1. Chapter 4 b The External Environment

2. Objectives b Learn how to assess environments b Be able to respond to the respective environments b Need for information & resources b Response to information & resource (structural designs, planning systems, change and control elements in the environment)

3. Definitions b Organizational environment – elements that exist outside the boundary of the organization and have the potential all or part of the organization b Domain b Sectors – Exhibit 4.1

4. (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, unions (d) Stock markets, banks, savings and loans, private investors (e) Customers, clients, potential users of products and services (f) Techniques of production, science, research centers, automation new materials (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 green movements (j) Competition from and acquisition by foreign firms, entry into overseas markets, foreign customs, regulations, exchange rates An Organization’s Environment (j) International Sector (d) Financial Resources Sector (e) Market Sector (f) Technology Sector (g) Economic Conditions Sector (a) Industry Sector (h) Government Sector (c) Human Resources Sector (b) Raw Materials Sector (i) Socio-cultural Sector ORGANIZATION DOMAIN

5. General environment – sectors that may not have a direct impact on the daily operations of the firm but will indirectly influence it. International Context – examine trends

6. Environmental Uncertainty b Uncertainty – decision makers do not have sufficient information about environmental factors (and have a difficult time predicting the future) b Framework for assessing environmental uncertainty – p. 138

7. Adapting to Environmental Uncertainty b The need for right fit between internal structure and external environment Positions & departments (roles of the various departments in an organization)Positions & departments (roles of the various departments in an organization) Buffering (absorb uncertainty) and boundary spanning (link and coordinate the organization with the important areas in the external environment)Buffering (absorb uncertainty) and boundary spanning (link and coordinate the organization with the important areas in the external environment) b Differentiation & Integration

8. Environmental Uncertainty and Organizational Integrators Industry:PlasticsFoodsContainer EnvironmentalUncertaintyHighModerateLow DepartmentalDifferentiationHighModerateLow Percent of management in integrating roles 22%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.

9. Market Sub-environment Customers Advertising Competitors agencies Distribution system Manufacturing Sub-environment Labor Raw Suppliers materials Production equipment Scientific Sub-environment Scientific Research journals centers Professional associations Organizational Departments Differentiate to Meet Needs of Sub-environments President R & D Division Sales Division Manufacturing Division

10. Organization Forms Mechanistic: Organic: Organization Forms Mechanistic: Organic: b Tasks b Tasks are broken down into specialized, separate parts. are rigidly defined. b There b There is a strict hierarchy of authority and control, and there are many rules. b Knowledge b Knowledge and control of tasks are centralized at the top of the organization. b Communication b Communication is vertical. b Employees b Employees contribute to the common task of the department. b Tasks b Tasks are adjusted and redefined through teamwork. b There b There is less hierarchy of authority and control, and there are few rules. b Knowledge b Knowledge and control of tasks are located anywhere in the organization. b Communication b Communication is horizontal. Source: Adapted from Gerald Zaltman, Robert Duncan, and Jonny Holbek, Innovations and Organizations (New York: Wiley, 1973), 131.

11. Low Uncertainty 1. Mechanistic structure; formal, centralized 2. Few departments 3. No integrating roles 4. Current operations orientation High-Moderate Uncertainty 1. Organic structure, teamwork; participative, decentralized 2. Few departments, much boundary spanning 3. Few integrating roles 4. Planning orientation High Uncertainty 1. Organic structure, teamwork; participative, decentralized 2. Many departments differentiated, extensive boundary spanning 3. Many integrating roles 4. Extensive planning, forecasting Low-Moderate Uncertainty 1. Mechanistic structure; formal, centralized 2. Many departments, some boundary spanning 3. Few integrating roles 4. Some Planning Contingency Framework for Environmental Uncertainty and Organizational Responses Uncertainty ENVIRONMENTAL CHANGE STABLE ENVIRONMENTAL COMPLEXITY UNSTABLE SIMPLECOMPLEX

12. Organization Strategies for Controlling the External Environment b Establishing Interorganizational Linkages: OwnershipOwnership Contracts, joint venturesContracts, joint ventures Cooptation, interlocking directoratesCooptation, interlocking directorates Executive recruitmentExecutive recruitment Advertising, public relationsAdvertising, public relations b Controlling the Environmental Domain: Change of domainChange of domain Political activity, regulationPolitical activity, regulation Trade associationsTrade associations Illegitimate activitiesIllegitimate activities

13. Relationship Between Environmental Characteristics and Organizational Actions Environmental domain (ten sectors) High complexity Establishment of favorable linkages: ownership, strategic alliances, cooptations, interlocking directorates, executive recruitment, advertising, and public relations Organic structure and systems with low formalization, decentralization, and low standardization Many departments and boundary roles Greater differentiation and more integrators for internal coordination High uncertainty High rate of change Scarcity of valued resources Resource dependence Control of the environmental domain: change of domain, political activity, regulation, trade associations, and illegitimate activities EnvironmentOrganization