PPT_ch03_jones6e

7/27/2019 PPT_ch03_jones6e

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3-Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall 1

Organizational Theory,Design, and Change

Sixth Edition

Gareth R. Jones

Chapter 3

Organizing in a

Changing GlobalEnvironment


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Learning Objectives

1. List the forces in an organizationsspecific and general environment thatgive rise to opportunities and threats

2. Identify why uncertainty exists in theenvironment

3. Describe how and why an

organization seeks to adapt to andcontrol these forces to reduceuncertainty


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Learning Objectives (cont.)

4. Understand how resourcedependence theory and transactioncost explain why organizations

choose different kinds ofinterorganizational strategies tomanage their environments to gain

the resources needed to achieve theirgoals and create value for theirstakeholders


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What is the Organizational

Environment?

Environment:the set of forcessurrounding an organization thathave the potential to affect the way it

operates and its access to scarceresources

Organizational domain:theparticular range of goods andservices that the organizationproduces, and the customers andother stakeholders whom it serves


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Figure 3.1: TheOrganizational Environment


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The Specific Environment

The forces from outside stakeholdergroups that directly affect anorganizations ability to secure

resources Outside stakeholders include customers,

distributors, unions, competitors,suppliers, and the government

The organization must engage intransactions with all outsidestakeholders to obtain resources tosurvive


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The General Environment

The forces that shape the specificenvironment and affect the ability ofall organizations in a particular

environment to obtain resources



The General Environment(cont.)

Economic forces:factors, such asinterest rates, the state of theeconomy, and the unemployment rate,

determine the level of demand forproducts and the price of inputs

Technological forces:thedevelopment of new productiontechniques and new information-processing equipment influence manyaspects of organizations operations



The General Environment(cont.)

Political, ethical, andenvironmental forces:influencegovernment policy toward

organizations and their stakeholdersDemographic, cultural, and social

forces:the age, education, lifestyle,norms, values, and customs of anations people Shape organizations customers,

managers, and employees



Uncertainty in theOrganizational Environment

All environmental forces causeuncertainty for organizations

Greater uncertainty makes it moredifficult for managers to control theflow of resources to protect andenlarge their domains



Three Factors Causing Uncertainty



Sources of Uncertainty in theEnvironment

1. Environmental complexity:

the strength, number, andinterconnectedness of the specific and

general forces that an organization hasto manage

Interconnectedness:increases

complexity



Sources of Uncertainty in theEnvironment (cont.)

2. Environmental dynamism:the degree to which forces in thespecific and general environments

change over time Stable environment: forces that

affect the supply of resources arepredictable

Unstable (dynamic) environment:when an organization cannot predicthow the changes in the environment willaffect them



Sources of Uncertainty in theEnvironment (cont.)

3. Environmental richness:

the amount of resources available tosupport an organizations domain

Environments may be poor because:

The organization is located in a poor countryor in a poor region of a country

There is a high level of competition, andorganizations are fighting over availableresources



Resource DependenceTheory

The goal of an organization is tominimize its dependence on otherorganizations for the supply of scare

resources.

and to find ways of influencingthemto make resources available


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Resource DependenceTheory(cont.)

The strength of one organizationsdependence on another depends on:

How vital the resource is to the

organizations survival

The extent that other organizationscontrolthese resources

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Resource DependenceTheory(cont.)

An organization has to manage twoaspects of its resource dependence:

It has to exert influence over other

organizations so that it can obtainresources

It must respond to the needs and

demands of the other organizations inits environment



Interorganizational Strategies forManaging Resource Dependencies

Two basic types of interdependencies causeuncertainty

Symbiotic interdependencies:interdependencies that exist between an

organization and its suppliers and distributors Competitive interdependencies:

interdependencies that exist amongorganizations that compete for scarce inputs andoutputs

Organizations aim to choose theinterorganizational strategy that offers themost reduction in uncertainty with the leastloss of control


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Linkage Mechanisms

Linkage mechanisms, while controllinginterdependency, require coordination

Coordination reduces eachorganizations freedom to act

Organizations should choose thestrategy that offers the most reductionin uncertainty for the least loss ofcontrol

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Figure 3.3: Interorganizational Strategiesfor Managing Symbiotic Interdependencies



Strategies for Managing SymbioticResource Interdependencies

Developing a good reputation

Reputation:a state in which anorganization is held in high regard and

trusted by other parties because of its fairand honest business practices

Reputation and trust are the most

common linkage mechanisms formanaging symbiotic interdependencies



Strategies for Managing SymbioticResource Interdependencies (cont.)

