MSCI 311 Midterm

UNIT 1

What is an organization?
- Organizations are conceived as social structures created by individuals to support the collaborative pursuit of
specified goals.
- a collection of individuals deliberately structured to achieve predetermined goals

Problems with the goal approach

What is a common goal?
 Example: University of Waterloo

Local optimization at the expense of the organization

 Example: cost reduction policy

What is an organization?
 Based on Categories
Example: High tech, nonprofit, global.

 Problems with categorizing approaches

Not really a definition
Categorization may be based on superficial properties
Organizations in different categories based on the same superficial properties

Defining Organizations: “An organization is a set of formal and informal constraints that result in patterns of
behavior”
Quiz 1.

Defining an Organization, which of the following is REQUIRED in order to have an organization (select all that
apply)?

• A shared physical space

• An official name, logo, and license
• A common goal or purpose
• Multiple people
• A product that can be purchased
• Coordinated behavior

Importance of Organizations

• Organizations accomplish most of what society wants and needs.

• Organizations are the means by which many of our collective goals are pursued and accomplished.
• Organizations are so common that they have become the medium of modern social life – we cannot
imagine existing outside them.
• Organizations are everywhere and they vary tremendously. They vary in size, market sector, social
structures, context, or regional differences.
• Organizations are everywhere, they are very important to the functioning of society, and they are
incredibly diverse. They have also changed over the last 50 years.

Organizations are everywhere and they vary tremendously

• size,
Ex. IMB vs small business

• market sector,
Ex. Private industry or public sector not-for-profits.

• social structures,
Ex. Unions, parent-teacher associations, and religious groups.

• voluntary associations,
Ex. Hierarchical like the military and football, flat governance structures like consulting firms, horizontally
differentiated into
many different divisions and relatively autonomous units like university departments.

• context,
Ex. The context for the federal government is very different today than it was in 1790; and a time of
recession is very
different for most firms than a time of economic boon.

• regional differences.
Ex. Euro-Disney worked very differently than California’s Disneyland and required a different organizational
model
Why study Organizations

• Organizations confront problems of defining objectives (goals).

• Organizations struggle to get people to show up and perform services (tasks).
• Organizations worry about the coordination of persons trying to accomplish these tasks, and even how to
coordinate different tasks with one another (coordination / implementation).
• There is always a concern of drawing necessary resources from the environment – organizational inputs
like money or revenue, materials, knowledge (input).
• Then they have to worry about outputs – dispensing ideas, products, and funds to the environment
(output).
• There is also the concern with selecting, training, and replacing members as participant move through the
organizations (participants).
• Organizations even worry about relations outside the firm – ties to neighbors and fits with the surrounding
environment (environmental fit). For example, Walmart cannot just up and move into any neighborhood!

Elements of an Organization

Elements of an Organization

• Participants are social actors that make contributions to and derive benefits from the organization.

• Social structure concerns the persistent relations existing among participants within an organization.

• Social structures are also more than recurring behavioral patterns – they are also cultural systems that
entail normative principles and cognitive beliefs.

• Goals are desired ends that participants attempt to achieve through the performance of task activities.

• Technology – is means by which organizations accomplish work or render inputs into outputs – e.g., tasks.

• Environment: the physical, technological, cultural and social context in which an organization is
embedded.

Social structure
Quiz 2

True or false: Though all organizations share a common definition, they can vary greatly on several dimensions
including size, market sector, structure, and environmental context.
True

Quiz 3

True or False: Organizational participants consist only of individuals with specified roles and responsibilities.
True

Quiz 4

Which of the following accurately describes social structures in an organization (select all that apply)?

They can be formal or informal

They are fully captured by an organizational chart detailing each person’s job title, superiors, and subordinates.
They can shape recurring patterns of interaction
Formal social structures are always more important than informal social structures when trying to understand
how organizations operate
They can reflect deeply held cultural beliefs and understandings

Quiz 5

True or False: In organizational theory, an organization’s technology refers only to the computers or other machines
it uses to accomplish work or turn inputs into outputs.
False

Quiz 6
Which of the following constitute an organization’s environment (select all that apply)?

Technological surroundings
Cultural surroundings
Social surroundings
Physical surroundings

Understanding Organizational Theories – Research Considerations

Unit of analysis: the fundamental element of interest or objects of study within a research project.

