1. The External Environment

2. 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
(d)
Financial
Resources
(e)
Market
(f)
Technology
(g)
Economic
Conditions
(a)
Industry
(h)
Government
(c)
Human
(b)
Raw Materials
(i)
Sociocultural
ORGANIZATION
DOMAIN

3. An Organization’s Environment
Environmental Domain: The chosen territory of action defining the niche and external sectors with which the organization will interact to accomplish its goals
Sectors: Subdivisions of the external environment that contain similar elements

4. An Organization’s Environment
Task Environment: Sectors with which the organization interacts directly – those that affect what it is the organization does:
Industry
Raw materials
Market
Human resources
International operations

5. An Organization’s Environment
General Environment: Sectors with which the organization interacts but only have an indirect impact on daily operations but may influence the environment in which it operates directly:
Government
Sociocultural
Economic
Technology
Financial

6. The Changing Environment
Two main ways the environment influences an organization:
When a firm is dependent on information about the environment
When a firm needs resources from the environment
A changing environment creates uncertainty for an organization.

7. The Changing Environment
Uncertainty – insufficient information about environmental factors therefore difficult to predict external changes.
An organization MUST cope with/manage uncertainty to be effective.

8. Environmental Uncertainty
Uncertainty means that decision makers have some degree of insufficient information about environmental factors, making the prediction of external changes and influences difficult
Less info  greater the likelihood of organizational failure

9. Environmental Uncertainty
The amount of uncertainty in the environment is determined by the extent to which the domain is simple or complex and/or the extent to which events are stable or unstable

10. Environmental Uncertainty
Simple-Complex Dimension:
Concerns heterogeneity, the number and dissimilarity of external elements relevant to an organization’s 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

11. Framework for Assessing Environmental Uncertainty
Simple + Stable =
Low Uncertainty
Small number of external elements and elements are similar
Elements remain the same of change slowly
Examples: soft drink bottlers, beer distributors, container manufacturers, food processors
High-Moderate Uncertainty
Elements change frequently and unpredictably
Examples: E-commerce, fashion clothing, music industry, toy manufacturers
Complex + Stable =
High Uncertainty
Large number of external elements and elements are dissimilar
Examples: Computer firms, aerospace firms, telecommunications, airlines
Low-Moderate Uncertainty
Elements remain the same or change slowly
Examples: Universities, appliance manufacturers, chemical cos, insurance cos
Uncertainty
ENVIRONMENTAL
CHANGE
STABLE
ENVIRONMENTAL COMPLEXITY
UNSTABLE
SIMPLE
COMPLEX
The two dimensions are combined into a framework for assessing environmental uncertainty.

12. Adapting to Environmental Uncertainty
Organizations can adapt their internal structures to “fit” the requirements of the external environment by:
Creating positions and departments to meet the needs of a complex environment leads to greater internal complexity (Each element in the environment gets its own position/department in the organization)

13. Adapting to Environmental Uncertainty
Organizations can adapt their internal structures to “fit” the requirements of the external environment by:
Creating buffering departments or roles to absorb uncertainty from environmental changes to help protect the technical core and keep the organization functioning efficiently
Costly because organizations must allocate resources “in case” which may never be used, and could be used to enhance the technical core rather than insulate it

14. Adapting to Environmental Uncertainty
Organizations can adapt their internal structures to “fit” the requirements of the external environment by:
Creating boundary spanning roles to link and coordinate the organization to key elements in the environment
Bring information about environmental changes into the organization and sending information about the organization to key stakeholders

15. Adapting to Environmental Uncertainty
Organizations can adapt their internal structures to “fit” the requirements of the external environment by:
Increased levels of differentiation between departments as they specialize in tune to specific environmental requirements
Leads to difficulties in coordination due to differing goals, structure, culture etc.  requires greater efforts at integration – collaboration between departments and higher costs

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

17. 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

18. Adapting to Environmental Uncertainty
Organizations can adapt their internal structures to “fit” the requirements of the external environment by:
Often organizations begin adopting more organic organizational structures because of the need for looser, free-flowing information, collaboration and an adaptive culture when environments change rapidly
Lacks control, integration and fast decision making which is often needed in fast changing environments

19. Mechanistic: Organic:
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.

20. Adapting to Environmental Uncertainty
Organizations can adapt their internal structures to “fit” the requirements of the external environment by:
Planning and forecasting become more prominent as managers need to be able to predict and anticipate external changes

21. 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
Uncertainty
ENVIRONMENTAL
CHANGE
STABLE
ENVIRONMENTAL COMPLEXITY
UNSTABLE
SIMPLE
COMPLEX

22. 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

23. Dependence on External Resources
The need for materials and financial resources
The environment – source of scarce and valuable resources
Resource Dependence: Organizations depend on the environment but strive to acquire control over resources to minimize their dependence.

24. Controlling External Resources
Establishing Formal Relationships
Acquire an ownership stake
Form joint ventures and partnership
Lock in Key Players
Recruit executives
Use advertising and public relations
Influencing Key Sectors
Change where you do business (your domain)
Use political activity, regulation
Join in trade associations
Avoid illegitimate activities

25. Establishing Formal Relationships
Acquire an Ownership Stake - Why? It reduces uncertainty.
Various methods a firm can acquire a stake:
Buy part of a company
Acquisition
Ford bought Volvo
Merger

26. Establishing Formal Relationships
Form JVs and Partnerships
When there is a high level of complementarity between to organizations it is better to form a JV or partnership than to merge
Mergers are costly and change the essence of the organization
Reduce uncertainty through:
License Agreements
Supplier Agreements
Joint Ventures

27. Establishing Formal Relationships
Lock in Key Players
Cooptation – Leaders from important sectors in environment are made part of an organization.
Appoint influential suppliers as board members – Board interlock
Direct interlock
Indirect interlock

28. Establishing Formal Relationships
Recruit Executives
Channels of influence and communication between organizations serves to reduce financial uncertainty and dependence for an organization
Use Advertising and Public Relations
Highly important to competitive industries
Influence tastes and opinions thorough advertising

29. Influencing Key Sectors
Change of Domain
The ten sectors motioned earlier are dynamic
Two key methods of altering domain is through acquisition and divestment
Get Political
The art of lobbying (influencing) government
eBay & Wal-Mart
Political contributions

30. Influencing Key Sectors
Trade associations
Individuals and companies in a specific business or industry organized to promote common interests
Illegitimate Activities
Bribery, Forging Accounts, Corporate Espionage
Enron and WorldCom

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