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Organizational Theory, Design, and Change Text and Cases Fourth Edition Gareth R. Jones
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Learning Objectives
List the forces in an organization’s specific and general environment that give rise to opportunities and threats
Identify why uncertainty exists in the environment
Describe how and why an organization seeks to adapt to and control these forces to reduce uncertainty
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Learning Objectives
Understand resource dependence theory and transaction cost and explain why organizations choose different kinds of interorganizational strategies to manage their environments
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4. What is the Organizational Environment?
Environment: the set of forces surrounding an organization that have the potential to affect the way it operates and its access to scarce resources
Organizational domain: the particular range of goods and services that the organization produces and the customers and other stakeholders whom it serves
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5. Figure 3-1: The Organizational Environment
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6. The Specific Environment
The forces from outside stakeholder groups that directly affect an organization’s ability to secure resources
Outside stakeholders include customers, distributors,unions, competitors, suppliers, and the government.
The organization must engage in transactions with all outside stakeholders to obtain resources to survive.
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7. The General Environment
The forces that shape the specific environment and affect the ability of all organizations in a particular environment to obtain resources
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8. The General Environment
Economic forces: factors, such as interest rates, the state of the economy, and the unemployment rate, determine the level of demand for products and the price of inputs
Technological forces: the development of new production techniques and new information-processing equipment, influence many aspects of organizations’ operations
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9. The General Environment
Political and environmental forces: influence government policy toward organizations and their stakeholders
Demographic, cultural, and social forces: the age, education, lifestyle, norms, values, and customs of a nation’s people
Shape organization’s customers, managers, and employees
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10. Uncertainty in the Environment
All of the forces discussed above cause uncertainty for organizations.
It becomes more difficult for managers to control flow of resources to protect and enlarge their domains.
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11. Sources of Uncertainty in the Organizational Environment
Three factors causing uncertainty
Environmental complexity: the strength, number, and interconnectedness of the specific and general forces that an organization has to manage
Environmental dynamism: the degree to which forces in the specific and general environments change quickly over time
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12. Sources of Uncertainty in the Organizational Environment
Environmental richness: the amount of resources available to support an organization’s domain
Two reasons why environments may be poor:
The organization is located in a poor country or in a poor region of a country.
There is a high level of competition, and organizations are fighting over available resources.
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13. Figure 3-2: Three Factors Causing Uncertainty
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14. Resource Dependence Theory
Organizations are dependent on their environment for their resources.
Organizations attempt to manage their transactions with the environment to ensure access to resources.
Organizations want access to their resources to be predictable.
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15. Resource Dependence Theory
A theory that argues that the goal of an organization is to minimize its dependence on other organizations for the supply of scare resources in its environment and to find ways of influencing them to make resources available
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16. Resource Dependence Theory
An organization has to manage two aspects of its resource dependence:
It has to exert influence over other organizations so that it can obtain resources.
It must respond to the needs and demands of the other organizations in its environment.
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17. Interorganizational Strategies for Managing Resource Dependencies
Two basic types of interdependencies cause uncertainty.
Symbiotic interdependencies: interdependencies that exist between an organization and its suppliers and distributors
Competitive interdependencies: interdependencies that exist among organizations that compete for scare inputs and outputs
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18. Strategies for Managing Symbiotic Resource Interdependencies
Developing a good reputation
Reputation: a state in which an organization is held in high regard and trusted by other parties because of its fair and honest business practices
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19. Strategies for Managing Symbiotic Resource Interdependencies
Co-optation: a strategy that manages symbiotic interdependencies by neutralizing problematic forces in the specific environment
Examples: make outside stakeholders (customers) inside stakeholders
Interlocking directorate: a linkage that results when a director from one company sits on the board of another company
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20. Strategies for Managing Symbiotic Resource Interdependencies
Strategic alliances: an agreement that commits two or more companies to share their resources to develop joint new business opportunities
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21. Types of Strategic Alliances
Long-term contracts
Networks: a cluster of different organizations whose actions are coordinated by contracts and agreements rather than through a formal hierarchy of authority
Minority ownership
Keiretsu- a group of organizations, each of which owns shares in the other organizations in the group, that work together to further the group’s interests
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22. Figure 3-5: The Fuyo Keiretsu
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23. Types of Strategic Alliances
Joint venture: a strategic alliance among two or more organizations that agree to jointly establish and share the ownership of a new business
Merger and takeover: results in resource exchanges taking place within one organization rather than between organizations
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24. Figure 3-4: Types of Strategic Alliances
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25. Strategies for Managing Competitive Resource Interdependencies
Collusion and cartels
Collusion: a secret agreement among competitors to share information for a deceitful or illegal purpose
Cartel: an association of firms that explicitly agrees to coordinate their activities
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26. Strategies for Managing Competitive Resource Interdependencies
Third-party linkage mechanism: a regulatory body that allows organizations to share information and regulate the way they compete
Strategic alliances: can be used to manage both symbiotic and competitive interdependencies
Merger and takeover: the ultimate method for managing problematic interdependencies
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27. Figure 3-7: Managing Competitive Interdependencies
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28. Transaction Cost Theory
Transaction costs: the costs of negotiating, monitoring, and governing exchanges between people
Transaction cost theory: a theory that states that the goal of an organization is to minimize the costs of exchanging resources in the environment and the costs of managing exchanges inside the organization
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29. Sources of Transaction Costs
Environmental uncertainty and bounded rationality
Bounded rationality: refers to the limited ability people have to process information
Opportunism and small numbers – attempt to exploit forces or stakeholders
Risk and specific assets
Specific assets: investments that create value in one particular exchange relationship but have no value in any other exchange relationship
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30. Figure 3-8: Sources of Transaction Costs
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31. Transaction Costs are Low When These Conditions Exist:
Organizations are exchanging nonspecific goods and services.
Uncertainty is low.
There are many possible exchange partners.
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32. Transaction Costs Increase When These Conditions Exist:
Organizations begin to exchange more specific goods and services.
Uncertainty increases.
The number of possible exchange partners falls.
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33. Transaction Costs and Linkage Mechanisms
Bureaucratic costs
According to transaction cost theory, organizations will adopt increasingly formal linkage mechanisms with their exchange partners as transaction costs increase.
But these mechanism also carry bureaucratic costs within the organization.
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34. Transaction Costs and Linkage Mechanisms
Transaction cost theory can be used to choose an interorganizational strategy.
Managers can weigh the savings in transaction costs of particular linkage mechanisms against the bureaucratic costs.
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35. Transaction Costs and Strategy
Managers deciding which strategy to pursue must take the following steps:
Locate the sources of transaction costs that may affect 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 lowest bureaucratic cost
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Keiretsu
Mechanism for achieving the benefits of formal linkages without incurring its costs
Example: Toyota has a minority ownership in its suppliers.
Substantial control over the exchange relationship
Avoid bureaucratic cost of ownership and opportunism
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Franchising
A franchise is a business that is authorized to sell a company’s products in a certain area.
The franchiser sells the right to use its resources (name or operating system) in return for a flat fee or share of profits.
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Outsourcing
Moving a value creation that was performed inside the organization to outside companies
Decision is prompted by the weighing the bureaucratic costs of doing the activity against the benefits.
Increasingly, organizations are turning to specialized companies to manage their information processing needs.
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