• Important to find the most suitable unit of analysis depending on what the research question is.

• Focus of the theoretical attention

• For example, “How do organizations respond to sudden changes in customer demand”, then your unit of
analysis could be customer data (e.g., sales) and organization output (e.g., production rate) over a period
of time.

Prescriptive (how to do it) vs. descriptive (how it’s done) analysis.

Example: studying behaviour

Rational System: organizations are instruments designed to attain specified goals.

• The term rationality in this context is used in the narrow sense of technical or functional rationality and
refers to the extent to which a series of actions is organized in such a way as to lead to predetermined
goals with maximum efficiency.

• From the standpoint of the rational system perspective, the behavior of organizations is viewed as actions
performed by purposeful and coordinated agents.

Natural Systems: an organization as a collectivity whose participants pursued multiple interests. And these
interests were forged in conflict and consensus.

• For example, formal structure vs. informal structure.

• Participants need the organization to survive.

• The organization is unplanned and emergent relations and coalitions are more important.

Open systems: All living systems are composed of patterns and structure that are linked together by dynamic
processes.

 On the open systems view, organizations are like organic, living, goal-seeking organisms where their
structures and systems reach a state of equilibrium within the context of their internal climate and the
forces and pressures from business environment outside the organization.
Quiz 7

The organization is thought to have multiple actors with potentially conflicting goals. These actors often form
emergent and organic coalitions.
• Rational
• Natural
• Open

Quiz 8

The organization is thought to function as a coherent, unitary actor.

• Rational
• Natural
• Open

Quiz 9

The organization is viewed as part of a broad system encompassing multiple organizations.

• Rational
• Natural
• Open

Quiz 10

The organization’s environment is thought to play a major role in its behavior.

• Rational
• Natural
• Open
Quiz 11

The organization’s environment is largely ignored when considering its behavior.

• Rational
• Natural
• Open

Quiz 12

Organizations are viewed less as making decisions and more as responding and adapting to their environment.
• Rational
• Natural
• Open

Organizational Theories and Approaches

1. Scientific Management

• History
• Internal environment
• Unit of analysis: steps in performance of a simple physical task
• Prescriptive
• Rational

Problems with this approach:

• Limited applicability
- Physical vs. cognitive tasks
- Individual vs. group tasks

• Undesirable consequences of optimization

- Repetitive work
- Loss of autonomy
- High turnover rate.
2. Bureaucracy

Questions
• What words come to mind when you think about bureaucracy?
• Have you worked in a place that you would think of as a bureaucracy? What are its characteristics?
• What are the positive/negative aspects of bureaucracy?

• Unit of Analysis: offices and procedures

• Mainly Prescriptive Approach

• Internal focus
• Introduces rules in the organization
• Rational

Problems with Bureaucracy:

• Org. as a machine or a rational system.

• Appropriateness of the rules.
Example: buses on the railroad crossings.

• Ease of changing rules when necessary.

• Hierarchical communication & decision making.

3. Human Relations

• Existence of informal organization (social organization) with its own norms, values, and expectations.
• Internal environment

• Unit of analysis: individual & small group behavior

• Example: individual attitude, small group decision making

• Descriptive
• Natural

The Hawthorne studies have had a great influence on modern organizational science:

• Managing involves getting things done through people, therefore management should focus on employee
attitudes, and interpersonal relations (i.e., focus on individual behaviour)

• Organizations are groups of people; therefore, management should focus on group behaviour (using
sociology, anthropology, etc.).

• Organizations are co-operative social systems, involving ideas, forces, desires, and thinking, also referred
to as organization theory

• Technology affects behaviours and attitudes; therefore, management should be concerned with the
interactions of the social system with the technical system (also referred to as the socio-technical
systems approach
Problems with Human Relations:

• Group decision making takes time.

• Group decision making takes time inappropriate in standardize takes.
• Culture is very important but changing it takes time and very difficult.

4. Systems Approach

• Borrowing from the natural sciences

• System: a complex unity of things that are interconnected and interdependent
• Unit of analysis: cycle of events

• Internal and/or external (can be applied at different levels of analysis)

• Descriptive
• Open system

Problems with the system approach:

• Selecting the appropriate level of analysis

Example: individual, work group, department

• From abstract concepts to specific cycle of events

Example: feedback in the role model

• Complexity of application
5. Contingency Theory

• Organizational design depends on context

• Just like human behaviour = f (person & situation), organizational structure = f (internal & external factors)

• Unit of analysis: relationship between organization design and certain “contingency” variables
(environment, technology, size, age, etc.)

