The External Environment Chapter Four The External Environment Thomson Learning © 2004

An Organization’s Environment (a) Competitors, industry size and competitiveness, related issues (b) Suppliers, manufacturers, real estate, services (c) Labor market, employment agencies, universities, training schools, employees in other companies, unionization (d) Stock markets, banks, savings and loans, private investors (e) Customers, clients, potential users of products and services (f) Techniques of production, science, computers, information technology (g) Recession, unemployment rate, inflation rate, rate of investment, economics, growth (h) City, state, federal laws and regulations, taxes, services, court system, political processes (i) Age, values, beliefs, education, religion, work ethic, consumer and green movements (j) Competition from and acquisition by foreign firms, entry into overseas markets, foreign customs, regulations, exchange rates International Context (j) International Sector (a) Industry Sector (i) Sociocultural Sector DOMAIN (b) Raw Materials Sector (c) Human Resources Sector (h) Government Sector ORGANIZATION (g) Economic Conditions Sector (d) Financial Resources Sector (e) Market Sector (f) Technology Sector Thomson Learning © 2004

Customers Advertising Organizational Departments Differentiate to Meet Needs of Sub-environments President Scientific Sub-environment Scientific Research journals centers Professional associations Manufacturing Sub-environment Labor Raw Suppliers materials Production equipment Market Sub-environment Customers Advertising Competitors agencies Distribution system R & D Division Manufacturing Division Sales Division Thomson Learning © 2004

Differences in Goals and Orientations Among Organizational Departments Characteristic R & D Department Manufacturing Sales Goals New developments, quality Efficient production Customer satisfaction Time Horizon Long Short Interpersonal Orientation Mostly task Task Social Formality of Structure Low High Source: Based on Paul R. Lawrence and Jay W. Lorsch, Organization and Environment (Homewood, Ill.: Irwin, 1969), pp. 23-29. Thomson Learning © 2004

Environmental Uncertainty and Organizational Integrators Industry: Plastics Foods Container Environmental Uncertainty High Moderate Low Departmental Differentiation Percent of management in integrating roles 22% 17% 0% Source: Based on Jay W. Lorsch and Paul R. Lawrence, “Environmental Factors and Organizational Integration,” Organization Planning: Cases and Concepts (Homewood, Ill.: Irwin and Dorsey, 1972), 45. Thomson Learning © 2004

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. Source: Adapted from Gerald Zaltman, Robert Duncan, and Jonny Holbek, Innovations and Organizations (New York: Wiley, 1973), 131. Thomson Learning © 2004

High-Moderate Uncertainty Low-Moderate Uncertainty Contingency Framework for Environmental Uncertainty and Organizational Responses Low Uncertainty 1. Mechanistic structure; formal, centralized 2. Few departments 3. No integrating roles 4. Current operations orientation; low speed response High-Moderate Uncertainty 1. Organic structure, teamwork; participative, decentralized 2. Few departments, much boundary spanning 3. Few integrating roles 4. Planning orientation; fast response High Uncertainty 2. Many departments differentiated, extensive boundary spanning 3. Many integrating roles 4. Extensive planning, forecasting; high speed response Low-Moderate Uncertainty 2. Many departments, some boundary 4. Some planning; moderate speed STABLE ENVIRONMENTAL CHANGE Uncertainty UNSTABLE SIMPLE COMPLEX ENVIRONMENTAL COMPLEXITY Thomson Learning © 2004

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 Thomson Learning © 2004

Relationship Between Environmental Characteristics and Organizational Actions Many departments and boundary roles Greater differentiation and more integrators for internal coordination High complexity High uncertainty Organic structure and systems with low formalization, decentralization, and low standardization to enable a high-speed response High rate of change Environmental domain (ten sectors) Establishment of favorable linkages: ownership, strategic alliances, cooptations, interlocking directorates, executive recruitment, advertising, and public relations Resource dependence Scarcity of valued resources Control of the environmental domain: change of domain, political activity, regulation, trade associations, and illegitimate activities Thomson Learning © 2004