Chapter 4 Introduction: External and Internal Organizational Environments and Corporate Culture

In 2007, John Stumpf became the CEO of Wells Fargo Bank, one of the most respected and reputable financial institutions in the country. To increase market share and corporate profits, Mr. Stumpf embarked on a product sales strategy in 2010 involving the cross-selling of financial products to bank customers with the mantra, "Eight is Great." This implied that Wells Fargo sales employees would be required to sell eight financial products (i.e. deposit accounts, credit cards, etc.) per customer to meet the quota.

According to the bank’s 2010 annual report, Stumpf is quoted:

“I’m often asked why we set a cross-sell goal of eight. The answer is, it rhymed with ‘great.’ Perhaps our new cheer should be: ‘Let’s go again, for 10.”

What transpired became one of the biggest consumer fraud scandals in banking history.

In order to meet onerous sales targets, prosecutors say employees often opened accounts without customers' knowledge or consent — forging signatures, moving money from existing accounts and altering customers' contact information to avoid detection.

The Wells Fargo account fraud came to light in September of 2016. Approximately 3.5 unauthorized accounts were created by employees using customer information without their consent. Consequently, 5,300 low-level employees were later fired.

Despite the bank’s ethical code of conduct, this fraud was encouraged and perpetuated by the CEO, John Stumpf, and supported by top management to increase profits based on unethical sales practices and unrealistic sales quotas.

What are the reasons and circumstances that led to fraud on this scale?

Many companies with traditional business models (that always worked in the past), are not succeeding strategically, operationally, and organizationally because they don't recognize the importance of their most important asset....PEOPLE! Additionally, these companies fail to adapt to an avalanche of changes taking place. Maybe these companies were once successful doing things "the way we've always done things", or by applying pressure on top of pressure, but even within the past six months...things have completely changed. AI is transforming management processes and strategies. Survival depends on understanding both the external and internal pressures coming at a firm. These pressures will continue to intensify. Companies will need to build organizational structures that are able to adapt and adjust to constant change. Wells Fargo was caught up in a scandal that destroyed profit margins because the organization itself (the people) were not trained and prepared to deal with external environments. As a result, the culture and climate within the organization became toxic...and things fell apart.

Since then, Wells Fargo has paid hefty government fines and been embroiled in many lawsuits. Its once respected reputation has been tarnished and CEO John Stumpf was forced to resign. Additionally, Wells Fargo has undergone corporate restructuring in an effort to rectify the organizational issues that led to the scandal.

Learning Objectives:

After studying this chapter, you will be able to:

Define the external environment of organizations.
Identify contemporary external forces pressuring organizations.
Identify different types of organizational structures and their strengths and weaknesses.
Explain how organizations organize to meet external market threats and opportunities.
Identify the fit between organizational cultures and the external environment.
Identify environmental trends, demands, and opportunities facing organizations.

Learning Activities:

Read: Read Chapter 4 in your online text.

Assignments:

1. Complete Chapter Four In-Class Assignment

2. Complete Chapter Four Online Quiz