make better strategic decisions.

Organizational Culture: Guiding Employee Behavior

Discuss the characteristics and importance of organizational culture. Organizations, like individuals, have a personality—
referred to as organizational culture. It shapes how employees act and interact.

Organizational Culture is Shared values, principles, traditions, and ways of doing things that influence behavior and
distinguish the organization. Example: HubSpot’s culture emphasizes autonomy, transparency, and customer focus,
contributing to its recognition as a top workplace.

Key Aspects of Culture:

1. Perception: Employees interpret culture based on experiences.

2. Descriptive: Focuses on how employees describe the culture, not whether they like it.

3. Shared: Employees across levels tend to describe culture similarly.

Six Dimensions of Culture : Dimensions of Culture refer to the various elements or factors that help in understanding the
differences and similarities in cultural values, behaviors, and practices across different societies or groups. These dimensions
offer a way to compare and contrast cultures in terms of shared values, communication styles, and ways of thinking. Each
dimension represents a specific cultural trait that affects how people from different cultures interact, make decisions, and
prioritize aspects of life.

1. Adaptability: The culture encourages innovation, flexibility, and risk-taking. Organizations with high adaptability value
change, creativity, and the ability to respond quickly to evolving circumstances. Example: Companies like Google and
Tesla, where innovation and adapting to new challenges are highly valued.

2. Attention to Detail: This dimension values precision, accuracy, and thoroughness. It encourages employees to focus on
the details to ensure high-quality outcomes and prevent errors. Example: Industries like finance or engineering, where
precision is crucial, typically emphasize attention to detail.

3. Outcome Orientation: In this culture, the focus is on achieving results, meeting goals, and driving performance, often with
less emphasis on the processes or methods used to get there. Example: Sales-driven organizations where hitting targets
and achieving high performance are prioritized over the steps taken to get there.

4. People Orientation: This culture prioritizes the well-being, development, and empowerment of employees. It focuses on
creating a supportive, inclusive, and compassionate work environment. Example: Companies like Patagonia and
Salesforce, where employee happiness, work-life balance, and personal growth are central to the company’s ethos.

5. Team Orientation: Collaboration and teamwork are emphasized in this culture. Success is viewed as a collective
achievement, and individuals are encouraged to work together to achieve common goals. Example: Tech companies like
Apple or collaborative agencies where cross-functional teams work together to innovate and solve problems.

6. Integrity: This dimension highlights honesty, ethics, and moral principles in decision-making. Integrity-based cultures
stress the importance of doing the right thing, even when it is difficult. Example: Companies like Johnson & Johnson,
known for its strong ethical principles and commitment to transparent and responsible practices.

These dimensions reflect key values that shape organizational behavior and can be used to evaluate or define a company's
culture. They influence how employees interact, make decisions, and contribute to overall organizational success.

Example Contrast: Organization A vs. Organization B

The contrast between Organization A and Organization B highlights how the values, behaviors, and cultural characteristics
within an organization can differ significantly, shaping the overall environment and performance.

• Organization A: **Risk-Averse, Rule-Bound, Individual-Focused

o Risk-Averse: Employees in this organization are generally cautious about making bold decisions or taking chances. Risk
management and avoiding mistakes are highly prioritized. In such organizations, decisions are often made through
established procedures and policies.

o Rule-Bound: Organization A has a structured environment where employees must follow strict protocols and regulations.
These rules help to maintain consistency and order, but may limit creativity and flexibility.
o Individual-Focused: The focus in this organization is often on personal performance and individual goals. Employees may
work more independently and be evaluated based on their own achievements rather than team or collective success.

• Organization B: Innovative, Flexible, Team-Oriented

o Innovative: Organization B thrives on creativity, experimentation, and seeking new ideas. Risk-taking is encouraged, as
the company believes that innovation can drive success and differentiation in the market.

o Flexible: The organizational culture allows employees to adapt and change course quickly. Processes and roles may not be
rigidly defined, and there is room for improvisation and responding to new opportunities.

o Team-Oriented: Collaboration is key in Organization B. Employees work in teams, share ideas, and are encouraged to
achieve collective goals. Success is often celebrated as a team effort, and teamwork is emphasized over individual
performance.

Strong vs. Weak Cultures : Strong cultures and weak cultures refer to the extent to which organizational values are shared,
clear, and acted upon by employees at all levels of the organization.

Strong Culture:

• Values Intensely Held and Widely Shared: In a strong culture, the organization’s values, mission, and vision are deeply
embedded in every aspect of the organization. Employees at all levels understand these values and align their behaviors
with them. For example, Apple has a strong culture focused on innovation, design excellence, and creativity. This focus is
shared by everyone, from top executives to entry-level employees, guiding decision-making and behavior throughout the
company.

