Organizations and Environments

1. Organizations and Environments

2. Definitions of Organizations • Social entity, goal directed, deliberately structured, identifiable boundaries (Daft) • Response to and means of creating value that satisfies human needs. Embodies collective knowledge, values, and vision (Jones) • Integration of specialized knowledges into a common task (Drucker)

3. Organizations • Human creations whose operations and products are results of the ways we govern them and of the social, institutional, and political structures within which they operate (i.e., their environments) • Organizations are both products of these structures and de-stabilizers of these structures

4. Trends and Tensions in Contemporary Organizations • Small and flexible vs. large and vertically integrated • Technology as work saver vs. work producer • Networks vs. hierarchies • Knowledge workers vs. administrators as powerful organizational members • Manufacturing vs. service • Labor shortages vs. labor surpluses

5. Trends and Tensions in Contemporary Organizations • Production of high vs. low wage service jobs • Job as package of specific duties in specific time period vs. job as flexible in duties, time, and space • Need for organizational learning vs. poor memory capacity due to downsizing, merger, and acquisition activity

6. Trends and Tensions in Contemporary Organizations • Globalism vs. nationalism vs. environmentalism • Establishment of strong organizational cultural values vs. appreciating diversity • Multigenerational workplaces: Veterans vs. boomers vs. GenXers, vs. Generation Y vs. “millennial” generation • New technologies vs. “old” human values (e.g., biotechnology, wireless technology)

7. Essential Features of Organizations • Open system: input, transformation, output • Subsystems: boundary spanning, production, maintenance, adaptation, management • Domains: range of products and services produced for serving markets and customers • Environmental Transactions: dealing with factors outside the organizational boundaries

8. Open Systems View of Organization ENVIRONMENT Raw Materials Resources Products Services Transformation Output Input Organization Production Maintenance Adaptation Management Boundary Spanning Boundary Spanning Subsystems

9. General factors Economic International Political/legal Technology Social/demographic Cultural Physical/natural resources Task (specific) factors Customers Suppliers Distributors Regulatory agencies Competitors Unions Partners Special Interests Organization-Environment Interface

10. Stability-Change Dimension How fast and unpredictably elements change Universities vs. telecommunications Determines how often you need to collect information Simple -Complex Dimension Number of elements and their similarity Family restaurant vs. automobile manufacturer Determines what information you need Environmental Uncertainty

11. Perceived Environmental Uncertainty • Simple vs. Complex Elements • Stable vs. Dynamic Elements • Richness vs. Poorness of Elements • More uncertainty results when organization has to deal with complex, changing, and/or poor quality elements.

12. Environmental Uncertainty Rate of Change Low High Low Uncertainty Moderate Uncertainty Low (Information known and available) (Constantly need new information) Complexity Moderate Uncertainty High Uncertainty High (Information overload) (Information needs unknown)

13. Theories of Organization-Environment Relationships • Contingency Theory • Resource Dependence • Strategic Choice • Population Ecology • Institutional Theory • Transaction Cost Theory

14. Contingency Theory • Most effective way to organize is contingent on complexity and change in environment • Stable environments: Mechanistic structures (specialization, formality, hierarchy) • Changing environments: Organic structures (less specialization, informality, lateral relations)

15. Resource Dependence • Organizations obtain scarce and valued resources from environments • Desire to control these resources to minimize dependencies • Processes and transactions used to obtain resources develop dependencies • Balancing act of maintaining autonomy and recognizing dependencies

16. Strategic choice • Managers perceive environments • Make strategy and design structure • Re-strategize when changes are perceived • Managers enact environments through their decision-making choices • Since managers perceive differently, they bring organizations in different directions • Example: Sears vs. Montgomery Ward

17. Population Ecology • Focus is on whole population of organizations (e.g., gasoline stations in Canada; wine industry in California) • Natural selection processes: VariationSelection  Retention • Unsuccessful organizational forms die out • Environmental determinism

18. Institutional Theory • Societal institutions are powerful forces for ensuring control and order • In responding to institutional pressures, organizations develop isomorphic (similar) strategies, structures, and systems • Normative, coercive, and mimetic forces make “all organizations look the same” • Goal is to obtain social legitimacy • Example: banks, universities, discount stores

