Organizational Theory and Development

EXTERNAL ENVIRONMENT
The external environment is the factors outside a business that can affect
its operation by influencing its activities and choices and determine its
opportunities and risks. It is important to organizations to monitor , analyze,
and adapt to the external environment. By understanding various levels
and components of the external environment , organizations can anticipate
changes, identify opportunities, mitigate risks and formulate effective
strategies to achieve their goal.

The common external environment factors that businesses should consider

are political, economic, social and cultural, legal, technological, and
environmental/natural.

The external environmental factors affect the organization at multiple

levels:

LOCAL: It involves community within which a business operates. This level

of external environment involves local minute factors that affect a business
organization. e.g local socio cultures of a community , local laws of a
community . Environmental conditions in that local area

REGIONAL: On a broader level a business organization can get influenced

at regional levels which is simply the combination of communities.
Therefore the preferences and priorities of people at regional level affects
an organizations. for example preferences of people living in Budgam will
differ from preferences of people living in Srinagar .

PROVINCIAL: It includes a state within which an organization is operating.

It comprises of multiple regions of a state . Laws and regulations of a J&K
are very different from that of trade laws in UP. Thus factors at provincial
levels can have their major impact on business organization

NATIONAL: This level of external environment includes factors influencing

a business at national level or simply country level. The political economical
social technological legal and environmental factors that influence the
organization national level . for example the national trade policy of
India ,taxes and customs and legal policies for business in India

GLOBAL: This level of external environment includes factors influencing a

business organization at global level. for example the outbreak of covid 19
affected the business organizations at global level.

INTER ORGANIZATIONAL RELATIONSHIPS

Two or more organizations that establish a relationship for the
achievement of common goals. It is basically long term relationship
created by organizations operating in same industry in an environment
to achieve common goal. It Concerns the different types of collaboration
between organizations and how varied interface strategies enable the expected
outputs and outcomes of such collaborations.

The inter organizational relationships incur various benefits to organizations .

Some of the benefits are:

1. Resource sharing: Inter-organizational relationships enable the sharing

of resources such as expertise, knowledge, technology, facilities, and
finances. By pooling their resources together, organizations can achieve
economies of scale, reduce costs, and access specialized capabilities that
would be otherwise challenging or costly to acquire individually.

2. Increased innovation: Collaboration between organizations fosters

innovation by combining diverse perspectives, skills, and knowledge.
Through shared research and development efforts, joint projects, and
brainstorming sessions, partners can generate novel ideas, develop new
products or services, and enhance existing offerings.

3. Market expansion: Inter-organizational relationships often involve

partnerships between organizations from different industries or geographic
locations. Such collaborations can facilitate market expansion by
leveraging each other's customer base, distribution channels, or market
access. By entering new markets together, organizations can reach a
larger audience and increase their market share.

4. Risk mitigation: Collaboration can help organizations mitigate risks

associated with uncertainty, competition, and changing market conditions.
By diversifying their partnerships and sharing risks, organizations can
spread the burden of uncertainties and reduce their vulnerability to external
shocks or disruptions. This can be particularly beneficial in industries with
high volatility or rapid technological advancements.

5. Learning and knowledge transfer: Inter-organizational relationships

provide valuable learning opportunities. Partners can exchange best
practices, industry insights, and technical know-how, leading to mutual
learning and improvement. This knowledge transfer can enhance the
capabilities and competencies of participating organizations, enabling them
to stay competitive and adapt to new challenges more effectively.

6. Increased competitiveness: By combining their strengths and resources,

organizations can enhance their overall competitiveness. Collaborative
efforts can lead to improved efficiency, streamlined operations, enhanced
product/service quality, and faster time-to-market. These factors contribute
to a stronger market position and the ability to respond swiftly to changing
customer needs and market dynamics.

