This chapter introduces the following ideas:
competitive environment general environment
external environment (or context) culture
power culture role culture
task culture person culture five forces analysis PESTEL analysis corporate governance
Each is a term defined within the text, as well as in the Glossary at the end of the book.
Nokia is the world’s leading manufacturer of mobile phones. With an almost 40 per cent share of the mar- ket, it sold twice as many handsets in 2009 as second- placed Motorola and many times the number of other rivals such as Samsung and Ericsson. A Finnish com- pany, founded in 1895 as a paper manufacturer, Nokia grew into a conglomerate with interests including electronics, cable manufacture, rubber, chemicals, electricity generation and, by the 1960s, telephone equipment. In the early 1990s senior managers de- cided to focus on the new mobile phone industry.
Two factors favoured this move. First, the Finnish government had taken a lead in telecoms deregu- lation and Nokia was already competing vigorously with other manufacturers supplying equipment to the national phone company. Second, the European Union (EU) adopted a single standard – the Global System for Mobile Telephony (GSM) – for Europe’s second generation (digital) phones. Two-thirds of the world’s mobile phone subscribers use this stan- dard. Finland’s links with its Nordic neighbours also helped, as people in these sparsely populated countries adopted mobile phones enthusiastically.
Nokia has strong design skills, but above all man- agers were quick to recognise that mobile phones are not a commodity but a fashion accessory. By offering smart designs, different ring tones and coloured covers Nokia became the ‘cool’ mobile brand for fashion-conscious people. Nokia has also mastered the logistics of getting millions of phones to customers around the world.
While many competitors subcontract the manu- facture of handsets, Nokia assembles most of its own, with factories in many countries across the world. Managers believe this gives them a better understanding of the market and the manufacturing process. Nokia buys about 80 billion components a year, and has close relationships with its most impor- tant suppliers.
While all of these factors helped Nokia, managers believe there was a further reason. Although com- petitors such as Motorola and Ericsson already had advantages of scale, experience and distribution networks, the arrival of the new digital technology
Case study
changed the rules of the game, forcing all players to start from scratch. Managers acknowledge that some external factors helped Nokia, but comment that ‘good luck favours the prepared mind’.
The company’s leading position in the industry owes much to Jorma Ollila, who became chief execu- tive in 1992. He helped to shape the mobile phone industry by pursuing his vision of a mass market for voice communication while on the move. As he pre- pared to hand over to a new chief executive (Olli-Pekka Kallasvuo) in 2006, he observed that the next challenge would be to enable users to access the internet, videos, music, games and emails through a new gen- eration of ‘smart’ phones and hand-held devices.
Source: Based on The Economist, 16 June 2001; Financial Times, 29 June 2001 and 10 October 2005.
Case questions 3.1
How has the environment favoured the devel- opment of Nokia?
How could the same factors turn to the dis- advantage of the company?
Visit Nokia’s website and read its most recent trading statement (under investor relations).
What have been the main developments in the last year?
Nokia www.nokia.com
Courtesy of Nokia
External environment
Stakeholders Stakeholders
Competitive (micro) environment General (macro)
environment
Competitors Substitutes
Buyers/
customers Suppliers
Political
Potential entrants Socio-
cultural
Legal Economic
Techno- logical
Environ- mental
Business processes
Structure People
Culture Technology
Power
Objectives
Finance Internal
environment
Figure 3.1 Environmental influences on the organisation
Introduction 3.1
Nokia’s success depends on the ability of its managers to spot and interpret signals from consumers in the mobile phone market, and to ensure that the organisation responds more effectively than competitors. It also depends on identifying ideas emerging within the organ- isation (such as from the research laboratories) that have commercial potential – and work- ing to ensure that consumers are aware of and receptive to the idea when it is incorporated into the next generation of products. The early success of the company was helped by recog- nising that many users see a mobile as a fashion item, and by using its design skills to meet that need. It also gained when the EU established common standards for mobile telephony, which the Finnish government supported.