• Internal and external

• Descriptive
• Open system

Problems with the Contingency Theory:

• Did not develop a comprehensive theory

• Example: treated each variable separately.

• Nothing new
• Example: managers know that methods are always contingent on some factors.

Quiz 12

Which of the following best describes the issue of change in organizations (select all that apply):

1. Organizations are usually fluid and flexible and respond easily to attempts at change and improvement.
2. Attempts to change an organization may fail because the environment in which reform was tested is
different from the environment in which it is being implemented.
3. It is rare for an individual, group, or society to attempt to change an organization in meaningful ways. Once
organizations are established, they remain essentially the same unless they are shut down.
4. It is not uncommon for individuals, groups, or society to try to change an organization in order to make
it better. Implementing reforms, however, is fraught with challenges and complications.

Summary:

Defining organizations
• By categorization, by goals..
• Patterns of behavior resulting from formal and informal constraints

Tools in studying organizations

• Environment: Internal vs. External
• Units of Analysis
• Analysis: Descriptive vs. Prescriptive

Some major organizational theories

• Scientific management
• Bureaucracy
• Human relations
• Systems view
• Contingency theory
 UNIT 2

Overview:

• Describe how different design variables — labour division, coordination, shape, degree of centralization,
and grouping of tasks-affect the resulting organizational structure
• Describe the strengths and weakness of different organizational structures.
• Analyze an organization's activities and make suggestions for improving its structure to improve
effectiveness.

Fundamentals of Organizational Design

Introduction

“The structure of an organization can be defined simply as the sum total of the ways in which it divides its labour
into distinct tasks and then achieves coordination among them”

Design Variables

1. Division of labor (specialization)

• Division of labor which mean making people more and more specialized.
• The way in which labor is divided into distinct tasks
• Example: Tim Hortons
Advantages Disadvantages

• Expert performance • The more you divide labor, the more difficult
- If the task is simple you can get very good at it is to achieve coordination
it - Example: Renovating a room, assembling a
table.
• Reduced training time
- The more you divide a task, the quicker it is • Worker alienation
to learn - Example: Fast-food worker

• Minimum dependence on labor

- Workers are easily replaced

2. Coordination

Three components of coordination

1. Communication
- Message gets from A to B. What is encoded by A is decoded by B.

2. Cooperation
- There must be willingness to co-operate

3. Capacity
- In addition to understanding what A is asking and being willing to help, B must also be able (have the
capacity) to do so.

Five Coordinating Mechanisms

1. Mutual Adjustment
2. Direct Supervision
3. Standardization of Work Processes
4. Standardization of outputs
5. Standardization of skills

1. Mutual Adjustment
• Informal communication (e.g. two people carrying a couch up the stairs)
• A basic form of coordination
 2. Direct Supervision
• One takes responsibility for the work of many

Standardization
• Coordination incorporated when job is designed

3. Standardization of work processes

• Contents of work are specified, or programmed (i.e. the steps are specified)
• Specific instructions on how to do something - reduces need for supervisor

4. Standardization of outputs
• Results of the work are specified (e.g. dimensions of the product)
• Specific instructions for what the output ought to look like

5. Standardization of skills
• Training required to do the work is specified (e.g. doctor)

Standardization Quiz 1

When assembling IKEA furniture, the package comes with assembly instructions. Is this...
a) Standardization of output?
b) Standardization of work process?
c) Standardization of skill?
d) All of the above?

Standardization Quiz 2

This AutoCad drawing represents a…

a) Standardization of output?
b) Standardization of work process?
c) Standardization of skill?
d) All of the above?

Standardization Quiz 3

McDonald’s burger assembly charts represent…

a) Standardization of output?
b) Standardization of work process?
c) Standardization of skill?
d) All of the above?

Standardization Quiz 4

A doctor that treats a patient, is an excellent example of...

a) Standardization of output?
b) Standardization of work process?
c) Standardization of skill?
d) All of the above?
Design Variables

Shape of Organizations

Span of control (from bureaucracy)

• Number of individuals that report to each manager

• What is the ideal span of control?

