The External Environment:

The External Environment:

Those factors and forces outside the organization that affect its performance

Despite the fact that appliance sales are expected to climb for the first time in four years,

Whirlpool Corporation, which already shut down 10 percent of its production capacity,

continues to cut costs and scale down capacity even more.7 And it’s not alone in its protective,

defensive actions. The decade from 2000 to 2009 was a challenging one for

organizations. For instance, some well-known stand-alone businesses at the beginning

of the decade were acquired by other companies during this time, including Compaq (now

a part of Hewlett-Packard), Gillette (now a part of Procter & Gamble), Anheuser-Busch

(now a part of Anheuser-Busch InBev), and Merrill Lynch (now a part of Bank of

America); others disappeared altogether, including Lehman Brothers, Circuit City, and

Steve & Barry’s (all now bankrupt) and WorldCom and Enron (both done in by ethics

scandals).8 Anyone who doubts the impact the external environment has on managing just

needs to look at what’s happened during the last decade.

The term external environment refers to factors and forces outside the organization

that affect its performance. As shown in Exhibit 2-2, it includes several different components.

The economic component encompasses factors such as interest rates, inflation,

changes in disposable income, stock market fluctuations, and business cycle stages. The

demographic component is concerned with trends in population characteristics such as

age, race, gender, education level, geographic location, income, and family composition.

The political/legal component looks at federal, state, and local laws, as well as global laws

and laws of other countries. It also includes a country’s political conditions and stability.

The sociocultural component is concerned with societal and cultural factors such as

values, attitudes, trends, traditions, lifestyles, beliefs, tastes, and patterns of behavior. The

technological component is concerned with scientific or industrial innovations. And the

global component encompasses those issues associated with globalization and a world

economy. Although all these components pose potential constraints on managers’ decisions

and actions, we’re going to take a closer look at two of them—the economic and

demographic aspects. Then, we’ll look at how changes taking place in those components

constrain managers and organizations. We’ll wrap up this section by examining environmental

uncertainty and stakeholder relationships.

The Economic Environment

You know the economic context has changed when a blue-ribbon company like General

Motors declares bankruptcy; the Organization for Economic Cooperation and Development

predicts some 25 million unemployed individuals globally; 8.4 million jobs in the

United States vanish; and the economic vocabulary includes terminology such as toxic

assets, collateralized debt obligations, TARP, bailouts, economic stabilization, wraparound

mortgages, and stress tests.9 To understand what this economic environment is like, we

need to look at the changes that have taken place and the impact of those changes on the

way organizations are managed.

The economic crisis—called the “Great Recession” by some analysts—began with

turmoil in home mortgage markets in the United States when many homeowners found

themselves unable to make their payments. The problems soon affected businesses as credit

markets collapsed. All of a sudden, credit was no longer readily available to fund business

activities. It didn’t take long for these economic troubles to spread worldwide.

What caused these massive problems? Experts cite a long list of factors that include

excessively low interest rates for a long period of time, fundamental flaws in the U.S. housing

market, and massive global liquidity. Businesses and consumers became highly leveraged,

which wasn’t an issue when credit was easily available.10 However, as liquidity dried

up, the worldwide economic system sputtered and very nearly collapsed. Now, massive

foreclosures, a huge public debt burden in many countries, and continuing widespread

social problems from job losses signal clear changes in the U.S. and global economic

environments. Even as global economies began the slow process of recovery, most experts

believed that the economic environment facing managers and organizations would not be

as it was and would continue to constrain organizational decisions and actions.

The Demographic Environment

Baby Boomers. Gen Y. Post-Millennials. Maybe you’ve heard or seen these terms before.

Population researchers refer to three of the more well-known age groups found in the U.S.

population by these terms. Baby Boomers are those individuals born between 1946 and 1964.

So much is written and reported about “boomers” because there are so many of them. The

sheer numbers of people in that cohort means they’ve significantly affected every aspect of

the external environment (from the educational system to entertainment/lifestyle choices to

the Social Security system and so forth) as they cycle through the various life stages.