19. Transaction Cost Theory • Organizations try to reduce monitoring, negotiating, and governing exchanges with environmental elements (transaction costs) • Environmental uncertainty, opportunism, bounded rationality, small numbers bargaining, asset specificity, and risk levels increase transaction costs • Transaction and bureaucratic costs balanced

20. What specific adaptation devices do organizations use? • Structural Responses • Develop new positions or units • Boundary-spanning activities • Buffering roles and units • Planning Groups • Forecasting • Management Information Systems

21. Specific Adaptation Devices Inter-organizational Linkages: • Symbiotic interdependencies • Benefit both organizations • Competitive interdependencies • Direct competition for scarce resources

22. Good reputation Cooptation Interlocking directorates Strategic alliances Long-term Contracts Equity ownership in other firms Joint ventures Mergers, acquisitions, and takeovers Licensing Consortia Marketing or distribution agreements Franchising Symbiotic Interdependencies

23. Collusions Signaling Cartels Trade associations Regulatory bodies Competitive strategic alliances Networking Competitive Interdependencies

24. How do we assess if an organization is effective in its environment? • Goals approach • Official vs. operative goals • Achieving organizational goals is effectiveness • Systems resource approach • Obtaining scarce and valued inputs • Measured by quality and costs of inputs; stock price and market share • Example: Software firm hires the best engineers with competitive compensation

25. What is organizational effectiveness? • Internal Systems Approach • Innovation and quick response to changes • Measured by decision making time, product innovation rate, time to get new products to market, reduction of conflict and motivation problems • Example: 3M: 25% of sales must come from products less than 5 years old

26. What is organizational effectiveness? • Technical efficiency approach • Ability to convert skills and resources into goods and services efficiently • Measured by rate of reduction of defects, reduction of product costs and delivery times, increases in customer service and product quality • Example: TQM processes at Stanley Engineering

27. What is organizational effectiveness? • Stakeholder Approach • Stakeholders are any individuals, groups, or organizations that have an interest in the firm’s activities and ultimate survival • Internal stakeholders: owners or shareholders, employees, and managers • External stakeholders: customers, suppliers, government, unions, local community, general public, natural environment

28. Managing Stakeholders • Inducements and contributions balance • Inducements are what the firm provides for stakeholder • Contributions are what the stakeholder provides for the firm • Firms would like to provide as little inducement as possible for adequate levels of stakeholder contribution and vice versa

29. Managing Stakeholders • Assess importance of stakeholders • Power, legitimate rights, and urgency • Assess potential for threat vs. potential for cooperation • Opportunity, capacity, and willingness • Determine appropriate strategies for managing the stakeholder

30. Potential for Threat Low High Supportive Stakeholder: Get Involvement Mixed Blessing Stakeholder: Collaborative strategies High Potential for Cooperation Non-supportive Stakeholder: Defensive strategies Marginal Stakeholder: Monitor Low

31. Managing Stakeholders • Managing multiple goals of stakeholders • setting priorities or preference ordering • sequential attention • bargaining and compromise • satisficing • At least minimal satisfaction of all current stakeholders is organizational effectiveness.

32. Total Responsibility Management Systems • Focus is on the triple bottom line: • Economic (profits) • Social (people) • Environmental (place) TRM can be significant source of competitive advantage for firms who take the lead in these initiatives

33. Pressures for TRM • Primary stakeholders: owners, employees, customers, and suppliers • Secondary stakeholders: NGO’s, activists, communities, and governments • Social and institutional pressures and trends: “best of” rankings and awards; emerging global standards (e.g., UN’s Global Compact); and reporting/accountability initiatives (e.g., GRI or SA 8000 or AA1000)

34. Three Processes in the TRM Approach • Institutionalizing a vision and set of values regarding responsible practice through the enterprise (inspiration) • Integration of the responsibility into practice through strategy, management systems, and human resource capacity • Improvement and innovation through measurement, feedback systems, and learning and remediation