EM502: Principles of Management

Term Paper on

The Environment and Organizational

Effectiveness

For
EM502 Sec 1
Principles of Management

From
S.K. Siddiq Ahamed
ID 3-14-27-033
Sharmila Podder
ID 3-14-27-030
A. S. Md. Ferdousul Haque
ID- 3-14-27-044
Alia Shams
ID 3-14-27-066

Table of Content:
No Topic

Page

Introduction

Organizational Environment

Types of Environment

3.1 Types of External Environments

3.2 Major Elements of the General Environment
3.3 The Task Environment
3.4 Elements of the Task Environment
4

The Organizational Culture

10

4.1 Components of Organizational Culture

4.2 Organizational Climate
5

Organization-Environment Relationship

13

5.1 Theories of Organization-Environment Relationships

5.2 Organization and Environment Framework
5.3 How Environment affects Organization
5.4 Assessment of Environment
5.5 How Organization Affect Environment
6

Organizational Effectiveness

23

6.1 Four approaches to organizational effectiveness

7

Conclusion

26

References

1.Introduction:
Organizations do not exist in a vacuum. They are constantly being affected by external forces
which determine an organizations effectiveness and performance. Therefore, it is imperative for
the management of any organization to examine components of their firms external and internal
environments to understand the dynamic and far-reaching changes that are occurring. This
presentation focuses on the environmental factors that companies need to analyze for developing
strategic options.

The workplace environment impacts employee morale, productivity and engagement - both
positively and negatively. The work place environment in a majority of industry is unsafe and
unhealthy. These includes poorly designed workstations, unsuitable furniture, lack of ventilation,
inappropriate lighting, excessive noise, insufficient safety measures in fire emergencies and lack
of personal protective equipment. People working in such environment are prone to occupational
disease and it impacts on employees performance. Thus productivity is decreased due to the
workplace environment.

It is the quality of the employees workplace environment that most impacts on their level of
motivation and subsequent performance. How well they engage with the organization, especially
with their immediate environment, influences to a great extent their error rate, level of innovation
and collaboration with other employees, absenteeism and ultimately, how long they stay in the
job.

Creating a work environment in which employees are productive is essential to increased profits
for your organization, corporation or small business. The relationship between work, the
workplace and the tools of work, workplace becomes an integral part of work itself. The
management that dictate how, exactly, to maximize employee productivity center around two
major areas of focus: personal motivation and the infrastructure of the work environment.

2.Organizational Environment:
Organizational environment refers to the forces that can make an impact. Forces made up
opportunities and threats. An organization does not exist in isolation. It works with the overall
environment. Scholars have divided these environmental factors into two main parts, 1) Internal
Environment2) External Environment, it is further divided into specific and general environment
(Robbins, S.P.2008)

Organizational environment determines the manner and extent to which roles, power, and
responsibilities are delegated, controlled, and coordinated, and how information flows between
levels of management. This structure depends entirely on the organization's objectives and the
strategy chosen to achieve them. According to Lusthaus, Anderson and Murphy: Environment is
made up of the administrative, technological, political, economic, socio-cultural, and stakeholder
factors. According to Nabli and Nugent that each organization is set in a particular environment
to which it is inextricably linked. This environment provides multiple contexts that affect the
organization and its performance, what it produces, and how it operates.

3.Types of Environment:
a) External Environment
b) Internal Environment

a) External Environment
Major forces outside the organization with potential to influence significantly a product
orservice's likely success is called its external environment.
The conditions, entities, events, and factors surrounding an organization that influence its
activities and choices, and determine its opportunities and risks are called external environment.
It is also called operating environment.

3.1Types of External Environments:

The insights derived from systems theory have helped to highlight the importance of a managed
interaction between an organization and its external environment. Two major divisions have
been made in the external environment:

i.
ii.

The General Environment

The Task Environment

i.

The General Environment

The general environment as it is sometimes called is that segment of the externalenvironment

that reflects the broad conditions and trends in the societies within which an organization
operates.

