Chapter Four
The External Environment
4-1
1
An Organization’s Environment
(a) Competitors, industry size and
competitiveness, related issues
(b) Suppliers,
manufacturers, real
estate, services
(i)
(c) Labor market,
Sociocultural
Sector
employment agencies,
universities, training
schools, employees
(h)
in other companies,
Government
unionization
Sector
(d) Stock markets,
banks, savings and
(g)
loans, private
Economic
Conditions
investors
Sector
(e) Customers, clients,
potential users of products
and services
(f) Techniques of production, science,
computers, information technology
(g) Recession, unemployment rate,
inflation rate, rate of investment,
(j)
(a)
economics, growth
International
Industry
(h) City, state, federal laws
Sector
Sector
and regulations, taxes,
(b)
services, court system,
DOMAIN
Raw Materials
political processes
Sector
(i) Age, values, beliefs,
education, religion,
(c)
work ethic, consumer
Human
Resources
and green
ORGANIZATION
Sector
movements
(j) Competition from
(d)
Financial
and acquisition by
Resources
foreign firms,
Sector
entry into overseas
(e)
(f)
Market
markets, foreign
Technology
Sector
Sector
customs, regulations,
exchange rates
2
Framework for Assessing
Environmental Uncertainty
STABLE
ENVIRONMENTAL
CHANGE
UNSTABLE
Simple + Stable =
Low Uncertainty
1.
Small number of external
elements and elements are
similar
2.
Elements remain the same of
change slowly
Examples: soft drink bottlers, beer
distributors, container
manufacturers, food processors
Complex + Stable =
Low-Moderate Uncertainty
1.
Large number of external
elements and elements are
dissimilar
2.
Elements remain the same or
change slowly
Examples: Universities, appliance
manufacturers, chemical cos,
insurance cos
Simple + Stable =
High-Moderate Uncertainty
1.
Small number of external
elements and elements are
similar
2.
Elements change frequently and
unpredictably
Examples: E-commerce, fashion
clothing, music industry, toy
manufacturers
Complex + Stable =
High Uncertainty
1.
Large number of external
elements and elements are
dissimilar
2.
Elements change frequently and
unpredictably
Examples: Computer firms, aerospace
firms, telecommunications,
airlines
SIMPLE
ENVIRONMENTAL COMPLEXITY
COMPLEX
3
Organizational Departments
Differentiate to Meet Needs of
Sub-environments
President
R&D
Division
Manufacturing
Division
Sales
Division
Scientific
Sub-environment
Manufacturing
Sub-environment
Market
Sub-environment
Scientific
journals
Research
centers
Professional
associations
Labor
Raw Suppliers
materials
Production
equipment
Customers
Advertising
Competitors agencies
Distribution
system
4
Differences in Goals and Orientations
Among Organizational Departments
Characteristic
R&D
Department
Manufacturing
Department
Sales
Department
New
developments,
quality
Efficient
production
Customer
satisfaction
Time
Horizon
Long
Short
Short
Interpersonal
Orientation
Mostly task
Task
Social
Formality of
Structure
Low
High
High
Goals
Source: Based on Paul R. Lawrence and Jay W. Lorsch,
Organization and Environment
(Homewood, Ill.: Irwin, 1969), pp. 23-29.
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Environmental Uncertainty and
Organizational Integrators
Industry:
Plastics
Foods
Container
Environmental
Uncertainty
High
Moderate
Low
Departmental
Differentiation
High
Moderate
Low
22%
17%
0%
Percent of
management in
integrating
roles
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
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.
Source: Adapted from Gerald Zaltman, Robert Duncan, and Jonny Holbek,
Innovations and Organizations (New York: Wiley, 1973), 131.
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
7
horizontal.
Contingency Framework for
Environmental Uncertainty and
Organizational Responses
Low Uncertainty
1. Mechanistic structure; formal,
centralized
2. Few departments
STABLE
ENVIRONMENTAL
CHANGE
UNSTABLE
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
SIMPLE
Low-Moderate Uncertainty
1. Mechanistic structure; formal,
centralized
2. Many departments, some boundary
spanning
3. Few integrating roles
4. Some planning; moderate speed
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
ENVIRONMENTAL COMPLEXITY
COMPLEX
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
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Relationship Between Environmental
Characteristics and Organizational
Actions
Environment
Organization
High
complexity
High
uncertainty
Many departments and boundary roles
Greater differentiation and more
integrators for internal coordination
Organic structure and systems with low
formalization, decentralization,
and low standardization to enable
a high-speed response
High rate
of change
Environmental
domain
(ten sectors)
Establishment of favorable linkages:
ownership, strategic alliances, cooptations,
interlocking directorates, executive recruitment,
advertising, and public relations
Scarcity of
valued
resources
Resource
dependence
Control of the environmental domain:
change of domain, political activity,
regulation, trade associations, and
illegitimate activities
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