The Organization- Environment relationship

The organization- environment relationship

 The relationship or direction of influence, between

environment and organization is not unidirectional, simple
or static.
 Organizations have different type of influence which help ‘Filters’
form and give shape to the business environment.
 The environment then influence the organization to ORGANIZATION
change. For example- ENVIRONMENT
 A number of competing companies in an industry i.e.
developing a new product range will influence the Actions
activity and success of one another
 Thus –
– The reality is that many profoundly shape their own
environment and that facing numerous other organizations.
– Each organization forms part of the business environment of
other organization, as competitors, suppliers, buyers and so
forth.
The organization- environment relationship (cont..)

 Many organizations, especially sizeable and/or influential ones, exert considerable pressures
for change in their business environment.
 Hamel and Prahalad argue that the companies can only control their future if they know how to
influence the destiny of their industry.
 Direct Line Insurance Company – Telephone line insurance
– Reduce the Overhead expense which allow them maintain highly competitive rate.
– As a result rapidly increase the market share by squeezing more traditional competitors
 Organizations have different type of influence which help form and give shape to the business
environment.
 Sometimes organizations within a business sector collaborate with each other in order to
maintain a stable environment within known competitive condition.
Model of Business Environment
 External
… operating at a Geo-political
Environmental
range of … Scales
Forces

Information
flows

O Perceptual filters O Perceptual

Information R filters
R
• Concrete Data G • How
G
• Opinion Decision Making A organization
A
• Survey N look at their
N
• Example- I environment
I
• Stock Operational and strategic action Z • May miss
Z
Market A opportunity if
A
T T ignored
I Implication for organization I • Example-
O O • UK
N N Motorcyc
le
industry
in 1945
Environmental Forecasting
Approaches to forecasting

Step-1
 Selection of environmental variables that are critical for to the organization [Aluminium melting-
Electricity]
Step-2
 Selection of sources of information about those variables [Govt. statistics, purchase, experienced
personnel, survey]
Step-3
 Evaluation of forecasting techniques
Step-4
 Integration of the results of forecasting into the strategic management process
Step-5
 Monitoring and evaluation of the critical aspects of these forecasts.
Forecasting Techniques

Time series Model-

 Based on past/historical data – trend analysis of the last 100 years population
 Doesn’t allow for environmental discontinuity – changes in birth rate, migration
Judgemental Model-
 Based upon the informed opinion of people in relevant field [on the ground]
 Salesforce personnel can be asked to estimate the likely future trend s in sales
Brainstorming-
 Common but rather creative methods of generating ideas
 A number of informed people are encouraged to generate ideas in a group setting
Delphi Method-
 Attempts to gain consensus among a group of people such as senior strategic management group
Scenario Development-
 Forecasting based on different scenario.
Impact Analysis
 Environmental Scania Leyland DAF Volvo Trucks
scenario
- --- --
▪ Good track record in R&D on ▪ Less investment in R&D ▪ Good R&D investment on
Strict new environment friendly engines and on environment friendly environment friendly
European Union truck design engines and truck design engines and truck design
environment ▪ However, changes will require ▪ Require heavy investment but without outstanding
protection extra investment and may take longer to quality reputation Scania
legislation ‘’catch up’’
++ - ++
▪ Should reduce the cost of export ▪ Will be more expensive in ▪ Should reduce the cost of
Depreciation of trucks and increase sales Sweden export trucks and
Swedish krone ▪ However, will increase the cost of increase sales
imported parts ▪ However, will increase the
cost of imported parts
--- - -
Governments ▪ Adversely affect the sales as Scania ▪ Adversely affect the sales ▪ Volvo is protected to a
enforce movement do not produce light trucks and of heavy trucks degree by having sizeable
of freight to vans ▪ But may increase the sales market shares in motor
railways and of light trucks and vans vehicles of all size.
restrict the use of ▪ But heavy truck sales
heavy trucks might be affected.
Strategy and structure: Environmental Influence
From the above discussion it is found that the success of a
commercial firm depend on its ability to foresee and
subsequently act upon environmental information
Types according to
Miles and Snow Characteristics
(1978)
Defender ▪ They attempt to create a stable environment which suits their non-dynamic
structure and strategy.
Prospectors ▪ They see environment as ever changing and seek continual strategic and
structural changes to cope with the change
▪ Continually seek for new opportunities and in the process may create
uncertainty and change for others in the competitive environment
Analyzers ▪ Able to act in both stable and dynamic environment which is a great source of
value
Reactors ▪ Act only when environmental change ‘forces’ them to do so
▪ Not proactive like Prospectors
 Environmental scenario Scania

-
Strict new European Union environment ▪ Good track record in R&D on environment friendly engines and truck design
protection legislation ▪ However, changes will require extra investment

++
Depreciation of Swedish krone ▪ Should reduce the cost of export trucks and increase sales
▪ However, will increase the cost of imported parts

---
Governments enforce movement of freight ▪ Adversely affect the sales as Scania do not produce light trucks and vans
to railways and restrict the use of heavy
trucks