ENVIRONMENTAL UNCERTAINTY - THOMPSON The central core of the organization requires “technical rationality.” Norms of rationality require that the organization attempt to “seal-off” or protect its technical core from environmental influences.

INTERNAL STRATEGIES Organizations regulate the flows of inputs and outputs to their central technical cores through such internal responses as buffering, smoothing (leveling), forecasting, and rationing.

BUFFERING On the input side, buffering usually takes the form of stockpiling critical resources whose supply is uncertain or whose price fluctuates widely over time. On the output side, buffering typically involves building and keeping up warehouse and distribution inventories. By buffering, environmental uncertainties are absorbed because an organization’s technical core produces at a constant rate. Other methods of buffering might include preventative maintenance and recruiting and training.

SMOOTHING (LEVELING) Where buffering absorbs environmental uncertainties, smoothing involves efforts to manage environmental uncertainties. Smoothing attempts to protect the technical core by reducing uncertainties associated with cyclical variations in product or service demand. Examples might include differential costs of long distance telephone calls that are lower during non-peak times, discount airline fares for off-time flights.

FORECASTING When buffering and smoothing will not effectively protect an organization’s technical core, organizations can often reduce uncertainty and behave in a logical, rational manner by developing accurate forecasting capabilities. To the degree that environmental fluctuations can be predicted, they can be treated as constraints and adapted to.

RATIONING Finally, when the organization finds that neither buffering, smoothing, nor forecasting is sufficient to prevent environmental penetration, organizations can turn to rationing. The allocation or assignment of resources according to established priorities can be seen in restaurant reservations, reserved seats at theaters, etc., and rationing (such as gasoline rationing during the oil embargo). In general, rationing is a less than satisfactory solution, because it indicates that the organization is not fully serving its task environment. It can be costly in terms of lost revenue and customer goodwill (Atari, Cabbage Patch dolls, etc.)

EXTERNAL STRATEGIES Besides strategies for dealing with uncertainty in their internal environments, organizations also have strategies for dealing with uncertainty in their external (general) environments. The actual relations, or interactions, between organizations are the responsibility of boundary personnel. The boundary spanners or gatekeepers, are important because they mediate the flow of information, products or services, and personnel between organizations in its environment.

ROLE OF THE BOUNDARY SPANNER

EXTERNAL STRATEGIES II Thompson identified two direct strategies for managing external dependencies such as suppliers, customers, banks, etc.: COMPETITIVE STRATEGIES COOPERATIVE STRATEGIES

COMPETITION Refers to rivalry between two or more organizations which is mediated by a third party. In the case of a manufacturer, the third party might be a customer, distributor, supplier or potential employee. In each instance, the third party must select among alternative courses of action (For example, which of several competing products to purchase).

COOPERATION There are three types of cooperative strategies available to organizations: 1. Bargaining 2. Coopting 3. Coalescing

BARGAINING In an effort to limit the uncertainty caused by competition, organizations often respond by entering into cooperative relationship. Bargaining refers to direct negotiations between organizations for the exchange of goods and services. Such contractual arrangements, to the extent that they are binding and enforceable, serve to reduce environmental uncertainty. Examples might include long term contracts with suppliers or customers, labor contracts, etc.

COOPTING Is the process of absorbing external elements into the decision-making or policy-determination structure of an organization as a means of averting threats to its stability or existence. This allows for a reduction of environmental uncertainty, but not its elimination. Examples might include members of a Board of Directors chosen from primary groups in the organization’s environment (A banker, a major supplier, a Board member from a competitor, etc.)

COALESCING Is the combination of two or more organizations (groups or individuals) for a single purpose. It requires a joint commitment for mutual action. Examples might include mergers, joint ventures, inter- locking directorates, price fixing, etc.

COSTS Competition, bargaining, cooptation, and coalescing represent a continuum of “increasingly ‘costly’ methods of gaining support in terms of decision making power.” Competition is seen to be the least costly method, through coalescing being the most costly.

INDIRECT STRATEGIES Thompson also identified four different indirect strategies for dealing with external environmental uncertainty: Influencing government regulations and legislation Trade associations and professional organizations Lobbies Political Action Committees

LAWRENCE & LORSCH Studied ten firms in three industries: plastics, food and containers. The three industries were deliberately chosen as they differ significantly in the environmental uncertainty associated with each one. The underlying hypothesis was that internal environments of the firms must match the external environmental requirements. The better the match, the more successful the firm.

DIFFERENTIATION & INTEGRATION Differentiation and integration was posited as the variables to examine to determine the state of the internal environment. Differentiation, a la Lawrence & Lorsch, closely resembles the traditional definition of horizontal differentiation, but in addition to task segmentation, suggested that managers will differ in their: (1) time frame, (2) interpersonal orientation, and (3) goal orientation Integration is the quality of collaboration needed to overcome differentiation and achieve unity of effort among units.

LAWRENCE & LORSCH MODEL

DEPARTMENTAL DIFFERENTIATION BASED UPON SUBENVIRONMENT CHARACTERISTICS

TIME, GOAL & INTERPERSONAL ORIENTATIONS

INTEGRATION TECHNIQUES AND APPROPRIATE ENVIRONMENTS

LAWRENCE & LORSCH FINDINGS

STRUCTURE VS ENVIRONMENT

ENVIRONMENT AND ORGANIZATION DESIGN CHARACTERISTICS Environment Design Characteristics Degree of Degree of Quad- Decentral- Span of Formal- Complexity Design Change Complexity rant ization Control ization Strategy Simple I Low Few High Low Funct./ Stable Mech. Complex II Low Many High High Funct./ Mech. w/T/T.F. Simple III High Few Low Low Product/ Dynamic Organic Complex IV High Many Low High Matrix & Combos