Prof.

Sushil Kumar
 All the elements that exist outside the
boundary of the organization

 Potential to affect all or part of the

organization

Organizational Theory and Design (11th Edition) by Richard L Daft

Sectors that the organization interacts with
directly to achieve goals

▪ Typically the “industry” and market sectors

▪ Human Resources

▪ International Sector

▪ Raw Materials Sector

Organizational Theory and Design (11th Edition) by Richard L Daft

 Sectors that might not have a direct impact
on the daily operations of a firm

▪ Government sector: regulation

▪ Sociocultural sector: the green movement
▪ Economic conditions: global recession
▪ Technology sector: massive and constant changes
▪ Financial resources
▪ Extremely important to entrepreneurs

Organizational Theory and Design (11th Edition) by Richard L Daft

 Simple-complex: heterogeneity; the number
of dissimilarity of external elements

 Stable-Unstable: whether elements in the

environment are dynamic

Organizational Theory and Design (11th Edition) by Richard L Daft

Organizational Theory and Design (11th Edition) by Richard L Daft
 Organizations need the right fit between
internal structure and the external
environment
▪ Adding Positions and Departments
▪ Building Relationships
▪ Boundary-spanning roles
▪ Business intelligence
▪ Differentiation and Integration
▪ Organic vs. Mechanistic Management Process
▪ Planning, Forecasting, and Responsiveness
Organizational Theory and Design (11th Edition) by Richard L Daft
 Low Uncertainty Low-Moderate Uncertainty

1. Mechanistic design: 1. Mechanistic design:

Formal, centralized formal, centralized
Stable
2. Few departments 2. Many departments, some
boundary spanning
3. No integrating roles
3. Few integrating roles
4. Current operations orientation;
low speed response 4. Some planning moderate-speed
response

ENVIRONMENTAL
CHANGE
High-Moderate Uncertainty High Uncertainty

1. Organic design, teamwork: 1. Organic design, teamwork:

participative, decentralized participative, decentralized
Unstable
2. Few departments, much 2. Many departments differentiated,
boundary spanning extensive boundary spanning

3. Few integrating roles 3. Many integrating roles

4. Planning orientation; fast 4. Extensive planning forecasting;

response high-speed response

Simple Complex
Organizational Theory and Design (11th Edition) by Richard L Daft
ENVIRONMENTAL COMPLEXITY
 Resource-dependence perspective means
organizations depend on the environment
▪ Strive to acquire control over resources to
minimize dependence
▪ Organizations are vulnerable if resources are
controlled by other organizations
▪ Minimize vulnerabilities
▪ Will team up with others when resources are
scarce
 Symbiotic inter-dependencies

 Competitive inter-dependencies
Keiretsu
 allow an
1. Ability to obtain 2. An organizational
organization
scarce resources strategy
to create

and invest
which
resources to
increases its
develop

which enable
4. A Competitive the
3. Core competences
advantage organization
to create

Organizational Theory, Design, and Change (Sixth Edition) by Gareth R. Jones and Mary Mathew
1. Specialized resources
▪ Functional resources: the skills possessed by an
organization’s functional personnel

▪ Organizational resources: the attributes that give

an organization a competitive advantage such as
the skills of the top-management team or
possession of valuable and scarce resources

Organizational Theory, Design, and Change (Sixth Edition) by Gareth R. Jones and Mary Mathew
2. Coordination ability
▪ An organization’s ability to coordinate its
functional and organizational resources to create
maximal value
▪ Effective coordination of resources leads to
competitive advantage by means of:
▪ Control systems
▪ Centralization or decentralization of authority
▪ Development and promotion of shared cultural values

Organizational Theory, Design, and Change (Sixth Edition) by Gareth R. Jones and Mary Mathew
 Strategies to lower costs or differentiate
products
▪ The manufacturing function can lower the costs of
production by pioneering the adoption of the
most efficient production methods
▪ The human resource management (HRM) function
can lower costs by designing appropriate control
and reward systems to increase employee
motivation and reduce absenteeism and turnover

Organizational Theory, Design, and Change (Sixth Edition) by Gareth R. Jones and Mary Mathew
 Functional-level strategy and structure
▪ The strength of a function’s core competence
depends not only on the function’s resources, but
on its ability to coordinate the use of its resources
▪ According to contingency theory, each function
should develop a structure that suits its human
and technical resources

Organizational Theory, Design, and Change (Sixth Edition) by Gareth R. Jones and Mary Mathew
 Manufacturing Sales R&D
Mechanistic Organic
structure structure

Manufacturing Sales R&D

Tall Flat
organization organization

Manufacturing Sales R&D

Centralized Decentralized
decision decision
making making

Manufacturing Sales R&D

Mutual
Standardization
adjustment
Organizational Theory, Design, and Change (Sixth Edition) by Gareth R. Jones and Mary Mathew
 The business-level strategy involves:
▪ Selecting and managing the domain the
organization will compete in
▪ Positioning the organization so that it can use its
resources and abilities to manage its specific and
general environments to protect and enlarge that
domain

Organizational Theory, Design, and Change (Sixth Edition) by Gareth R. Jones and Mary Mathew
 Strategies to lower costs or differentiate
products
▪ Low-cost business-level strategy: use of skills in
low-cost value creation to produce for a customer
group that wants low-priced goods and services

▪ Differentiation business-level strategy: use of

skills to differentiate products for customer
groups that want and can afford differentiated
products that command a high or premium price
Organizational Theory, Design, and Change (Sixth Edition) by Gareth R. Jones and Mary Mathew
 Matrix Product team Product, market, Functional
structure structure or geographic structure
structure

Differentiation Strategy Low-Cost Strategy

Complex structure Simple structure

Decentralized decision making Centralized decision making

High differentiation Low differentiation

High integration Low integration

Organic structure Mechanistic structure

Involves search for new domains in
which to exploit and defend the
ability to create value from its core
competences

Organizational Theory, Design, and Change (Sixth Edition) by Gareth R. Jones and Mary Mathew
Input Related
Domains Domain
Backward Related
vertical diversification
integration

Core Domain

Output Forward Unrelated Unrelated

Domain vertical diversification Domain
integration

Organizational Theory, Design, and Change (Sixth Edition) by Gareth R. Jones and Mary Mathew
 For organizations operating in more than one
domain, a multidivisional structure is
appropriate
 Conglomerate structure and unrelated
diversification
▪ Conglomerate structure: a structure in which
each business is placed in a self-contained division
and there is no contact between divisions

Organizational Theory, Design, and Change (Sixth Edition) by Gareth R. Jones and Mary Mathew
 CEO

Corporate
Headquarters Staff

A B C D E F G H I
Division Division Division Division Division Division Division Division Division

Organizational Theory, Design, and Change (Sixth Edition) by Gareth R. Jones and Mary Mathew
Organizational Structure for
Implementing Strategy Across Countries
Organizational Theory and Design by Richard L Daft