1. 4-1 1 Chapter Four The External Environment

2. 2 (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 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) Sociocultural Sector ORGANIZATION DOMAIN

3. 3 Simple + Stable = Low Uncertainty 1.Small number of external elements and elements are similar 2.Elements remain the same of change slowly Examples: soft drink bottlers, beer distributors, container manufacturers, food processors Simple + Stable = High-Moderate Uncertainty 1.Small number of external elements and elements are similar 2.Elements change frequently and unpredictably Examples: E-commerce, fashion clothing, music industry, toy manufacturers Complex + Stable = High Uncertainty 1.Large number of external elements and elements are dissimilar 2.Elements change frequently and unpredictably Examples: Computer firms, aerospace firms, telecommunications, airlines Complex + Stable = Low-Moderate Uncertainty 1.Large number of external elements and elements are dissimilar 2.Elements remain the same or change slowly Examples: Universities, appliance manufacturers, chemical cos, insurance cos Framework for Assessing Environmental Uncertainty Uncertainty ENVIRONMENTAL CHANGE STABLE ENVIRONMENTAL COMPLEXITY UNSTABLE SIMPLECOMPLEX

4. 4 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

5. 5 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.

6. 6 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.

7. 7 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.

8. 8 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 1. Organic structure, teamwork; participative, decentralized 2. Many departments differentiated, extensive boundary spanning 3. Many integrating roles 4. Extensive planning, forecasting; high speed response Low-Moderate Uncertainty 1. Mechanistic structure; formal, centralized 2. Many departments, some boundary spanning 3. Few integrating roles 4. Some planning; moderate speed response Contingency Framework for Environmental Uncertainty and Organizational Responses Uncertainty ENVIRONMENTAL CHANGE STABLE ENVIRONMENTAL COMPLEXITY UNSTABLE SIMPLECOMPLEX

9. 9 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

10. 10 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 to enable a high-speed response 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