Chapter Four
The External Environment
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4-1
Relationship Between Environmental
Characteristics and Organizational
Actions
Environment
Organization Response
Complexity
Uncertainty
(Information)
Number of departments (complexity)
Degree of differentiation and
integration for internal coordination
Organic vs. Mechanistic: formalization,
decentralization, standardization, etc.
Stability
Forecasting
Forecasting
&&
Planning
Planning
necessary
Environmental
Sectors
Establishment of favorable linkages:
ownership, strategic alliances, co-optations,
interlocking directorates, executive recruitment,
advertising, and public relations
Scarcity
(Resources)
Resource
dependence
Control of the environmental domain:
change of domain, political activity,
regulation, trade associations, and
illegitimate activities
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An Organization’s Environment
(a) Competitors, industry size and
(g) Recession, unemployment rate,
competitiveness, related issues
inflation rate, rate of investment,
(j)
(a)
(b) Suppliers,
economics, growth
International
Industry
manufacturers, real
(h) City, state, federal laws
Sector
Sector
estate, services
and regulations, taxes,
(i)
(b)
(c) Labor market,
services, court system,
Sociocultural
DOMAIN
Raw Materials
Sector
employment agencies,
political processes
Sector
universities, training
(i) Age, values, beliefs,
schools, employees
education, religion,
(c)
(h)
in other companies,
work ethic, consumer
Human
Government
Resources
unionization
and green
ORGANIZATION
Sector
Sector
(d) Stock markets,
movements
banks, savings and
(j) Competition from
(g)
(d)
loans, private
Economic
Financial
and acquisition by
Conditions
Resources
investors
foreign firms,
Sector
Sector
(e) Customers, clients,
entry into overseas
(e)
(f)
Market
potential users of products
markets, foreign
Technology
Sector
Sector
and services
customs, regulations,
(f) Techniques of production, science,
exchange rates
computers, information technology
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Diagnostic Framework for
Environmental Uncertainty
STABLE
ENVIRONMENTAL
CHANGE
UNSTABLE
Low Uncertainty
Low-Moderate Uncertainty
Simple + Stable
Complex + Stable
Food Processor
Soft drink bottler
University
Chemical company
High-Moderate Uncertainty
High Uncertainty
Simple + Unstable
Complex + Unstable
Fashion designer
Music / Toys
Electronics firm
Airline
SIMPLE
ENVIRONMENTAL COMPLEXITY
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COMPLEX
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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
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Customers
Advertising
Competitors agencies
Distribution
system
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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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4-6
Environmental Uncertainty and
Organizational Integrators
Industry:
Plastics
Foods
Container
Environmental
Uncertainty
High
Moderate
Low
Departmental
Differentiation
High
Moderate
Low
22%
17%
0%
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.
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4-7
Managing the OrgEnv Interface


Buffering: Protects the
technical core from the
environment – ex: raw
materials inventory
– out of fashion
Boundary-spanning:
Links the organization to
the environment – ex:
R&D and market research
– competitive intelligence
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Organization 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.
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
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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
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COMPLEX
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Organization Strategies for
Controlling the External
Environment

Establishing
Interorganizational Linkages:
 Ownership
 Contracts, joint
ventures
 Cooptation, interlocking
directorates
 Executive recruitment
 Advertising, public relations

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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 Response
Complexity
Uncertainty
(Information)
Number of departments (complexity)
Degree of differentiation and
integration for internal coordination
Organic vs. Mechanistic: formalization,
decentralization, standardization, etc.
Stability
Forecasting
Forecasting
&&
Planning
Planning
necessary
Environmental
Sectors
Establishment of favorable linkages:
ownership, strategic alliances, co-optations,
interlocking directorates, executive recruitment,
advertising, and public relations
Scarcity
(Resources)
Resource
dependence
Control of the environmental domain:
change of domain, political activity,
regulation, trade associations, and
illegitimate activities
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© 2004
4-12