ORGANIZATION AND ORGANIZATION AND ENVIRONMENTENVIRONMENT

Chapter 3Chapter 3By-By-

Abhyuday ShahAbhyuday Shah

ORG

ENVIRONMENT

Figure 3.1 Figure 3.1 The Organization in its EnvironmentThe Organization in its Environment

Inputs Outputs

Modernist Levels of the EnvironmentModernist Levels of the Environment

Interorganizational network

General environment

International environment

Organizational EnvironmentOrganizational Environment

Modernist theory, the environment …

lies outside the boundary of the organization.

provides the organization with resources and absorbs its products and services.

imposes constraints upon and demands adaptation from the organization.

Organizational EnvironmentOrganizational Environment

Symbolic-Interpretivists suggest environments …

are social constructions.

organizational members construct environmental features they think are significant.

different organizations construct their environments differently based on management’s interpretation.

Organizational EnvironmentOrganizational Environment

Postmodernists see environment as…

fragmented

boundaryless

image-driven

simulacra

ORG

Regulatory Agencies

Special interests

Suppliers Customers

Competitors

Unions

Partners

Figure 3.2

NETWORK

Managing the EnvironmentManaging the Environment

Buffering

Protecting the internal organizational environment

from environmental shocks.

Example: Material, labour, or capital shortages.

Managing the EnvironmentManaging the Environment

Boundary Spanning

– Environmental monitoring activities.– Representing the organizational interests to the

environment.• Public relations• Advertising• Sales• Recruiting efforts

Stakeholder theoryStakeholder theory

Organizations operate under a social contract that guarantees certain rights to those who have a stake in the organization’s activities or outcomes. Those attending to stakeholder demands will be more successful.

Interorganizational NetworkInterorganizational Network

Stakeholders: Any actor that affects or is affected by the organization.

Network actors:Investors, competitors, employees, media, suppliers, distributors, government, the physical environment, etc.

Figure 3.3 Figure 3.3 Interorganizational NetworkInterorganizational Network

ORG

Culture

Social

Legal

Political

Economy

Technology

Physical

Network

Figure 3.4

GENERALENVIRONMENT

General Environment

ORG

Culture

Social

Legal

Political

Economy

Technology

PhysicalTASK ENV

terrorism

pluralism

diversity

broadband

globalization

global warming

surveillanceSome trends in the General Environment

ORG

GENERAL

TASK

ORG

GENERAL

TASK

ORG

GENERAL

TASK

ORG

GENERAL

TASK

ORG

GENERAL

TASKORG

GENERAL

TASK

ORG

GENERAL

TASK

Figure 3.5

INTERNATIONALENVIRONMENT

International EnvironmentInternational Environment

The economic, political, socio-cultural, legal, technological, and physical interconnections that allow for permeable borders between nations.

Table 3.1 Table 3.1 Contribution of Environmental Contribution of Environmental SectorsSectors

Sector Contribution to Global Change

Technology Personal computers, internet, digital cameras, cell phones, etc.

Economic Global capital markets, technology exchanges, worldwide trade, etc.

Political/Legal Breakdown of nation-state authority, erosion of territorial borders, etc.

Social/Cultural Global media coverage, popular culture, consumerism, etc

Physical Population growth, loss of biodiversity, global warming, etc.

Network

Figure 3.6

GLOBALENVIRONMENT

Culture

Political

Social

Technology

Economy

Physical

Legal

Environmental Contingency TheoryResource Dependence Theory

Population Ecology

Environmental Contingency TheoryEnvironmental Contingency Theory

Successful organizations match their internal structure to environmental characteristics (dynamic or stable).

(Burns & Stalker, Lawrence & Lorsch)

Environmental Contingency TheoryEnvironmental Contingency Theory

Stable Environments• Routine activities• Strict lines of authority• Distinct areas of responsibility

Rapidly Changing Environments • Flexibility• Application of skill where needed• Changing work patterns

Environmental Contingency TheoryEnvironmental Contingency Theory

Information Perspective on Uncertainty

Uncertainty is experienced by individuals when they make decisions, rather than in the environment itself.

Fig. 3.7 Fig. 3.7 Environmental UncertaintyEnvironmental Uncertainty

Lowuncertainty

Moderate uncertainty

Moderateuncertainty

High uncertainty

low

high

high

low

Complexity

Rate of change

Fig. 3.8 Fig. 3.8 Links Between ConditionsLinks Between Conditions

Needed information is known and

Available.

Constant need for new information.

Information Overload.

Not known what information

is needed.

low

high

high

low

Complexity

Rate of change

Responding to UncertaintyResponding to Uncertainty

The Law of Requisite Variety (General Systems Theory)For one system to deal effectively with another it must be of the same or greater complexity.

IsomorphismThe organization takes on the same formas its environment.

Resource Dependence TheoryResource Dependence Theory

Analysis of the interorganizational network can help the organization understand the power/dependence relationships that exist between it and other network actors.

