ORGANIZATION AND ENVIRONMENT

JAMES D. THOMPSON

SYSTEMS MODEL OF ORGANIZATION

The Organization in its Environment

Organizational DomainThe domain of an organization is the claim it stakes out for itself with respect to: (1) range of productsoffered, (2) markets served, and (3) services rendered.

Domain is closely related to the task environment of theorganization.

The Organizational Domain

DOMAIN CONSENSUSDomain consensus is the extent that there is generalagreement on an organizations expectations both formembers of an organization and for others with whomthey interact, about what the organization will and willnot do.

Selection of a specific domain significantly influencesother choices that an organization must make (financing,structure, personnel, etc.)

Organizations may have multiple domains.

DOMAIN CONFLICTDomain conflict exists when there is a lack ofrecognition or agreement about the organizationsrole within its larger environment.

Ex.-Chiropractors in the medical field Self-proclaimed role vs medically recognized role

Establishment of a domain cannot be an arbitrary,unilateral action.

UNCERTAINTY IN THE ENVIRONMENTStable Dynamic DEGREE OF CHANGE DEGREE OFHOMOGENEITYSimpleComplexSmall number of external elements.Elements remain thesame or change slowly

Small number ofexternal elements.Elements are in continuous changeLarge number of external elements.Element remain thesame or change slowlyLarge number of external elements.Elements are incontinuous change.

UNCERTAINTY IN THE ENVIRONMENTStable Dynamic DEGREE OF CHANGE DEGREE OFHOMOGENEITYSimpleComplexLEASTUNCERTAINTYMODERATEUNCERTAINTYMODERATEUNCERTAINTYMOSTUNCERTAINTY

UNCERTAINTY IN THE ENVIRONMENTStable Dynamic DEGREE OF CHANGE DEGREE OFHOMOGENEITYSimpleComplexSoft drink bottlers,beer distributors,container manuf.,local utilitiesPersonal computers,fashion clothing, music industry, toymanufacturersUniversities, hospitals,Insurance companiesAmerican Airlines,oil companies, electronic firms, aerospace firms

BURNS & STALKERUsed interviews with managers and their own observations to evaluate the impact of environmenton organizational structure and management practice.

The type of structure that existed in rapidly changingand dynamic environments was different from thatin organizations with stable environments.

B & S labeled the two types organic and mechanistic,respectively

ORGANIC ORGANIZATIONOrganic organizations are relatively flexible and adaptable.They rely on lateral communication rather than vertical communication. Influence is based upon expertise and knowledge rather than on authority of position. Responsibilities are defined loosely rather than rigid jobdefinitions. Emphasis is on exchanging information ratherthan on giving direction.

MECHANISTIC ORGANIZATIONMechanistic structures are characterized by highcomplexity, formalization and centralization. Theyperform routine tasks, rely heavily on programmedbehaviors, and are relatively slow in responding tothe unexpected.

BURNS & STALKER

CHARACTERISTICMECHANISTICORGANICTask DefinitionRigidFlexibleCommunicationVerticalLateralFormalizationHighLowControlCentralizedDiverseInfluenceAuthorityExpertise

EMERY & TRISTOffer a model that identifies four kinds of environmentsthat organizations might confront:

1. Placid-randomized 2. Placid-clustered 3. Disturbed-reactive 4. Turbulent-field

Placid-randomized is least complex, Turbulent-field isthe most complex.

PLACID-RANDOMIZED ENVIRONMENTSThis environment is relatively unchanging. Therefore,environmental uncertainty is low. Environmentaldemands are distributed randomly, and change slowly.

Managerial decision making does not give muchattention to the environment.

PLACID-CLUSTERED ENVIRONMENTEnvironment changes slowly, but threats are clustered,not random. The forces in the environment are linked, and pose a higher threat than randomized changes.

These organizations use long-range planning and forecasting to learn as much as possible about theirenvironments. Structures will tend to be centralized.

DISTURBED-REACTIVE ENVIRONMENTSA more complex environment than either placid one.Many similar organizations seeking similar ends. Oneor more may be large and have ability to influence theenvironment. Two or three large companies can dominate an industry.

Organizations in this type of environment used plannedtactical initiatives, calculate reactions by other, and develop counteractions. This requires flexibility and astructure with some decentralization.

TURBULENT-FIELD ENVIRONMENTSThe most dynamic of the environments and has the highest level of uncertainty associated with it.Environmental elements are increasingly organized and interrelated.

Major, dynamic shifts can occur in the environment asone, or a small group of large companies change therules of competition. Thus, planning is not as usefulhere.

STRUCTURAL IMPLICATIONSEmery and Trist did not recommend specific structural configurations associated with each environmentaltype. However, the two placid environments should beresponded to with mechanistic structures, whereas thedisturbed and turbulent environments require moreorganic structures. As the environment becomes morevolatile, increasing flexibility Is needed to cope with ormanage the uncertainty that increases.

ENVIRONMENTAL UNCERTAINTY - THOMPSONThe central core of the organization requires technicalrationality.

Norms of rationality require that the organizationattempt to seal-off or protect its technical core from environmental influences.

INTERNAL STRATEGIESOrganizations regulate the flows of inputs and outputs totheir central technical cores through such internalresponses as buffering, smoothing (leveling), forecasting,and rationing.

BUFFERINGOn the input side, buffering usually takes the form ofstockpiling critical resources whose supply is uncertainor whose price fluctuates widely over time.

