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Organizational Environment Theory MGT-5012 Spring Term 2010 GROUP 6 By: Angela Estevez-Cubilete Alfredo SantaMaria Italo Moron Luis Pajares Luisa Rivera Organizational Environment Theory Definition- The set of forces and conditions that operate beyond an organization’s boundaries but affect a manager’s ability to acquire and utilize resources. Application within an OrganizationThe study of the external environment and it’s impact on an organization has become a central issue in management thought. Organizational Environment Theory: Beginnings The Organizational Environment Theory was influenced in the 1960’s by leading researchers Daniel Katz, Robert Kahn, and James Thompson. • Daniel Katz(1903-1998)- American psychologist and founder of social psychology. He worked as a psychology professor at Princeton University and gained notoriety for his research on the open system theory. • Robert L. Kahn(1918)- American psychologist and colleague to Daniel Katz at the Institute for Social Research. His biggest contribution came from his studies within survey methodology. • James D. Thompson(1920-1973)- American Sociologist and Business major from Indiana University. His contributions derived from studying social sciences within organizations. Responsible for one of the most influential organization publishing; Organizations in Action: Social science bases of Administrative theories. Organizational Environmental Theory: External Factors Organizational Environmental Theory: External Factors (cont’d) Application of the Organizational Environment Theory within Organizational Systems Open System -VS- Closed System Open-System’s Recycling Method of Production Input Stage Conversion Stage Output stage Outcome phase • Organization obtains inputs from its environment. i.e. raw materials, capital/ money, human resources. • Organizations transforms inputs and adds value to resources. i.e. machinery, computers, human skills. • Organizations releases outputs to its environment. i.e. Goods & Services • Sales of outputs allow organizations to obtain new supplies of outputs. Restarts the process at the input stage once outcome has been derived. Organizational Systems • The Open System Open System is dependent upon A system that takes in resources from its external environment and converts them into goods and services that are then sent back into that environment for purchase by customers. the external environment which effects its evolution, Production, Supply and Demand Needs, Sustainability, competitive advantage and Profit gains within markets. • Similar to a Recycling process method for producing, selling, and gaining. Closed System A System that is selfcontained and thus is not affected by occurring in its external environme nt. • Unlike the open system, the closed system is independent and processes in an outward process rather than circular. • Entropy- The tendency of a closed system to lose its ability Examples of Open Systems Organizations Jackson Health System as an Open System RECYCLING SHIFT The Organizational Environment in a Closed System By the 1900’s, closed system approaches were adopted within companies to minimize any external factors that could off track companies from maintaining their supply and demand chains. This system was extremely popular for its simplistic approach within the organizational culture and created benefits for companies. Some of the benefits were seen in productivity, product efficiency, and consistencies manufacturing. However, The closed system approach has evolved over time because of its external environment. Eventually it revealed its negative consequences from using this approach as a business strategy. CREDIT Compute CARD r COMPANI ES Software Compani es Electrical Companie s ENTROPY Organizations that opt for the closed systems approach would eventually minimize its value over time. As time has changed, many organizations have found that ignoring the external environment would be detrimental to the business performance and would minimize company value over time. The external environment needs to be examined to avoid Entropy. As part of the Value Driven Management Strategies , Closed System companies have now molded their rigid systems to include the external factors that may create implications over time. IBM Industries as a Closed System • Some IBM divisions have the capabilities to run with only IBM’s internal resources. Financial Banks as Closed Systems VISA CITIBANK MASTERCARD BANK OF AMERICA AMEX • Banks have control, power and capabilities to run themselves. References Johnson, William C. & Weinstein, Art (2004) Superior Customer Service Value in the New Economy: Concepts and Cases, 2nd Edition, CRC Press, Boca Raton, Florida, pp. 230 Jones, Gareth R. & George, Jennifer M. (2009) Contemporary Management, 6th Edition, McGraw-Hill/ Irwin Inc., New York, N.Y., pp. 61-62 http://en.wikipedia.org/wiki/Daniel_Katz http://www.drda.umich.edu/news/michigangreats/kahn.html http://en.wikipedia.org/wiki/JamesD.Thompson http://epress.anu.edu.au/info_systems/mobile_devices/ch11s02.html