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Thomson Learning
© 2004
4-1
Chapter Four
The External Environment
Thomson Learning
© 2004 4-2
(a) Competitors, industry size and
competitiveness, related issues
(b) Suppliers,
manufacturers, real
estate, services
(c) Labor market,
employment agencies,
universities, training
schools, employees
in other companies,
unionization
(d) Stock markets,
banks, savings and
loans, private
investors
(e) Customers, clients,
potential users of products
and services
(f) Techniques of production, science,
computers, information technology
(g) Recession, unemployment
inflation rate, rate of investm
economics, gro
(h) City, state, federal
and regulations, ta
services, court sys
political proce
(i) Age, values, bel
education, relig
work ethic, consu
and g
movem
(j) Competition f
and acquisitio
foreign fi
entry into over
markets, fore
customs, regulati
exchange r
An Organization’s
Environment
(j)
International
Sector
(d)
Financial
Resources
Sector
(e)
Market
Sector
(f)
Technology
Sector
(g)
Economic
Conditions
Sector
(a)
Industry
Sector
(h)
Government
Sector
(c)
Human
Resources
Sector
(b)
Raw Materials
Sector
(i)
Sociocultural
Sector
ORGANIZATION
DOMAIN
Thomson Learning
© 2004 4-3
Market
Sub-environment
Customers Advertising
Competitors agencies
Distribution
system
Manufacturing
Sub-environment
Labor Raw Suppliers
materials
Production
equipment
Scientific
Sub-environment
Scientific Research
journals centers
Professional
associations
Organizational Departments
Differentiate to Meet Needs of
Sub-environments
President
R & D
Division
Sales
Division
Manufacturing
Division
Thomson Learning
© 2004 4-4
Differences in Goals and
Orientations Among Organizational
Departments
Characteristic
R & D
Department
Manufacturing
Department
Sales
Department
Goals
New
developments,
quality
Efficient
production
Customer
satisfaction
Time
Horizon Long Short Short
Interpersonal
Orientation Mostly task Task Social
Formality of
Structure Low High High
Source: Based on Paul R. Lawrence and Jay W. Lorsch,
Organization and Environment
(Homewood, Ill.: Irwin, 1969), pp. 23-29.
Thomson Learning
© 2004 4-5
Environmental Uncertainty
and Organizational Integrators
Industry: Plastics Foods Container
Environmental
Uncertainty High Moderate Low
Departmental
Differentiation High Moderate Low
Percent of
management in
integrating
roles
22% 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.
Thomson Learning
© 2004 4-6
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.
 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
horizontal.
Source: Adapted from Gerald Zaltman, Robert Duncan, and Jonny Holbek,
Innovations and Organizations (New York: Wiley, 1973), 131.
Thomson Learning
© 2004 4-7
Low Uncertainty
1. Mechanistic structure; formal,
centralized
2. Few departments
3. No integrating roles
4. Current operations orientation;
low speed response
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
Low-Moderate Uncertainty
1. Mechanistic structure; formal,
centralized
2. Many departments, some boundary
spanning
3. Few integrating roles
4. Some planning; moderate speed
response
Contingency Framework for
Environmental Uncertainty and
Organizational Responses
Uncertainty
Uncertainty
ENVIRONMENTAL
CHANGE
STABLE
ENVIRONMENTAL COMPLEXITY
UNSTABLE
SIMPLE COMPLEX
Thomson Learning
© 2004 4-8
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
Thomson Learning
© 2004 4-9
Relationship Between Environmental
Characteristics and Organizational
Actions
Environmental
domain
(ten sectors)
High
complexity
Establishment of favorable linkages:
ownership, strategic alliances, cooptations,
interlocking directorates, executive recruitment,
advertising, and public relations
Organic structure and systems with low
formalization, decentralization,
and low standardization to enable
a high-speed response
Many departments and boundary roles
Greater differentiation and more
integrators for internal coordinationHigh
uncertainty
High rate
of change
Scarcity of
valued
resources
Resource
dependence Control of the environmental domain:
change of domain, political activity,
regulation, trade associations, and
illegitimate activities
Environment Organization
Thomson Learning
© 2004 4-9
Relationship Between Environmental
Characteristics and Organizational
Actions
Environmental
domain
(ten sectors)
High
complexity
Establishment of favorable linkages:
ownership, strategic alliances, cooptations,
interlocking directorates, executive recruitment,
advertising, and public relations
Organic structure and systems with low
formalization, decentralization,
and low standardization to enable
a high-speed response
Many departments and boundary roles
Greater differentiation and more
integrators for internal coordinationHigh
uncertainty
High rate
of change
Scarcity of
valued
resources
Resource
dependence Control of the environmental domain:
change of domain, political activity,
regulation, trade associations, and
illegitimate activities
Environment Organization

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Ch04

