The External Environment Chapter Four The External Environment Thomson Learning © 2004

Relationship Between Environmental Characteristics and Organizational Actions Organization Response Number of departments (complexity) Degree of differentiation and integration for internal coordination Complexity Uncertainty (Information) Organic vs. Mechanistic: formalization, decentralization, standardization, etc. Stability Forecasting & Planning Forecasting & Planning necessary Environmental Sectors Establishment of favorable linkages: ownership, strategic alliances, co-optations, interlocking directorates, executive recruitment, advertising, and public relations Resource dependence Scarcity (Resources) Control of the environmental domain: change of domain, political activity, regulation, trade associations, and illegitimate activities Thomson Learning © 2004

An Organization’s Environment (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, unionization (d) Stock markets, banks, savings and loans, private investors (e) Customers, clients, potential users of products and services (f) Techniques of production, science, computers, information technology (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 International Context (j) International Sector (a) Industry Sector (i) Sociocultural Sector DOMAIN (b) Raw Materials Sector (c) Human Resources Sector (h) Government Sector ORGANIZATION (g) Economic Conditions Sector (d) Financial Resources Sector (e) Market Sector (f) Technology Sector Thomson Learning © 2004

Diagnostic Framework for Environmental Uncertainty Low Uncertainty Simple + Stable Food Processor Soft drink bottler High-Moderate Uncertainty Simple + Unstable Fashion designer Music / Toys High Uncertainty Complex + Unstable Electronics firm Airline Low-Moderate Uncertainty Complex + Stable University Chemical company STABLE ENVIRONMENTAL CHANGE Uncertainty UNSTABLE SIMPLE COMPLEX ENVIRONMENTAL COMPLEXITY Thomson Learning © 2004

Customers Advertising Organizational Departments Differentiate to Meet Needs of Sub-environments President Scientific Sub-environment Scientific Research journals centers Professional associations Manufacturing Sub-environment Labor Raw Suppliers materials Production equipment Market Sub-environment Customers Advertising Competitors agencies Distribution system R & D Division Manufacturing Division Sales Division Thomson Learning © 2004

Differences in Goals and Orientations Among Organizational Departments Characteristic R & D Department Manufacturing Sales Goals New developments, quality Efficient production Customer satisfaction Time Horizon Long Short Interpersonal Orientation Mostly task Task Social Formality of Structure Low High Source: Based on Paul R. Lawrence and Jay W. Lorsch, Organization and Environment (Homewood, Ill.: Irwin, 1969), pp. 23-29. Thomson Learning © 2004

Environmental Uncertainty and Organizational Integrators Industry: Plastics Foods Container Environmental Uncertainty High Moderate Low Departmental Differentiation 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. Thomson Learning © 2004

Managing the OrgEnv Interface Buffering: Protects the technical core from the environment – ex: raw materials inventory – out of fashion Boundary-spanning: Links the organization to the environment – ex: R&D and market research – competitive intelligence Thomson Learning © 2004

Organization Forms Mechanistic: Organic: 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. 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. Thomson Learning © 2004

Planning, Forecasting & Responsiveness Low Uncertainty means ‘No surprises’ so focus is internal and current. As Uncertainty increases, managers begin to think about what could happen and plan for possible needed changes Further Uncertainty triggers creation of planning specialists and departments that attempt to forecast events and develop alternate scenarios of the future Thomson Learning © 2004

High-Moderate Uncertainty Low-Moderate Uncertainty Contingency Framework for Environmental Uncertainty and Organizational Responses Low Uncertainty 1. Mechanistic structure; formal, centralized 2. Few departments 3. No integrating roles 4. Current operations orientation; low speed response High-Moderate Uncertainty 1. Organic structure, teamwork; participative, decentralized 2. Few departments, much boundary spanning 3. Few integrating roles 4. Planning orientation; fast response High Uncertainty 2. Many departments differentiated, extensive boundary spanning 3. Many integrating roles 4. Extensive planning, forecasting; high speed response Low-Moderate Uncertainty 2. Many departments, some boundary 4. Some planning; moderate speed STABLE ENVIRONMENTAL CHANGE Uncertainty UNSTABLE SIMPLE COMPLEX ENVIRONMENTAL COMPLEXITY Thomson Learning © 2004

Organization Strategies for Controlling the External Environment Establishing Interorganizational Linkages: Ownership Contracts, joint ventures Cooptation, interlocking directorates Executive recruitment Advertising, public relations Controlling the Environmental Domain: Change of domain Political activity, regulation Trade associations Illegitimate activities Thomson Learning © 2004

Relationship Between Environmental Characteristics and Organizational Actions Organization Response Number of departments (complexity) Degree of differentiation and integration for internal coordination Complexity Uncertainty (Information) Organic vs. Mechanistic: formalization, decentralization, standardization, etc. Stability Forecasting & Planning Forecasting & Planning necessary Environmental Sectors Establishment of favorable linkages: ownership, strategic alliances, co-optations, interlocking directorates, executive recruitment, advertising, and public relations Resource dependence Scarcity (Resources) Control of the environmental domain: change of domain, political activity, regulation, trade associations, and illegitimate activities Thomson Learning © 2004

Genesco (p. 149) Assess the amount of Environmental Uncertainty that Genesco faces using the Framework in Exhibit 4.2. Use examples from the case to argue why it is as simple/complex and stable/unstable as you suggest. Are the buyers at Genesco performing a buffering or boundary spanning role? Explain. What about the other role? Who might do it? What would it look like? Would it be useful? Now that you know the amount of uncertainty that Genesco faces (Ex. 4.2), you are ready to consider what the theory says about what an organization in that ‘box’ should do to succeed. Is that what Genesco is doing? Give examples. Even if Genesco is certain about what its customers want, it will still be in trouble if it can’t get product into its stores. Identify what aspect of resource dependence theory (Ex 4.8) this relates to and give the supporting example from the case Thomson Learning © 2004