All managers work within a context which both constrains and supports them. How well they understand, interpret and interact with that context affects their performance. Finkel- stein (2003) (especially pp. 63–68) shows how Motorola, an early market leader in mobile communications, failed to take account of changes in consumer preferences (for digital rather than the older analogue mobile phones). By the time managers realised the new en- vironment, Nokia had a commanding lead in the market. Each business is unique, so the forces with which they interact differ: those who are able to identify and shape them (Nokia) will perform better than those who are not (Motorola).
Figure 3.1 shows four environmental forces. The inner circle represents the organisation’s internal environment (or context)– which Chapter 1 introduced. That includes its culture,
The internal environment (or context)consists of elements within the organisation such as its technology, structure or business processes.
79 CULTURES AND THEIR COMPONENTS
which many now regard as a major contextual feature. Beyond that is the immediate competitive environment (or context),sometimes known as the micro-environment. This is the industry-specific environment of customers, suppliers, competitors and potential sub- stitute products. The outer circle shows the general environment (or context), sometimes known as the macro-environment – political, economic, social, technological, (natural) en- vironmental and legal factors that affect all organisations. Forces in the internal and compet- itive environments usually have more impact on, and are more open to influence by, the organisation than those in the general environment.
Together these make up an organisation’sexternal environment (or context)– a constantly changing source of threats and opportunities: how well people cope with these affects performance.
Forces in the external environment do not affect practice of their own accord. They be- come part of the agenda only when internal or external stakeholders act to place them on the management agenda. In terms of Figure 3.1, they are a fourth force. Managers (who are themselves stakeholders) balance conflicting interpretations of their context. They work within an internal context, and look outside for actual and potential changes that may affect the centre of Figure 3.1. The figure implies a constant interaction between an organisation’s culture and its external environment.
Managers do not passively accept their business environment, but try to shape it by ac- tively persuading governments and other agencies to act in their favour (known as ‘lobby- ing’). Car makers and airlines, for example, regularly seek subsidies, cheap loans or new regulations to help their businesses, while most industry bodies (such as the European Au- tomobile Manufacturers’ Association –www.acea.be) lobby international bodies such as the European Commission – often employing a professional lobbying business to support their case.
The next section presents ideas on organisational culture, which is an immediate aspect of a manager’s context. Beyond that managers need to interact intelligently with their competi- tive and general environments. The chapter contrasts stable and dynamic environments, out- lines stakeholder expectations and introduces ideas on governance and control.
A competitive environment (or context)is the industry-specific environment comprising the organisation’s customers, suppliers and competitors.
The general environment (or context)(sometimes known as the macro- environment) includes political, economic, social technological, (natural) environmental and legal factors that affect all organisations.
The external environment (or context)consists of elements beyond the organisation – it combines the competitive and general environments.
Write a few notes summarising aspects of the business environment of which you are aware. You may find it helpful to think of a manager you have worked with, or when you have been managing an activity.
Identify two instances when they (or you) were discussing aspects of the wider con- text of the job – such as the culture of the organisation or the world outside.
How did this aspect of the context affect the job of managing?
How did the way people dealt with the issue affect performance?
Activity 3.1 Which elements of the business environment matter?
Cultures and their components 3.2
Developing cultures
Interest in organisationculturehas grown as academics and managers have come to believe that it influences behaviour. Several claim that a strong and distinct culture helps to integrate individuals into the team or organisation (Deal and Kennedy, 1982; Peters and Waterman, 1982). Deal and Kennedy (1982) refer to culture as ‘the way we do things around here’ and Hofstede (1991) sees it as the ‘collective programming of the mind’, distinguishing one
Cultureis a pattern of shared basic assumptions that was learned by a group as it solved its problems of external adaptation and internal integration, and that has worked well enough to be considered valid and transmitted to new members (Schein, 2004, p. 17).
Management in practice A culture of complaint in a bank
Shared values
Shared beliefs Reinforcing
outcomes
Norms Individual and
group behaviour Figure 3.2
The stages of cultural formation
John Weeks (2004) spent six years working in a UK bank (believed to be NatWest, which the Royal Bank of Scotland acquired in 2000) as part of his doctoral research. He observed and recorded the bank’s distinctive culture – which he described as one of ‘complaint’.
