Chapter Four

1. Chapter Four The External Environment

2. An Organization’s Environment • (a) Competitors, industry size and • competitiveness, related issues • (b) Suppliers, • manufacturers, real • estate, services • (c) Labor market, • employment agencies, • universities, training • schools, employees • in other companies, • unions • (d) Stock markets, • banks, savings and • loans, private • investors • (e) Customers, clients, • potential users of products • and services • (f) Techniques of production, science, • research centers, automation new • materials (g) Recession, unemployment rate, inflation rate, rate of investment, economics, growth (h) City, state, federal laws and regulations, taxes, services, court system, political processes (i) Age, values, beliefs, education, religion, work ethic, consumer and green movements (j) Competition from and acquisition by foreign firms, entry into overseas markets, foreign customs, regulations, exchange rates International Context (j) International Sector (a) Industry Sector DOMAIN (i) Socio-cultural Sector (b) Raw Materials Sector (h) Government Sector (c) Human Resources Sector ORGANIZATION (g) Economic Conditions Sector (d) Financial Resources Sector (f) Technology Sector (e) Market Sector ©2000 South-Western College Publishing Cincinnati, Ohio Daft, Organization Theory and Design 7/e

3. Manufacturing Sub-environment Labor Raw Suppliers materials Production equipment Market Sub-environment Customers Advertising Competitors agencies Distribution system Scientific Sub-environment Scientific Research journals centers Professional associations Organizational Departments Differentiate to Meet Needs ofSub-environments President R & D Division Manufacturing Division Sales Division ©2000 South-Western College Publishing Cincinnati, Ohio Daft, Organization Theory and Design 7/e

4. Differences in Goals and Orientations Among Organizational Departments ©2000 South-Western College Publishing Cincinnati, Ohio Daft, Organization Theory and Design 7/e Source: Based on Paul R. Lawrence and Jay W. Lorsch, Organization and Environment (Homewood, Ill.: Irwin, 1969), pp. 23-29.

5. Environmental Uncertainty and Organizational Integrators ©2000 South-Western College Publishing Cincinnati, Ohio Daft, Organization Theory and Design 7/e 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. 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 horizontal. Organization Forms Mechanistic: Organic: ©2000 South-Western College Publishing Cincinnati, Ohio Daft, Organization Theory and Design 7/e Source: Adapted from Gerald Zaltman, Robert Duncan, and Jonny Holbek, Innovations and Organizations (New York: Wiley, 1973), 131.

7. Low Uncertainty Low-Moderate Uncertainty 1. Mechanistic structure; formal, centralized 2. Few departments 3. No integrating roles 4. Current operations orientation 1. Mechanistic structure; formal, centralized 2. Many departments, some boundary spanning 3. Few integrating roles 4. Some Planning High-Moderate Uncertainty High Uncertainty 1. Organic structure, teamwork; participative, decentralized 2. Few departments, much boundary spanning 3. Few integrating roles 4. Planning orientation 1. Organic structure, teamwork; participative, decentralized 2. Many departments differentiated, extensive boundary spanning 3. Many integrating roles 4. Extensive planning, forecasting Contingency Framework for Environmental Uncertainty and Organizational Responses STABLE ENVIRONMENTAL CHANGE Uncertainty UNSTABLE SIMPLE COMPLEX ENVIRONMENTAL COMPLEXITY ©2000 South-Western College Publishing Cincinnati, Ohio Daft, Organization Theory and Design 7/e

8. 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 Organization Strategies for Controlling the External Environment ©2000 South-Western College Publishing Cincinnati, Ohio Daft, Organization Theory and Design 7/e

9. Relationship Between Environmental Characteristics and Organizational Actions Environment Organization Many departments and boundary roles Greater differentiation and more integrators for internal coordination High complexity High uncertainty Organic structure and systems with low formalization, decentralization, and low standardization High rate of change Environmental domain (ten sectors) Establishment of favorable linkages: ownership, strategic alliances, cooptations, interlocking directorates, executive recruitment, advertising, and public relations Resource dependence Scarcity of valued resources Control of the environmental domain: change of domain, political activity, regulation, trade associations, and illegitimate activities ©2000 South-Western College Publishing Cincinnati, Ohio Daft, Organization Theory and Design 7/e