• Boosts Performance by Aligning Employee Behavior: When the culture is strong, employees are more likely to be aligned
with the company’s goals and values. This alignment drives consistency in performance, as employees know what is
expected of them and act accordingly. For instance, in Apple’s strong culture, employees are driven to think outside the
box and push the boundaries of technology, resulting in continuous product innovation.

• May Resist Change: While strong cultures can drive consistency and high performance, they may also become resistant to
change. When values and behaviors are deeply ingrained, adapting to new ways of thinking or operating can be
challenging. In Apple’s case, while innovation is central to its success, the strong culture can sometimes create inertia in
terms of adopting radically different business strategies or structures.

Weak Culture:

• Values Unclear or Limited to Top Management: In a weak culture, the organization’s values may not be clear to all
employees, or they may be understood only by senior management. The lack of a shared vision can lead to misalignment
and confusion among employees, who may not have a clear sense of the company’s direction or priorities.

• Less Influence on Employee Actions: In a weak culture, employees may act based on personal preferences or
departmental goals rather than a unified organizational vision. Because the values aren’t strongly ingrained, employee
behavior can be inconsistent, and performance may vary widely across the organization.

Strong Cultures Foster Employee Identification and Consistent Behavior

• Employee Identification: In strong cultures, employees often feel a deep sense of identification with the
organization. They believe in its values and take pride in representing it. For example, an employee working for a
 company like Southwest Airlines may feel a strong connection to the company’s values of customer service and
teamwork, which drives loyalty and dedication.

• Consistent Behavior: A strong culture creates consistency in behavior across the organization. When everyone shares
the same values and understands the expectations, employees behave in ways that support the organization’s goals.
This leads to efficient processes, clear communication, and high productivity. Employees know what is acceptable and
what isn’t, and they align their actions accordingly.

• Fostering Organizational Success: A strong culture can foster organizational success because it creates a unified
workforce that works towards common goals. Employees don’t just follow rules; they are committed to the
organization’s success, which translates into higher motivation, morale, and performance.

Origins and Maintenance of Culture

The origins and maintenance of organizational culture are deeply tied to the foundational values and actions that shape how
employees think, behave, and interact within the organization. Culture is not static—it evolves over time but is rooted in
several key elements that sustain it.

1. Founders’ Vision:

The vision of the organization's founders plays a significant role in shaping the initial culture. Founders often embed their
values, priorities, and beliefs into the culture of the company, setting the tone for how things are done. Over time, the culture
evolves to meet the needs of changing circumstances, such as market demands or technological advances. A classic example is
Netflix, which has continuously evolved its culture to align with shifting audience demands and its focus on innovation in the
entertainment industry. Initially, Netflix was built on a culture of convenience, but as the streaming market grew and
diversified, Netflix's culture adapted to focus more on innovation, creativity, and content creation.

2. Selection Process:

The selection process is another key mechanism for maintaining and reinforcing an organization’s culture. When hiring new
employees, organizations tend to look for individuals whose personal values, work styles, and behavior align with the
company’s cultural values. This ensures that the cultural fit continues throughout the organization's growth. For example,
Apple looks for people who are not only skilled but are also passionate about creativity and innovation, which are core values
in the company’s culture. By hiring individuals who already align with the culture, the organization can sustain and strengthen
that culture over time.

3. Top Management Actions:

The behavior of top management plays a critical role in shaping and maintaining culture. Leaders set the tone for the
organization, and their actions often serve as a model for how employees should behave. For example, Google’s leadership is
known for promoting an open, innovative environment where leaders themselves are approachable, collaborative, and often
engage with employees in non-formal settings. These actions model a culture of openness and teamwork, which employees
are likely to adopt in their own behavior.

4. Socialization:

New employees learn the organizational culture through a process of socialization. This can take place through various
channels such as training, mentoring, and organizational rituals. For example, Warby Parker introduces new hires to its
culture by gifting them a book during their first week, reinforcing the company's values of reading, education, and intellectual
growth. This process ensures that new employees integrate well into the organization, align with its values, and become part
of the cultural fabric of the organization.
How Culture Is Sustained

Once an organization's culture is established, it must be actively maintained and nurtured. There are several ways that
organizations keep their cultures alive and relevant, ensuring they continue to thrive as the company grows and evolves.

1. Stories:

Stories are powerful tools for transmitting culture. Narratives about the company’s history, challenges, triumphs, and heroes
help to reinforce core cultural values. For example, 3M’s Post-It Notes story is an iconic example within the company. The
Post-It Note was the result of a failed experiment that was turned into a groundbreaking product. This story reinforces the
company’s value of innovation and creativity, showing that failure can lead to success and encouraging employees to take
risks.

2. Rituals:

Rituals are recurring activities or ceremonies that reinforce organizational values. For example, military boot camps serve as
an intense, often grueling ritual that reinforces teamwork, discipline, and resilience. Within the corporate world, companies
may have regular events such as company-wide meetings, annual retreats, or weekly check-ins that build a sense of belonging
and unity. These rituals help reinforce the organization’s identity and keep employees connected to the cultural values.

