SOCI110 Module 4 - THE EXTERNAL ENVIRONMENT
0. OBJECTIVES
In this module you will learn- the meaning of various concepts associated with the organizational environment
- the 2 dimensions of environmental uncertainty (complexity and stability)
- strategies used by organizations to cope with environmental uncertainty
- how organizations depend on the environment for scarce resources
- strategies used by organizations to minimize their dependence on the environment for resources
1. THE ENVIRONMENTAL DOMAIN
- Exhibit: An organization's environment (Daft E4.1 p. 131)
- the organizational environment consists of all elements outside the boundary of the organization that can affect it
- environmental sectors are subdivisions of the external environment that contain similar elements; the 10 principal sectors are shown in the exhibit above
- an organization's domain is its chosen environmental field of action or niche; it consists of external sectors with which the organization interacts to accomplish its goals
- the task environment includes sectors with which organization interacts directly and that have a direct impact on the organization; it typically includes industry, raw materials, market, and sometimes human resources and international sectors. (Task environment and organizational domain overlap a great deal.)
- the general environment includes sectors that influence the organization more indirectly; it may include government, sociocultural, and technology sectors
Q - The industry sector includes: potential users of the organization's products (Y/N), competitors (Y/N), employment agencies (Y/N)?
Q - During the late 1970s and into the 1980s, power companies were faced with a great deal of uncertainty generated by groups protesting the use of nuclear power. These events contributed to instability in what sector of the organizational environment of power companies?
Q - "An organization's domain is the buildings and grounds that are owned or leased by the organization and in which inputs are transformed into outputs." (TRUE/FALSE?)
The basic outline for this module is the idea that the environment affects the organization in 2 essential ways, through
- the need for information -> the need to adapt to absence of information, which is uncertainty -> See Sections 2, 3, 4
- the need for resources -> the need to minimize resource dependence -> See Sections 5, 6, 7
2. ENVIRONMENTAL UNCERTAINTY
Environmental uncertainty is the absence of full information about the environmentThere are 2 dimensions of environmental uncertainty:
- environmental complexity (simple environment <---> complex environment) = heterogeneity (or number and dissimilarity) of external elements relevant to the organization's operations
- environmental stability (stable environment <---> unstable environment) = extent to which the environment is changing rapidly and unpredictably
- university: complex but stable environment
- beer distributor: simple and stable environment
- fashion industry: simple but unstable environment
- hospital: complex but stable environment (barring a major catastrophe like an earthquake)
- Exhibit: Framework for assessing environmental uncertainty (Daft E4.2 p. 138)
Q - The two dimensions of environmental uncertainty are ___ and ___ ?
Q - "Environmental stability refers to the number and dissimilarity of external elements that have an impact on the organization." (TRUE/FALSE?)
3. ADAPTING TO ENVIRONMENTAL UNCERTAINTY
Organizations utilize a number of strategies to adapt to environmental uncertainty.1. Positions & Departments
The organization creates departments that specialize in dealing with a specific sector of the environment.As a result there is a relationship
environmental complexity -> internal complexity
2. Buffering & Boundary Spanning
- Buffering = absorbing environmental uncertainty to protect the technical core, the departmentthat performs the primary production activity of the organization; EX: a purchasing department
- Boundary spanning = linking the organization to key outside elements; EX: market research, competitive intelligence
- Exhibit: Representation of buffer departments protecting the technical core (Daft old edition)
Q - "Buffer departments attempt to insure that the technical core operates as an open system." (TRUE/FALSE?)
Q - Sophie Lorimer is a researcher in the R&D department of a major chemical company. Part of her job is to read technical and scientific journals, and to attend conferences to find out what new developments are occuring. That part of her job corresponds to a (MAINTENANCE/BUFFERING/BOUNDARY SPANNING?) role.
3. Differentiation & Integration
The classical research of Paul Lawrence and Jay Lorsch on differentiation and integration processes is especially important.- Differentiation = differences in cognitive and emotional orientations, and in formal structure, among different functional departments
- Integration = quality of collaboration among departments
- be more differentiated internally
- place more emphasis on integrating roles (EX: liaisons, coordinators)
- Exhibit: Departments differentiate to adapt to specific subenvironments (Daft E4.3 p. 143)
- Exhibit: Resulting differences in goals and orientations among R&D, manufacturing, and sales departments (Daft E4.4 p. 143)
- Exhibit: L&R's comparison of the plastics, foods, and container industries showing that greater environmental uncertainty entails both greater differentiation and greater integration effort (Daft E4.5 p. 144)
Q - "According to Paul Lawrence and Jay Lorsch, high differentiation in an organization implies that coordination between departments is problematic." (TRUE/FALSE?)
