Transcript Environment_ch8_ot2

Chapter 8:
Environment
By Muhammet Said
Dinç
Contents
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Definition of Environment from an organizational
theory perspective
Differentiation between the specific and the general
environment
The key dimensions of environmental uncertainty
The contributions of Burns and Stalker, Lawrence and
Lorsch, and Duncan
Reviewing the contributions of population ecology,
institutional theory and resource dependence
The effect of environmental uncertainty on
complexity, formalization and centralization
Defining Environment
 The
environment is made up of those
things outside of the organization’s
boundaries.
 Organizations are affected by events
at the local, regional, national, and
global levels.
General Versus Specific Environment
(cont.)

Eight Key Environmental Sectors:
1) Industry
2) Cultural
3) Legal/Political
4) Economic
5) Technology
6) Human Resources
7) Physical Resources
8) Consumer/Client
General Versus Specific Environment
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General environment encompasses
conditions that potentially have an impact
on the organization.
 Price and availability of petrol in the general
environment of cinema chains
• Specific Environment is that part of the
environment that is directly relevant to the
organization in achieving its goals.
General Versus Specific Environment
(cont.)
• It is unique to each organization and it changes
with conditions, typically, it will include:
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Clients or customers
Suppliers of inputs
Competitors
Governments
Unions
Trade associations
Public pressure groups
Example of operator of Air New Zealand and
Woolworths for the operator of Sydney Airport.
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General Versus Specific Environment
(cont.)
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An organization’s specific environment will vary
depending on the domain it has chosen.
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Domain refers to the claim that the organization
stakes out for itself with respect to the range of
products or services offered and markets served.

Volkswagen and Mercedes- Benz
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Toowoomba TAFE and James Cook Universities in
Queensland
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Shortly, Domain is the “space” in which the
organization “plays”
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Change domain =change the specific environment
Actual versus Perceived Environment
Making a distinction between the objective
or actual environment and the one that
managers perceive.
 Measures of the actual characteristics of the
environment and measures of
characteristics perceived by management
are not highly correlated.
 Furthermore, it is perceptions –not realitythat lead to the decisions that managers
make regarding organization design.

Environmental Uncertainty
Environments differ in what we call environmental
uncertainty. Some organizations face:
 Stable environments
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• Few forces in specific environment of organizations are
changing
• No new competitors, no new technological
breakthroughs vs.
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Dynamic environments
• Rapidly changing technologies, new competitors, the loss
of major customers, difficulties in acquiring raw
materials, unpredictable price changes vs.
Environmental Uncertainty (cont.)
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The number of uncertainties that may exist in an
organization’s environment also influences
management action.
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Hotels: ……………………..
A rail system: ………………
Mining companies: ………….
Retail stores: ………………..
Stable environment and those that are easier to
predict create significantly less uncertainty for
managers than do dynamic ones, and as uncertainty is
a threat to an organization’s effectiveness
management will try to minimize it.
Burns and Stalker
Used interviews with managers and their own
observations to evaluate the impact of
environment on organizational structure and
management practice.
 The type of structure that existed in rapidly
changing and dynamic environments was different
from that in organizations with stable
environments.
 B & S labeled the two structures organic and
mechanistic, respectively