  • 1. Thomson Learning © 2004 4-1 Chapter Four The External Environment
  • 2. Thomson Learning © 2004 4-2 (a) Competitors, industry size and competitiveness, related issues (b) Suppliers, manufacturers, real estate, services (c) Labor market, employment agencies, universities, training schools, employees in other companies, unionization (d) Stock markets, banks, savings and loans, private investors (e) Customers, clients, potential users of products and services (f) Techniques of production, science, computers, information technology (g) Recession, unemployment inflation rate, rate of investm economics, gro (h) City, state, federal and regulations, ta services, court sys political proce (i) Age, values, bel education, relig work ethic, consu and g movem (j) Competition f and acquisitio foreign fi entry into over markets, fore customs, regulati exchange r An Organization’s Environment (j) International Sector (d) Financial Resources Sector (e) Market Sector (f) Technology Sector (g) Economic Conditions Sector (a) Industry Sector (h) Government Sector (c) Human Resources Sector (b) Raw Materials Sector (i) Sociocultural Sector ORGANIZATION DOMAIN
  • 3. Thomson Learning © 2004 4-3 Market Sub-environment Customers Advertising Competitors agencies Distribution system Manufacturing Sub-environment Labor Raw Suppliers materials Production equipment Scientific Sub-environment Scientific Research journals centers Professional associations Organizational Departments Differentiate to Meet Needs of Sub-environments President R & D Division Sales Division Manufacturing Division
  • 4. Thomson Learning © 2004 4-4 Differences in Goals and Orientations Among Organizational Departments Characteristic R & D Department Manufacturing Department Sales Department Goals New developments, quality Efficient production Customer satisfaction Time Horizon Long Short Short Interpersonal Orientation Mostly task Task Social Formality of Structure Low High High Source: Based on Paul R. Lawrence and Jay W. Lorsch, Organization and Environment (Homewood, Ill.: Irwin, 1969), pp. 23-29.
  • 5. Thomson Learning © 2004 4-5 Environmental Uncertainty and Organizational Integrators Industry: Plastics Foods Container Environmental Uncertainty High Moderate Low Departmental Differentiation High Moderate Low Percent of management in integrating roles 22% 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.
  • 6. Thomson Learning © 2004 4-6 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.  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 horizontal. Source: Adapted from Gerald Zaltman, Robert Duncan, and Jonny Holbek, Innovations and Organizations (New York: Wiley, 1973), 131.
  • 7. Thomson Learning © 2004 4-7 Low Uncertainty 1. Mechanistic structure; formal, centralized 2. Few departments 3. No integrating roles 4. Current operations orientation; low speed response 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 Low-Moderate Uncertainty 1. Mechanistic structure; formal, centralized 2. Many departments, some boundary spanning 3. Few integrating roles 4. Some planning; moderate speed response Contingency Framework for Environmental Uncertainty and Organizational Responses Uncertainty Uncertainty ENVIRONMENTAL CHANGE STABLE ENVIRONMENTAL COMPLEXITY UNSTABLE SIMPLE COMPLEX
  • 8. Thomson Learning © 2004 4-8 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
  • 9. Thomson Learning © 2004 4-9 Relationship Between Environmental Characteristics and Organizational Actions Environmental domain (ten sectors) High complexity Establishment of favorable linkages: ownership, strategic alliances, cooptations, interlocking directorates, executive recruitment, advertising, and public relations Organic structure and systems with low formalization, decentralization, and low standardization to enable a high-speed response Many departments and boundary roles Greater differentiation and more integrators for internal coordinationHigh uncertainty High rate of change Scarcity of valued resources Resource dependence Control of the environmental domain: change of domain, political activity, regulation, trade associations, and illegitimate activities Environment Organization
  • 10. Thomson Learning © 2004 4-9 Relationship Between Environmental Characteristics and Organizational Actions Environmental domain (ten sectors) High complexity Establishment of favorable linkages: ownership, strategic alliances, cooptations, interlocking directorates, executive recruitment, advertising, and public relations Organic structure and systems with low formalization, decentralization, and low standardization to enable a high-speed response Many departments and boundary roles Greater differentiation and more integrators for internal coordinationHigh uncertainty High rate of change Scarcity of valued resources Resource dependence Control of the environmental domain: change of domain, political activity, regulation, trade associations, and illegitimate activities Environment Organization