Summary of Learning Outcomes
4.2 The Organization's External Environment
1. Define the external environment of organizations
Organizations must react and adapt to many forces in their internal and external environments. The context of the firms such as size and geographic location impact how environmental forces affect each organization differently. An understanding of the forces and they currently affecting organizations and pressuring structural change is crucial.
4.3 External Environments and Industries
2. Identify contemporary external forces pressuring organizations
An understanding of the various industries and organizations ‘fit’ with different types of environment in crucial. There are small and large organizations that face environments that are either stable of unstable and managing the organization by recognizing their environment is a crucial skill.
4.4 Organizational Designs and Structures
3. Identify different types of organizational structures, and their strengths and weaknesses
An understanding of Mechanistic vs Organic Structures and Systems and how they differ and how these major concepts help classify different organizational structures is crucial to recognizing organizational structures. Finally, the issue of organizational complexity and its impact on organizational structure needs to be understood.
You should be able to discuss the evolution of different types of Organizational Structures. You should understand and identify the six types of organizational structures, and the advantages and disadvantages of each: Functional, Divisional, Matrix, Geographic, Networked Team, and Virtual.
4.5 The Internal Organization and External Environments
4. Explain how organizations organize to meet external market threats and opportunities
You should understand and identify the six types of organizational structures, and the advantages and disadvantages of each structure:
- Functional
- Divisional
- Matrix
- Geographic
- Networked Team
- Virtual
You should also understand why the internal dimensions of an organization matter with regard to how it fits with its external environment.
4.6 Corporate Cultures
5. Identify the fit between organizational cultures and the external environment
You should be able to identify and differentiate between the four types of organizational cultures and the fit of each with the external environment and describe the CVF framework. Finally, you can identify the internal dimensions of organizations, the interconnection among the dimensions, and how these affect the ‘fit’ with external environments.
4.7 Organizing for Change in the 21st Century
6. Identify environmental trends, demands, and opportunities facing organizations.
Among the trends in the external environment: (1) persistent inequality and unfairness, (2) domestic and international political tensions, (3) environmental dangers, and (4) cyber vulnerabilities. Another trend is that organizations will no longer solely be judged only for their financial performance, or even the quality of their products or services. Rather, they will be evaluated on the basis of their impact on society at large—transforming them from business enterprises into social enterprises.
Exercise \(\PageIndex{1}\)
- Explain how several current environmental forces are affecting and will affect organizations and organizational structures’ effectiveness and efficiency in the near future?
- What are ways to classify and describe how industries and organizations fit and do not fit with their external environments?
- What are a few industries and/or organizations that are fitting well with their current environments? What are a few that are not? Why?
- What are some major differences between organic and mechanistic organizational structures and systems?
- Which organization would you work best in, an organically or mechanistically structured one, and why?
- What are some advantages and disadvantages of functional structures?
- Do you think it’s true that every organization has a hidden functional structure in it? Explain your answer.
- Why have functional structures been criticized for not accommodating new changes in the environment?
- What are some advantages and disadvantages of divisional structures?
- How is a product structure one type of a divisional structure? Explain.
- What are some disadvantages in working in a matrix structure and why?
- What advantages do matrix structures have compared to functional structures?
- What advantages do geographic structures have compared to a functional structure?
- What are issues that working in a networked team structure present?
- In what ways is a virtual organization and structure different from the other ones discussed in the chapter?
- What major trends discussed at the end of this chapter are different from previous external environments and the ways organizations were organized?
- What purposes does an organization’s culture serve when considering the external environment?
- How does Exhibit 4.16 facilitate an understanding of how the internal organization functions with external environments?
Critical Thinking Case
Wells Fargo, Crisis and Scandal
The recent widespread scandal at Wells Fargo jolted and shocked the corporate world. How could such internal corrupt and outrageously illegal and unethical activities by professionals have occurred? Wells Fargo is “an American multinational financial services company headquartered in San Francisco, California” with offices nationwide and “the world’s second-largest bank by market capitalization and the third largest bank in the U.S. by total assets.” In September 2016 it was discovered that the company was continuing to create fake customer accounts to show positive financial activity and gains. 5,000 salespeople had created 2 million fake customer accounts to meet high-pressure internal sales goals, including a monthly report called the “Motivator.”