Shape: Flat vs. Tall

• Flat: large units and wide spans of control

• Tall: small units and narrow spans of control

According to Max Weber (1864 - 1924), the development of bureaucratic organisation is necessary for the
emergence of any modern civilization. Weber believed that bureaucracy was the most appropriate administrative
system for the rational pursuit of organisational goals. Weber identified the following characteristics of a
bureaucracy:

• A high degree of specialisation

• A hierarchy with well-defined levels of authority
• A system with formal rules and procedures
• Written records of decisions made
• Authority resting with the office or position in the hierarchy rather than with the individual

Characteristics of a Flat Organizational Structure (Wide Span of Control)

Pros

• Encourages delegation. Managers must better delegate to handle larger numbers of subordinates, and
grant opportunities for subordinates to take on responsibilities
• Agile. Improves communication speed and quality.
• Reduces costs. More cost effective because of fewer levels, thus requiring fewer managers
• Helps prevent the workforce from disengaging by focusing on empowerment, autonomy and self-direction

Cons

• High managerial workload comes with high Span of Control

• Role confusion more likely
• May cultivate distrust of management
Characteristics of a Tall Organizational Structure (Narrow Span of Control)

Pros

• More rapid communication between small teams

• Groups are smaller and easier to control/manage
• There’s a greater degree of specialization and division of labor
• More and better opportunities for employee promotion

Cons

• Communication can take too long, hampering decision-making

• Employees may feel lost and powerless

Design Variables

Design Making

Centralized vs Decentralized. A measure of decision-making power.

More Centralized: Decisions are made higher up in the hierarchy.

Decentralized: More delegation of decisions.

Issues
• If highly centralized
- Overload (You expect a small number of decision makers to make all decisions)
- Loss of flexibility (You have to wait around waiting for your supervisor’s supervisor to make a decision)
• If highly decentralized:
- Expertise vs. consistency/control (Experts can flourish, but consistency and control are reduced)
- Professionals automatically decentralize to some degree.

Design Variables

Grouping of Tasks

Grouping of Tasks: Basic Structural Configurations

Three basic structural configurations
• Functional
• Divisional
• Matrix

“idealistic” configurations
• Large organizations may contain 2 or more different configurations embedded in the overall structure

Transition from functional to matrix or divisional configurations is (usually) a function of growing organizational size

Design Variables

Functional Structure

• Organization pools human and material resources across different workflows

• Group by knowledge, skill, work process, or work function

Advantages Disadvantages

Common interest Functional goals outweigh broader/product goals

Economies of scale • Leads to client dissatisfaction
• Efficiently use resources • Each unit acts on its own interest
• Problem of language.
Technical excellence, specialization, knowledgeable • Loss of flexibility – more bureaucratic
supervision • Loss of mechanism for coordinating workflow
• Evaluation of performance • Conflict between units
• Lack of broadly trained managers.
Better communication & coordination within unit
Good for:
• Smaller organizations (or divisions of larger
ones)
• Stable environments

Divisional Structure
 • Divisional (Output, Product-Based, Geographic) Structure.
• Each unit performs all the functions for a given set of products, services, clients or places.

Advantages Disadvantages

Cross-functional communication and coordination • Less specialization (technical expertise)

• Focus on client’s needs • Wasteful of resources – resource duplication
• Broadly trained managers • Reduced communication amongst specialists

Flexible (less bureaucratic) Good for:

• Easy to add or remove units • Large organizations and unstable
environments
• Multiple products

Matrix Structure

Group by both function and product.

 Advantages
Best of both worlds
• Adaptive
• Efficient use of resources (Brings together
teams from different disciplines
with different skills)
• Home base for specialists
• Flexibility
• Innovation (Encourages creative thinking)
• Offers a decentralised form of organisation
• Allows managers to focus on strategic
planning
• Encourages cooperation between different
functional areas and divisions
Quiz 5
Disadvantages
Worst of both worlds, role confusion, effort to
coordinate
• Dependency on teamwork (May be seen as a
'talking shop' and encourage discussion rather
than action)
• Conflict between functional and project units
(The structure may lead to power
struggles between different departments)
• Cost of administration & communication (Can
lead to slower decision-making because of the
requirement for agreement and cooperation)
• Lack of stability in the work environment
Good for:
Unstable environment
When output goals and functional goals are of equal
importance
 UNIT 3

• Definition of communication
• Information theory
• Communication effectiveness
• Organizational communication
- Upward & Downward Communication
- E-Communication
 • Group communication: Network studies

Introduction

“The structure of an organization can be defined simply as the sum total of the ways in which it divides its labour
into distinct tasks and then achieves coordination among them”

What is communication?