Gen Y (or the “Millennials”) is typically considered to encompass those individuals

born between 1978 and 1994. As the children of the Baby Boomers, this age group is also

large in number and making its imprint on external environmental conditions as well. From

technology to clothing styles to work attitudes, Gen Y is affecting organizational workplaces.

Then, we have the Post-Millennials—the youngest identified age group—basically

teens and middle-schoolers.11 This group has also been called the iGeneration, primarily

because they’ve grown up with technology that customizes everything to the individual.

Population experts say it’s too early to tell whether elementary school-aged children and

younger are part of this demographic group or whether the world they live in will be so

different that they’ll comprise a different demographic cohort.

Demographic age cohorts are important to our study of management because, as we said

earlier, large numbers of people at certain stages in the life cycle can constrain decisions and

actions taken by businesses, governments, educational institutions, and other organizations.

But demographics doesn’t only look at current statistics, it also looks to the future. For instance,

recent analysis of birth rates shows that more than 80 percent of babies being born

worldwide are from Africa and Asia.12 And here’s an interesting fact: India has one of the

world’s youngest populations with more males under the age of 5 than the entire population

of France. And by 2050, it’s predicted that China will have more people age 65 and older

than the rest of the world combined.13 Consider the impact of such population trends on

organizations and managers in the future.

How the External Environment Affects Managers

Knowing what the various components of the external environment are and examining

certain aspects of that environment are important to managers. However, understanding how

the environment affects managers is equally as important. We’re going to look at three ways

the environment constrains and challenges managers—first, through its impact on jobs and

employment; next, through the environmental uncertainty that is present; and finally, through

the various stakeholder relationships that exist between an organization and its external

constituencies.

JOBS AND EMPLOYMENT As any or all external environmental conditions (economic,

demographic, technological, globalization, etc.) change, one of the most powerful constraints

managers face is the impact of such changes on jobs and employment—both in

poor conditions and in good conditions. The power of this constraint became painfully

obvious during the recent global recession as millions of jobs were eliminated and unemployment

rates rose to levels not seen in many years. Economists now predict that about a

quarter of the 8.4 million jobs eliminated in the United States during this most recent

economic downturn won’t be coming back and will instead be replaced by other types of

work in growing industries.14 Other countries face the same issues. Although such readjustments

aren’t bad in and of themselves, they do create challenges for managers who must

balance work demands and having enough of the right types of people with the right skills

to do the organization’s work.

Not only do changes in external conditions affect the types of jobs that are available,

they affect how those jobs are created and managed. For instance, many employers use

flexible work arrangements to meet work output demand.15 For instance, work tasks may

be done by freelancers hired to work on an as-needed basis or by temporary workers who

work full-time but are not permanent employees or by individuals who share jobs. Keep in

mind that such responses have come about because of the constraints from the external

environment. As a manager, you’ll need to recognize how these work arrangements affect

the way you plan, organize, lead, and control. This whole issue of flexible work arrangements

has become so prevalent and part of how work is done in organizations that we’ll,

ASSESSING ENVIRONMENTAL UNCERTAINTY Another constraint posed by external

environments is the amount of uncertainty found in that environment, which can affect

organizational outcomes. Environmental uncertainty refers to the degree of change and

complexity in an organization’s environment. 

The first dimension of uncertainty is the degree of change. If the components in an organization’s

environment change frequently, it’s a dynamic environment. If change is minimal,

it’s a stable one. A stable environment might be one with no new competitors, few technological

breakthroughs by current competitors, little activity by pressure groups to influence

the organization, and so forth. For instance, Zippo Manufacturing, best known for its Zippo

lighters, faces a relatively stable environment, with few competitors and little technological

change. The main external concern for the company is probably the declining numbers of

tobacco smokers, although the company’s lighters have other uses and global markets remain

attractive. In contrast, the recorded music industry faces a dynamic (highly uncertain and

unpredictable) environment. Digital formats and music-downloading sites turned the industry

upside down and brought high levels of uncertainty.

If change is predictable, is that considered dynamic? No. Think of department stores

that typically make one-quarter to one-third of their sales in November and December. The

drop-off from December to January is significant. But because the change is predictable, the

environment isn’t considered dynamic. When we talk about degree of change, we mean

change that’s unpredictable. If change can be accurately anticipated, it’s not an uncertainty

for managers.