Burns and Stalker(cont.)
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Mechanistic organization
• Mechanistic structures are characterized by
high complexity, formalization and
centralization.
• They perform routine tasks, rely heavily on
programmed behaviors, and are relatively slow
in responding to the unexpected.
• Most flow of information and communication is
vertical.
Burns and Stalker(cont.)
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Organic organization
• Organic organizations are relatively flexible and
adaptable.
• They rely on lateral communication rather than
vertical communication.
• Power and influence is based upon expertise and
knowledge rather than on authority of position.
• Responsibilities are defined loosely rather than
rigid job definitions.
• Emphasis is on exchanging information rather than
on giving direction.
Burns and Stalker(cont.)
CHARACTERISTIC
MECHANISTIC ORGANIC
Task Definition
Rigid
Flexible
Communication
Vertical
Lateral
Formalization
High
Low
Control
Centralized
Diverse
Influence
Authority
Expertise
Burns and Stalker(cont.)
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They believed that the most effective structure is
one that adjusts to the requirements of the
environment, which means using mechanistic design
in a stable, certain environment and an organic form
in a turbulent environment.
They also focused that one was not preferred over
the other. The nature of organization’s environment
determined which are organic and others which are
mechanistic.
Large firms may have some parts which are organic
and others which are mechanistic.
• Motor vehicle manufacturers
Lawrence and Lorsch
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Studied ten firms in three industries: plastics,
food and containers.
The three industries were deliberately chosen
as they differ significantly in the environmental
uncertainty associated with each one.
The underlying hypothesis was that internal
environments of the firms must match the
external environmental requirements.
The better the match, the more successful the
firm.
Lawrence and Lorsch(cont.)
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Differentiation and integration were
posited as the variables to examine to
determine the state of the internal
environment.
Differentiation, as used by Lawrence & Lorsch,
closely resembles the traditional definition of
horizontal differentiation, but in addition to
task segmentation, suggested that managers
will differ in their: (1) time frame, (2)
interpersonal orientation, and (3) goal
orientation.
Lawrence and Lorsch(cont.)
Integration is the quality of collaboration
needed to overcome differentiation and
achieve unity of effort among units.
 Integration devices:
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• Rules and procedures
• Formal plans
• The authority hierarchy and decision-making committees
• They perceived both the organization and the
environment as having subsets: that is, that
parts of the organization deal with parts of the
environment.
Lawrence and Lorsch(cont.)
Lawrence and Lorsch Model
Lawrence and Lorsch(cont.)
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They proposed that the more turbulent, complex and
diverse the external environment facing an organization,
the greater the degree of differentiation among its
subparts.
Diverse external env. + differentiated internal env. = need for
an elaborate internal integration mechanism to avoid having
units going in different directions
Shortly:
◦ The environments are composed of a number of subenvironments,
each with different degrees of uncertainty.
◦ Successful organization’ subunits meet the demand of their
subenvironments.
◦ Finally, the environment in which an organization functions is of
foremost importance in selecting the structure appropriate for
achieving organizational effectiveness.
Lawrence and Lorsch(cont.)
The Effect of Uncertainty on Differentiation and Integration in Three Industries
Degree of uncertainty
Variable
Plastics
industry
Food-processing
industry
Container
industry
Environmental variable
Uncertainty (complexity,
dynamism, richness)
Structural variables
Departmental differentiation
Cross-functional integration
High
Moderate
Low
High
Moderate
Low
High
Moderate
Low
Lawrence and Lorsch(cont.)
DEPARTMENTAL DIFFERENTIATION BASED UPON SUBENVIRONMENT
CHARACTERISTICS
Duncan’s Complexity and Change
Framework
Robert Duncan classified environments along two dimensions.
 First, the rate of change of environments.
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• Some environments change slowly like cement manufacturers and banks.
• Others are rapid changing such as the fashion and telecommunications
industries.
• Second dimension, environmental complexity.
• The greater the number of elements there are in an
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environment, the more complex the environment.
• Airlines= complex environment
• Growing timber and baking bread companies= simple env.
The interaction of environmental complexity and stability forms
a two by two matrix, where different levels of uncertainty may
be identified.
Each of these levels of uncertainty leads to adoption of different
structural responses.
Duncan’s Complexity and Change
Framework (cont.)
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Stability enables decision making to be centralized
and permits high levels of formalization.
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Complexity comes with the need to gather,
process and respond to numerous environmental
elements, each with their own demands.
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This leads to decentralization and greater need
for coordination.
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Duncan’s framework stands as a powerful
reminder of the influence of environment on
structure.
The Role of Boundary Spanner
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First, they have expertise in understanding and interpreting
the environmental segment which they are concerned
with.
Second, they filter and process environmental information
into a form which is useful to organization and then
transmit this information through established channels.
Third, they protect the core from undue disruption by
removing the need for it to interact directly with
environment.
Finally, they represent the organization to the
environment.
At a motor vehicle manufacturer, the main boundary
spanner is the car dealer.
The Role of Boundary Spanner(cont.)
The Use of Information Technology
in Complex Environments
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Complex and dynamic environments require extensive
environmental scanning and flexible organizational responses.
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Specific structural units and positions are often created to
undertake this function.
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Regardless of structural response, organizations facing such
environments are intense users of information technology.
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There are some outcomes of application of communication
technology:
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Increasing effectiveness of organizations
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Unpredictable environments will become more manageable
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Organizations considering that they have capacity to operate in
more unstable environment
A Synthesis: The organization and
Environmental Uncertainty
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There are three key dimensions to any organization’s
environment: capacity, stability and complexity
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The capacity of an environment refers to the degree to which it
can support growth. For instance: the availability of finance,
customers, resource inputs.
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The degree of instability in an environment is captured in the
stability dimension.
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Dynamic environment – financial markets
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Stable environments – cement manufacturer
• Environmental complexity is the degree to which the
environment is concentrated on just a few elements.
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Simple environments – a small mining company
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Complex environments – shipping company
A Synthesis: The organization and
Environmental Uncertainty(cont.)
Stable
Abundant
Simple
Complex
Scarce
Dynamic
Three- dimensional model of environment
Population Ecology Theory
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4.
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Adaptation of Darwin’s concept of survival
of the fittest.
Argues that populations of organizations
vary and that the environment selects out
only those types that are best suited.
Argues against the importance of
managerial influence in the long-term
survival of an organization.
Most appropriately applies to whole
populations.
Controversial, but most scholars see some
merit to the arguments.
Population Ecology Theory (cont.)
Population ecology theory seeks to explain
the rate at which new organizations are
born (and die) in a population of
organizations.
A population of organizations comprises the
organizations that are competing for the
same set of resources in the environment.
Different organizations within a population
may choose to focus on different
environmental niches, or particular
sets of resources.
Population Ecology Theory (cont.)
According to population ecology, availability
of resources determines the number of
organizations in a population.
The amount of resources in an environment
limits population density—the number of
organizations that compete for the same
resources in a particular environment.
Population Ecology Theory (cont.)
Variation
Large number
of variations
appear in the
population of
organizations
Selection
Retention
Some
organizations
find a niche
and survive
A few
organizations
grow large and
become
institutionalized
in the
environment
Population-ecology view of the change process
Institutional Theory
 Institutional theory: proposes that
organizations are influenced not only by
their internal processes but also by the
need to adapt to the institutional
pressures in the external environment.
 This need for adaptation then leads to
behaviors being repeated and becoming
‘institutionalized’.
Resource-dependence Theory
Resource dependence theory argues that
the goal of an organization is to:
 Minimize its dependence on other
organizations for the supply of scarce
resources
AND
 To find ways of influencing these
organizations to make resources available
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Resource-dependence Theory
(cont.)
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The strength of one organization's
dependence on another for a particular
resource is a function of:
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How vital the resource is for survival
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The extent to which the resource is
controlled by other organizations