1. The External Environment
Chapter Four
The External Environment
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© 2004

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
(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
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© 2004

3. 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
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© 2004

4. 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
Thomson Learning
© 2004

5. 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

6. 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.
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© 2004

7. 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
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© 2004

8. 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
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© 2004

9. 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