3.2 Major Elements of the General Environment

1. TheTechnological Element:It reflects the current state of knowledge regarding the

production of products and services.
a. Technology is a particular state of knowledge. It is not "things." A computer, for instance, is
an artifact or an example of technology and is not technology itself.

b. Research indicates that technology tends to evolve through periods of incremental change
punctuated by technological breakthroughs that either enhance or destroy the competence of
firms in an industry.

c. Numerous publications (such as Business Week, Forbes, etc.) and on-line services (such as
LEXIS/NEXIS) provide information regarding technological and other environmental elements

2.The Economic Element:The mega-environment encompasses the systems of producing,

distributing, and consuming wealth.

a. In a capitalist economy, economic activity is governed by market forces and the means of
production are privately owned by individuals, either directly or through corporations.
b. In a socialist economy, the means of production are owned by the state and
economic activity is coordinated by state plan.
c. In practice, countries tend to have hybrid economies, incorporating elements of
capitalism and socialism.
d. Organizations are influenced in any given economic system by a variety of
economic conditions over which they have little control, such as inflation and interest rates

3. The Legal-political Element:The mega-environment includes the legal and

governmental systems within which an organization must function.

a. Organizations must operate within the general legal framework of the countries in which they
do business.
b. Organizations are subject to an increase in lawsuits filed by customers or
employees.
c. The political issues which affect organizations include those which influence the
extent of government regulation

4. The Socio-cultural Element:The mega-environment includes the attitudes, values,

norms, beliefs, behaviors, and associated demographic trends that are characteristic of a given
geographic area.

a. The sociocultural element is of particular importance to multinational corporations.

b. Sociocultural trends can result in important shifts in demand for products

5. The International Element:The mega-environment includes the developments in

countries outside an organization's home country that have the potential impact to the
organization. International factors far beyond the direct influence of a particular organization can
have profound effects on its ability to operate successfully.

a. Fluctuations of the dollar against foreign currencies influence the ability of an

organization to compete in international markets.

b. Free-trade agreement, such as the NAFTA, GATT can affect an organization

either positively or negative

3.3 The Task Environment

The task environment is that segment of the external environment made up of specific outside
elements (usually organizations) with which an organization interfaces in the course of
conducting its business. The task environment depends on the products and services the
organization offers and the locations where it conducts business. The organization may be more
successful in affecting its task environment than it is its mega-environment.

3.4 Elements of the Task Environment:

1 An organization's customers and clients are those individuals and organizations that purchase
its products and/or services. It is becoming increasingly important to stay in touch with
customers' needs.

Figure: 1

Types of Environment

2. An organization's competitors are other organizations that either offers of have a high
potential of offering rival products or services.
a. Organization needs to keep abreast of who their competitors are and what they are doing.

b. Ways to track what competitors are doing include obtaining information from commercial data
bases, specialty trade publications, news clippings from local newspaper, help-wanted ads,

published market research reports, business reports, trade shows, public filings, advertisements,
and personal contacts.

3. An organization's suppliers are those individual organizations that supply the resources (such
as raw materials, products, or services) the organization needs to conduct its operations.

4. An organization's labor supply consists of those individuals who are potentially employable
by the organization.

5. Various government agencies provide services and monitor compliance with laws and
regulations at local (e.g., consumer affairs), state or regional (e.g., health department), and
national (e.g., CBR) levels

b) The Internal Environment

An organization's internal environment is composed of the elements within the organization,

including current employees, management, and especially corporate culture, which defines
employee behavior. Although some elements affect the organization as a whole, others affect
only the manager. A manager's philosophical or leadership style directly impacts employees.
Traditional managers give explicit instructions to employees, while progressive managers
empower employees to make many of their own decisions. Changes in philosophy and/or
leadership style are under the control of the manager. The following sections describe some of
the elements that make up the internal environment.

Figure: 2 Multiple stakeholders in the environment of an organization

4. The Organizational Culture:

It is an organization's personality. Just as each person has a distinct personality, so does each
organization. The culture of an organization distinguishes it from others and shapes the actions
of its members.

