The External Environment
Alandra Telschow
Dylan Dubois
Mahilet Asfaw
Environment
Goals
Strategy
Structure
Domain and Sector
Domain: area an organization uses for its
products services and market
Sectors: are divisions within the environment
Task Environment
• Task environment
– the sectors that organization’s interact directly
with and that have a direct impact on the
organization’s ability to achieve its goals
– includes the industry, raw materials, and market
sectors, human resources and international
sectors.
Task Environment
• Task environment
– Very important to organizations because it has
ability to change goals, strategies and structure
– Ex. Students no longer apply to kings. Kings wants
to create a vital academic community (goal).
Students are a task environment in their strategy.
If no students no need for profs to teach and
guidance counselor. Changes structure of
organization
Task Environment
•Task environment
–Task environments may not always be needed if
organization is well prepared and has substitutes
–Some organizations don’t have substitutes, that’s
when task environment is important
–Ex. Dairy farmers, fashion industry
General Environment
• General Environment
– Sectors that don’t have direct impact on daily
operations, but indirect influence.
– Involves government, sociocultural, technology
and economy
General Environment
• General Environment
– Can dictate the strategy that organization uses.
– Snow and Miles typology organization in highly
influential environments should prospector
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Innovative
Risk taking
Flexible
Decentralized
– Constant change in the technological world
General Environment
• General Environment
-Theory looks at how general environment
impacts organizations
- but many big organizations have impacts on
general environments
- ex. tax reductions for big corporations
Environmental Uncertainty
• Environmental Uncertainty
– Deals with sectors that businesses interact with
on daily basis. Involves task environment.
– 2 dimensions of environmental uncertainty
• Simple-complex dimension
• Stable-unstable dimension
Simple-Complex Dimension
• complex dimension
– The more external factors that influence
organization and more organizations in domain
the more complex
Simple-Complex Environments
• complex dimension
– Highly complex environments is a country
• Divisional structure- organizing people together
according to what firm produces or their goals
Simple-Complex Dimension
• Simple dimension
– In simple dimension the organization interacts
and influenced by few external elements
– Defender strategy is what organization may use
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Efficiency orientation
Centralized authority
Specialized tasks
Strict hierarchy
Simple-Complex Dimension
Simple dimensions
- Coming future simple environments may
longer exist
- World has become so complex and
intertwined with globalization and technology
- EX. Dairy farmers over history
Stable-Unstable Dimension
• Stable dimension
– Environment is stable if remains the same over
months or years, and experiences predictable
change
Stable-Unstable Environment
• Stable dimension
– Organizations
functioning in stable
environments can use a
mechanistic design
Mechanistic System Design
Vertical
Structure
Routine
Tasks
Formal
Systems
Rigid
Culture
Competitive
Strategy
Stable Environment
Efficient Performance
Environmental Uncertainty
• Stable-unstable dimensions
– For unstable environments elements shift
abruptly and unexpectedly. Instability may stem
from competition
Environmental Uncertainty
• Stable-unstable dimensions
– For unstable environments
organic systems designs are
best
– Ex. daycare
Adapting to Environmental
Uncertainty
– Learn how organizations can adapt to environmental uncertainties
– Internal operations vary greatly depending on level of uncertainty
• Operations in a stable market
– Focus on internal operations & efficiencies
• Operations in an unstable market
– Focus on external environment and adapting operations
– Finding the right fit between internal structure and the external
environment by using theories and guidelines
Positions & Departments
– As environmental complexity increases, number of positions and
departments likely will increase
– Each sector of the environment will have an employee or
department to handle it
• Legal, HR, Finance, Global, Technology
• New departments E-commerce & Information Technology
• Sometimes not economical for smaller organizations to have
many departments
–Increases internal complexity
Buffering Roles
– Buffering departments absorb and assimilate
uncertainty from the environment, protecting the
technical core
• Technical core performs the primary production
activity of an organization
Buffering Roles
– Buffering roles exchange materials, resources &
money between the environment and the
organization