The other dimension of uncertainty describes the degree of environmental complexity,

which looks at the number of components in an organization’s environment and the extent of

the knowledge that the organization has about those components. An organization with fewer

competitors, customers, suppliers, government agencies, and so forth faces a less complex

and uncertain environment. Organizations deal with environmental complexity in various ways. For example, Hasbro Toy Company simplified its environment

by acquiring many of its competitors.

Complexity is also measured in terms of the knowledge

an organization needs about its environment. For instance,

managers at E*Trade must know a great deal about their

Internet service provider’s operations if they want to ensure

that their Web site is available, reliable, and secure for their

customers. On the other hand, managers of college bookstores

have a minimal need for sophisticated knowledge about their

suppliers.

How does the concept of environmental uncertainty

influence managers. Because uncertainty poses a threat

to an organization’s effectiveness, managers try to minimize

it. Given a choice, managers would prefer to operate

in the least uncertain environments. However, they rarely

control that choice. In addition, the nature of the external

environment today is that most industries today are facing

more dynamic change, making their environments more

uncertain.

MANAGING STAKEHOLDER RELATIONSHIPS What makes

MTV a popular cable channel for young adults year after

year? One factor is its success in building relationships with its various stakeholders: viewers,

music celebrities, advertisers, affiliate TV stations, public service groups, and others.

The nature of stakeholder relationships is another way in which the environment influences

managers. The more obvious and secure these relationships, the more influence managers

will have over organizational outcomes.

Stakeholders are any constituencies in the organization’s environment that are

affected by an organization’s decisions and actions. These groups have a stake in or are significantly

influenced by what the organization does. In turn, these groups can influence the

organization. For example, think of the groups that might be affected by the decisions and

actions of Starbucks—coffee bean farmers, employees, specialty coffee competitors, local

communities, and so forth. Some of these stakeholders also, in turn, may influence decisions

and actions of Starbucks’ managers. The idea that organizations have stakeholders is now

widely accepted by both management academics and practicing managers. identifies some of an organization’s most common stakeholders. Note that

these stakeholders include internal and external groups. Why? Because both can affect what

an organization does and how it operates.

Why should managers even care about managing stakeholder relationships?18 For

one thing, it can lead to desirable organizational outcomes such as improved predictability

of environmental changes, more successful innovations, greater degree of trust

among stakeholders, and greater organizational flexibility to reduce the impact of

change. But does it affect organizational performance? The answer is yes! Management

researchers who have looked at this issue are finding that managers of high-performing

companies tend to consider the interests of all major stakeholder groups as they make

decisions.19

Another reason for managing external stakeholder relationships is that it’s the “right”

thing to do. Because an organization depends on these external groups as sources of inputs

(resources) and as outlets for outputs (goods and services), managers need to consider their interests as they make decisions. We’ll address this issue in more detail in the chapter on

corporate social responsibility.

Organizational Culture:

Each of us has a unique personality—traits and characteristics that influence the way we

act and interact with others. When we describe someone as warm, open, relaxed, shy, or

aggressive, we’re describing personality traits. An organization, too, has a personality,

which we call its culture. And that culture influences the way employees act and interact

with others.

What Is Organizational Culture?

Like JetBlue in our chapter opener, W. L. Gore & Associates, a company known for its

innovative and high-quality fabrics used in outdoor wear and other products, also understands

the importance of organizational culture. Since its founding in 1958, Gore has used employee

teams in a flexible, nonhierarchical organizational arrangement to develop its innovative products.

Associates (employees) at Gore are committed to four basic principles articulated by

company founder Bill Gore: (1) fairness to one another and everyone you come in contact

with; (2) freedom to encourage, help, and allow other associates to grow in knowledge, skill,

and scope of responsibility; (3) the ability to make your own commitments and keep them; and

(4) consulting other associates before taking actions that could affect the company’s reputation.

