SOCI110 Module 4 - THE EXTERNAL ENVIRONMENT
In this module you will learn
the meaning of various concepts associated with
the organizational environment
the 2 dimensions of environmental uncertainty
(complexity and stability)
strategies used by organizations to cope with
how organizations depend on the environment for
strategies used by organizations to minimize their
dependence on the environment for resources
1. THE ENVIRONMENTAL DOMAIN
A bunch of concepts to describe the environment
of organizations (see exhibit for specifics):
The international environment has become
increasingly important for many organizations.
the organizational environment consists
of all elements outside the boundary of the organization that can affect
environmental sectors are subdivisions of the external environment
that contain similar elements; the 10 principal sectors are shown in the
an organization's domain is its chosen
environmental field of action or niche; it consists of external sectors
with which the organization interacts to accomplish its goals
the task environment includes sectors with
which organization interacts directly and that have a direct impact on
the organization; it typically includes industry, raw materials, market,
and sometimes human resources and international sectors. (Task environment
and organizational domain overlap a great deal.)
the general environment includes sectors
that influence the organization more indirectly; it may include government,
sociocultural, and technology sectors
Q - The industry sector includes: potential
users of the organization's products (Y/N), competitors (Y/N), employment
Q - During the late 1970s and into the 1980s,
power companies were faced with a great deal of uncertainty generated by
groups protesting the use of nuclear power. These events contributed
to instability in what sector of the organizational environment of power
Q - "An organization's domain is the buildings
and grounds that are owned or leased by the organization and in which inputs
are transformed into outputs." (TRUE/FALSE?)
The basic outline for this module is the idea
that the environment affects the organization in
2 essential ways,
We review the various strategies that organizations
use to achieve these 2 goals.
the need for information -> the need
to adapt to absence of information, which is uncertainty -> See
Sections 2, 3, 4
the need for resources -> the need
resource dependence -> See Sections 5, 6, 7
2. ENVIRONMENTAL UNCERTAINTY
Environmental uncertainty is the absence
of full information about the environment
There are 2 dimensions of environmental uncertainty:
environmental complexity (simple environment
<---> complex environment) = heterogeneity (or number and dissimilarity)
of external elements relevant to the organization's operations
environmental stability (stable environment
<---> unstable environment) = extent to which the environment is changing
rapidly and unpredictably
The complexity and stability dimensions can be
combined into a 2-dimensional framework for environmental uncertainty.
(Note that the framework assumes that instability
is a worse source of uncertainty than complexity.)
university: complex but stable environment
beer distributor: simple and stable environment
fashion industry: simple but unstable environment
hospital: complex but stable environment (barring
a major catastrophe like an earthquake)
Q - The two dimensions of environmental uncertainty
are ___ and ___ ?
Q - "Environmental stability refers to the
number and dissimilarity of external elements that have an impact on the
3. ADAPTING TO ENVIRONMENTAL UNCERTAINTY
Organizations utilize a number of strategies to
adapt to environmental uncertainty.
1. Positions & Departments
The organization creates departments that specialize
in dealing with a specific sector of the environment.
As a result there is a relationship
environmental complexity ->
2. Buffering & Boundary Spanning
Minicase: Tommy Hilfiger (Daft p.
142). The company sends researchers into music clubs to keep in touch
with fashion trends among the youth, and gives free clothing to MTV stars.
Buffering = absorbing environmental uncertainty
to protect the technical core, the department that performs
the primary production activity of the organization; EX: a purchasing
Boundary spanning = linking the organization
to key outside elements; EX: market research, competitive intelligence
Q - "Buffer departments attempt to insure that
the technical core operates as an open system." (TRUE/FALSE?)
Q - Sophie Lorimer is a researcher in the R&D
department of a major chemical company. Part of her job is to read
technical and scientific journals, and to attend conferences to find out
what new developments are occuring. That part of her job corresponds
to a (MAINTENANCE/BUFFERING/BOUNDARY SPANNING?) role.
3. Differentiation & Integration
The classical research of Paul Lawrence and Jay
Lorsch on differentiation and integration processes is especially important.
Lawrence and Lorsch found that organizations in
more uncertain environments tend to both
Differentiation = differences in cognitive
and emotional orientations, and in formal structure, among different functional
Integration = quality of collaboration
The following exhibits summarize the Lawrence
& Lorsch approach
Q - Paul Lawrence and Jay Lorsch argue that an
organization is more likely to need a number of specialized departments
that have different cognitive and emotional orientations when the environment
is highly (Choose one: STABLE/UNCERTAIN/DYNAMIC/MECHANISTIC)?
be more differentiated internally
place more emphasis on integrating roles (EX:
Q - "According to Paul Lawrence and Jay Lorsch,
high differentiation in an organization implies that coordination between
departments is problematic." (TRUE/FALSE?)
