4-1 Thomson Learning © 2004 Chapter Four The External Environment

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

Thomson Learning © (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 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) Sociocultural Sector ORGANIZATION DOMAIN

Thomson Learning © 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 Diagnostic Framework for Environmental Uncertainty Uncertainty ENVIRONMENTAL CHANGE STABLE ENVIRONMENTAL COMPLEXITY UNSTABLE SIMPLECOMPLEX

Thomson Learning © 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

Thomson Learning © 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 HorizonLongShort Interpersonal OrientationMostly taskTaskSocial Formality of StructureLowHigh Source: Based on Paul R. Lawrence and Jay W. Lorsch, Organization and Environment (Homewood, Ill.: Irwin, 1969), pp

Thomson Learning © Environmental Uncertainty and Organizational Integrators Industry: PlasticsFoodsContainer Environmental UncertaintyHighModerateLow Departmental DifferentiationHighModerateLow 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 © 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 © 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 © 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 1. Organic structure, teamwork; participative, decentralized 2. Many departments differentiated, extensive boundary spanning 3. Many integrating roles 4. Extensive planning, forecasting; high speed response Low-Moderate Uncertainty 1. Mechanistic structure; formal, centralized 2. Many departments, some boundary spanning 3. Few integrating roles 4. Some planning; moderate speed response Contingency Framework for Environmental Uncertainty and Organizational Responses Uncertainty ENVIRONMENTAL CHANGE STABLE ENVIRONMENTAL COMPLEXITY UNSTABLE SIMPLECOMPLEX

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