As any or all of the external environmental conditions 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 was painfully obvious during the past global recession as millions of jobs were eliminated and unemployment rates rose to levels not seen in many years. Although such readjustments aren’t bad in and of themselves, they do create challenges for managers who must balance work demands and having enough people with the right skills to do an 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, designed, and managed. For instance, many employers are using flexible work arrangements with tasks done by freelancers hired 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 these approaches are used because of the constraints from the external environment. As a manager, you’ll need to recognize how such work arrangements affect the way you plan, organize, lead, and control. Flexible work arrangements have become so prevalent and such an important management approach today that we’ll discuss them in other chapters as well. Be sure to pay attention to these discussions as it will help you as you envision and plan for your career.

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, predictability of change, and complexity in an organization’s environment. The matrix in Exhibit 2–2 shows these two aspects.

Exhibit 2–2

Environmental Uncertainty Matrix

The first dimension of uncertainty is the degree of unpredictable change. If the components in an organization’s environment change frequently and the change is unpredictable, it’s a dynamic environment. If change is minimal and is predictable, it’s a stable one. A stable environment might be one in which there are 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. There are few competitors and little technological change. The main external concern for the company is probably the declining trend in tobacco usage. In contrast, the recorded music industry faces a dynamic (highly uncertain and unpredictable) environment. Digital formats, apps, music-streaming sites, and artists releasing selected songs on their personal social media accounts turned the industry upside down and brought high levels of uncertainty.

The other dimension of uncertainty describes the degree of environmental complexity, which looks at the number of components in an organization’s environment, how similar the components are, and the extent of the knowledge that the organization has about those components. An organization that has few competitors, customers, suppliers, or government agencies to deal with, or that needs little information about its environment, has a less complex and thus less uncertain environment.

How does the concept of environmental uncertainty influence managers? Looking again at Exhibit 2–2, each of the four cells represents different combinations of degree of complexity and degree of change. Cell 1 (stable-simple environment) represents the lowest level of environmental uncertainty and cell 4 (dynamic and complex environment) the highest. Not surprisingly, managers have the greatest influence on organizational outcomes in cell 1 and the least in cell 4. Because uncertainty is 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, but they rarely control that choice. In addition, the nature of the external environment today is that most industries are facing more dynamic change, making their environments more uncertain.

How does Amazon continue to enter and dominate ever-widening markets? One reason is that it understands the importance of building relationships with its various stakeholders: customers, advertisers, shippers, suppliers. 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 an organization’s environment that are affected by that 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, in turn, may impact the decisions and actions of Starbucks’ managers. The idea that organizations have stakeholders is now widely accepted by both management academics and practicing managers.31

Exhibit 2–3 identifies the most common stakeholders an organization might have to deal with. Note that these stakeholders include internal and external groups. Why? Because both can affect what an organization does and how it operates.

Exhibit 2–3

Organizational Stakeholders

Why should managers even care about managing stakeholder relationships? 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. For instance, social media company Facebook is spending more on lobbying and meeting with government officials as lawmakers and regulators look at sweeping changes to online privacy laws. The company is “working to shape its image on Capitol Hill and avert measures potentially damaging to its information-sharing business.”32

Can stakeholder management 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.33

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 should consider the interests of stakeholders as they make decisions. We’ll address this issue in more detail in the next chapter when we look at corporate social responsibility and business ethics.

As we’ve tried to make clear throughout this section, it’s not going to be “business as usual” for organizations or for managers. Managers will always have hard decisions to make about how they do business and about their people. It’s important that you understand how changes in the external environment will affect your organizational and management experiences. Now, we need to switch gears and look at the internal aspects of the organization—specifically, its culture.