7. Enhanced reputation and credibility: Partnering with reputable

organizations can enhance an organization's credibility and reputation.
Collaborating with well-established or respected partners can provide
validation and instill confidence among customers, investors, and other
stakeholders. This can open up new opportunities and create a positive
perception of the organization in the market.
8. Access to new markets and customers: Inter-organizational relationships
can provide access to new markets, customer segments, or distribution
channels. By partnering with organizations that have complementary
offerings or a strong presence in a specific market, organizations can tap
into new customer bases and expand their reach without significant
investments in market research, infrastructure, or marketing efforts.

The 5 C's of inter-organizational relationships are commonly referred

to as:

1. Cooperation: Cooperation refers to the act of working together towards a

common goal or objective. In inter-organizational relationships, cooperation
involves sharing resources, knowledge, and information, as well as
engaging in joint activities to achieve mutual benefits. Cooperation
emphasizes a spirit of partnership and mutual support.

2. Collaboration: Collaboration goes beyond cooperation and involves a

deeper level of engagement and integration between organizations. It
entails jointly planning, executing, and evaluating activities, projects, or
initiatives. Collaboration often involves pooling resources, expertise, and
decision-making to achieve shared objectives. It emphasizes synergy and
creating value through joint efforts.

3. Competition: While inter-organizational relationships often focus on

cooperation and collaboration, competition can still play a role. Competition
refers to the pursuit of individual goals and interests, even within a
collaborative setting. Organizations may compete for resources, market
share, or competitive advantage, which can sometimes create tension or
conflicts within the relationship.
4. Conflict: Conflict can arise in inter-organizational relationships due to
differences in goals, interests, priorities, or approaches. Conflict may stem
from disagreements, power imbalances, resource allocation issues, or
divergent strategies. Effective management of conflict is crucial for
maintaining healthy and productive relationships. Open communication,
negotiation, and conflict resolution strategies can help address and resolve
conflicts in a constructive manner.

5. Commensalism: Commensalism refers to a symbiotic relationship where

one organization benefits while the other remains unaffected. In the context
of inter-organizational relationships, commensalism may occur when one
organization gains advantages or benefits from the collaboration, while the
other organization neither benefits nor suffers any significant
consequences. This type of relationship is relatively rare in the context of
inter-organizational collaborations, as the aim is generally to achieve
mutual benefits for all participating organizations.

DESIGNING ORGANIZATIONS FOR INTERNATIONAL ENVIRONMENT

Designing an organization for the international environment requires careful
consideration of various factors to ensure its effectiveness and success in a
global context. Here are some key considerations for designing such an
organization:

1. Economies of Scale: achieving lower cost through large volume

production is made possible through global expansion. For many
companies, domestic markets are not large enough to support the sales
needed to maintain an economy of scale

2. Economies of Scope: a proportionate saving gained by producing two or

more distinct goods. Having presence in multiple countries provides
marketing power and synergy. It increases a company's market power
because companies develop knowledge about cultural, social, economic,
trends which helps them better understand the customer
3. Low-Cost Production Factors: it ensures supplies necessary for
production, such as land, raw materials, and labour at lower costs.
Companies can go overseas to find cheap raw materials that aren’t
available for example in the U.S (Apple: outsourcing production lines, new
suppliers). Companies Go international for lower cost of capital, cheap
energy, reduce government restrictions.

Stages for International Development: • There are four main stages of international
evolution:

Domestic Stage → International Stage → Multinational Stage → Global Stage

 Domestic Stage: The Company is domestically oriented, but

managers are aware of global environment and may want to consider
initial foreign involvement and realize economies of scale. Structure is
domestic, typically functional or divisional, foreign sales through an
export department and logistics are outsourced. → Candy Company
Hershey.
 International Stage: The company takes exports seriously and begins
to think multi-domestically. ○ Multi-Domestic: competitive issues in
each country are independent of other countries - the company deals
with each company independently ○ At this stage, instead of export
department in the domestic stage, it has been replaced by the
international department » Ex.: Purafil Georgia → air filters →
cleanse the air in 60 diff. countries
 ● Multinational Stage: The company has extensive experience in a
number of international markets and has established marketing,
manufacturing, and R&D facilities in several countries. ○
Organizational obtains a large percent of revenue from international
operations » Simens, Coca Cola and Sony
 Global Stage: The company is not a collection of domestic
companies, but subsidiaries are interlinked to the point where
competitive position in one country significantly influences activities in
other countries. ○ There is no “home base” - no one country is the
foundation » Nestlé → hundreds of brands all over the world
 ORGANIZATION SIZE
Organizational size refers to how big or small a company is. Companies in
all industries strive for growth to acquire the size and resources needed to
compete globally. There are certain differences between small & large
organizations.