The out-of-control sales leadership pressured sales employees to meet unrealistic, outrageous sales targets. Dramatically unrealistic sales goals propelled by continuous pressure from management coerced employees to open accounts for customers who didn't want or need them. “Some Wells Fargo bankers impersonated their customers and used false email addresses like noname@wellsfargo.com, according to a 2015 lawsuit filed by the city of Los Angeles.”
The “abusive sales practices claimed in a lawsuit that Wells Fargo employees probably created 3.5 million bogus accounts” starting in May 2002. Wells Fargo is awaiting final approval to settle that case for $142 million. However, regulators and investigations found that the misconduct was far more “pervasive and persistent” than had been realized. “The bank’s culture of misconduct extended well beyond the original revelations.” For example, regulators found that the company was (1) “overcharging small businesses for credit card transactions by using a ‘deceptive’ 63-page contract to confuse them.” (2) The company also charged at least 570,000 customers for auto insurance they did not need. (3)The firm admitted that it found 20,000 customers who could have defaulted on their car loans from these bogus actions; (4) The company also had created over 3.5 million fake accounts attributed to customers who had no knowledge of such accounts.
Wells Fargo has had to testify before Congress over these charges, which have amounted to $185 million dollars, and more recently the company has been ordered by regulators to return $3.4 million to brokerage customers who were defrauded. The CEO and management team have been fired and had millions of dollars withheld from their pay.
In the aftermath of the scandal, even though Wells Fargo executives were not imprisoned for the extensive consumer abuses committed by the company, the CFPB (Consumer Financial Protection Bureau) and Office of the Comptroller of the Currency (OCC) imposed a $1 billion fine on Wells Fargo for consumer-related abuses regarding auto loan and mortgage products. The OCC also forced the company to allow regulators the authority to enforce several actions to prevent future abuses, such as and including “imposing business restrictions and making changes to executive officers or members of the bank’s board of directors.” The new president of the company, Tim Sloan, stated, “What we’re trying to do, as we make change in the company and make improvements, is not just fix a problem, but build a better bank, transform the bank for the future.”
Sources: https://en.Wikipedia.org/wiki/Wells_Fargo; Pasick, Adam, “Warren Buffett Explains the Wells Fargo Scandal,” Quartz, May 6, 2017. https://qz.com/977778/warren-buffett...fargo-scandal/ https://qz.com/977778/warren-buffett...fargo-scandal/; Bloomberg, “The Wells Fargo Fake Accounts Scandal Just Got a Lot Worse,”Fortune, August 21, 2017. fortune.com/2017/08/31/wells-...ount-estimate/; Horowitz, Julia, “‘huge, huge, huge error’ in Wells Fargo Handling of Ethics Line Calls,CNN, May, 6, 2017. money.cnn.com/2017/05/06/inv...ing/index.html; http://money.cnn.com/2018/02/05/news...argo-timeline/ index.html; Wattles, Jackie, Grier, Ben, and Egan, Matt, “Wells Fargo’s 17 Month Nightmare,”CNN Business, February 5, 2018. https://money.cnn.com/2018/02/05/new...ine/index.html. Hudson, Caroline, “Wells Fargo Stocks Still Struggling in Wake of Scandal,” Charlotte Business Journal, April 2, 2018. https://www.bizjournals.com/charlott...in-wakeof.html
Critical Thinking Questions
- What happened at Wells Fargo with regard to past activities that led to this major scandal?
- What internal dimensions of the company were part of the problems that occurred?
- How might the organizational structure of the company have been part of the problems that occurred?
- Identify and use relevant concepts from this chapter as well as your own thoughts and analysis to diagnose the scandal at Wells Fargo. How could such a scandal have occurred in the first place? Who and what was at fault?
- Suggest some solution paths the company might consider, using knowledge from this chapter and your own thoughts/research, to avoid such a scandal from reoccurring.