Cooptation:a strategy thatmanages symbiotic interdependenciesby giving them a stake in the

organization Make outside stakeholders inside

stakeholders

Interlocking directorate:a linkagethat results when a director from onecompany sits on the board of anothercompany


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Strategic alliances:an agreementthat commits two or more companiesto share their resources to develop

joint new business opportunities An increasingly common mechanism for

managing symbiotic (and competitive)interdependencies

The more formal the alliance, the strongerand more prescribed the linkage andtighter control of joint activities Greater formality preferred with uncertainty


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Types of Strategic Alliances

Long-term contracts Networks:a cluster of different

organizations whose actions are

coordinated by contracts andagreements rather than through aformal hierarchy of authority

Minority ownership

Keiretsu:

a group of organizations,each of which owns shares in the otherorganizations in the group, that worktogether to further the groups interests


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Figure 3.4: Types of StrategicAlliances


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Figure 3.5: The Fuyo Keiretsu


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Types of Strategic Alliances(cont.)

Joint venture:a strategic allianceamong two or more organizationsthat agree to jointly establish and

share the ownership of a newbusiness

Fi 3 6 J i t V t


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Figure 3.6: Joint VentureFormation


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Merger and takeover:results inresource exchanges taking placewithinone organization rather than

between organizations New organization better able to resist

powerful suppliers and customers

Normally involves great expense andproblems managing the new business


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Figure 3-7: Interorganizational Strategies forManaging Competitive Interdependencies


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Strategies for Managing CompetitiveResource Interdependencies

Collusion and cartels Collusion:a secret agreement among

competitors to share information for a

deceitful or illegal purpose May influence industry standards

Cartel:an association of firms thatexplicitly agrees to coordinate theiractivities

May influence price structure of market


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Strategies for Managing CompetitiveResource Interdependencies (cont.)

Third-party linkage mechanism:aregulatory body that allowsorganizations to share information andregulate the way they compete

Strategic alliances:can be used tomanage both symbiotic andcompetitive interdependencies

Merger and takeover:the ultimatemethod for managing problematicinterdependencies


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Transaction Cost Theory

Transaction costs:the costs ofnegotiating, monitoring, and governingexchanges between people

Transaction cost theory:the goal ofan organization is to minimize thecosts of exchanging resources in theenvironment and the costs ofmanaging exchanges inside theorganization


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Sources of Transaction Costs

Environmental uncertainty and boundedrationality Bounded rationality:refers to the limited ability

people have to process information

Opportunism and small numbers When organizations are dependent on a small

number for supplies, the potential for exploitationis great

Risk and specific assets Specific assets:investments that create value in

one particular exchange relationship but have novalue in any other exchange relationship

Fig e 3 8 So ces of


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Figure 3.8: Sources ofTransaction Costs

Transaction Costs and


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Transaction Costs andLinkage Mechanisms

Transaction costs are low when:

Organizations are exchangingnonspecific goods and services

Uncertainty is low

There are many possible exchangepartners



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Transaction Costs andLinkage Mechanisms (cont.)

Transaction costs are high when:

Organizations begin to exchange morespecific goods and services

Uncertainty increases

The number of possible exchangepartners falls



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Transaction Costs andLinkage Mechanisms (cont.)

Bureaucratic costs:internaltransaction costs

Bringing transactions inside the

organization minimizes but does noteliminate the costs of managingtransactions


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Using Transaction Cost Theory to Choosean Interorganizational Strategy

Transaction cost theory can be usedto choose an interorganizationalstrategy

Managers can weigh the savings intransaction costs of particular linkagemechanisms against the bureaucratic

costs


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Using Transaction Cost Theory to Choosean Interorganizational Strategy (cont.)

Managers deciding which strategy to pursuemust take the following steps:

Locate the sources of transaction costs that mayaffect an exchange relationship and decide how

high the transaction costs are likely to be Estimate the transaction cost savings from using

different linkage mechanisms

Estimate the bureaucratic costs of operating the

linkage mechanism Choose the linkage mechanism that gives the

most transaction cost savings at the lowestbureaucratic cost


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Keiretsu

Japanese system for achieving thebenefits of formal linkages withoutincurring its costs

Example: Toyota has a minorityownership in its suppliers

Affords substantial control over the exchangerelationship

Avoids bureaucratic cost of ownership andopportunism


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Franchising

A franchise is a business that isauthorized to sell a companysproducts in a certain area

The franchiser sells the right to use itsresources (name or operating system)in return for a flat fee or share of

profits


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Outsourcing

Moving a value creation that wasperformed inside the organization tooutside companies

Decision is prompted by the weighingthe bureaucratic costs of doing theactivity against the benefits

Increasingly, organizations are turning tospecialized companies to manage theirinformation processing needs

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