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Organizations & their Environment

Shoaib Ul-Haq LUMS

An Organizations Environment
(a) Competitors, industry size and competitiveness, related issues (b) Suppliers, manufacturers, real (j) (a) estate, services International Industry Sector Sector (c) Labor market, employment agencies, (i) DOMAIN universities, training Socio-cultural schools, employees Sector in other companies, unions (h) Government (d) Stock markets, ORGANIZATION Sector banks, savings and loans, private (g) investors Economic (e) Customers, clients, Conditions Sector potential users of products (f) (e) Technology Market and services Sector Sector (f) Techniques of production, science, research centers, automation new materials (g) Recession, unemployment rate, inflation rate, rate of investment, economics, growth (h) City, state, federal laws and regulations, taxes, services, court system, (b) political processes Raw Materials (i) Age, values, beliefs, Sector education, religion, work ethic, consumer (c) and green Human Resources Sector movements (j) Competition from (d) and acquisition by Financial foreign firms, Resources entry into overseas Sector markets, foreign customs, regulations, exchange rates

External Environment
Environmental Domain is the chosen territory of action defining the niche and external sectors with which the organization will interact to accomplish its goals.

External Environment
Sectors are subdivisions of the external environment that contain similar elements.
Task environment includes sectors with which the organization interacts directly, usually including:

External Environment
Industry sector Raw material sector Market sector Human sector International sectors

General Environment
Includes those sectors that may not have a direct impact on the daily operations of the firm. Often included are:
Government sector Sociocultural sector Economic conditions Technology sector Financial resources sectors

Organizational Departments Differentiate to Meet Needs of Sub-environments


President

R&D Division Scientific Sub-environment


Scientific journals Research centers

Manufacturing Division Manufacturing Sub-environment


Labor Raw Suppliers materials Production equipment

Sales Division Market Sub-environment


Customers Advertising Competitors agencies Distribution system

Professional associations

Differences in Goals and Orientations Among Organizational Departments


Characteristic Goals Time Horizon Interpersonal Orientation Formality of Structure

R&D Department
New developments, quality Long Mostly task Low

Manufacturing Department
Efficient production Short Task High

Sales Department
Customer satisfaction Short Social High

Environmental Uncertainty and Organizational Integrators


Industry:
Environmental Uncertainty Departmental Differentiation Percent of management in integrating roles Plastics Foods Container

High

Moderate

Low

High

Moderate

Low

22%

17%

0%

Environmental Uncertainty
Uncertainty means that decision makers have some degree of insufficient information about environmental factors, making prediction of external changes difficult.

Environmental Uncertainty
Characteristics of the Environmental domain that influence uncertainty are:
The extent to which the external domain is simple or complex. The extent to which events are stable or unstable.

Environmental Uncertainty
Simple Complex Dimension concerns heterogeneity or the number and dissimilarity of external elements relevant to an organizations operations.

Stable-Unstable Dimension refers to whether elements in the environment are dynamic; the domain is stable if it remains the same over a period of months or years.

Adapting to Environmental Uncertainty


Organizations need to have the right fit between the external environment and the internal structure. Buffering Department can absorb uncertainty from the environment by protecting the technical core from environmental changes and helping it function efficiently.

Adapting to Environmental Uncertainty


Boundary-spanning roles link and coordinate an organization with key elements in the external environment by:
Bringing into the organization information bout changes in the environment. By sending information into the environment that presents the organization in a favorable light.

Adapting to Environmental Uncertainty


Environmental uncertainty leads to:
Increased differentiation, which is the differences in cognitive and emotional orientations among managers in different functional departments, and the difference in formal structure among these departments.

Adapting to Environmental Uncertainty


With high differentiation, coordination between departments becomes difficult, creating greater needs for integration, which is the quality of collaboration between departments.

Organization Forms Mechanistic: Organic:


Tasks are broken down into specialized, separate parts. Tasks are rigidly defined. There is a strict hierarchy of authority and control, and there are many rules. Knowledge and control of tasks are centralized at the top of the organization. Communication is vertical.
Employees contribute to the common task of the department. Tasks are adjusted and redefined through teamwork. There is less hierarchy of authority and control, and there are few rules. Knowledge and control of tasks are located anywhere in the organization. Communication is horizontal.

Contingency Framework for Environmental Uncertainty and Organizational Responses


Low Uncertainty
1. Mechanistic structure; formal, centralized 2. Few departments 3. No integrating roles

Low-Moderate Uncertainty
1. Mechanistic structure; formal, centralized 2. Many departments, some boundary spanning 3. Few integrating roles

STABLE

ENVIRONMENTAL CHANGE

4. Current operations orientation

4. Some Planning

High-Moderate Uncertainty

High Uncertainty

UNSTABLE

1. Organic structure, teamwork; 1. Organic structure, teamwork; participative, decentralized participative, decentralized 2. Few departments, much boundary 2. Many departments differentiated, spanning extensive boundary spanning 3. Few integrating roles 3. Many integrating roles 4. Planning orientation 4. Extensive planning, forecasting

SIMPLE

ENVIRONMENTAL COMPLEXITY

COMPLEX

Organization Strategies for Controlling the External Environment


Establishing Interorganizational Linkages: Ownership Contracts, joint ventures Cooptation, interlocking directorates Executive recruitment Advertising, public relations

Controlling the Environmental Domain:


Change of domain Political activity, regulation Trade associations Illegitimate activities

Relationship Between Environmental Characteristics and Organizational Actions


Environment
High complexity High uncertainty High rate of change Environmental domain (ten sectors)

Organization
Many departments and boundary roles Greater differentiation and more integrators for internal coordination Organic structure and systems with low formalization, decentralization, and low standardization Establishment of favorable linkages: ownership, strategic alliances, cooptations, interlocking directorates, executive recruitment, advertising, and public relations

Scarcity of valued resources

Resource dependence

Control of the environmental domain: change of domain, political activity, regulation, trade associations, and illegitimate activities