BASIS OF DIFF SMALL LARGE

STRUCTURE HORIZONTAL VERTICAL

FLEXIBILITY FLEXIBLE RIGID
IDENTIFIED NO ECONOMIES OF SCALE ECONOMIES OF SCALE

APPROACHES TRADITIONAL APPROACH MECHANIST APPROACH

FOUNDER ENTREPRENEURS ORG. HEADS

DELEGATION DECENTRALIZED CENTRALIZED
OF AUTHORITY
MARKET SIZE SMALL/ UNSTABLE STABLE MARKET

ORGANIZATIONAL LIFE CYCLE

Organizational life cycle comprises of four stages :

Entrepreneurial stage. When an organization is born, the emphasis is on

creating a product or service and surviving in the marketplace. Crisis: Need
for leadership. As the organization starts to grow, the larger number of
employee’s causes problems. At this time of crisis, entrepreneurs must
either adjust the structure of the organization to accommodate continued
growth or else bring in strong managers who can do so.

Collectivity stage. If the leadership crisis is resolved, strong leadership is

obtained and the organization begins to develop clear goals and direction.
Crisis: Need for delegation. If the new management has been successful,
lower-level employees gradually find themselves restricted by the strong
top-down leadership. The organization needs to find mechanisms to control
and coordinate departments without direct supervision from the top.
Formalization stage. The formalization stage involves the installation and
use of rules, procedures, and control systems. Crisis: Too much red tape.
At this point in the organization’s development, the proliferation of systems
and programs may begin to strangle middle-level executives.

Elaboration stage. The solution to the red tape crisis is a new sense of
collaboration and teamwork. Crisis: Need for revitalization. After the
organization reaches maturity, it may enter periods of temporary decline. A
need for renewal may occur every ten to twenty years .
ORGANIZATIONAL DECLINE
There are four stages of organizational decline:

Blinded stage. The first stage of decline is the internal and external change
that threatens long-term survival and may require the organization to
tighten up. The organization may have excess personnel, cumbersome
procedures, or lack of harmony with customers. With timely information,
alert executives can bring the organization back to top performance.

Inaction stage. The second stage of decline is called inaction in which

denial occurs despite signs of deteriorating performance. Leaders may try
to persuade employees that all is well. The solution is for leaders to
acknowledge decline and take prompt action to realign the organization
with the environment. Leadership actions may include new problem-solving
approaches, increasing decision-making participation, and encouraging
expression of dissatisfaction to learn what is wrong.

Faulty action stage. The organization is facing serious problems, and

indicators of poor performance cannot be ignored. Failure to adjust to the
declining spiral at this point can lead to organizational failure. Leaders are
forced by severe circumstances to consider major changes. Actions may
involve retrenchment, including downsizing personnel. Leaders should
reduce employee uncertainty by clarifying values and providing information.
A major mistake at this stage decreases the organization’s chance for a
turnaround.

Crisis stage. the organization still has not been able to deal with decline
effectively and is facing a panic. The organization may experience chaos,
efforts to go back to basics, sharp changes, and anger. It is best for
managers to prevent a stage-4 crisis; at this stage, the only solution is
major reorganization. The social fabric of the organization is eroding, and
dramatic actions, such as replacing top administrators and revolutionary
changes in structure, strategy, and culture, are necessary. Workforce
downsizing may be severe.

Dissolution stage. This stage of decline is irreversible. The organization is

suffering loss of markets and reputation, the loss of its best personnel, and
capital depletion. The only available strategy is to close down the
organization in an orderly fashion and reduce the separation trauma of
employees.