Power and DependencePower and DependenceAn organization depends on resources

controlled by the environment.

The environment therefore has power over an organization and can influence decision

making.

Fig. 3.9 Fig. 3.9 Applying Resource Dependence TheoryApplying Resource Dependence Theory

OrgRaw material inputs(suppliers)

Labor inputs(employees)

Outputs(customers)

Knowledge & equipment inputs (technology sector)

Capital inputs (investors)

Managing Power/DependenceManaging Power/Dependence

Pfeffer and Salancik suggest prioritizing dependence elements according to :

CriticalityThe estimate of the importance

of a particular resource

ScarcityThe estimate of resource availability

Other Dependence Management Other Dependence Management StrategiesStrategies

• Vertical integration

• Horizontal integration

• Developing personal relationships

• Establishing formal ties with other firms

• Lobbying

• Marketing

*Your job as a manager: find the right mix of counter-dependencies you can create with those on whom you depend for critical, scarce, non-substitutable resources.

Population EcologyPopulation Ecology

Organizations within an ecological niche are competitivelyinterdependent and compete for survival. Study how & why some organizations survive.

• Variation

• Selection

• Retention

• Operation at the level of the environment

Population EcologyPopulation Ecology

The portion of the environment studied by population ecology is an ecological niche. Consisting of the resource pool upon which a group of competitors depends.

*Your job as a manager is to help your firm find a pool of resources over which it can compete successfully with other firms for its survival.

Darwin and OrganizationsDarwin and Organizations

Variation: Entrepreneurial innovation that gives birth to new organizations as well as adaptation of existing firms.

Selection: Organizations that best fit the needs and demands of their niche are supported with resources.

Retention: Organizational survival and fitness are maintained through the flow of resources.

Darwin’s survival of the fittest principle helps to explain the dynamics of populations of

organizations:

Cultural

Social

Legal

Political

Economic

Technological

PhysicalTASK ENV

Domain of Institutional Theory

Domain of Pop Ecology

Theory

Domain of Resource Dependence Theory

Institutional TheoryThe Enacted Environment

Ambiguity Theory

Institutional Theory Institutional Theory (Selznick)(Selznick)

Organizations adapt to both the values of the internal groups and external society

Institutional Theory Institutional Theory (DiMaggio & Powell)(DiMaggio & Powell)

An organization is institutionalized by the following contexts:

1. Technical, Economic, or Physicale.g. production and exchange of

goods in a market

2. Social, Cultural, Legal, or Politicale.g. conforming to norms, values, rules, and beliefs upheld by society.

Institutional PressuresInstitutional Pressures

Coercive: Pressure to conform that comes from the government in the form of rules or laws.

Normative: Pressure from cultural expectations.

Mimetic: The desire of one organization to look like another. Usually used as a response to uncertainty.

Social LegitimacySocial Legitimacy

Institutional environments reward organizations for adopting acceptable practices and structures. Without this acceptance, organizations can be driven out of business.

Your job as a manager is to to help your firm mimic practices indicated by the institutional environment through coercion or normative expectation in order to ensure its social legitimacy.

Fig. 3.10 Fig. 3.10 Social Legitimacy as an Social Legitimacy as an

Organizational ResourceOrganizational Resource

Transformation ProcessInputs Outputs

• raw materials

• labor

• capital

• equipment

• social legitimacy

Enacted Environment Enacted Environment (Weick)(Weick)

The conditions of the environment cannot be separated from managers perceptions of those conditions.

When decision makers respond to their perceptions they enact the environment they anticipated.

Ambiguity TheoryAmbiguity Theory

Encouraging multiple interpretations of goals, vision, and actions to produce different

strategies.

DeconstructionTrace discursive and non-discursive

influences over timeFragmented environment

Burns’s Three Phases of IndustrializationBurns’s Three Phases of Industrialization

Phase 1: Simple manufacturing – British textile factories

Phase 2: Complex manufacturing – clothing, food, chemical processing, iron and steel factories

Phase 3: Supply outstrips demand, competition increases, search for global markets puts focus on consumer, all employees must contribute to economic success

Phases of Industrialization Phases of Industrialization (Burns)(Burns)

Phase 1:

The Factory System -Productivity through machines and routinization.

Phases of IndustrializationPhases of Industrialization

Phase 2:Greater product variety, more complex production processes, growth in bureaucracy

- Control, routine, and specialization. - Development of management structure

Phases of IndustrializationPhases of Industrialization

Phase 3Production overtakes domestic demand

- customer sensitive- stimulated consumption- internationalization- technical developments

Post-Industrialism Post-Industrialism (Bell)(Bell)

Society is organized around the creation of knowledge and uses of information.

Society is shaped by its method of acquiring and distributing knowledge.

Avoiding HegemonyAvoiding Hegemony

Hegemony is the practice of interpreting the interests of the ruling class as universal.

- Surface language that implies the dominance of one group over others.

- Give voice to others.