external environment in organization structure

4-1Thomson Learning© 2004

Chapter Four

The External Environment

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(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 greenmovements

(j) Competition fromand acquisition by

foreign firms,entry into overseas

markets, foreign customs, regulations,

exchange rates

An Organization’s Environment

(j)International

Sector

(d)Financial

ResourcesSector

(e)MarketSector

(f)Technolo

gySector

(g)EconomicConditions

Sector

(a)IndustrySector

(h)Government

Sector

(c)Human Resourc

esSector

(b)Raw

MaterialsSector

(i)Sociocultur

alSector

ORGANIZATION

DOMAIN


(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

(e) Customers, clients, potential users of products and services




exchange rates

Task Environment

(j)International

Sector

(e)MarketSector

(a)IndustrySector

(c)Human Resourc

esSector

(b)Raw

MaterialsSector

ORGANIZATION

DOMAIN


(d) Stock markets, banks, savings and loans, private investors

(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 greenmovements

General Environment

(d)Financial

ResourcesSector

(f)Technolo

gySector

(g)EconomicConditions

Sector

(h)Government

Sector

(i)Sociocultur

alSector

ORGANIZATION

DOMAIN





exchange rates

International Environment

(j)International

Sector

ORGANIZATION

DOMAIN

Framework for Assessing Environmental Uncertainty

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4-6

Simple + Stable = Low Uncertainty

1. Small number of external elements, and elements are similar

2. Elements remain the same or change slowly

Example: soft drink bottlers, beer distributors, container manufacturers food processors

Complex + Stable = Low-moderate Uncertainty

1. Large number of external elements, and elements are dissimilar

2. Elements remain the same or change slowly

Example: Universities, appliance manufacturers, chemical companies, insurance companies

Simple + Unstable = High-Moderate Uncertainty

1. Small number of external elements, and elements are similar

2. Elements change frequently and unpredictably

Example: E-commerce, fashion clothing, music industry, toy manufacturers

Complex + Unstable = High Uncertainty

1. Large number of external elements, and elements are dissimilar

2. Elements change frequently and unpredictably

Example: computer firms, aerospace firms, telecommunications firms, airlines

Uncertainty

Stable

Unstable

Simple Complex

ENVIRONMENTALCHANGE

ENVIRONMENTAL COMPLEXITY

ADAPTING TO A CHANGING ENVIRONMENT


Adding Positions and Departments

Building Relationships

Differentiation and Integration


MarketSub-environment

Customers AdvertisingCompetitors agencies

Distributionsystem

ManufacturingSub-environment

Labor Raw Suppliersmaterials

Productionequipment

ScientificSub-environment

Scientific Researchjournals centers

Professionalassociations

Organizational Departments Differentiate to Meet Needs of

Sub-environments

President

R & DDivision

SalesDivision

ManufacturingDivision


Differences in Goals and Orientations Among

Organizational Departments

Characteristic

R & DDepartment

Manufacturing

Department

SalesDepartment

GoalsNew developments, quality

Efficient production

Customer satisfaction

TimeHorizon Long Short Short

InterpersonalOrientation Mostly task Task Social

Formality ofStructure Low High HighSource: Based on Paul R. Lawrence and Jay W. Lorsch,Organization and Environment (Homewood, Ill.: Irwin, 1969), pp. 23-29.


Environmental Uncertainty and Organizational

Integrators

Industry: Plastics Foods Container

Environmental

UncertaintyHigh Moderate Low

Departmental

Differentiation

High Moderate Low

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.


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.

Source: Adapted from Gerald Zaltman, Robert Duncan, and Jonny Holbek,Innovations and Organizations (New York: Wiley, 1973), 131.


Low Uncertainty

1. Mechanistic structure; formal, centralized2. Few departments

3. No integrating roles

4. Current operations orientation; low speed response

High-Moderate Uncertainty

1. Organic structure, teamwork; participative, decentralized2. Few departments, much boundary spanning3. Few integrating roles4. Planning orientation; fastresponse

High Uncertainty

1. Organic structure, teamwork; participative, decentralized2. Many departments differentiated, extensive boundary spanning3. Many integrating roles

4. Extensive planning, forecasting; high speed response

Low-Moderate Uncertainty

1. Mechanistic structure; formal, centralized2. Many departments, some boundary spanning3. Few integrating roles4. Some planning; moderate speed response

Contingency Framework for Environmental Uncertainty and

Organizational Responses

Uncertainty

Uncertainty

ENVIRONMENTALCHANGE

STABLE

ENVIRONMENTAL COMPLEXITY

UNSTABLE

SIMPLE COMPLEX


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


Relationship Between Environmental Characteristics and

Organizational Actions

Environmentaldomain

(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 to enable a high-speed response

Many departments and boundary rolesGreater differentiation and more

integrators for internal coordinationHighuncertainty

High rateof change

Scarcity ofvalued

resources

Resourcedependence Control of the environmental domain:

change of domain, political activity,regulation, trade associations, and

illegitimate activities

Environment Organization

external environment in organization structure

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