4-1 Thomson Learning © 2004 Chapter Four The External Environment.

Thomson Learning© 2004

4-1

Chapter Four

The External Environment

Thomson Learning© 2004 4-2

Relationship Between Environmental Characteristics and

Organizational Actions

EnvironmentalSectors

Complexity

Establishment of favorable linkages:ownership, strategic alliances, co-optations,

interlocking directorates, executive recruitment, advertising, and public relations

Organic vs. Mechanistic: formalization, decentralization, standardization, etc.

Number of departments (complexity)Degree of differentiation and integration for internal coordinationUncertainty

(Information)

Stability

Scarcity (Resources)

Resourcedependence Control of the environmental domain:

change of domain, political activity,regulation, trade associations, and

illegitimate activities

Environment Organization Response

Forecasting & Planning necessary Forecasting & Planning

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(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 greenmovements

(j) Competition fromand acquisition by

foreign firms,entry into overseas

markets, foreign customs, regulations,

exchange rates

An Organization’s Environment

(j)International

Sector

(d)Financial

ResourcesSector

(e)MarketSector

(f)Technolo

gySector

(g)EconomicConditions

Sector

(a)IndustrySector

(h)Government

Sector

(c)Human Resourc

esSector

(b)Raw

MaterialsSector

(i)Sociocultur

alSector

ORGANIZATION

DOMAIN

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Low Uncertainty

Simple + StableFood Processor

Soft drink bottler

High-Moderate Uncertainty

Simple + UnstableFashion designer

Music / Toys

High Uncertainty

Complex + UnstableElectronics firm

Airline

Low-Moderate Uncertainty

Complex + StableUniversity

Chemical company

Diagnostic Framework for Environmental Uncertainty

Uncertainty

Uncertainty

ENVIRONMENTALCHANGE

STABLE

ENVIRONMENTAL COMPLEXITY

UNSTABLE

SIMPLE COMPLEX

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MarketSub-environment

Customers AdvertisingCompetitors agencies

Distributionsystem

ManufacturingSub-environment

Labor Raw Suppliersmaterials

Productionequipment

ScientificSub-environment

Scientific Researchjournals centers

Professionalassociations

Organizational Departments Differentiate to Meet Needs of

Sub-environments

President

R & DDivision

SalesDivision

ManufacturingDivision

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Differences in Goals and Orientations Among

Organizational Departments

Characteristic

R & DDepartment

Manufacturing

Department

SalesDepartment

GoalsNew developments, quality

Efficient production

Customer satisfaction

TimeHorizon Long Short Short

InterpersonalOrientation Mostly task Task Social

Formality ofStructure Low High HighSource: Based on Paul R. Lawrence and Jay W. Lorsch,Organization and Environment (Homewood, Ill.: Irwin, 1969), pp. 23-29.

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Environmental Uncertainty and Organizational

Integrators

Industry: Plastics Foods Container

Environmental

UncertaintyHigh Moderate Low

Departmental

Differentiation

High Moderate Low

Management in integrating

roles22% 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.

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Managing the OrgEnv Interface Buffering: Protects the

technical core from the environment – ex: raw materials inventory – out of fashion

Boundary-spanning: Links the organization to the environment – ex: R&D and market research – competitive intelligence

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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.

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Planning, Forecasting & Responsiveness Low Uncertainty means

‘No surprises’ so focus is internal and current.

As Uncertainty increases, managers begin to think about what could happen and plan for possible needed changes

Further Uncertainty triggers creation of planning specialists and departments that attempt to forecast events and develop alternate scenarios of the future

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Low Uncertainty

1. Mechanistic structure; formal, centralized2. Few departments

3. No integrating roles

4. Current operations orientation; low speed response

High-Moderate Uncertainty

1. Organic structure, teamwork; participative, decentralized2. Few departments, much boundary spanning3. Few integrating roles4. Planning orientation; fastresponse

High Uncertainty

1. Organic structure, teamwork; participative, decentralized2. Many departments differentiated, extensive boundary spanning3. Many integrating roles

4. Extensive planning, forecasting; high speed response

Low-Moderate Uncertainty

1. Mechanistic structure; formal, centralized2. Many departments, some boundary spanning3. Few integrating roles4. Some planning; moderate speed response

Contingency Framework for Environmental Uncertainty and

Organizational Responses

Uncertainty

Uncertainty

ENVIRONMENTALCHANGE

STABLE

ENVIRONMENTAL COMPLEXITY

UNSTABLE

SIMPLE COMPLEX

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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

Thomson Learning© 2004 4-13

Relationship Between Environmental Characteristics and

Organizational Actions

EnvironmentalSectors

Complexity

Establishment of favorable linkages:ownership, strategic alliances, co-optations,

interlocking directorates, executive recruitment, advertising, and public relations

Organic vs. Mechanistic: formalization, decentralization, standardization, etc.

Number of departments (complexity)Degree of differentiation and integration for internal coordinationUncertainty

(Information)

Stability

Scarcity (Resources)

Resourcedependence Control of the environmental domain:

change of domain, political activity,regulation, trade associations, and

illegitimate activities

Environment Organization Response

Forecasting & Planning necessary Forecasting & Planning

Thomson Learning© 2004 4-14

Genesco (p. 149)

1. Assess the amount of Environmental Uncertainty that Genesco faces using the Framework in Exhibit 4.2. Use examples from the case to argue why it is as simple/complex and stable/unstable as you suggest.

2. Are the buyers at Genesco performing a buffering or boundary spanning role? Explain. What about the other role? Who might do it? What would it look like? Would it be useful?

3. Now that you know the amount of uncertainty that Genesco faces (Ex. 4.2), you are ready to consider what the theory says about what an organization in that ‘box’ should do to succeed. Is that what Genesco is doing? Give examples.

4. Even if Genesco is certain about what its customers want, it will still be in trouble if it can’t get product into its stores. Identify what aspect of resource dependence theory (Ex 4.8) this relates to and give the supporting example from the case