On the output side, buffering typically involves buildingand keeping up warehouse and distribution inventories.

By buffering, environmental uncertainties are absorbedbecause an organizations technical core produces at aconstant rate. Other methods of buffering might includepreventative maintenance and recruiting and training.

SMOOTHING (LEVELING)Where buffering absorbs environmental uncertainties,smoothing involves efforts to manage environmentaluncertainties. Smoothing attempts to protect the technicalcore by reducing uncertainties associated with cyclicalvariations in product or service demand.

Examples might include differential costs of long distancetelephone calls that are lower during non-peak times,discount airline fares for off-time flights.

FORECASTINGWhen buffering and smoothing will not effectively protectan organizations technical core, organizations can oftenreduce uncertainty and behave in a logical, rational mannerby developing accurate forecasting capabilities. To the degree that environmental fluctuations can be predicted, they can be treated as constraints and adapted to.

RATIONINGFinally, when the organization finds that neither buffering,smoothing, nor forecasting is sufficient to preventenvironmental penetration, organizations can turn torationing. The allocation or assignment of resources according to established priorities can be seen in restaurant reservations, reserved seats at theaters, etc.,and rationing (such as gasoline rationing during theoil embargo). In general, rationing is a less thansatisfactory solution, because it indicates that the organization is not fully serving its task environment. It can be costly in terms of lost revenue and customergoodwill (Atari, Cabbage Patch dolls, etc.)

EXTERNAL STRATEGIESBesides strategies for dealing with uncertainty in theirinternal environments, organizations also have strategiesfor dealing with uncertainty in their external (general)environments.

The actual relations, or interactions, between organizationsare the responsibility of boundary personnel. The boundaryspanners or gatekeepers, are important because they mediatethe flow of information, products or services, and personnelbetween organizations in its environment.

ROLE OF THE BOUNDARY SPANNER

EXTERNAL STRATEGIES IIThompson identified two direct strategies for managingexternal dependencies such as suppliers, customers,banks, etc.:

COMPETITIVE STRATEGIES COOPERATIVE STRATEGIES

COMPETITIONRefers to rivalry between two or more organizations whichis mediated by a third party. In the case of a manufacturer,the third party might be a customer, distributor, supplier orpotential employee. In each instance, the third party mustselect among alternative courses of action (For example,which of several competing products to purchase).

COOPERATIONThere are three types of cooperative strategiesavailable to organizations:

1. Bargaining 2. Coopting 3. Coalescing

BARGAININGIn an effort to limit the uncertainty caused by competition,organizations often respond by entering into cooperativerelationship. Bargaining refers to direct negotiationsbetween organizations for the exchange of goods andservices.

Such contractual arrangements, to the extent that they arebinding and enforceable, serve to reduce environmentaluncertainty. Examples might include long term contractswith suppliers or customers, labor contracts, etc.

COOPTINGIs the process of absorbing external elements into thedecision-making or policy-determination structure ofan organization as a means of averting threats to itsstability or existence. This allows for a reduction ofenvironmental uncertainty, but not its elimination.

Examples might include members of a Board of Directorschosen from primary groups in the organizations environment (A banker, a major supplier, a Board memberfrom a competitor, etc.)

COALESCINGIs the combination of two or more organizations (groupsor individuals) for a single purpose. It requires a jointcommitment for mutual action.

Examples might include mergers, joint ventures, inter-locking directorates, price fixing, etc.

COSTSCompetition, bargaining, cooptation, and coalescingrepresent a continuum of increasingly costly methodsof gaining support in terms of decision making power.

Competition is seen to be the least costly method, throughcoalescing being the most costly.

INDIRECT STRATEGIESThompson also identified four different indirect strategiesfor dealing with external environmental uncertainty:

Influencing government regulations and legislationTrade associations and professional organizationsLobbiesPolitical Action Committees

LAWRENCE & LORSCHStudied ten firms in three industries: plastics, food andcontainers. The three industries were deliberately chosen as they differ significantly in the environmentaluncertainty associated with each one.

The underlying hypothesis was that internal environmentsof the firms must match the external environmentalrequirements. The better the match, the more successfulthe firm.

DIFFERENTIATION & INTEGRATIONDifferentiation and integration was posited as the variablesto examine to determine the state of the internal environment.

Differentiation, a la Lawrence & Lorsch, closely resembles thetraditional definition of horizontal differentiation, but in addition to task segmentation, suggested that managers willdiffer in their: (1) time frame, (2) interpersonal orientation,and (3) goal orientation

Integration is the quality of collaboration needed to overcomedifferentiation and achieve unity of effort among units.

LAWRENCE & LORSCH MODEL

DEPARTMENTAL DIFFERENTIATION BASED UPON SUBENVIRONMENT CHARACTERISTICS

TIME, GOAL & INTERPERSONAL ORIENTATIONS

INTEGRATION TECHNIQUES AND APPROPRIATE ENVIRONMENTS

LAWRENCE & LORSCH FINDINGS

STRUCTURE VS ENVIRONMENT

ENVIRONMENT AND ORGANIZATION DESIGN CHARACTERISTICSDegree of Degree of Quad- Decentral- Span of Formal- Complexity Design Change Complexity rant ization Control ization StrategyEnvironment Design Characteristics Simple I Low Few High Low Funct./Stable Mech.

Complex II Low Many High High Funct./ Mech. w/T/T.F. Simple III High Few Low Low Product/Dynamic Organic

Complex IV High Many Low High Matrix & Combos