Managing the Organizational Environment

&
Inter Organizational Relationships

Dr. Sumita Mishra

Sumita.mishra@ksom.ac.in
sumita.mishra@gmail.com
 Environmental Complexity- Strength, No.,
& Interconnectedness of specific &
general forces

ENVIRONMENTAL
Environmental Dynamism- Degree of UNCERTAINTY
change of specific & general Forces

Environmental Richness- Amount of

resources available to an organization

Inter organizational Relationships

 Landmark Contributions
• Burns and Stalker
• Mechanistic Structures
-High Complexity, formalization and centralization. They performed
routine tasks, relied heavily on programmed behavior and
relatively were slow to responding to novel situations.
-Ford Car Factories of the 1920s
• Organic Structures
-Flexible and adaptive with emphasis on lateral communication,
influence based on expertise, loosely defined jobs and emphasis
on sharing information.
-3M
 Landmark Contributions
• Emery and Trist
• Placid-Randomized Environment
-Stable, predictable and not prone to change. Economists’ model of
pure competition
-Beer distributors
Placid Clustered Environment
-Change is slow but not random. Forces in the environment are linked
to one another. Powerful coalitions (suppliers or buyers)
• The distributed reactive Environment
-Creation of monopolies. Anti-trust issues, 7-Up and Coke and Pepsis
• The turbulent Field Environment
-Most dynamic and ever changing. Coke’s action in New York City to
compete with Mountain Dew. Syringes in Pepsi cans, Glass Shards in
Gerber Baby Foods, Poisoning of Tylenol, Church of Scientology's
attack on Prozac and hate sites such as Ihatemcdonals.com
 Landmark Contributions
• Lawrence and Lorsch

Variable Plastics Industry Food processing Container

Industry
Uncertainty High Moderate Low
(complexity,
dynamism,
richness)
Departmental High Moderate Low
Differentiation
Cross Functional High Moderate Low
Integration
o Expansion of Global Business

o Thrust on horizontal
external relationships in
organizations

o Growth through relationships

with other contributors to
the environment

Inter organizational Relationships

o Resource Dependence Theory

o Population Ecology Theory

o Institutionalism

o Transaction Cost Analysis

Inter organizational Relationships

Decade of Origin/Key Contributors
o 1970s
o Jeffrey Pfeffer, Gerald Salancik

Key Concepts
o Organization goal is the reduction of dependence on
other organizations for resources
o Symbiotic interdependencies
o Competitive Interdependencies IOR Strategies

o Choice of IOR strategy depends on its use in reducing

environmental uncertainty

Inter organizational Relationships

IOR Strategies
Informal Formal

Symbiotic IOR- Org. with

Suppliers+Disributors
Reputation Co- Strategic Merger &
optation Alliances Takeover
Contracts
Interlocking Networks
Directorate Min. Ownership

Joint Ventures
Informal Formal
Competitive IOR- Org.
with other organizations
that compete for Collusions/ Third party Strategic Merger &
resources Cartels Linkages Alliances Takeover

Inter organizational Relationships

 -Least Formal
-Trust, Fair Business Practices, Goodwill among customers,
1.Reputation suppliers

DeBeers Benetton
Nestle

-Neutralizing problem forces in the environment

-Make customers, suppliers, distributors organization
2. Co-optation Stakeholders
-Rugmark and IKEA, Pampers and Unicef
-Interlocking Directorate: Director of one company sits
on the board of another company

Inter organizational Relationships

 3. Strategic Alliances- Agreement that commits two
or more companies to share their resources to develop
joint new business opportunities

Informal Formal

Minority Joint
Long Term Networks
ownership Ventures
Contracts
-Org. action coordinated -Buying of minority -Joint
-Least formal as stake/shares in
no org. ties apart by contracts rather than ownership of
formal ties organizations Business
from agreement -Kiretsu (Toyota
-Sharing of -Nike with its suppliers -IBM with
and distributors owns Intel to
Resources or Risk 49% shares in
of marketing, R&D produce
supplier companies) mainframes
-Kellogg's with Farmers

Inter organizational Relationships

 4. Mergers &
Takeovers
-Most Formal
-Symbiotic and Competitive
-Resource exchanges within an organization
-Merger or takeover of an organization/customer/supplier
-McDonalds (ownership of cattle ranches in Brazil)
-Exxon and Mobil
-Daimler and Chrysler
-Acquisition Model of Cisco Systems
-Differences between JVs and Mergers: Legal,
Ownership, Commitment and scope

Inter organizational Relationships

 1.Collusions
&
-Collusion is a secret agreement among competitors to Cartels
share information for an illegal purpose
-Cartel is an association of firms that explicitly agree
to coordinate their activities
-GM and Ford collusion to keep the prices of trucks artificially high

2.Third
Party
Linkage -Relatively formal though indirect
Mechanisms -A regulatory body that allows organizations to
share information and regulate competition
-NASSCOM (India), MITI (Japan)

Inter organizational Relationships

Decade of Origin/Key Contributors
o1970s
oMichael Hannan, John Freeman

Key Concepts
oExplains how organizations are born & die in a population of
existing organizations
oPopulation is a set of organizations engaged in similar
activities with similar resource utilization & outcomes
oOrganizations follow a pattern of natural selection
oEntrepreneurial Skills+ Org.Role Model = organizational
birth
oVariation Selection Retention Ecological
Change

Inter organizational Relationships

 R Strategy Specialists
-Entering an environment -Skills to pursue a narrow
early range of resources in a single niche
-Apple and the PC -Baypackets, Amazon. COM

Survival
Strategies

Generalists K Strategy
-Spreading of skills to compete for -Entering an environment
a broad range of resources in many Niches Late
-Infosys -IBM and the PC

Inter organizational Relationships

Decade of Origin/Key Contributors
o 1970s
o Ronald Coase

Key Features
o Transaction Costs are the costs of negotiating, monitoring and
governing exchanges between people
o Goal of organization is to reduce the costs of exchanging
resources in the environment & costs of managing exchanges
internally
o Environmental Uncertainty & Bounded Rationality+
Opportunism & Small Numbers+ Risk & Specific Assets =
Transaction Costs

Inter organizational Relationships

 Transaction Cost Theory
& choice of IOR

-Location of the source and extent of transaction

costs
-Estimation of transaction costs from different
IORs
-Estimation of bureaucratic costs of implementing an
IOR
-Orgns choose the IOR that gives maximum
transaction savings at the lowest bureaucratic
costs

Inter organizational Relationships

 3. Outsourcing
-The process of moving a value creation activity
performed inside an org. to another company
-cheaper bureaucratic costs and extra value
-GE Capital, Nike

2. Franchising
-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 to a
person or group for a flat fee or a share in the profits
-McDonalds & Body Shop

1. Kiretsu
IOR Strategies

Inter organizational Relationships

Inter organizational Relationships