The External Environment

Alandra TelschowDylan Dubois

Mahilet Asfaw

Environment Goals Strategy Structure

Domain and SectorDomain: area an organization uses for its products services and market

Sectors: are divisions within the environment

Task Environment• Task environment

– the sectors that organization’s interact directly with and that have a direct impact on the organization’s ability to achieve its goals

– includes the industry, raw materials, and market sectors, human resources and international sectors.

Task Environment• Task environment

– Very important to organizations because it has ability to change goals, strategies and structure

– Ex. Students no longer apply to kings. Kings wants to create a vital academic community (goal). Students are a task environment in their strategy. If no students no need for profs to teach and guidance counselor. Changes structure of organization

Task Environment•Task environment–Task environments may not always be needed if organization is well prepared and has substitutes

–Some organizations don’t have substitutes, that’s when task environment is important

–Ex. Dairy farmers, fashion industry

General Environment• General Environment

– Sectors that don’t have direct impact on daily operations, but indirect influence.

– Involves government, sociocultural, technology and economy

General Environment• General Environment

– Can dictate the strategy that organization uses.– Snow and Miles typology organization in highly

influential environments should prospector• Innovative • Risk taking • Flexible• Decentralized

– Constant change in the technological world

General Environment• General Environment

-Theory looks at how general environment impacts organizations- but many big organizations have impacts on general environments- ex. tax reductions for big corporations

Environmental Uncertainty• Environmental Uncertainty

– Deals with sectors that businesses interact with on daily basis. Involves task environment.

– 2 dimensions of environmental uncertainty• Simple-complex dimension• Stable-unstable dimension

Simple-Complex Dimension• complex dimension

– The more external factors that influence organization and more organizations in domain the more complex

Simple-Complex Environments• complex dimension

– Highly complex environments is a country• Divisional structure- organizing people together

according to what firm produces or their goals

Simple-Complex Dimension• Simple dimension

– In simple dimension the organization interacts and influenced by few external elements

– Defender strategy is what organization may use• Efficiency orientation• Centralized authority• Specialized tasks• Strict hierarchy

Simple-Complex DimensionSimple dimensions- Coming future simple environments may longer exist

- World has become so complex and intertwined with globalization and technology

- EX. Dairy farmers over history

Stable-Unstable Dimension• Stable dimension

– Environment is stable if remains the same over months or years, and experiences predictable change

Stable-Unstable Environment• Stable dimension

– Organizations functioning in stable environments can use a mechanistic design

VerticalStructure

RoutineTasks

RigidCulture

CompetitiveStrategy

FormalSystems

Mechanistic System Design

Stable Environment

Efficient Performance

Environmental Uncertainty• Stable-unstable dimensions

– For unstable environments elements shift abruptly and unexpectedly. Instability may stem from competition

Environmental Uncertainty• Stable-unstable dimensions

– For unstable environments organic systems designs are best

– Ex. daycare

Adapting to Environmental Uncertainty

– Learn how organizations can adapt to environmental uncertainties– Internal operations vary greatly depending on level of uncertainty

• Operations in a stable market – Focus on internal operations & efficiencies

• Operations in an unstable market– Focus on external environment and adapting operations

– Finding the right fit between internal structure and the external environment by using theories and guidelines

Positions & Departments– As environmental complexity increases, number of positions and

departments likely will increase– Each sector of the environment will have an employee or

department to handle it• Legal, HR, Finance, Global, Technology• New departments E-commerce & Information Technology• Sometimes not economical for smaller organizations to have

many departments– Increases internal complexity

Buffering Roles– Buffering departments absorb and assimilate

uncertainty from the environment, protecting the technical core

• Technical core performs the primary production activity of an organization

Buffering Roles– Buffering roles exchange materials, resources &

money between the environment and the organization

• Example: logistics deals with shipping products to customers and suppliers

Buffering Roles

• Pros:– well connected to customers &

suppliers– getting information straight

from the source– less chance of

miscommunication– can get to root of problems

quicker

• Cons:– weakens internal efficiency– decrease in quality– more time consuming– less specialized

○ New approach being used is to drop buffering roles to expose technical core

Boundary Spanning– Boundary spanning roles: link and coordinate an organization

with crucial elements in the external environment• Primarily concerned with the exchange of information

between the organization and environment• 1) detecting changes in the environment and bringing

information into the organization• 2) sending information into the environment that presents

the organization in a favourable light

Boundary Spanning– 97% of competitive failures resulted from a lack of attention to

market changes or failure to act on vital information– Boundary personnel scan the environment and bring in

important information• Market research department scan for trends in consumer

taste• Advertising departments takes favourable information and

portrays it to the public

Buffering Roles & Boundary Spanning

•Buffering roles primarily focused on RESOURCES

•Boundary spanning primarily focused on INFORMATION

•Which jobs are associated with which roles?