After a visit to the company, one analyst reported that an associate told him, “If you tell

anybody what to do here, they’ll never work for you again.” That’s the type of independent,

people-oriented culture Bill Gore wanted. And it works well for the company—it’s earned a

position on Fortune’s annual list of “100 Best Companies to Work For” every year since the

list began in 1998, one of only three companies to achieve that distinction.

Organizational culture has been described as the shared values, principles, traditions,

and ways of doing things that influence the way organizational members act. In most

organizations, these shared values and practices have evolved over time and determine, to

a large extent, how “things are done around here.”21

Our definition of culture implies three things. First, culture is a perception. It’s not

something that can be physically touched or seen, but employees perceive it on the basis of

what they experience within the organization. Second, organizational culture is descriptive.

It’s concerned with how members perceive the culture and describe it, not with whether they

like it. Finally, even though individuals may have different backgrounds or work at different

organizational levels, they tend to describe the organization’s culture in similar terms.

That’s the shared aspect of culture.

Research suggests seven dimensions that can be used to describe an organization’s culture.

22 These dimensions (shown in Exhibit 2-5) range from low to high, meaning it’s not

very typical of the culture (low) or is very typical of the culture (high). Describing an organization

using these seven dimensions gives a composite picture of the organization’s culture.

In many organizations, one cultural dimension often is emphasized more than the others

and essentially shapes the organization’s personality and the way organizational members

work. For instance, at Sony Corporation the focus is product innovation (innovation and

risk taking). The company “lives and breathes” new product development and employees’

work behaviors support that goal. In contrast, Southwest Airlines has made its employees a

central part of its culture (people orientation).  how the dimensions

can create significantly different cultures.

Strong Cultures

All organizations have cultures, but not all cultures equally influence employees’ behaviors

and actions. Strong cultures—those in which the key values are deeply held

and widely shared—have a greater influence on employees than do weaker cultures.

The more employees accept the organization’s

key values and the greater their commitment to those values, the stronger the

culture is. Most organizations have moderate to strong cultures; that is, there is relatively

high agreement on what’s important, what defines “good” employee behavior, what it

takes to get ahead, and so forth. The stronger a culture becomes, the more it affects the

way managers plan, organize, lead, and control.

Why is having a strong culture important? For one thing, in organizations with strong

cultures, employees are more loyal than are employees in organizations with weak cultures.24

Research also suggests that strong cultures are associated with high organizational performance.

25 And it’s easy to understand why. After all, if values are clear and widely accepted,

employees know what they’re supposed to do and what’s expected of them, so they can act

quickly to take care of problems. However, the drawback is that a strong culture also might

prevent employees from trying new approaches especially when conditions are changing

rapidly.26

Where Culture Comes From and How It Continues

The original source of the culture usually reflects the vision of the founders. For instance, as we

described earlier, W. L. Gore’s culture reflects the values of founder Bill Gore. Company

founders are not constrained by previous customs or approaches and can establish the early

culture by articulating a vision of what they want the organization to be. Also, the small

size of most new organizations makes it easier to instill that vision with all organizational

members.

Once the culture is in place, however, certain organizational practices help maintain it.

For instance, during the employee selection process, managers typically judge job candidates

not only on the job requirements, but also on how well they might fit into the organization.

At the same time, job candidates find out information about the organization and determine

whether they are comfortable with what they see.

The actions of top managers also have a major impact on the organization’s culture.

For instance, at Best Buy, the company’s chief marketing officer would take groups of

employees for “regular tours of what the company called its retail hospital.” Wearing white

lab coats, employees would walk into a room with a row of real hospital beds and patient

charts describing the ills affecting each of the company’s major competitors. Now that

each of those competitors has “succumbed to terminal illness” and is no longer in business,

the room is darkened. Just think of the powerful message such a display would have

on employees and their work.27 Through what they say and how they behave, top managers

establish norms that filter down through the organization and can have a positive effect

on employees’ behaviors. For instance, IBM’s CEO Sam Palmisano wanted employees to

value teamwork so he chose to take several million dollars from his yearly bonus and give

it to his top executives based on their teamwork. He said, “If you say you’re about a team,

you have to be a team. You’ve got to walk the talk, right?”28 However, as we’ve seen in numerous

corporate ethics scandals, the actions of top managers also can lead to undesirable

outcomes.

