Week 4

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Chapter4.TheExternalEnvironment.pptx

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Chapter 4 The External Environment

Organization Theory and Design

Thirteenth Edition

Richard L. Daft

Chapter

Learning Objectives (slide 1 of 2)

Describe how the influence of the general environment on an organization is different from that of the task environment.

Explain the difference between environmental complexity and environmental dynamism.

Describe how complexity and dynamism together can be used to assess the level of uncertainty in an organization’s environment.

Explain approaches organizations can use to adapt to complexity and dynamism in a changing environment.

Learning Objectives (slide 2 of 2)

Explain how the environment affects organizational differentiation and integration.

Describe how the environment affects organic versus mechanistic management processes.

Describe the techniques organizations can use to control financial resources in the external environment.

The Organization’s Environment

Everything that exists outside the boundary of the organization and has the potential to affect all or part of the organization

Domain is the chosen environmental field of action

The environment also contains sectors, or subdivisions, that contain similar elements

An Organization’s Environment

The Task Environment

Sectors that have a direct impact on the organization’s ability to achieve its goals:

Industry sector

Raw materials sector

Market sector

Human resources sector

International sector

General Environment

Sectors that indirectly impact an organization:

Government sector

Natural sector

Sociocultural sector

Economic conditions

Technology sector

Financial resources

International Environment

This sector can directly affect many organizations and has become extremely important

International events influence domestic sectors of the environment

All organizations face uncertainty when they enter international markets

The Changing Environment

As the environment becomes more complex, events become less stable

As financial resources become less available, the level of uncertainty increases

The environment influences organizations through:

The need for information changes

The need for resources changes

Elements of Uncertainty

Uncertainty: Lack of sufficient information about environmental factors and difficulty predicting external changes

Complexity: Number and dissimilarity of external elements, such as suppliers

Dynamism: Whether the organization operates in a stable or unstable environment

Factors Causing Uncertainty

Dimensions of Environmental Uncertainty

Simple, stable environment: Low uncertainty

Complex, stable environment: Somewhat greater uncertainty

Simple, unstable environment: Even greater uncertainty

Complex, unstable environment: Greatest uncertainty

Framework for Assessing Environmental Uncertainty

Adapting to Complexity and Dynamism

Organizations need the right fit between internal structure and the external environment

Adding positions and departments

Building relationships

Buffering roles

Boundary-spanning roles (such as business intelligence and competitive intelligence)

Differentiation and integration

Organic vs. mechanistic management processes

Planning, forecasting, and responsiveness

Organizational Departments Differentiate to Meet Needs of Sub-environments

Differences in Goals and Orientations Among Organizational Departments

Characteristic	R&D Department	Manufacturing Department	Sales Department
Goals	New developments, quality	Efficient production	Customer satisfaction
Time horizon	Long	Short	Short
Interpersonal orientation	Mostly task	Task	Social
Formality of structure	Low	High	High

Environmental Uncertainty and Organizational Integrators

Industry	Plastics	Foods	Container
Environmental uncertainty	High	Moderate	Low
Departmental differentiation	High	Moderate	Low
Percent management in integrating roles	22	17	0

Mechanistic and Organic Forms

Mechanistic

Tasks are specialized and rigidly defined

There is a strict hierarchy of authority and control

Knowledge and control of tasks are centralized

Communication is vertical

Organic

Tasks are adjusted and redefined through teamwork

There is less of a hierarchy of authority and control

Knowledge and control of tasks are decentralized

Communication is horizontal

Contingency Framework for Uncertainty and Organizational Responses

Dependence on Financial Resources

Resource-dependence perspective means organizations depend on the environment but strive to acquire control over resources to minimize dependence

Organizations are vulnerable if resources are controlled by other organizations

To minimize vulnerabilities, organizations will team up with others when resources are scarce

Influencing Financial Resources

To maintain a balance between dependence on other organizations and preserving their own independence, organizations modify, manipulate, or control elements of the external environment

Two strategies to achieve this balance:

Establishing formal relationships

Influencing key sectors

Organizing Strategies for Controlling the External Environment

Establishing Formal Relationships

Acquire an ownership stake

Form joint ventures and partnerships

Lock in key players

Recruit executives

Use advertising and public relations

Influencing Key Sectors

Change where you do business (your domain)

Use political activity, regulation

Join in trade associations

Avoid illegitimate activities

Relationship Between Environmental Characteristics and Organizational Actions

Organizational Design Essentials (slide 1 of 2)

An organization’s environment can be understood by analyzing its domain, which defines the external sectors with which the organization will interact to accomplish its goals.

Changes in the environment can be described along three primary dimensions: dynamism, complexity, and abundance.

The dimensions of dynamism (stable―unstable) and complexity (simple—complex) can be combined into a framework for assessing environmental uncertainty.

Organizations adapt to complexity and dynamism by adding specific departments and functions to deal with uncertainties and by establishing buffering and boundary-spanning roles.

Organizational Design Essentials (slide 2 of 2)

The more complex the environment, the greater differentiation within the organization.

An organization that operates in a stable environment can function well with a mechanistic structure.

An organization that operates in a rapidly changing environment needs a more organic structure to perform well.

When risk is great or resources are scarce, the organization can establish linkages, such as acquisitions and joint ventures, that minimize risk and maintain a supply of scarce resources.

Systematic patterns exist in the relationship between an organization and its external environment.