1. ©2000 South-Western College Publishing Cincinnati, Ohio Daft, Organization Theory and Design 7/e 4-1 Chapter Four The External Environment

2. ©2000 South-Western College Publishing Cincinnati, Ohio Daft, Organization Theory and Design 7/e (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, unions (d) Stock markets, banks, savings and loans, private investors (e) Customers, clients, potential users of products and services (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, 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 An Organization’s Environment (j) International Sector (d) Financial Resources Sector (e) Market Sector (f) Technology Sector (g) Economic Conditions Sector (a) Industry Sector (h) Government Sector (c) Human Resources Sector (b) Raw Materials Sector (i) Socio-cultural Sector ORGANIZATION DOMAIN

3. ©2000 South-Western College Publishing Cincinnati, Ohio Daft, Organization Theory and Design 7/e External Environment b Environmental Domain is the chosen territory of action defining the niche and external sectors with which the organization will interact to accomplish its goals.

4. ©2000 South-Western College Publishing Cincinnati, Ohio Daft, Organization Theory and Design 7/e External Environment b Sectors are subdivisions of the external environment that contain similar elements. b Task environment includes sectors with which the organization interacts directly, usually including:

5. ©2000 South-Western College Publishing Cincinnati, Ohio Daft, Organization Theory and Design 7/e External Environment Industry sectorIndustry sector Raw material sectorRaw material sector Market sectorMarket sector Human sectorHuman sector International sectorsInternational sectors

6. ©2000 South-Western College Publishing Cincinnati, Ohio Daft, Organization Theory and Design 7/e General Environment b Includes those sectors that may not have a direct impact on the daily operations of the firm. b Often included are: Government sectorGovernment sector Sociocultural sectorSociocultural sector Economic conditionsEconomic conditions Technology sectorTechnology sector Financial resources sectorsFinancial resources sectors

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8. ©2000 South-Western College Publishing Cincinnati, Ohio Daft, Organization Theory and Design 7/e Market Sub-environment Customers Advertising Competitors agencies Distribution system Manufacturing Sub-environment Labor Raw Suppliers materials Production equipment Scientific Sub-environment Scientific Research journals centers Professional associations Organizational Departments Differentiate to Meet Needs of Sub-environments President R & D Division Sales Division Manufacturing Division

9. ©2000 South-Western College Publishing Cincinnati, Ohio Daft, Organization Theory and Design 7/e Differences in Goals and Orientations Among Organizational Departments Characteristic R & D DepartmentManufacturingDepartmentSalesDepartment Goals New developments, quality Efficient production Customer satisfaction TimeHorizonLongShortShort InterpersonalOrientation Mostly task TaskSocial Formality of StructureLowHighHigh Source: Based on Paul R. Lawrence and Jay W. Lorsch, Organization and Environment (Homewood, Ill.: Irwin, 1969), pp. 23-29.

10. ©2000 South-Western College Publishing Cincinnati, Ohio Daft, Organization Theory and Design 7/e Environmental Uncertainty and Organizational Integrators Industry:PlasticsFoodsContainer EnvironmentalUncertaintyHighModerateLow DepartmentalDifferentiationHighModerateLow 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.

11. ©2000 South-Western College Publishing Cincinnati, Ohio Daft, Organization Theory and Design 7/e Environmental Uncertainty b Uncertainty means that decision makers have some degree of insufficient information about environmental factors, making prediction of external changes difficult.

12. ©2000 South-Western College Publishing Cincinnati, Ohio Daft, Organization Theory and Design 7/e Environmental Uncertainty b Characteristics of the Environmental domain that influence uncertainty are: The extent to which the external domain is simple or complex.The extent to which the external domain is simple or complex. The extent to which events are stable or unstable.The extent to which events are stable or unstable.

13. ©2000 South-Western College Publishing Cincinnati, Ohio Daft, Organization Theory and Design 7/e Environmental Uncertainty b Simple Complex Dimension concerns heterogeneity or the number and dissimilarity of external elements relevant to an organization’s operations. b 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.

14. ©2000 South-Western College Publishing Cincinnati, Ohio Daft, Organization Theory and Design 7/e Adapting to Environmental Uncertainty b Organizations need to have the right fit between the external environment and the internal structure. b Buffering Department can absorb uncertainty from the environment by protecting the technical core from environmental changes and helping it function efficiently.

15. ©2000 South-Western College Publishing Cincinnati, Ohio Daft, Organization Theory and Design 7/e Adapting to Environmental Uncertainty b 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.Bringing into the organization information bout changes in the environment. By sending information into the environment that presents the organization in a favorable light.By sending information into the environment that presents the organization in a favorable light.

16. ©2000 South-Western College Publishing Cincinnati, Ohio Daft, Organization Theory and Design 7/e Adapting to Environmental Uncertainty b 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.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.

17. ©2000 South-Western College Publishing Cincinnati, Ohio Daft, Organization Theory and Design 7/e Adapting to Environmental Uncertainty b With high differentiation, coordination between departments becomes difficult, creating greater needs for integration, which is the “quality of collaboration between departments.”

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19. ©2000 South-Western College Publishing Cincinnati, Ohio Daft, Organization Theory and Design 7/e Organization Forms Mechanistic: Organic: Organization Forms Mechanistic: Organic: b Tasks b Tasks are broken down into specialized, separate parts. are rigidly defined. b There b There is a strict hierarchy of authority and control, and there are many rules. b Knowledge b Knowledge and control of tasks are centralized at the top of the organization. b Communication b Communication is vertical. b Employees contribute to the common task of the department. b Tasks are adjusted and redefined through teamwork. b There is less hierarchy of authority and control, and there are few rules. b Knowledge and control of tasks are located anywhere in the organization. b Communication is horizontal. Source: Adapted from Gerald Zaltman, Robert Duncan, and Jonny Holbek, Innovations and Organizations (New York: Wiley, 1973), 131.

20. ©2000 South-Western College Publishing Cincinnati, Ohio Daft, Organization Theory and Design 7/e Low Uncertainty 1. Mechanistic structure; formal, centralized 2. Few departments 3. No integrating roles 4. Current operations orientation High-Moderate Uncertainty 1. Organic structure, teamwork; participative, decentralized 2. Few departments, much boundary spanning 3. Few integrating roles 4. Planning orientation High Uncertainty 1. Organic structure, teamwork; participative, decentralized 2. Many departments differentiated, extensive boundary spanning 3. Many integrating roles 4. Extensive planning, forecasting Low-Moderate Uncertainty 1. Mechanistic structure; formal, centralized 2. Many departments, some boundary spanning 3. Few integrating roles 4. Some Planning Contingency Framework for Environmental Uncertainty and Organizational Responses Uncertainty ENVIRONMENTAL CHANGE STABLE ENVIRONMENTAL COMPLEXITY UNSTABLE SIMPLECOMPLEX

21. ©2000 South-Western College Publishing Cincinnati, Ohio Daft, Organization Theory and Design 7/e Organization Strategies for Controlling the External Environment b Establishing Interorganizational Linkages: OwnershipOwnership Contracts, joint venturesContracts, joint ventures Cooptation, interlocking directoratesCooptation, interlocking directorates Executive recruitmentExecutive recruitment Advertising, public relationsAdvertising, public relations b Controlling the Environmental Domain: Change of domain Political activity, regulation Trade associations Illegitimate activities

22. ©2000 South-Western College Publishing Cincinnati, Ohio Daft, Organization Theory and Design 7/e Relationship Between Environmental Characteristics and Organizational Actions Environmental 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 Many departments and boundary roles Greater differentiation and more integrators for internal coordination High 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 EnvironmentOrganization