Chapter 6: The Impact of Environment

4-1
The Organization’s Environment

• Organizational environment: everything that exists

outside the organizational boundary and has the potential to influence all
or parts of the organization

– Task environment: sectors with which organization interacts directly; these have the
ability to directly influence organizational goals and outcomes (e.g., industry–
competitors; raw materials– suppliers; market– consumers)
– General environment: indirect impact (government, sociocultural)
E.g. Affordable Care Act (return of patients to hospitals within 30 days)
https://www.nj.com/news/index.ssf/2013/09/5_ways_obamacare_affects_hospitals_d
octors_and_more.html
Environmental Uncertainty

• Uncertainty: Insufficient information

about the environment
– Uncertainty stems from:
• Complexity of external domain (simple-complex dimension)
– Heterogeneity or number and dissimilarity of external
elements
• Stability of external domain (stable-unstable dimension)
– Rate of change in the external environment
 Environmental Uncertainty

External Elements: Competitors, Suppliers,

Industry Changes, Government Regulations
Stable-Unstable Dimension

Instability occurs when

• Consumer interests shift
• New technologies are introduced
• Competitors react with aggressive moves
(Beverage can industry until the 1960s)
Simple-Complex Dimension

• Depends on the number and dissimilarity of the external

elements
• Competitors, Suppliers, Government regulations
• Family owned flower shop in a suburban community (few
competitors, suppliers, customers)
• Oil Companies (complex technologies, government
regulations, legal systems in multiple countries, international
events, suppliers, contractors, customers etc.)
Degree of uncertainty

• Simple, stable environment: (soft drink

distributor)
• Complex stable (universities)
• Simple unstable (Fashion clothing)
• Complex Unstable (Oil, Large health care
systems)
 Dealing with Uncertainty
Low Uncertainty
1.Mechanistic structure;
STABLE
formal, centralized
2.Few departments
3.No integrating roles
ENVIRON- 4.Current operations orientation;
MENTAL
low speed response
CHANGE
High-Moderate Uncertainty
1.Organic structure, teamwork;
participative, decentralized
UNSTABLE
2.Few departments, much
boundary spanning
3.Few integrating roles
4.Planning orientation; fast
response
SIMPLE ENVIRONMENTAL COMPLEXITY
Low-Moderate Uncertainty
1. Mechanistic structure; formal,
centralized
2. Many departments, some
boundary spanning
3. Few integrating roles
4. Some planning; moderate
speed response
High Uncertainty
1.Organic structure, teamwork;
participative, decentralized
2.Many departs. differentiated,
extensive boundary spanning
3.Many integrating roles
4.Extensive planning, forecasting;
high speed response
COMPLEX
SURF VS. NIRMA
HLL entered India in 1957 and was the undisputed leader in detergent
space. Surf was the most selling detergent in India
However in 1980's Surf suffered huge losses at the hands of a new and
small firm, Nirma Chemicals. Nirma was launched in 1969 and its
primary focus was to create a good, branded product at affordable
prices.
HLL came up with lower priced Wheel (green) and Rin (blue) detergent
powders targeted at different market segments. This segmentation
helped HLL regain part of its lost market.
In late 2011 and early 2012, Ghari beats Wheel and takes the numero-
uno spot in Indian detergent industry.
MAHINDRA
VS
JOHN
DEERE
MAHINDRA VS JOHN DEERE
The company has invested to make itself appear less foreign:
Mahindra sponsors Championship Bull Riding and has signed on TV
host Bill Dance, a member of the Professional Bass Fishing Hall of
Fame, as a spokesman.

Mahindra commercials appear on Fox News, the Outdoor Channel,

and other heartland-friendly cable networks.

American buyers expect more luxury in their tractors, so Mahindra

has added automatic transmission, air-conditioning, cruise control,
and sunroofs to its U.S. models.
MAHINDRA VS JOHN DEERE
Mahindra executives, who say they don’t want to compete on price,
find other ways to lure customers away from market leaders Deere.

Mahindra offers a five-year warranty on its tractors in the U.S.,

compared with the standard two years offered by Deere.

In 2011, Mahindra launched a finance company for its American buyers

that offers zero percent financing with no money down for 84 months.
Deere offers zero percent interest on 60-month loans.

The Indian company has also rolled out a military appreciation program
providing U.S. and Canadian veterans and their families with $250
rebates
“Dear John, we have found someone new”