Finally, organizations help employees adapt to the culture through socialization, a

process that helps new employees learn the organization’s way of doing things. For instance,

new employees at Starbucks stores go through 24 hours of intensive training that helps turn

them into brewing consultants (baristas). They learn company philosophy, company jargon,

and even how to assist customers with decisions about beans, grind, and espresso machines.

One benefit of socialization is that employees understand the culture and are enthusiastic and

knowledgeable with customers.29 Another benefit is that it minimizes the chance that new

employees who are unfamiliar with the organization’s culture might disrupt current beliefs

and customs.

How Employees Learn Culture

Employees “learn” an organization’s culture in a number of ways. The most common are stories,

rituals, material symbols, and language.

STORIES Organizational “stories” typically contain a narrative of significant events or

people including such things as the organization’s founders, rule breaking, reactions to

past mistakes, and so forth.30 Managers at Southwest Airlines tell stories celebrating

employees who perform heroically for customers.31 Such stories help convey what’s

important and provide examples that people can learn from. At 3M Company, the product

innovation stories are legendary. There’s the story about the 3M scientist who spilled

chemicals on her tennis shoe and came up with Scotchgard. Then, there’s the story about

Art Fry, a 3M researcher, who wanted a better way to mark the pages of his church hymnal

and invented the Post-It Note. These stories reflect what made 3M great and what it

will take to continue that success.32 To help employees learn the culture, organizational

stories anchor the present in the past, provide explanations and legitimacy for current

practices, exemplify what is important to the organization, and provide compelling

pictures of an organization’s goals.33

RITUALS In the early days of Facebook, founder Mark Zuckerberg had an artist paint a

mural at company headquarters showing children taking over the world with laptops. Also,

he would end employee meetings by pumping his fist in the air and leading employees in a

chant of “domination.” Although the cheering ritual was intended to be something simply

fun, other company executives suggested he drop it because it made him seem silly and

they feared that competitors might cite it as evidence of monopolistic goals.34 That’s the

power that rituals can have in shaping what employees believe is important. Corporate

rituals are repetitive sequences of activities that express and reinforce the important values

and goals of the organization. One of the best-known corporate rituals is Mary Kay

Cosmetics’ annual awards ceremony for its sales representatives. Looking like a cross

between a circus and a Miss America pageant, the ceremony takes place in a large auditorium,

on a stage in front of a large, cheering audience, with all the participants dressed in

glamorous evening clothes. Salespeople are rewarded for sales goal achievements with an

array of expensive gifts including gold and diamond pins, furs, and pink Cadillacs. This

“show” acts as a motivator by publicly acknowledging outstanding sales performance. In

addition, the ritual aspect reinforces late founder Mary Kay’s determination and optimism,

which enabled her to overcome personal hardships, start her own company, and achieve

material success. It conveys to her salespeople that reaching their sales goals is important

and through hard work and encouragement, they too can achieve success. The contagious

enthusiasm and excitement of Mary Kay sales representatives make it obvious that this

annual “ritual” plays a significant role in establishing desired levels of motivation and

behavioral expectations, which is, after all, what management hopes an organization’s culture

does.

MATERIAL ARTIFACTS AND SYMBOLS When you walk into different businesses, do you

get a “feel” for what type of work environment it is—formal, casual, fun, serious, and so

forth? These reactions demonstrate the power of material symbols or artifacts in creating

an organization’s personality.35 The layout of an organization’s facilities, how employees dress, the types of automobiles provided to top executives, and the availability of corporate

aircraft are examples of material symbols. Others include the size of offices, the elegance

of furnishings, executive “perks” (extra benefits provided to managers such as health club

memberships, use of company-owned facilities, and so forth), employee fitness centers or

on-site dining facilities, and reserved parking spaces for certain employees. At WorldNow,

a business that helps local media companies develop new online distribution channels and

revenue streams, an important material symbol is an old dented drill that the founders purchased

for $2 at a thrift store. The drill symbolizes the company’s culture of “drilling down

to solve problems.” When an employee is presented with the drill in recognition of outstanding

work, he or she is expected to personalize the drill in some way and devise a new

rule for caring for it. One employee installed a Bart Simpson trigger; another made the drill

wireless by adding an antenna. The company’s “icon” carries on the culture even as the

organization evolves and changes.36

Material symbols convey to employees who is important and the kinds of behavior (for

example, risk taking, conservative, authoritarian, participative, individualistic, and so forth)

that are expected and appropriate.