• Example: logistics deals with shipping
products to customers and suppliers
Buffering Roles
○ New approach being used is to drop buffering roles to expose
technical core
• Pros:
– well connected to customers &
suppliers
– getting information straight
from the source
– less chance of
miscommunication
– can get to root of problems
quicker
• Cons:
– weakens internal efficiency
– decrease in quality
– more time consuming
– less specialized
Boundary Spanning
– Boundary spanning roles: link and coordinate an organization
with crucial elements in the external environment
• Primarily concerned with the exchange of information
between the organization and environment
• 1) detecting changes in the environment and bringing
information into the organization
• 2) sending information into the environment that presents
the organization in a favourable light
Boundary Spanning
– 97% of competitive failures resulted from a lack of attention to
market changes or failure to act on vital information
– Boundary personnel scan the environment and bring in
important information
• Market research department scan for trends in consumer
taste
• Advertising departments takes favourable information and
portrays it to the public
Buffering Roles & Boundary
Spanning
•Buffering roles primarily focused on
RESOURCES
•Boundary spanning primarily focused on
INFORMATION
•Which jobs are associated with which roles?
Boundary Spanning or Buffering?
• HR manager
• PR manager
• Purchasing agent
• Sales person
• R&D
• Supply management
Buffering & Boundary Spanning
– These roles prevent organization from falling behind the
competition and keep them informed of most important
changes
– For these positions to be effective, every level of
employee has to be involved
Business Intelligence
– New approach to boundary spanning
– Set of techniques and tools used for transformation of raw data
into meaningful and useful information for business analysis
purposes
– Technology used is capable of handling large amounts of data to
identify, develop and create new strategic business
opportunities to provide businesses with a competitive
advantage
• reporting, analytics, business performance management and
benchmarking
Competitive Intelligence
– Related to business intelligence
– Act of gathering and defining useful intelligence about products,
customers, competitors, techniques and any aspect of the
environment needed to support managers making strategic decisions
– Information can be collected from internet searches to digging
through trash cans
– CI is an invaluable asset because of the exponential increase in
competition resulting from globalization
– Thin line between legal and illegal
Differentiation
– Organizational differentiation is the difference in
cognitive and emotional orientations among managers in
different functional departments and the difference in
formal structure among these departments
– Difference in corporate culture among different
departments compared to the company as a whole
Differentiation
– Unstable environment
leads to high
differentiation among
departments
• Highly specialized
– Pros:
• highly specialized and knowledgeable
departments
• can devise solutions quicker
• more efficient
– Cons:
• coordination among departments becomes
difficult
• more departments = more complex
• messages can become misconstrued
• different goals and strategies can become
confusing
• more time and resources devoted to
achieving coordination
Integration
– Organizational integration is the quality of collaboration
among departments and how they collaborate to
coordinate their operations for the good of the
organization
– Formal coordinators are sometimes required
– Highly integrated companies have strong connections
between departments or product lines
Integration
– A cohesive set of rules and strategies making integration
process simpler
– As environmental uncertainty increases, so does
differentiation among departments
• more people should be employed in integrating roles
• organizations perform better when level of
differentiation and integration match the level of
uncertainty in environment
Mechanistic Vs Organic Structure
– Mechanistic Structure
– Management structure used in an organization with a stable
environment
• Hierarchy
• Rules
• Detailed procedures
• Centralized decision making
– Does not best facilitate constant communication and change
– More efficient, faster decision making
Mechanistic Vs Organic Structure
– Organic Structure
– Horizontal management structure generally used in an unstable environment
• Adaptive
• Teamwork
• Free-flowing
• Decentralized decision making
– Conducive environment for high levels of change and uncertainty
– Not forced to follow rules and procedures
– Best for group work and collaboration
– Can make for inefficient operations
Planning, Forecasting &
Responsiveness
– Combining integration and organic structure
