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Chapter Four

The External Environment

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An Organizations Environment
(a) Competitors, industry size and (g) Recession, unemployment rate, competitiveness, related issues inflation rate, rate of investment, (j) (a) (b) Suppliers, economics, growth International Industry manufacturers, real (h) City, state, federal laws Sector Sector estate, services and regulations, taxes, (i) (b) (c) Labor market, services, court system, Sociocultural DOMAIN Raw Materials Sector employment agencies, political processes Sector universities, training (i) Age, values, beliefs, schools, employees education, religion, (c) (h) in other companies, work ethic, consumer Human Government Resources unionization and green ORGANIZATION Sector Sector (d) Stock markets, movements banks, savings and (j) Competition from (g) (d) loans, private Economic Financial and acquisition by Conditions Resources investors foreign firms, Sector Sector (e) Customers, clients, entry into overseas (e) (f) Market potential users of products markets, foreign Technology Sector Sector and services customs, regulations, (f) Techniques of production, science, exchange rates computers, information technology Thomson Learning 2004 4-2

Organizational Departments Differentiate to Meet Needs of Sub-environments


President

R&D Division Scientific Sub-environment


Scientific journals Research centers

Manufacturing Division Manufacturing Sub-environment


Labor Raw Suppliers materials Production equipment

Sales Division Market Sub-environment


Customers Advertising Competitors agencies Distribution system

Professional associations

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Differences in Goals and Orientations Among Organizational Departments


Characteristic Goals Time Horizon Interpersonal Orientation Formality of Structure

R&D Department
New developments, quality Long Mostly task Low

Manufacturing Department
Efficient production Short Task High

Sales Department
Customer satisfaction Short Social High
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Source: Based on Paul R. Lawrence and Jay W. Lorsch, Organization and Environment (Homewood, Ill.: Irwin, 1969), pp. 23-29.

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Environmental Uncertainty and Organizational Integrators


Industry:
Environmental Uncertainty Departmental Differentiation Percent of management in integrating roles Plastics High Foods Moderate Container Low

High

Moderate

Low

22%
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17%

0%

Source: Based on Jay W. Lorsch and Paul R. Lawrence, Environmental Factors and Organizational Integration, Organization Planning: Cases and Concepts (Homewood, Ill.: Irwin and Dorsey, 1972), 45.

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Organization Forms Mechanistic: Organic:


Tasks are broken down into specialized, separate parts. Tasks are rigidly defined. There is a strict hierarchy of authority and control, and there are many rules. Knowledge and control of tasks are centralized at the top of the organization. Communication is vertical.

Source: Adapted from Gerald Zaltman, Robert Duncan, and Jonny Holbek, Innovations and Organizations (New York: Wiley, 1973), 131.

Employees contribute to the common task of the department. Tasks are adjusted and redefined through teamwork. There is less hierarchy of authority and control, and there are few rules. Knowledge and control of tasks are located anywhere in the organization. Communication is Thomson Learning 2004 4-6 horizontal.

Contingency Framework for Environmental Uncertainty and Organizational Responses


Low Uncertainty
1. Mechanistic structure; formal, centralized 2. Few departments

Low-Moderate Uncertainty
1. Mechanistic structure; formal, centralized 2. Many departments, some boundary spanning 3. Few integrating roles 4. Some planning; moderate speed response

STABLE

3. No integrating roles 4. Current operations orientation; low speed response

ENVIRONMENTAL CHANGE

High-Moderate Uncertainty
1. Organic structure, teamwork; participative, decentralized 2. Few departments, much boundary spanning 3. Few integrating roles 4. Planning orientation; fast response

High Uncertainty
1. Organic structure, teamwork; participative, decentralized 2. Many departments differentiated, extensive boundary spanning 3. Many integrating roles 4. Extensive planning, forecasting; high speed response

UNSTABLE

SIMPLE

ENVIRONMENTAL COMPLEXITY

COMPLEX 4-7

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Organization Strategies for Controlling the External Environment

Establishing Interorganizational Linkages: Ownership Contracts, joint ventures Cooptation, interlocking directorates Executive recruitment Advertising, public relations

Controlling the Environmental Domain:


Change of domain Political activity, regulation Trade associations Illegitimate activities

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Relationship Between Environmental Characteristics and Organizational Actions


Environment
High complexity High uncertainty High rate of change Environmental domain (ten sectors)

Organization
Many departments and boundary roles Greater differentiation and more integrators for internal coordination Organic structure and systems with low formalization, decentralization, and low standardization to enable a high-speed response Establishment of favorable linkages: ownership, strategic alliances, cooptations, interlocking directorates, executive recruitment, advertising, and public relations

Scarcity of valued resources

Resource dependence

Control of the environmental domain: change of domain, political activity, regulation, trade associations, and illegitimate activities 4-9

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