Chapter Four The External Environment 2000 SouthWestern College

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

An Organization’s Environment (a) Competitors, industry size and (g) Recession, unemployment rate, competitiveness, related issues inflation rate, rate of investment, (j) (a) (b) Suppliers, economics, growth International Industry manufacturers, real (h) City, state, federal laws Sector estate, services and regulations, taxes, (c) Labor market, services, court system, (i) (b) DOMAIN Socio-cultural Raw Materials employment agencies, political processes Sector universities, training (i) Age, values, beliefs, schools, employees education, religion, (h) (c) in other companies, work ethic, consumer Government Human Resources unions and green ORGANIZATION Sector (d) Stock markets, movements banks, savings and (j) Competition from (g) (d) loans, private and acquisition by Economic Financial Conditions Resources investors foreign firms, Sector (f) (e) Customers, clients, entry into overseas Technology Market potential users of products markets, foreign Sector and services customs, regulations, (f) Techniques of production, science, exchange rates research centers, automation new © 2000 materials 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. © 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: © 2000 South-Western College Publishing Cincinnati, Ohio Daft, Organization Theory and Design 7/e

External Environment • • • Industry sector Raw material sector Market sector Human sector International sectors © 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 sector Sociocultural sector Economic conditions Technology sector Financial resources sectors © 2000 South-Western College Publishing Cincinnati, Ohio Daft, Organization Theory and Design 7/e

© 2000 South-Western College Publishing Cincinnati, Ohio Daft, Organization Theory and Design 7/e

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

Differences in Goals and Orientations Among Organizational Departments Characteristic R&D Department Manufacturing Department Sales Department New developments, quality Efficient production Customer satisfaction Time Horizon Long Short Interpersonal Orientation Mostly task Task Social Formality of Structure Low High Goals Source: Based on Paul R. Lawrence and Jay W. Lorsch, Organization and Environment (Homewood, Ill. : Irwin, 1969), pp. 23 -29. © 2000 South-Western College Publishing Cincinnati, Ohio Daft, Organization Theory and Design 7/e

Environmental Uncertainty and Organizational Integrators Industry: Plastics Foods Container Environmental Uncertainty High Moderate Low Departmental Differentiation High Moderate Low 22% 17% 0% Percent of management in integrating roles 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. © 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. © 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 events are stable or unstable. © 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. © 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. © 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. • By sending information into the environment that presents the organization in a favorable light. © 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. © 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. ” © 2000 South-Western College Publishing Cincinnati, Ohio Daft, Organization Theory and Design 7/e

© 2000 South-Western College Publishing Cincinnati, Ohio Daft, Organization Theory and Design 7/e

Organization Forms Mechanistic: Organic: b b b 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. b b b 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. © 2000 Source: Adapted from Gerald Zaltman, Robert Duncan, and Jonny Holbek, South-Western College Publishing Innovations and Organizations (New York: Wiley, 1973), 131. Cincinnati, Ohio Daft, Organization Theory and Design 7/e

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

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

Relationship Between Environmental Characteristics and Organizational Actions Environment High complexity Organization High uncertainty High rate of change Environmental domain (ten sectors) Many departments and boundary roles Greater differentiation and more integrators for internal coordination Organic structure and systems with low formalization, decentralization, and low standardization Establishment of favorable linkages: ownership, strategic alliances, cooptations, interlocking directorates, executive recruitment, advertising, and public relations Scarcity of valued resources Resource dependence Control of the environmental domain: change of domain, political activity, regulation, trade associations, and illegitimate activities © 2000 South-Western College Publishing Cincinnati, Ohio Daft, Organization Theory and Design 7/e