Environment & Organizational Strategy

Organizational Environment
Specific Environment (task environment)

Customers Distributors

The Unions
Suppliers
Organization

Government Competitors

Forces from outside stakeholder groups that directly

affect an organizations capability to secure resources

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 Environment & Organizational Strategy
Organizational Environment
Demographic & International Political
Cultural Forces Forces Forces

Customers Distributors
The Unions
Suppliers
Organization
Government Competitors
Environmental Economic Technological
Forces Forces Forces
-Forces shape the specific environment… &
-Affect the ability of all organizations

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 Environment & Organizational Strategy
Uncertainty in Environment
Dynamism:
Complexity: Degree at which
Strength, number & forces in specific and
Interconnectedness of generic environments
specific and change quickly
generic forces over time
Richness:
Amount of resources
available to support
an organization’s
domain

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 Organization & its Environment
Resource Dependence Theory
The goal of an organization is to minimize its
dependence on other organizations for the supply of
scare resources and to find ways of influencing them
to make resources available
− It has to exert influence over other organizations
so that it can obtain resources
− It must respond to the needs and demands of the other
organizations in its environment
Dependence on resource is determined by
• Criticality of the resource
• Scarcity of the resource
E.g.: CRY, Nuclear Agreement

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 Resource Dependence Theory
• Assume that your organization (XYZ) need a critical
input that is available from only one supplier (ABC,
which enjoys monopoly) & there is no substitute for it.
• More over there are at least four competing
organizations which are already getting the same
critical input from ABC and develop comparable and
competing products of your organization.
• It is impossible for you to diversify in the
short/medium term for multiple reasons.
You are expected to reduce the dependence of XYZ on
ABC; What are the possible options?

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 Organization & its Environment
Managing Resource Dependence
Two basic types of interdependencies to address
uncertainty
− Symbiotic interdependencies: interdependencies that
exist between an organization and its suppliers and
distributors (Vertical integration strategies)
− Competitive interdependencies: interdependencies that
exist among organizations that compete for scarce inputs
and outputs (Horizontal integration strategies)
Organizations aim to choose the interorganizational
strategy that offers the most reduction in uncertainty
with least loss of control

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 Environment & Organizational Strategy
Uncertainty in Environment
Symbiotic interdependence:

Informal Formal
Strategic Merger &
Reputation Co-optation
Alliance Takeover

Long-term Minority Joint

Networks
contracts Ownership Ventures
Competitive Interdependencies:
Collusion 3rd Party Strategic Merger &
and Cartels Linkage Alliance Takeover

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 Organization & its Environment
Transaction Cost Theory
• Transaction costs:
− The costs of
negotiating, monitoring, and governing
exchanges between people
• Transaction cost theory:
− A theory that states that
the goal of an organization is to minimize the costs of
a) exchanging resources in the environment and
b) managing exchanges inside the organization

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 Sources of Transaction Costs

Conditions wherein transaction cost is low/high..

Human & environmental factors

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 Organization & its Environment
Transaction Cost Theory
Bureaucratic costs: internal transaction costs
− Bringing transactions inside the organization minimizes
but does not eliminate the costs of managing transaction
• Managers deciding which strategy to pursue must take
the following steps:−
− Locate the sources of transaction costs that may affect an
exchange relationship and decide extent of transaction costs
− Estimate the transaction cost savings from using different
linkage mechanisms
− Estimate the bureaucratic costs of operating the linkage
mechanism
− Choose the linkage mechanism that gives the most transaction
cost savings at the lowest bureaucratic cost
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 Evolving Design of Organizations

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 Figure 4.1: Design Challenge (cont.)

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 Figure 4.1: Design Challenge (cont.)

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 Figure 4.1: Design Challenge (cont.)

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 Figure 4.1: Design Challenge (cont.)

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 Differentiation

• The process by which an organization allocates

people and resources to organizational tasks
• Establishes the task and authority relationships
that allow the organization to achieve its goals
Division of labor: the degree of specialization in the
organization
• In a simple organization, differentiation is low
because the division of labor is low
− Individuals typically perform all organizational
tasks
• In a complex organization, differentiation is high
because the division of labor is high

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 Organizational Chart of the B.A.R. and Grille

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 Balancing Differentiation and Integration
• Horizontal differentiation is supposed to enable
people to specialize and become more productive
− Specialization often limits communication between
subunits
− People develop subunit orientation
• Subunit orientation: a tendency to view one’s role in
the organization strictly from the perspective of the
time frame, goals, and interpersonal orientations of
one’s subunit

Integration: the process of coordinating various tasks,

functions, and divisions so that they work
together and not at cross-purposes
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 Organizational Structure: Introduction…
Concept of Integration
Integrating Mechanisms
− Hierarchy of authority
− Direct Contact
− Liaison Role
− Task Force
− Team
− Integrating Role
− Integrating Department
Choose the best integrative mechanism… (Group Activity)
Conflict between Finance and HR department (pay roll processing)
Pollution control board certificate
Hiring a supervisor to handle conflict between cooks and waiters

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 Balancing Centralization and Decentralization
Centralized organization: the authority to make important
decisions is retained by top level managers
− Top managers able to coordinate activities to keep the
organization focused on its goals
Decentralized organization: the authority to make important
decisions is delegated to managers at all levels in the
hierarchy
− Promotes flexibility and responsiveness
Ideal balance entails:
− Enabling middle and lower managers who are at the scene
of the action to make important decisions
− Allowing top managers to focus on long-term strategy
making

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 Balancing Standardization and
Mutual Adjustment
• Standardization: conformity to specific models or
examples that are considered proper in a given
situation
− Defined by rules and norms
• Mutual adjustment: the process through which
people use their judgment rather than standardized
rules to address problems, guide decision making, and
promote coordination
− Formalization: the use of rules and procedures to
standardize operations

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 Organizational Structure: Introduction…
Organizational Design Challenges
1) How to Differentiate (and reporting relations)
2) Balancing Differentiation & Integration
3) Balancing Centralization & Decentralization
4) Balancing Standardization & Mutual
Adjustment

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 Mechanistic and Organic Structures

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 Task and Role Relationships

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 Functional Differentiation in Uncertain
Environment

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 Environmental Uncertainty and Structure

Burns and Stalker

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 Organizational Design: Authority and Control
Authority: Origin of Vertical Differentiation
Structure in laymen’s language
To deal with coordination and motivation problems, the
organization can:
− Increase the number of managers it uses to
monitor, evaluate, and reward employees
− Increase the number of levels in its managerial
hierarchy
• Size and height limitations
− Tall organization:
− Flat organization:

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 Organizational Structure: Authority and Control
No. of Hierarchical Levels
Ideal number of hierarchical levels determined by:
− Principle of minimum chain of command: an organization
should choose the minimum number of hierarchical levels
consistent with is goals and the environment in which it
operates
− Span of control: the number of subordinates a manager
directly manages

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 Organizational Structure: Authority and Control
No. of Hierarchical Levels
Factors that determine the appropriate span of control
− Manager’s ability for adequate supervision of increasing
number of subordinates
− Complexity and interrelatedness of the subordinates’ tasks
• Complex, dissimilar, interrelated tasks – small span of control
• Routine, similar, unrelated tasks – large span of control

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 Organizational Structure: Authority and Control
Factors Affecting the Shape of the Hierarchy

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