Q - The study of differentiation and integration
processes in organizations is closely associated with the names of (Choose
one: CHEECH & CHONG/SONNY & CHER/LAWRENCE & LORSCH/BONNY &
CLYDE/PAUL & VIRGINIE)
4. Organic versus Mechanistic Control
Tom Burns and G. M. Stalker have emphasized the
distinction between mechanistic and organic forms of organization
The next exhibit compares the features of mechanistic and organic organizations
Organizations tend to adopt a position on the
Mechanistic <---> Organic continuum that corresponds to the degree of
environmental uncertainty they face, so that greater uncertainty
corresponds to a more organic control structure, and vice-versa.
a mechanistic organization has many rules
and procedures, well defined tasks, a clear hierarchy of authority
an organic organization has a looser structure,
fewer written regulations, hierarchy not clear, more horizontal communication
5. Planning & Forecasting
Organizations facing greater uncertainty will
tend to increase their planning and forecasting effort. (This is
pretty obvious if you ask me!)
6. Institutional Imitation
(Institutional imitation is discussed more fully
in Module 5 as part of the institutional perspective.)
The institutional perspective argues
that under high uncertainty, organizations tend to imitate others in the
same institutional environment. Consequences of institutional imitation
organizations in the same industry tend to "look
organizations are highly susceptible to fads,
such as downsizing, setting up a web page on the internet, etc.
4. FRAMEWORK FOR ORGANIZATIONAL RESPONSE
This framework summarizes organizational responses
to uncertainty discussed in Section 3.
5. RESOURCE DEPENDENCE
The resource dependence perspective views
organizations as dependent on the environment for scarce resources (material
and financial) and as striving to acquire control over the sources of these
resources to minimize dependence on the environment.
The 2 general strategies to minimize resource
Various ways to implement these 2 general strategies
are summarized in the next exhibit
These organizational strategies to minimize resource
dependence are examined in detail in the next 2 sections.
establishing interorganizational linkages; this
typically requires a trade-off between resources and organizational
controlling the environmental domain through direct
6. INTERORGANIZATIONAL LINKAGES
Various degrees of ownership are achieved through
part ownership, controlling interest, acquisition, or merger.
horizontal integration = acquired organization
is in the same industry (EX: Maytag bying Magic Chef)
vertical integration = acquired organization
is a supplier or distributor (EX: soft drink company buys a bottle maker)
2. Contracts & Joint Ventures
Includes license agreements, supplier
arrangements (EX: McDonald buys a whole crop of potatoes), and joint
a joint venture is a new organization independent
of the parent organizations
3. Cooptation & Interlocking Directorates
= leader from important sector of the environment is made part of the organization
(EX: politician sitting on UNC board of directors)
= two organizations are linked when the same person is a member of the
boards of both
4. Executive Recruitment
executive recruitment = interorganizational
contact through the transfer or exchange of executives (EX: the "revolving
door" in which retired generals are hired by the aerospace industry)
5. Advertising & Public Relations
Minicase: Toshiba (Daft p.
151). Toshiba already engaged in high-tech strategic aliance in the
early 1900s when it contracted with GE to make light bulb filaments.
They are currently involved in more than two dozens major partnerships
and joint ventures. Toshiba illustrates the range of strategies that
an be used to reduce resource dependence.
Q - Roderick Cleaver is a militant member of a
faculty union at a medium-sized college. When the unions's Negotiating
Committee is reporting to a meeting of the faculty, he always find fault
with the work of the committee and strongly advocates striking. When
a member the the Negotiating Committee resigns because of illness, the
union's Executive Committee appoints Roderick to take his place.
This is an instance of what organizational linkage strategy?
Q - McDonnell-Douglas hired a retired Air Force
general for a top management position. This is an instance of what
organizaitonal linkage strategy?
7. CONTROLLING THE ENVIRONMENTAL DOMAIN
1. Change of Domain
An organization can change its domain through
acquisition and/or divestment (EX: Reynolds acquiring Nabisco)
2. Political Activity & Lobbying
To influence legislation and obtain favorable
3. Trade Associations
Trade associations of organizations with similar
interests (EX: National Association of Manufacturers).
4. Illegitimate Activities
If all else fails, let's try using some bribes,
kickbacks, payoffs to foreign officials, illegal political contributions,
industrial espionage, price fixing, etc.
Q - What's the most direct way for an organization
to change its domain?
8. SUMMARY OF ORGANIZATIONAL RESPONSES TO
The next exhibit summarizes most of the discussion
on the response of organizations to environmental uncertainty and their
effort to minimize resource dependence. This "big picture" illustrates
the "top down" approach to understanding the materials in the course.
Last modified 5 Sep 2001