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4.1Components of Organizational Culture:

a) Values

b) Heroes
c) Rites and rituals
d) Social network

a)

Values:The

b)

Heroes:The second component is heroes. A hero is an exemplary person who reflects the

basic beliefs that define employees' successes in an organization. For

example, many universities place high values on professors being published. If a faculty
member is published in a professional journal, for example, his or her chances of receiving
tenure may be enhanced. The university wants to ensure that a published professor stays with
the university for the duration of his or her academic career and this professor's ability to
write for publications is a value.

image, attitudes, or values of the organization and serves as a role model to other employees.
A hero is sometimes the founder of the organization (think Sam Walton of WalMart).
However, the hero of a company doesn't have to be the founder; it can be an everyday
worker, such as hardworking paralegal Erin Brockovich, who had a tremendous impact on
the organization.

c)

Rites and Rituals:The third component, are routines or ceremonies that the company
uses to recognize highperforming employees. Awards banquets, company gatherings, and
quarterly meetings can acknowledge distinguished employees for outstanding service. The
honorees are meant to exemplify and inspire all employees of the company during the rest of
the year.

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d)

Social Network:The

final component, the social network, is the informal means of

communication within an organization. This network, sometimes referred to as the company
grapevine, carries the stories of both heroes and those who have failed. It is through this
network that employees really learn about the organization's culture and values.

4.2 Organizational Climate

A byproduct of the company's culture is the organizational climate. The overall tone of the
workplace and the morale of its workers are elements of daily climate. Worker attitudes dictate
the positive or negative atmosphere of the workplace. The daily relationships and interactions
of employees are indicative of an organization's climate.

a) Resources are the people, information, facilities, infrastructure, machinery, equipment,

supplies, and finances at an organization's disposal. People are the paramount resource of
all organizations. Information, facilities, machinery equipment, materials, supplies, and
finances are supporting, nonhuman resources that complement workers in their quests to
accomplish the organization's mission statement. The availability of resources and the
way that managers value the human and nonhuman resources impact the organization's
environment.

b) Philosophy of management is the manager's set of personal beliefs and values about
people and work and as such, is something that the manager can control. McGregor
emphasized that a manager's philosophy creates a selffulfilling prophecy. Theory X
managers treat employees almost as children who need constant direction, while Theory
Y managers treat employees as competent adults capable of participating in workrelated
decisions. These managerial philosophies then have a subsequent effect on employee
behavior, leading to the selffulfilling prophecy. As a result, organizational philosophies
and managerial philosophies need to be in harmony.

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c) The number of coworkers involved within a problemsolving or decisionmaking process

reflects the manager's leadership style. Empowerment means delegating to subordinates
decisionmaking authority, freedom, knowledge, autonomy, and skills. Fortunately, most
organizations and managers are making the move toward the active participation and
teamwork that empowerment entails.

When guided properly, an empowered workforce may lead to heightened productivity and
quality, reduced costs, more innovation, improved customer service, and greater commitment
from the employees of the organization. In addition, response time may improve, because
information and decisions need not be passed up and down the hierarchy. Empowering
employees makes good sense because employees closest to the actual problem to be solved or
the customer to be served can make the necessary decisions more easily than a supervisor or
manager removed from the scene.

5. Organization-Environment Relationship
Organizations are open systems and must relate to their environments. They must acquire the
resources and information needed to function; they must deliver products or services that are
valued by customers.An organization's strategy--how it acquires resources and delivers outputs-is shaped by particular aspects,and features of the environment.

Thus, organizations can devise a number of responses for managing environmental interfaces,
frominternal administrative responses, such as creating special units to scan the environment, to
externalcollective responses, such as forming strategic alliances with other organizations.