No-one liked the culture – from the most senior managers to the most junior counter staff – people spent much of their time complaining about it. Weeks realised that this was a ritual, a form of solidarity among the staff: complaining about the culture wasthe culture. He noticed that most complaints were directed at other parts of the bank – not at the unit in which the complainer worked. He noted:
Local sub-cultures are sometimes described positively – usually to contrast them with the mainstream – but I never heard anyone [describe the bank’s culture in positive terms]. It is described as too bureau- cratic, too rules driven, not customer-focused enough, not entrepreneurial enough, too inflexible, too prone to navel gazing, too centralized.(p. 53)
His detailed narrative shows, with many examples, how people in the bank made sense of their culture – using it to achieve their goals, while others did the same to them.
Source: Weeks (2004).
Figure 3.2 illustrates how a distinctive culture develops; as people develop and share com- mon values they use these to establish beliefs and norms which guide their behaviour towards each other and to outsiders. Positive outcomes reinforce their belief in the values underlying their behaviour, which then become a stronger influence on how people should work and re- late to each other: should people have job titles? How should they dress? Should meetings be confrontational or supportive?
group from another. They claim that having the right culture explains the success of high- performing organisations.
Someone entering a department or organisation for the first time can usually sense and observe the surface elements of the culture. Some buzz with life and activity, others seem asleep; some welcome and look after visitors, others seem inward looking; some work by the rules, while others are entrepreneurial and risk taking; some have regular social occasions while in others staff rarely meet except at work.
81 CULTURES AND THEIR COMPONENTS
A shared culture provides members with guidelines about how they can best contribute.
The more they work on these issues to develop a common understanding, the better they will perform.
Components of cultures
Schein (2004) identifies three levels of a culture, ‘level’ referring to the degree to which the observer can see its components.
Artifactsrepresent the visible level – elements such as the language or etiquette which someone coming into contact with a culture can observe:
architecture (open-plan offices without doors or private space)
technology and equipment
style (clothing, manner of address, emotional displays)
rituals and ceremonies (leaving events, awards ceremonies and away-days)
courses (to induct employees in the culture as well as the content).
While it is easy to observe artifacts, it is difficult for outsiders to decipher what they mean to the group, or what underlying assumptions they reflect. That requires an analysis of be- liefs and values.
Espoused beliefs and valuesare the accumulated beliefs that members hold about their work. As a group develops, members refine their ideas about what works in this business:
how people make decisions, how teams work together, and how they solve problems. Prac- tices that work become the accepted way to behave:
‘Quality pays.’
‘We should stick to our core business.’
‘Cultivate a sense of personal responsibility.’
‘We depend on close team work.’
‘Everyone is expected to challenge a proposal – whoever made it,’
Some companies codify and publish their beliefs and values, to help induct new members and to reinforce them among existing staff. Such beliefs and values shape the visible artifacts, though companies vary in the degree to which employees internalise them. The extent to which they do so depends on how clearly they derive from shared basic underlying assumptions.
Basic underlying assumptionsare deeply held by members of the group as being the way to work together. As they act in accordance with their values and beliefs, those that work become embedded as basic underlying assumptions. When the group strongly holds these, members will act in accordance with them, and reject actions based on others:
‘We need to satisfy customers to survive as a business.’
‘Our business is to help people with X problem live better with X problem.’
‘People can make mistakes, as long as they learn from them.’
‘We employ highly motivated and competent adults.’
‘Financial markets worry about the short term: we are here for the long term.’
Difficulties arise when people with assumptions developed in one group work with people from another. Mergers sometimes experience difficulty when staff who have to work together realise they are from different cultures.
Management in practice A strong culture at Bosch www.bosch.com
Franz Fehrenbach is chief executive of Bosch, Germany’s largest privately owned engineering group, and the world’s largest supplier of car parts. In 2009 he said:
The company culture, especially our high credibility, is one of our greatest assets. Our competitors cannot match us on that because it takes decades to build up.