LANGUAGE Many organizations and units within organizations use language as a way

to identify and unite members of a culture. By learning this language, members attest to

their acceptance of the culture and their willingness to help preserve it. For instance, at

Cranium, a Seattle board game company, “chiff ” is used to remind employees of the

need to be incessantly innovative in everything they do. “Chiff ” stands for “clever, highquality,

innovative, friendly, fun.”37 At Build-A-Bear Workshop stores, employees are

encouraged to use a sales technique called “Strive for Five,” in which they work to sell

each customer five items. The simple rhyming slogan is fast becoming a powerful tool to

drive sales.38

Over time, organizations often develop unique terms to describe equipment, key

personnel, suppliers, customers, processes, or products related to its business. New employees

are frequently overwhelmed with acronyms and jargon that, after a short period of time,

become a natural part of their language. Once learned, this language acts as a common

denominator that bonds members.

How Culture Affects Managers

Houston-based Apache Corp. has become one of the best performers in the independent oil

drilling business because it has fashioned a culture that values risk taking and quick decision

making. Potential hires are judged on how much initiative they’ve shown in getting projects done at other companies. And company employees are handsomely rewarded if

they meet profit and production goals.40 Because an organization’s culture constrains what

they can and cannot do and how they manage, it’s particularly relevant to managers. Such

constraints are rarely explicit. They’re not written down. It’s unlikely they’ll even be spoken.

But they’re there, and all managers quickly learn what to do and not do in their organization.

For instance, you won’t find the following values written down, but each comes from

a real organization.

_ Look busy even if you’re not.

_ If you take risks and fail around here, you’ll pay dearly for it.

_ Before you make a decision, run it by your boss so that he or she is never surprised.

_ We make our product only as good as the competition forces us to.

_ What made us successful in the past will make us successful in the future.

_ If you want to get to the top here, you have to be a team player.

EXHIBIT 2-9

Managerial Decisions Affected

by Culture

Planning

• The degree of risk that plans should contain

• Whether plans should be developed by individuals or teams

• The degree of environmental scanning in which management will engage

Organizing

• How much autonomy should be designed into employees’ jobs

• Whether tasks should be done by individuals or in teams

• The degree to which department managers interact with each other

Leading

• The degree to which managers are concerned with increasing employee job satisfaction

• What leadership styles are appropriate

• Whether all disagreements—even constructive ones—should be eliminated

Controlling

• Whether to impose external controls or to allow employees to control their own actions

• What criteria should be emphasized in employee performance evaluations

• What repercussions will occur from exceeding one’s budget

The link between values such as these and managerial behavior is fairly straightforward.

Take, for example, a so-called “ready-aim-fire” culture. In such an organization,

managers will study and analyze proposed projects endlessly before committing

to them. However, in a “ready-fire-aim” culture, managers take action and then analyze

what has been done. Or, say an organization’s culture supports the belief that profits

can be increased by cost cutting and that the company’s best interests are served by

achieving slow but steady increases in quarterly earnings. Managers are unlikely to

pursue programs that are innovative, risky, long term, or expansionary. In an organization

whose culture conveys a basic distrust of employees, managers are more likely

to use an authoritarian leadership style than a democratic one. Why? The culture

establishes for managers appropriate and expected behavior. For example, Banco

Santander, whose headquarters are located 20 kilometers from downtown Madrid, has

been described as a “risk-control freak.” The company’s managers adhered to “banking’s

stodgiest virtues—conservatism and patience.” However, it’s those values that

triggered the company’s growth from the sixth largest bank in Spain to the largest bank

in the euro zone.41

 a manager’s decisions are influenced by the culture in which

he or she operates. An organization’s culture, especially a strong one, influences and constrains

the way managers plan, organize, lead, and control. 