Boundary Spanning or Buffering?• HR manager• PR manager• Purchasing agent

• Sales person• R&D • Supply management

Buffering & Boundary Spanning– These roles prevent organization from falling behind the

competition and keep them informed of most important changes

– For these positions to be effective, every level of employee has to be involved

Business Intelligence– New approach to boundary spanning– Set of techniques and tools used for transformation of raw data

into meaningful and useful information for business analysis purposes

– Technology used is capable of handling large amounts of data to identify, develop and create new strategic business opportunities to provide businesses with a competitive advantage

• reporting, analytics, business performance management and benchmarking

Competitive Intelligence– Related to business intelligence– Act of gathering and defining useful intelligence about products,

customers, competitors, techniques and any aspect of the environment needed to support managers making strategic decisions

– Information can be collected from internet searches to digging through trash cans

– CI is an invaluable asset because of the exponential increase in competition resulting from globalization

– Thin line between legal and illegal

Differentiation – Organizational differentiation is the difference in

cognitive and emotional orientations among managers in different functional departments and the difference in formal structure among these departments

– Difference in corporate culture among different departments compared to the company as a whole

Differentiation– Unstable environment

leads to high differentiation among departments

• Highly specialized

– Pros:• highly specialized and knowledgeable

departments• can devise solutions quicker• more efficient

– Cons:• coordination among departments becomes

difficult• more departments = more complex• messages can become misconstrued • different goals and strategies can become

confusing• more time and resources devoted to

achieving coordination

Integration– Organizational integration is the quality of collaboration

among departments and how they collaborate to coordinate their operations for the good of the organization

– Formal coordinators are sometimes required– Highly integrated companies have strong connections

between departments or product lines

Integration– A cohesive set of rules and strategies making integration

process simpler– As environmental uncertainty increases, so does

differentiation among departments • more people should be employed in integrating roles• organizations perform better when level of

differentiation and integration match the level of uncertainty in environment

Mechanistic Vs Organic Structure– Mechanistic Structure– Management structure used in an organization with a stable

environment• Hierarchy• Rules• Detailed procedures• Centralized decision making

– Does not best facilitate constant communication and change– More efficient, faster decision making

Mechanistic Vs Organic Structure– Organic Structure– Horizontal management structure generally used in an unstable environment

• Adaptive• Teamwork• Free-flowing • Decentralized decision making

– Conducive environment for high levels of change and uncertainty– Not forced to follow rules and procedures– Best for group work and collaboration– Can make for inefficient operations

Planning, Forecasting & Responsiveness

– Combining integration and organic structure enhances ability to face uncertain environments

– Planning helps coordinate organization and teaches them to work together cohesively

– Also decreases response time to changes

Planning, Forecasting & Responsiveness

– Globalization has been the largest force in creating uncertain external environments

– Created a need for planning departments• Scenario building

– Planning is not a substitute for other organizational controls

Environmental Uncertainty & Organizational Response

Low Uncertainty Low-Moderate Uncertainty

- Mechanistic structure; formal, centralized- Few departments- No integrating roles- Current operations orientation; low-speed

response

- Mechanistic structure; formal, centralized- Many departments, some boundary spanning- Few integrating roles- Some planning; moderate-speed response

High-Moderate Uncertainty High Uncertainty

- Organic structure, teamwork: participative, decentralized

- Few departments, much boundary spanning- Few integrating roles- Planning orientation; high-speed response

- Organic structure, teamwork: participative, decentralized

- Many departments differentiated, extensive boundary spanning

- Many integrating roles- Extensive planning, forecasting; high-speed

response

Stable

Unstable

Simple Complex

Resource Dependence• Organizations depend on the environment for

resources• Goal is to not be dependent for resources or

decrease this dependency– Competitive environments will have more parties

competing for similar resources

Resource Dependence• Type of environment will impact your organization's

goals– High resource uncertainty - major goal will be to

acquire resources (mining companies)– Low resource uncertainty - can focus on other

goals such as efficiency (furniture manufacturers)

Resource Dependence• Finite resources dictate goals

– This resource dependency may bring about sub goals

– Shell is a good example of this (innovation of biofuel and hydrogen fuels)

Controlling Environmental Resources

• Interorganizational Linkages– Establish favourable linkages with key elements

in the environment• Controlling the environmental domain

– Changing or shaping the environment to benefit your organization

Interorganizational Linkages• Ownership

– Organizations use this to establish linkages by buying a part of or a controlling interest

• This allows for access to resources (technological, products, other resources)

• Mergers and acquisitions• Can be costly, not feasible for small

businesses

Interorganizational Linkages• Formal strategic alliances

– Occurs when companies have high complementarity between products or services

• Can be accomplished through contracts or joint ventures

• Companies can secure suppliers (reduces uncertainty)

Interorganizational Linkages• Cooptation

– Important leaders from the environment sit on the board of the organization

• These individuals then take the goals of the organization into consideration

• Can this create unethical situations?

Interorganizational Linkages• Interlocking directorate

– Member of a board of one organization sits on the board of another organization

• Allows for influence on policies and decisions• Direct interlock

Interorganizational Linkages• Interlocking directorate

– Member of a board of one organization sits on the board of another organization

• Allows for influence on policies and decisions• Indirect interlock

Interorganizational Linkages• Executive recruitment

– Transferring or exchanging of executives• Allows for broader communication network

for the organization• Some valuable information could be restricted

by previous organization

Controlling The Environmental Domain

• Change of domain– Changing the environment that your organization

operates in• Can be costly, not efficient• Alternative - expanding domain• Hudson’s Bay Company

Controlling The Environmental Domain

• Political activity/regulation– Techniques to influence legislation and regulation

• Can include organizations combining resources to create change

• Uber ride sharing - http://london.ctvnews.ca/video?clipId=706079&binId=1.1137796&playlistPageNum=1

Controlling The Environmental Domain

• Trade associations– Work with other organizations to influence the

external environment• Contact Lens Manufacturers Association• Gum Busters - niche market

Controlling The Environmental Domain

• Illegitimate activities– Can be created by high pressure from

management to meet operative goals• Mechanistic organization would produce this

with hierarchy• Can impact public image -

https://youtu.be/VJjqiQ_pvRE

ConclusionTime to test what you’ve learned over the course of this presentation with a group activity