The sending and receiving of messages between two or more people (e.g. teaching, gossiping, meeting)
The exchange of information and transmission of meaning (Katz and Kahn, 1978)
All the procedures by which one mind may affect another (Shannon & Weaver, 1971)

Communication could be:

Verbal vs. Non-verbal
(e.g. reading the news; listening to the news; body language, music, the pictorial arts, the theater, etc.)

The Linear Model of Communication

The Transactional Model of Communication

The Transactional Model demonstrates that

communication participants act as senders AND
receivers simultaneously, creating reality through their
interactions.

Interpersonal Communication

Information is sent from one person to another (or others). This implies a transfer of meaning between parties.
Social process
• More than one person is involved

Context related
• The meaning of words changes with respect to the context
• e.g. small nails

A mathematical model of communication with significant influence on psychology and organizational theory.

Basic concepts of Information Theory

1. Uncertainty

“a gap in knowledge, a measure of the amount of information needed to know the state of the system precisely. It
contains the number of possible outcomes/events and their probabilities.”
• Example: Student’s mark out of 100

2. Information reduces uncertainty

• Example: “She’s a pretty good student”

How does this information reduce your uncertainty?

Information is anything that reduces uncertainty

• Uncertainty is a set of probable events that could happen.

• Amount of information depends on the amount of uncertainty reduced.
• One bit of information = reducing the number of equal probability uncertain event by one half.
• Example. find money in one of the right boxes with minimum number of binary questions.

3. Redundancy

“Extent to which one part of the message reduces uncertainty in another part of the message."
The extra information in the message that is not necessary
 • Example:

A redundant message gives us more information than what we need. It is helpful in improving communication
effectiveness, especially when:
• Safety is important
• Channel is noisy

Redundancy: Extent to which one part of the message reduces uncertainty in another part of the message.

Application to practical situation

Complexity of job situation
• Number of wards in the job description after redundancy has been removed.

Communication Effectiveness

From information theory: “Communication effectiveness concerns the success with which the meaning conveyed to
the receiver leads to the desired conduct in his part”

Encoded message = Decoded message

Why would miscommunication happen?

Noise
• Example. lose enough bits of information to significantly change its meaning

Different things are important to different people

• Example. Communication between me and a mechanic

Different people have different categorical knowledge

• Example. Communication between a physician and a patient

How about communication in organizations?

People in organizations have different knowledge

Example. Communication between a manager, who has broad knowledge about all departments and their tasks,
and production line employee, who has only technical knowledge about her job.
Differences in positions and power
Example. Reporting to a superior

One-way vs two ways communication

Direction of Communication in Organization

Downward communication usually constitutes:

• Broad often vague categories

• Information on goals
• Job instruction
• Feedback on subordinates’ performance

Information communicated from the top addressed to all organizational members is often too general and can be
interpreted differently by different receivers

Upward Communication
• Reporting about problems
• Reporting about work accomplished
• Main attribute:
- positive reporting (i.e., give information a positive spin).
- Selective process, which means that subjective preferences affect the content of information
communicated.
- Use of categories/labels without changing how work is actually done (e.g. “working in teams”).

E-communication

Virtual organization/Virtual teams

Positive: Message can be accurately described

Negative: Coordination requirements for complex tasks. Hard to coordinate things.

e.g. new team working on a new product:(150 – 200 emails/day). When you have so many messages, how do you
handle your work?

1. You respond to priority messages.

2. You respond quickly but don’t really say anything.
3. In telephone conferences, everyone is busy on their email.

Implications for help-seeking and help-giving

Network Studies

Bavelas’ idea of network connectivity

Example. 5 people in a group: What are the possible communication linkages? What are the constraints?

Measurement of centrality
Centrality ~ Ease of communication with others and vice = versa.
Network Studies

Basic experimental set up

Task (6 possible marbles: B, Y, G, R, W, P). Every member has a box of 5 marbles. There is only one marble that is
common to all team members

Each member sits in his/her cubicle, and they communicate with others through messages through openings in the
cubicle. You measure how long it takes them to find the common color.