Current Issues in Organizational Culture

Nordstrom, the specialty retail chain, is renowned for its attention to customers. Nike’s

innovations in athletic shoe and apparel technology are legendary. Tom’s of Maine is known

for its commitment to doing things ethically and spiritually. How have these organizations

achieved such reputations? Their organizational cultures have played a crucial role. Let’s

look at three current cultural issues: creating an innovative culture, creating a customerresponsive

culture, and nurturing workplace spirituality.

Creating an Innovative Culture

You may not recognize IDEO’s name, but you’ve probably used a number of its products.

As a product design firm, it takes the ideas that corporations bring it and turns those ideas

into reality. Some of its creations range from the first commercial mouse (for Apple) to the

first standup toothpaste tube (for Procter & Gamble) to the handheld personal organizer

(for Palm) to the Contour USB glucose meter (for Bayer AG). It’s critical that IDEO’s culture

support creativity and innovation.42 And you might actually own and use products from

another well-known innovative organization—Apple.43 From its founding in 1976 to today,

Apple has been on the forefront of product design and development. They’ve brought us

Mac, iPod, iTunes, iPhone, and the iPad tablet device that is changing the way you read

materials such as this textbook. Although both these companies are in industries where

innovation is critical to success, the fact is that any successful organization needs a culture

that supports innovation. How important is culture to innovation? In a recent survey of senior

executives, over half said that the most important driver of innovation for companies

was a supportive corporate culture.44

What does an innovative culture look like? According to Swedish researcher Goran

Ekvall, it would be characterized by the following:

_ Challenge and involvement – Are employees involved in, motivated by, and committed

to long-term goals and success of the organization?

_ Freedom – Can employees independently define their work, exercise discretion, and

take initiative in their day-to-day activities?

_ Trust and openness – Are employees supportive and respectful to each other?

_ Idea time – Do individuals have time to elaborate on new ideas before taking action?

_ Playfulness/humor – Is the workplace spontaneous and fun?

_ Conflict resolution – Do individuals make decisions and resolve issues based on the

good of the organization versus personal interest?

_ Debates – Are employees allowed to express opinions and put forth ideas for consideration

and review?

_ Risk-taking – Do managers tolerate uncertainty and ambiguity, and are employees

rewarded for taking risks?45

Creating a Customer-Responsive Culture

Harrah’s Entertainment, the world’s largest gaming company, is fanatical about customer

service and for good reason. Company research showed that customers who were satisfied

with the service they received at a Harrah’s casino increased their gaming expenditures

by 10 percent and those who were extremely satisfied increased their gaming

expenditures by 24 percent. When customer service translates into these types of results,

of course managers would want to create a customer-responsive culture!46

What does a customer-responsive culture look like?47 Exhibit 2-10 describes five characteristics

of customer-responsive cultures and offers suggestions as to what managers can

do to create that type of culture.

Spirituality and Organizational Culture

What do Southwest Airlines, Chick-fil-A, Ford, Xerox, Timberland, and Hewlett-

Packard have in common? They’re among a growing number of organizations that have

y

A culture where organizational values promote

a sense of purpose through meaningful work

that takes place in the context of community

Characteristics of

Customer-Responsive Culture Suggestions for Managers

Type of employee Hire people with personalities and attitudes consistent with

customer service: friendly, attentive, enthusiastic, patient,

good listening skills

Type of job environment Design jobs so employees have as much control as possible

to satisfy customers, without rigid rules and procedures

Empowerment Give service-contact employees the discretion to make

day-to-day decisions on job-related activities

Role clarity Reduce uncertainty about what service-contact employees can

and cannot do by continual training on product knowledge,

listening, and other behavioral skills

Consistent desire to satisfy

and delight customers

Clarify organization’s commitment to doing whatever it takes,

even if it’s outside an employee’s normal job requirements

Since starting Build-A-Bear Workshop in 1997,

company founder Maxine Clark has worked to

create a supportive corporate culture that would

inspire employee creativity and innovation. At

company headquarters in Overland, Missouri, the

work environment is playful, spontaneous, and fun.