Flexibility
Control
External Internal
Open systems Human relations
Rational goal Internal process
Figure 3.3 Types of organisational culture
Source: Based on Quinn et al. (2003).
The cultural traditions include a rigid control on costs, an emphasis on team thinking, employees taking responsibility for their errors, cautious financial policies, and long-term thinking. For example, to cope with the recession in 2009 Mr Fehrenbach explained that:
We have to cut costs in all areas. We will reduce spending in the ongoing business, but we will not cut back on research and development for important future projects.
Source: Based on an article by Daniel Schaefer, Financial Times, 2 March 2009, p. 16.
Identify as many components of culture (artifacts, beliefs and values, underlying assumptions) in an organisation or unit as you can.
What may the artifacts suggest about the deeper beliefs and values, or underlying assumptions?
Gather evidence (preferably by asking people) about how the culture affects behav- iour, and whether they think it helps or hinders performance.
Analyse your results and decide which of the four types in the competing values framework most closely reflects that organisation’s culture.
Activity 3.2 Culture spotting
Types of culture 3.3
This section outlines three ways of describing and comparing cultures.
Competing values framework
The competing values model developed by Quinn et al. (2003) reflects inherent tensions be- tween flexibility or control and between an internal or an external focus. Figure 3.3 (based on Figure 2.2) shows four cultural types.
83 TYPES OF CULTURE
Open systems
This represents an open systems view, in which people recognise that the external environ- ment plays a significant role, and is a vital source of ideas, energy and resources. It also sees the environment as complex and turbulent, requiring entrepreneurial, visionary leadership and flexible, responsive behaviour. Key motivating factors are growth, stimulation, creativity and variety. Examples are start-up firms and new business units – organic, flexible operations.
Rational goal
Members see the organisation as a rational, efficiency-seeking unit. They define effectiveness in terms of production or economic goals that satisfy external requirements. Managers create structures to deal with the outside world. Leadership tends to be directive, goal-oriented and functional. Key motivating factors include competition and the achievement of goals. Ex- amples are large, established businesses – mechanistic.
Internal process
Here members focus on internal matters. Their goal is to make the unit efficient, stable and controlled. Tasks are repetitive and methods stress specialisation, rules and procedures.
Leaders tend to be cautious and spend time on technical issues. Motivating factors include security, stability and order. Examples include utilities and public authorities – suspicious of change.
Human relations
People emphasise the value of informal interpersonal relations rather than formal struc- tures. They try to maintain the organisation and nurture its members, defining effectiveness in terms of their well-being and commitment. Leaders tend to be participative, considerate and supportive. Motivating factors include attachment, cohesiveness and membership. Ex- amples include voluntary groups, professional service firms and some internal support functions.
Charles Handy’s cultural types
Charles Handy (1993) distinguished four cultures – power,role,taskand person. Power
A dominant central figure holds power: others follow the centre’s policy and interpret new situations in the way the leader would. Many entrepreneurial firms operate in this way, with few rules but with well-understood, implicit codes on how to behave and work. The firm re- lies on the individual rather than on seeking consensus through discussion.
Role
Typical characteristics of this culture are the job description or the procedure. Managers de- fine what they expect in clear, detailed job descriptions. They select people for a job if they meet the specified requirements. Procedures guide how people and departments interact. If all follow the rules, co-ordination is straightforward. People’s position in the hierarchy deter- mines their power.
Task
People focus on completing the task or project rather than their formal role. They value each other for what they can contribute and expect everyone to help as needed. The emphasis is on getting the resources and people for the job and then relying on their commitment and enthusi- asm. People will typically work in teams, to combine diverse skills into a common purpose.
A power cultureis one in which people’s activities are strongly influenced by a dominant central figure.
A role cultureis one in which people’s activities are strongly influenced by clear and detailed job descriptions and other formal signals as to what is expected from them.
A task cultureis one in which the focus of activity is towards completing a task or project using whatever means are appropriate.
A person cultureis one in which activity is strongly influenced by the wishes of the individuals who are part of the organisation.