Why use such a simple task?

Because you don’t want to add other variables (e.g., intelligence)
Study 2: Introduction of noise – marbles are multi-colored.

Different types of Communication Structures

 - Centralized systems don't work as well with complex tasks
because some problems are too big for an individual to
handle.
- The whole idea is to use the entire organization as a
distributed processing unit to solve problems that no one
person could possibly handle.
- Also, with large systems (many nodes) central nodes can be
overwhelmed with communications. In addition, in such
systems, most of the network remains idle while waiting for
information to filter back from the center.
- One reason for this is that in the centralized systems, the
number of possible patterns of communication was much smaller.
- People were more or less forced to adopt a certain strategy for solving the problem.

- In contrast, for the circle, there were many possibilities, only a few of which worked well. Even if they all worked
well, it was much harder for people to choose one strategy and stick to it.
- It is often the case in organizations that a satisfactory strategy that is easy to find, implement and stick to is
superior to an optimal strategy that is hard to find, hard to implement, and hard to stick with.
- It is also helpful if the strategy that a structure pushes people towards is one that people are naturally positively
disposed towards.
- For example, people readily understand leadership. It is much harder to understand the system which, in the
circle, would actually lead to much faster performance than the integrator strategy.
Wheel

• Centralized network
• Lower satisfaction.
• Leader is more clearly defined

Line / Chain

• When the communication is restricted only to certain group members, but all are somehow connected.
 • Members satisfaction is better than the ‘wheel’ pattern.
• Major drawbacks:
- Do not work as a team
- Weak leadership
- Lack of coordinated effort

Circle

• Similar to the Line pattern with the last 2 members also connected.

Tree / The Y

• Similar to the Wheel structure

Fully Connected

• Decentralized network
• More democratic, but can be very slow
• Everyone can interact with everyone
 • Leadership is unclear as it is shared by all members

UNIT 4

Organizational Environment
What Is the Organizational Environment?

The environment is the set of pressures and forces surrounding an organization that have the potential to affect
the way it operates and its ability to acquire scarce resources.

What constitutes an organization’s environment?

General environment: all factors that can potentially influence all or parts of the organization)
Ecological
Cultural
Economic
Legal
Sociological
Political
Technological
Market
What constitutes an organization’s environment?

Task environment (Specific):

Subset of all factors that are relevant to organizational goal setting and goal attainment (I.e., factors of the general
environment that are of concern to the organization)

Example: customers, suppliers, competitors, government

Organizational set (domain):

Refers to the particular range of goods and services that the organization produces, and the customers and other
stakeholders it serves.
Examples: Joint ventures, alliances, licensing arrangements, supply chain, etc.

• An organization establishes its domain by deciding how to manage the forces in its environment to
maximize its ability to secure important resources.

• An organization attempts to structure its transactions with the environment to protect and enlarge its
domain so that it can increase its ability to create value for customers, shareholders, employees, and other
stakeholders.

• One major way to do this is to expand internationally.

Enacted environment: Portion of the environment that is perceived and acted upon.

The same actual external environment can be perceived (and thus, acted upon) differently by different managers.

WHY?
What is environmental uncertainty?

Two variables of environmental uncertainty

1. Complexity
Number and heterogeneity of external elements that affect the organization to make a decision.

2. Stability (or dynamism)

Unpredictability of changes that affect the organization.
Magnitude and rate of change of the elements.

Sources of Uncertainty in the Organizational Environment

Complexity, dynamism, and richness determine the extent of environmental uncertainty.

• Environmental complexity is a function of the strength, number, and interconnectedness of the specific
and general forces that an organization has to manage. The greater the number, and the greater the
differences between them, the more complex and uncertain is the environment and the more difficult to
predict and control.

• Environmental dynamism is a function of how much and how quickly forces in the specific and general
environments change over time and thus increase the uncertainty an organization faces. An environment
is stable if forces affect the supply of resources in a predictable way and unstable and dynamic if an
organization cannot predict the way in which the forces will change over time.