It’s a place where dogs are welcome, bringing joy

to employees like Katie Cernuto shown in this photo

watching Jack, her yellow lab mix, play tug with

Smash, another employee’s dog. For a company

whose mission is “to bring the Teddy Bear to life,”

a relaxed dress code and flexible work schedules

add to a culture that employees describe as

upbeat, happy, busy, and fun.

embraced workplace spirituality. What is workplace spirituality? It’s a culture in

which organizational values promote a sense of purpose through meaningful work taking

place in the context of community.48 Organizations with a spiritual culture recognize

that people have a mind and a spirit, seek to find meaning and purpose in their

work, and desire to connect with other human beings and be part of a community. And

such desires aren’t limited to workplaces, as a recent study showed that college students

also are searching for meaning and purpose in life.49

Workplace spirituality seems to be important now for a number of reasons. Employees

are looking for ways to cope with the stresses and pressures of a turbulent pace of life.

Contemporary lifestyles—single-parent families, geographic mobility, temporary jobs,

technologies that create distance between people—underscore the lack of community that

EXHIBIT 2-10

Creating a Customer-Responsive Culture

many people feel. As humans, we crave involvement and connection. In addition, as baby

boomers navigate mid-life issues, they’re looking for something meaningful, something

beyond the job. Others wish to integrate their personal life values with their professional

lives. For others, formalized religion hasn’t worked and they continue to look for anchors

to replace a lack of faith and to fill a growing sense of emptiness. What type of culture

can do all these things? What differentiates spiritual organizations from their nonspiritual

counterparts? Research shows that spiritual organizations tend to have five cultural

characteristics.50

1. Strong sense of purpose. Spiritual organizations build their cultures around a

meaningful purpose. While profits are important, they’re not the primary

values of the organization. For instance, Timberland’s slogan is “Boots, Brand,

Belief,” which embodies the company’s intent to use its “resources, energy, and

profits as a publicly traded footwear-and-apparel company to combat social

ills, help the environment, and improve conditions for laborers around the

globe . . . and to create a more productive, efficient, loyal, and committed employee

base.”51

2. Focus on individual development. Spiritual organizations recognize the worth and

value of individuals. They aren’t just providing jobs; they seek to create cultures in

which employees can continually grow and learn.

3. Trust and openness. Spiritual organizations are characterized by mutual trust,

honesty, and openness. Managers aren’t afraid to admit mistakes. And they tend

to be extremely upfront with employees, customers, and suppliers.

4. Employee empowerment. Managers trust employees to make thoughtful and conscientious

decisions. For instance, at Southwest Airlines, employees—including flight

attendants, baggage handlers, gate agents, and customer service representatives—are

encouraged to take whatever action they deem necessary to meet customer needs or

help fellow workers, even if it means going against company policies.

5. Toleration of employee expression. The final characteristic that differentiates

spiritually based organizations is that they don’t stifle employee emotions. They

allow people to be themselves—to express their moods and feelings without guilt

or fear of reprimand.

Critics of the spirituality movement have focused on two issues: legitimacy (Do organizations

have the right to impose spiritual values on their employees?) and economics (Are

spirituality and profits compatible?).

An emphasis on spirituality clearly has the potential to make some employees uneasy.

Critics might argue that secular institutions, especially businesses, have no business imposing

spiritual values on employees. This criticism is probably valid when spirituality is defined

as bringing religion into the workplace.52 However, it’s less valid when the goal is helping

employees find meaning in their work. If concerns about today’s lifestyles and pressures truly

characterize a growing number of workers, then maybe it is time for organizations to help

employees find meaning and purpose in their work and to use the workplace to create a sense

of community.

The issue of whether spirituality and profits are compatible is certainly important.

Limited evidence suggests that the two may be compatible. One study found that

companies that introduced spiritually based techniques improved productivity and

significantly reduced turnover.53 Another found that organizations that provided their

employees with opportunities for spiritual development outperformed those that didn’t.54

Others reported that spirituality in organizations was positively related to creativity,

ethics, employee satisfaction, job involvement, team performance, and organizational

commitment.55