REASON FOR ORGANIZATIONAL DECLINE

1. COMPETITION : Competition is a major factor that is responsible for

the survival of an organization. If not faced correctly it leads to the
decline of an organization . Proper SWOT analysis and competition
analysis is the key to face the competition and survival of an
organization.
2. RESISTANCE TO CHANGE
External factors such as shifts in customer preferences, technological
advancements, or change in regulations ca significantly impact
organizations. Failing to recognize and respond to these changes can
make an organization less competitive or decline .
3. LACK OF INNOVATION
Failing to adapt and innovate can cause organizations to fall behind
their competitor. In rapidly changing markets ,organizations need to
continually explore new ideas , invest in research and development
and embrace emerging technologies.
4. INEFFECTIVE COMMUNICATION :
Communication breakdowns in an organization can hinder
collaboration, lead to misunderstanding and create a lack of
alignment among teams .poor communication leads to decreased
productivity, low morale and loss of trust.

ORGANIZATIONAL CULTURE AND ETHICAL VALUES

The beliefs or values accepted by the employes of an organization are
called as organizational culture. It encompasses the unwritten rules and
norms that guide how employees interact with each other , make decision
and conduct themselves within the organization.
Factors that define organizational culture:

HISORY: The rules principles set by the founder of an organization. The

rules accepted from the past become culture of an organization.

EXTERNAL FACTORS: Any change in the environment is accepted as a

culture in an organization.

ADMINISTRATION OF ORGANIZATION:

The behavior, conduct and how the org administration treats its employees
becomes a major factor that defines organizational culture.

TECHNOLOGY

Technology can indeed be a factor that influence and defines

organizational culture. The integration of technology within an organization
can shape the way work is done , how employees interact ,and the overall
values and beliefs that permeate the organization.

INNOVATION AND ORGANIZATIONAL CHANGE

Organizational change refers to the process of making significant

alterations to the structure, processes, strategies, or culture of an
organization. It involves transitioning from current state of the organization
to the desired future state to improve performance, adapt to external
circumstances or address internal challenges. It involves deliberately
introducing modification to the way an organization operates with the im of
improving performance.

Organizational change can be driven by internal or external factors. Internal

factors may include the desire for improvement ,growth or increased
efficiency ,while external factors can encompass shifts in the business
environment ,market conditions ,customer expectations ,regulatory
requirements or technological advancements
There are two types of organizational changes:

1. Reactive changes : These changes are typically a response to a

problem or a need for immediate action. Reactive changes are often
driven by factors such as market shifts , competitive threats , financial
difficulties etc
2. Proactive changes: These are planned and initiated in anticipation of
future needs , opportunities, or challenges. Rather than responding to
a crisis or external pressure.

STAGES OF ORGANIZATIONAL CHANGE

The stages of organizational change includes
1. DENIAL STAGE During this stage individuals and groups within
the organization deny or resist the need for change. They may
exhibit skepticism ,disbelief or a reluctance to accept the
proposed change
Denial can be a natural response to change as individuals and
groups may feel threatened by the unknown or fear potential
negative impacts.

2. RESISTANCE STAGE In the resistance stage the individuals

and groups actively resist the proposed change. They may
express their opposition through various means such as vocal
objection , complaints .resistance can arise from concerns
about personal job security, loss of control , increased work
load.
3. EXPLORATION AND ACCEPTANCE During this stage
individuals and groups begin to explore the proposed change
and their potential implications. They may engage in
discussion, seek clarification and actively participate in change
related activities. As people become more informed they may
start accepting the need for change and benefits it can bring.
4. COMMITMENT STAGE in the commitment stage individuals
and groups fully embrace the changes and actively contribute
to its successful implementation. They align their behaviors,
attitudes and actions with the change objectives and may even
become change advocates or champions within organization.

FACTORS FOR RESISTANCE TO CHANGE

Uncertainty
Fair of failure
Self interest
Learning anxiety