• Environmental richness is a function of the amount of resources available to support an organization’s

domain. In rich environments, uncertainty is low because resources are plentiful and so organizations
need not compete for them.
What is environmental uncertainty?
Resource Dependence Theory

A theory that argues the goal of an organization is to minimize its dependence on other organizations for the
supply of scarce resources in its environment and to find ways of influencing them to make resources available.

Thus, an organization must simultaneously manage two aspects of its resource dependence:

1. It has to exert influence over other organizations so it can obtain resources, and
2. It must respond to the needs and demands of the other organizations in its environment.

• The strength of one organization’s dependence on another depends on:

o How vital the resource is to the organization’s survival
o The extent to which other organizations control the resource

Inter-Organizational Strategies for Managing Resource Dependencies

In the specific environment, two basic types of interdependencies cause uncertainty:

Symbiotic interdependencies are those interdependencies that exist between an organization and its suppliers and
distributors.

Competitive interdependencies are interdependencies that exist among organizations that compete for scarce
inputs and outputs.

Strategies for Managing Symbiotic Resource Interdependencies

• Developing a Good Reputation

• Strategic Alliances
An agreement that commits two or more companies to share their resources to develop joint new
business opportunities.

• Joint Venture
This is a strategic alliance among two or more organizations that agree to establish and share the
ownership of a new business.
 • Merger and Takeover
The most formal strategy for managing symbiotic and competitive resource interdependencies is to merge
with or take over a supplier or distributor because now resource exchanges occur within one organization
rather than between organizations.

• A collusion is a secret agreement among competitors to share information for a deceitful or illegal
purpose, such as keeping prices high as in the flash memory chip industry. Organizations collude to reduce
the competitive uncertainty they experience.

• A cartel is an association of firms that explicitly agree to coordinate their activities. Cartels and collusion
increase the stability and richness of an organization’s environment and reduce the complexity of relations
among competitors.

• Third-party linkage mechanism—a regulatory body that allows organizations to share information and
regulate the way they compete. A trade association, for example, is an organization that represents
companies in the same industry and enables competitors to meet, share information, and informally allow
them to monitor one another’s activities.

Strategies for Managing Competitive Resource Interdependencies

• Strategic alliances
can be used to manage not only symbiotic interdependencies but competitive interdependencies.
Competitors can cooperate and form a joint venture to develop common technology that will reduce their
costs, even though they may be in competition for customers when their final products hit the market.

• Merger and Takeover

The ultimate weapon in an organization’s armory for managing problematic competitive and symbiotic
interdependencies is to merge with, or take over, a competing organization. Mergers and takeovers can
improve a company’s competitive position by allowing the company to strengthen and enlarge its domain
and increase its ability to produce a wider range of products to better serve more customers.

How do organizations manage environmental uncertainty?

Internal Actions
1. Development of more organic structures (Burns & Stalker studies).
2. By managing differentiation levels.
3. Boundary Spanning Units.
4. Creation of Self- Contained Units.
5. Information Management
6. Buffering the organization from the source of uncertainty
7. Smoothing / levelling
8. Imitating other firms
External Actions
1. Direct influence.
2. Indirect influence.
3. Controlling the environment.

1. Development of more organic structures (Burns & Stalker studies)

Historical background:

• Burns & Stalker studied electronics firms in Britain in the 50s

• Within each firm, they focused on two functional units:

o Manufacturing
o Research & development (R&D)

• They observed two emerging types of structures: mechanistic and organic.

• Both types are rational
• Deliberately created and maintained to use human resources efficiently.
• Bureaucratic structures can be highly effective, but only when the environmental uncertainty is low. When
the environment is highly uncertain, however, organizations/departments need to become more organic.

How do organizations manage environmental uncertainty? Internal Actions

2. By managing differentiation levels: The Lawrence & Lorsch studies

Historical background
• Lawrence and Lorsch studied high-performing firms in three industries
o Plastics
o Industrial foods
o Containers

• Within each firm, they studied three functions (departments)

o Manufacturing
o Research & Development
o Sales
Lawrence and Lorsch – Study 1

Study of 4 variables:

1. Level of formalization
2. Planning time horizon
3. Primary goals
4. Interpersonal orientation

Study 1: Difference between functions in the firms in the plastics industry

 • Different task situations are associated with different ‘sub-environments’ for different functional
specialists

• Different sub-environments lead to different ways of organizing activities

• L & L called this differentiation of departments, meaning a difference in orientation of the management in
each department, which is reflected in the different structures (formalization, planning time horizon,
goals, and interpersonal orientation)

• Not just related labor division and coordination; includes unique perceptions, goals, values, etc.

