Organizational Environment

Organizational environment: set of

forces surrounding an organization
May affect its operation and access to
scarce resources
Organizational domain: the range
of goods and services that the organization
produces, and the customers and other
stakeholders whom it serves
1

The Organizational Environment

International Forces
Demographic / Cultural Forces

Political Forces

Customers

Suppliers

Distributors

Unions

Organization

Government

Competitors

Environmental Forces

Technological Forces
Economic Forces

General Forces

Specific Forces

Two Women Boxing

Environment
Initially
Now

Domain
Initially
Now

What aspects of their environment require

adaptation within their organization?
3

Sources of Environmental Uncertainty

complexity, dynamism, and richness
As the environment becomes more
complex, less stable, and poorer, the
level of uncertainty increases.

Organization Theory
Contingency theory: to manage its
environment effectively, an organization
should design its structure to fit its
environment.
Fit with environment determines success.

Dealing with Uncertainty

When the environment is unstable and
uncertain, organizations are more effective if
their structures are:
Less formalized
More decentralized
More reliant on mutual adjustment
6

Ideal Relationship Between Environmental

Uncertainty and Organizational Structure
Low

Environmental Uncertainty

High

Mechanistic Structure

Organic Structure

Low differentiation

Complex structure

Low integration

High differentiation

Centralized decision making

High integration

Standardization

Decentralized decision making

Mutual adjustment
7

Resource Dependence Theory

The goal of an organization is to:
Minimize its dependence on others for
scarce, critical, nonsubstitutable resources
Influence others to provide resources

Resource DependenceWhy?
A major environmental change can threaten
access to resources, managers seek to control
both +ve & -ve aspects of resource dependence.
On +ve side: managers here if supplying
resourcescan try to increase other
organizations dependence on their products
On ve side: managers of org who need resources
can try to minimize their demand or develop
alternative sources so that they are not at the
mercy of those org that produce needed resources
9

FIGURE 6.6

Interorganizational Strategies
for Managing Symbiotic Interdependencies

Informal

Reputation

Formal

Co-optation

Strategic
alliances

Merger and
takeover

10

FIGURE 6.10

Interorganizational Strategies
for Managing Competitive Interdependencies

Informal

Collusion
and cartels

Formal

Third-party
linkage
mechanisms

Strategic
alliances

Merger
and
takeover

11

Transaction Cost Theory

Transaction costs: the costs of negotiating,
monitoring, and governing exchanges
between people
Transaction costs are low when:
Exchanges are nonspecific

Uncertainty is low

There are many possible exchange partners

12

Transaction Cost Theory

Organizations adopt increasingly formal
linkage mechanisms with their exchange
partners as transaction costs increase.
These mechanisms also carry
bureaucratic costs within the organization.

13

A Few Good Men

Describe the environment for Pakistani
military organizations.
What is their purpose?
List their resource dependencies.

14