Q - The study of differentiation and integration processes in organizations is closely associated with the names of (Choose one: CHEECH & CHONG/SONNY & CHER/LAWRENCE & LORSCH/BONNY & CLYDE/PAUL & VIRGINIE)
4. Organic versus Mechanistic Control
Tom Burns and G. M. Stalker have emphasized the distinction between mechanistic and organic forms of organization- a mechanistic organization has many rules and procedures, well defined tasks, a clear hierarchy of authority
- an organic organization has a looser structure, fewer written regulations, hierarchy not clear, more horizontal communication
- Exhibit: Organic vs. mechanistic organizational forms (Daft E4.6 p. 144)
5. Planning & Forecasting
Organizations facing greater uncertainty will tend to increase their planning and forecasting effort. (This is pretty obvious if you ask me!)6. Institutional Imitation
(Institutional imitation is discussed more fully in Module 5 as part of the institutional perspective.)The institutional perspective argues that under high uncertainty, organizations tend to imitate others in the same institutional environment. Consequences of institutional imitation
- organizations in the same industry tend to "look alike"
- organizations are highly susceptible to fads, such asdownsizing, setting up a web page on the internet, etc.
4. FRAMEWORK FOR ORGANIZATIONAL RESPONSE TO UNCERTAINTY
This framework summarizes organizational responses to uncertainty discussed in Section 3.- Exhibit: Contingency framework for organizational responses to environmental uncertainty (Daft E4.7 p. 147)
5. RESOURCE DEPENDENCE
The resource dependence perspective views organizations as dependent on the environment for scarce resources (material and financial) and as striving to acquire control over the sources of these resources to minimize dependence on the environment.The 2 general strategies to minimize resource dependence are
- establishing interorganizational linkages; this typically requires a trade-off between resources and organizational autonomy
- controlling the environmental domain through direct manipulation
- Exhibit: Strategies for controlling the external environment (Daft 4.8 p. 149)
6. INTERORGANIZATIONAL LINKAGES
1. Ownership
Various degrees of ownership are achieved through part ownership, controlling interest, acquisition, or merger.- horizontal integration = acquired organization is in the same industry (EX: Maytag bying Magic Chef)
- vertical integration = acquired organization is a supplier or distributor (EX: soft drink company buys a bottle maker)
2. Contracts & Joint Ventures
Includes license agreements, supplier arrangements (EX: McDonald buys a whole crop of potatoes), and joint ventures.- a joint venture is a new organization independent of the parent organizations
3. Cooptation & Interlocking Directorates
- cooptation = leader from important sector of the environment is made part of the organization (EX: politician sitting on UNC board of directors)
- interlocking directorates = two organizations are linked when the same person is a member of the boards of both
4. Executive Recruitment
- executive recruitment = interorganizational contact through the transfer or exchange of executives (EX: the "revolving door" in which retired generals are hired by the aerospace industry)
5. Advertising & Public Relations
Minicase: Toshiba (Daft p. 151). Toshiba already engaged in high-tech strategic aliance in the early 1900s when it contracted with GE to make light bulb filaments. They are currently involved in more than two dozens major partnerships and joint ventures. Toshiba illustrates the range of strategies that an be used to reduce resource dependence.- Exhibit: Toshiba's alliances (Daft E4.9 p. 152)
Q - McDonnell-Douglas hired a retired Air Force general for a top management position. This is an instance of what organizaitonal linkage strategy?
7. CONTROLLING THE ENVIRONMENTAL DOMAIN
1. Change of Domain
An organization can change its domain through acquisition and/or divestment (EX: Reynolds acquiring Nabisco)2. Political Activity & Lobbying
To influence legislation and obtain favorable regulations.3. Trade Associations
Trade associations of organizations with similar interests (EX: National Association of Manufacturers).4. Illegitimate Activities
If all else fails, let's try using some bribes, kickbacks, payoffs to foreign officials, illegal political contributions, industrial espionage, price fixing, etc.Q - What's the most direct way for an organization to change its domain?
8. SUMMARY OF ORGANIZATIONAL RESPONSES TO THE ENVIRONMENT
The next exhibit summarizes most of the discussion on the response of organizations to environmental uncertainty and their effort to minimize resource dependence. This "big picture" illustrates the "top down" approach to understanding the materials in the course.- Exhibit: organizational responses to environmental uncertainty and resource dependence (Daft E4.10 p. 154)
Last modified 5 Sep 2001