Differentiation: is the process by which an organization allocates people and resources to organizational tasks and
establishes the task and authority relationships that allow the organization to achieve its goals.

• In short, it is the process of establishing and controlling the division of labor, or degree of specialization, in
the organization.
• Differentiation occurs in large companies when different departments, sections or branch offices create
their own corporate culture within the parent company's overall structure.

Integration is the process of coordinating various tasks, functions, and divisions to work together and not be at
cross-purposes. Integration relates to how the different areas of the company coordinate their operations.

• A highly integrated company has strong connections between departments and product lines, with each
section working under a cohesive set of rules and strategies.

Lawrence and Lorsch – Study 1

• High differentiation <-> different departments have different structures and orientations

• Leads to coordination issues

• Low differentiation <-> different departments have similar structures and orientations

• How do you solve the coordination problem?

• Improve integration = Extent of collaboration between departments that are required to achieve unity of
effort by the demands of the environment

Lawrence and Lorsch – Study 2

Differences in differentiation and integration between industry sectors

The level of innovation created differed by industry.

E.g., By 1960, the ‘containers’ industry was using technology and innovation that had been discovered before 1945.

In contrast, in 1960, 15% of technology and innovation that the ‘plastics’ industry was using had been discovered
that same year.

Within and across industries, we can observe the relative uncertainty of (sub)environment faced by each functional
unit.

• Higher overall environmental uncertainty for an organization is best matched with high departmental
differentiation.

• For an organization to succeed, high departmental differentiation must be matched with high integration
levels.

3. Boundary Spanning Units

• Collect information about environmental changes and represent the organization to outside agencies

• ‘Control’ how the organization is perceived

 • Examples: public relations, market researchers, etc.

4. Creation of Self-Contained Units

• Created ad-hoc to respond to emerging issues

• Consider the case of the University of Waterloo. Due to an increased concern about student mental
health, the President created the President's Advisory Committee on Student Mental Health. According to
its mission statement:

• “It will review the data and information collected and advise on the status of the progress of mental health
initiatives across the university. It will examine root causes of student stress, anxiety and depression, and
how to mitigate them proactively instead of reactively.”

5. Information Management

• Improved planning and forecasting

E.g., increased mall store hours during the holiday season.
 • Investment in Information Systems
E.g., CRM, ERP, KMS

• For example:
Consider how the University of Waterloo uses one of its ERP systems — Quest — to keep track of student
enrollment and to potentially forecast future student demand for courses. This data crunching can help
the university better plan and allocate resources.

6. Buffering

• Uncertainty in inputs
E.g. maintain larger inventories of raw materials

• Uncertainty in outputs
E.g. produce more than necessary

• Increase organizational slack

E.g. employ more workers, less than full utilization of production capacity, lengthening lead time

• Downside: increased costs. WHY?

7. Smoothing / levelling

• Attempts to reduce uncertainty in demand

• Example: SmartMeters

8. Imitating other firms

• Organizational fashion

• Example: employee-stock-ownership programs

External Actions:

1. Direct influence

• Establishing inter-organizational linkages.

• Ownership/control of supply chain: e.g. suppliers, distributers, customers.

• Merge with or acquire competitor.

2. Indirect influence

• Strategic Alliances: Agreement to share resources for mutual benefit

• Joint Ventures: creation of a new org. entity

Example: Sony Ericsson Mobile Communications

• Long-term contracts: to reduce risk and cost

Example: Energy buying groups
3. Controlling the environment

• Bargaining – with other organizations

E.g., Bailout

• Public relations programs and political strategies

E.g., lobbying

• Cause marketing and social activism

E.g., CIBC Run for the Cure

• Illegal activities
E.g., price fixing

Org. Environments Summary

• Definition of Environment: general, task, enacted

• Environmental Uncertainty: complexity, stability

• Managing Environment Uncertainty

o Internal Actions
- Making organizations more organic (Burns & Stalker)
- Managing differentiation levels (Lawrence & Lorsch)
- Boundary spanning units & self-contained units
- MIS, buffering, smoothing, rationing, imitating

• External Actions
o Direct/indirect control over the source of uncertainty
o Controlling the environment