enhances ability to face uncertain environments
– Planning helps coordinate organization and
teaches them to work together cohesively
– Also decreases response time to changes
Planning, Forecasting &
Responsiveness
– Globalization has been the largest force in creating
uncertain external environments
– Created a need for planning departments
• Scenario building
– Planning is not a substitute for other
organizational controls
Environmental Uncertainty &
Organizational Response
Low Uncertainty
Stable
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Low-Moderate Uncertainty
Mechanistic structure; formal, centralized
Few departments
No integrating roles
Current operations orientation; low-speed
response
High-Moderate Uncertainty
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Unstable
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Organic structure, teamwork: participative,
decentralized
Few departments, much boundary spanning
Few integrating roles
Planning orientation; high-speed response
Simple
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Mechanistic structure; formal, centralized
Many departments, some boundary spanning
Few integrating roles
Some planning; moderate-speed response
High Uncertainty
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Organic structure, teamwork: participative,
decentralized
Many departments differentiated, extensive
boundary spanning
Many integrating roles
Extensive planning, forecasting; high-speed
response
Complex
Resource Dependence
• Organizations depend on the environment for
resources
• Goal is to not be dependent for resources or
decrease this dependency
– Competitive environments will have more
parties competing for similar resources
Resource Dependence
• Type of environment will impact your organization's
goals
– High resource uncertainty - major goal will be to
acquire resources (mining companies)
– Low resource uncertainty - can focus on other
goals such as efficiency (furniture
manufacturers)
Resource Dependence
• Finite resources dictate goals
– This resource dependency may bring about sub
goals
– Shell is a good example of this (innovation of
biofuel and hydrogen fuels)
Controlling Environmental
Resources
• Interorganizational Linkages
– Establish favourable linkages with key elements
in the environment
• Controlling the environmental domain
– Changing or shaping the environment to benefit
your organization
Interorganizational Linkages
• Ownership
– Organizations use this to establish linkages by
buying a part of or a controlling interest
• This allows for access to resources
(technological, products, other resources)
• Mergers and acquisitions
• Can be costly, not feasible for small
businesses
Interorganizational Linkages
• Formal strategic alliances
– Occurs when companies have high
complementarity between products or services
• Can be accomplished through contracts or
joint ventures
• Companies can secure suppliers (reduces
uncertainty)
Interorganizational Linkages
• Cooptation
– Important leaders from the environment sit on
the board of the organization
• These individuals then take the goals of the
organization into consideration
• Can this create unethical situations?
Interorganizational Linkages
• Interlocking directorate
– Member of a board of one organization sits on
the board of another organization
• Allows for influence on policies and decisions
• Direct interlock
Interorganizational Linkages
• Interlocking directorate
– Member of a board of one organization sits on
the board of another organization
• Allows for influence on policies and decisions
• Indirect interlock
Interorganizational Linkages
• Executive recruitment
– Transferring or exchanging of executives
• Allows for broader communication network
for the organization
• Some valuable information could be
restricted by previous organization
Controlling The Environmental
Domain
• Change of domain
– Changing the environment that your
organization operates in
• Can be costly, not efficient
• Alternative - expanding domain
• Hudson’s Bay Company
Controlling The Environmental
Domain
• Political activity/regulation
– Techniques to influence legislation and
regulation
• Can include organizations combining
resources to create change
• Uber ride sharing http://london.ctvnews.ca/video?clipId=70607
9&binId=1.1137796&playlistPageNum=1
Controlling The Environmental
Domain
• Trade associations
– Work with other organizations to influence the
external environment
• Contact Lens Manufacturers Association
• Gum Busters - niche market
Controlling The Environmental
Domain
• Illegitimate activities
– Can be created by high pressure from
management to meet operative goals
• Mechanistic organization would produce this
with hierarchy
• Can impact public image https://youtu.be/VJjqiQ_pvRE
Conclusion
Time to test what you’ve learned over the
course of this presentation with a group
activity