Organization & its Environment

Revisiting the definition for Organization

• Environment: the set of forces surrounding an

organization that have the potential to affect the
way it operates and its access to scarce resources
− Meaning of resources

• Organizational domain: the particular range of

goods and services that the organization
produces, and the customers and other
stakeholders whom it serves

January 11, 2022 Organizational Structure, Design and Change 1

 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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 Four Forces Reshaping HR Impact on
Business Success
Aligning HR Structure to Changing Role of HR

Business Context:
Increased Pace of
STEPED
Change: VUCA
Conditions
HR Matters:
HR Professionals
HR Department

Stakeholder
Personal Context:
Expectations:
Six ‘I’s
Inside & Outside

Ref: Victory through Organizations, Ulrich et al (2017)

 VUCA World
Four Forces Reshaping HR Impact on Business Success
An example How to
What it is effectively
address it
Volatility Relatively unstable change; Commodity Agility
change is frequent and pricing
sometimes unpredictable.
Uncertainty Lack of knowledge as to whether Antiterrorism Information
an event will have meaningful initiatives/
ramifications Disinvestment
Complexity Many interconnected parts Moving into Restructuring
forming an elaborate network of foreign /new
information and procedures markets
Ambiguity Lack of knowledge as to ‘the Technology Experimentation
basic rules of the game’; cause changes/
and effect are not understood Bidding rules
 Personal Context of Today’s Work
Four Forces Reshaping HR Impact on Business Success

•Intensity and insults replace insight and civility, emotional outbursts

Intensity more than reasoned dialogues

•Taking control of own career, maximizing self interests, eschewing

Individualism long term commitment to community or organization

•Digital natives spending 7.5 hours in front of a screen

Isolation
•Social Isolation (people are connected, but not connecting)

•Next generation with moderated expectations (job, career)

Indifference
•How parenting goals and trust in public systems changed

•Immediate gratification than long term preparation

Immediacy
•Disposable relationships, deal making than value based decisions

•Data allows to you identify subgroups with unique offerings

In-group (labels)
•People prefer likeminded groups and live with them resulting in
polarization and extremism

Do you agree with these?

 Organization & its Environment
Resource Dependence Theory
Assume that your organization (ABC) has got just one supplier
(XYZ) for a very scarce input. Another four more competitors
are depending on XYZ for the same critical input.

How will you reduce the uncertainty of your organization (ABC)? Please
remember
− You don’t have any substitute for the mentioned input
− You can’t produce it by yourself both in short & long term.
− More than 80% of revenue of your firm is depending on the product
based on above input and you can’t move into other products/services for
various reasons. Same scenario with all your competitors.

CA 5A: Identify at least three options which will not violate three
conditions mentioned above:
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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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 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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 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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 Organization & its Environment
Transaction Cost Theory
Keiretsu
• Japanese system for achieving the
benefits of formal linkages
without incurring its costs
− Example: Toyota has a
minority ownership
in its suppliers
• Affords substantial control
over the exchange relationship
• Avoids bureaucratic cost of
ownership and opportunism

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 Organization & its Environment
Transaction Cost Theory
Franchising
• A franchise is a business that is authorized to sell a
company’s products in a certain area
• The franchiser sells the right to use its resources (name
or operating system) in return for a flat fee or share of
profits
• Outsourcing
• Moving a value creation that was performed inside the
organization to outside companies
• Compare the bureaucratic costs of doing the activity Vs
benefits
− Relation with networks in RDT

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