3. Material Symbols:

Material symbols such as office design, dress codes, and perks help to communicate the organization's culture. For example,
Google is known for its office environments that include fun elements such as bocce courts, foosball tables, and open spaces
that encourage collaboration and creativity. These material symbols serve as physical reminders of the company’s culture of
innovation and flexibility.

4. Language:

Language and jargon are also vital components of an organization’s culture. Unique terms, phrases, and slang become
markers of cultural identity, bonding employees and making them feel part of something special. For instance, Walmart’s
term “Action Alley” refers to the area in the store where new, high-demand products are placed, embodying the company's
fast-paced, customer-focused culture. Employees understand this jargon and use it to connect with each other and with the
company’s core values.

Remote Work & Culture

The rise of remote work has introduced new challenges for maintaining organizational culture. Without physical interaction, it
becomes harder to sustain the emotional connections and informal bonding that typically happen in a traditional office
environment. However, companies have come up with solutions to mitigate these challenges.

Challenge:

The primary challenge of remote work is the lack of physical interaction, which weakens the emotional connections between
employees and the company’s culture. Remote workers can feel disconnected, and without the spontaneous conversations
and in-person meetings, maintaining the cohesion of a shared culture becomes difficult.

Solutions:

• Use technology to foster meaningful interactions: Companies can use communication platforms such as Slack, Zoom,
and Microsoft Teams to facilitate regular check-ins, team-building activities, and virtual happy hours, helping
employees stay connected and engaged.
 • Explicitly communicate cultural values: Organizations must actively communicate their cultural values to remote
workers. For instance, HubSpot’s Culture Code is a document that clearly outlines the company’s values,
expectations, and mission. By emphasizing these values in regular communications, remote employees can feel more
aligned with the company culture.

• Recognize behaviors aligning with culture: Even remotely, companies can recognize and praise employees who
demonstrate behaviors aligned with the organization’s values. For example, praising employees for their teamwork in
virtual environments can reinforce the importance of collaboration in the culture.

Impact on Managers

Organizational culture has a profound impact on managerial decisions. It shapes how managers approach various aspects of
their roles, from planning and organizing to leading and controlling.

Planning:

The organization’s culture influences the level of risk tolerance. For example, Zappos, known for its customer-centric culture,
rewards innovation and encourages employees to take risks to improve customer service. In contrast, more risk-averse
organizations might adopt a cautious approach to planning, favoring stability and predictability over bold moves.

Organizing:

Culture influences whether a company focuses on individual performance or values teamwork. For example, an individualistic
culture like that of Tesla may place a premium on individual achievement and personal performance, while a company with a
team-oriented culture, like Pixar, emphasizes collaboration and collective problem-solving.

Leading:

The leadership style within an organization is deeply shaped by its culture. An organization that values hierarchy and control
may have a more authoritarian leadership style, while a company that emphasizes collaboration and empowerment may
have a more democratic leadership style. Leaders are expected to model the behaviors that are consistent with the culture.

Controlling:

The culture also affects how performance evaluation criteria are set. In a culture that values results and individual
performance, managers may focus on quantitative metrics such as sales numbers or productivity. In a culture that values
collaboration and creativity, the criteria may emphasize team contributions or innovative ideas.

Unwritten Rules

In every organization, there are unwritten rules that employees adhere to, often without being explicitly taught. These rules
are cultural norms that can significantly influence behavior, even if they aren’t codified.

• “Look busy even if you’re not”: This unwritten rule can exist in cultures that value appearance over substance,
where employees may feel pressure to appear productive even when there’s little work to do.

• “Avoid risks to prevent failure”: A culture that discourages failure may lead employees to avoid taking risks, which
can hinder innovation and growth.

• “Past success guarantees future success”: In some cultures, employees may rely heavily on past successes, assuming
that strategies that worked in the past will continue to work indefinitely. This can create complacency and prevent
the company from adapting to changing circumstances.
For example, an organization with a cost-cutting culture may be so focused on reducing expenses that it discourages
investment in long-term innovation. Employees might prioritize short-term savings over the exploration of new ideas or
products.

Key Takeaways:

• Culture is a powerful force that significantly influences employee behavior, organizational performance, and overall
success.
• Strong cultures can lead to high performance and unity but may resist change and adaptability.
• Managers must understand and align their decisions with the cultural values of their organization to thrive and drive
success.
• Remote work requires intentional efforts to maintain and nurture culture, ensuring employees remain engaged and
connected to the organization’s values.
• Culture serves as a compass that guides employees’ actions, and managers must navigate it wisely to steer their
organizations in the right direction.

Like a compass, organizational culture guides the actions, behaviors, and decisions within a company. Managers must use this
cultural compass wisely to ensure that the organization stays true to its core values while navigating challenges and driving
long-term success.

Types of Managerial Decisions Affected by Culture