5.1 Theories of Organization-Environment Relationships

A) Contingency Theory

Most effective way to organize is contingent on complexity and change in environment

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Stable environments: Mechanistic structures (specialization, formality, hierarchy

Changing environments: Organic structures (less specialization, informality, lateral

relations)

B) 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

C) 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

D) Population Ecology

Focus is on whole population of organizations (e.g., gasoline stations in Canada; wine

industry in California)

Natural selection processes:

VariationSelection Retention

Unsuccessful organizational forms die out

Environmental determinism
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E) 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

F) 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

5.2 Organization and Environment Framework

This section provides a framework for understanding how environments affect organizations and,
in turn,how organizations can affect environments. The framework is based on the concept that
organizations andtheir subunits are open systems existing in environmental contexts.
Environments can be described in twoways. First, there are different types of environments that
consist of specific components or forces. Tosurvive and grow, organizations must understand
these different environments, select appropriate parts torespond to, and develop effective
relationships with them. A manufacturing firm, for example, mustunderstand raw materials
markets, labor markets, customer segments, and production technologyalternatives. It then must

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select from a range of raw material suppliers, applicants for employment,customer

demographics, and production technologies to achieve desired outcomes effectively.

Organizations are thus dependent on their environments. They need to manage external
constraints andcontingencies and take advantage of external opportunities. They also need to
influence the environment infavorable directions through such methods as political lobbying,
advertising, and public relations.

Second, several useful dimensions capture the nature of organizational environments. Some
environmentsare rapidly changing and complex, and so require different organizational
responses than do environmentsthat are stable and simple. For example, chewing gum
manufacturers face a stable market and use well-understood production technologies. Their
strategy and organization design issues are radically different fromthose of software developers
who face product life cycles measured in months instead of years, where laborskills are rare and
hard to find, and where demand can change drastically overnight identify environmental
dimensions that influence organizational responses to external forces.

5.3 How Environments Affect Organizations

Three basic perspectives can be used to describe how environments affect organization-

Environmental Change and Complexity

Competitive Forces

Environmental Turbulence

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Environmental Change and Complexity

According to the theory of James Thompson, environment can be described along

two dimensions

Degree of Change

Degree of Homogeneity

Degree of Change:The extent to which the environment is relatively stable or relatively

dynamic

Degree of Homogeneity: The extent to which the environment is relatively simple having
few elements and little segmentation or complex having many elements and many segmentation.

These two dimensions interact to determine the level of uncertainty faced by the organization.

Uncertainty:
Uncertainty in turn is a driving force that influences many organizational decisions.

a) Least Uncertainty: It is faced by organizations with stable and simple environments.

Although no environment is totally without uncertainty, so these kind of uncertainty is in
the lowest level of uncertainty.

b) Moderate Uncertainty: Organizations having dynamic but simple environments generally

face a moderate degree of uncertainty. Another combination of factors is is one of the
stability and complexity, also for this reason moderate uncertainty occurs.
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C) Most Uncertainty:
Very dynamic and complex environmental conditions yield a high degree of uncertainty. The
environment has large number of elements and the nature of those elements is constantly
changing. Internet based firms face high levels of uncertainty.

Figure: 3 Environmental Changes, Complexity & Uncertainty

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5.4. Assessment of Environment:

Michhael E.Portar, a Harvard professor and expert in strategic management, has proposed a more
defined way to assess environment. Particullarly, he suggests that managers view the
environments of their organization in terms of five competitive forces.

Competitive Forces

The threat of new entrants

Competitive Rivalry
The threat of substitute products
The power of Buyer
The power of Suppliers

The Threat of New Entrants:

It is the extent through which new competitors can easily enter a market or market segment. The
advent of the Internet has reduced the costs and other barriers of entry in many market segments,
so the threat of new entrants has increased for many firms in recent years.

Complexity Rivalry:
It is the nature of competitive relationship between dominant firms in the industry.

The threat of substitute products:

It is the extent to which alternative products or services may supplant or diminish the need for
existing products or services.

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The power of buyers:

It is the extent to which buyers of the products or services in an industry have the ability to
influence the suppliers.

The power of Suppliers:

It is the extent to which suppliers have the ability to influence potential buyers.

Environmental Turbulence:
Although always subject to unexpected changes and upheavals, the five competitive forces can
never be studied and assessed systematically and plans developed for dealing with them. At the
same time, organizations face the possibility of environmental change or turbulence,
occasionally with no warning at all. The most common form of organizational turbulence is a
crisis of some sort.

5.5 How Organization Affect Environment:

Each organization must assess its own unique situation and then adapt according to the wisdom
of its senior management.
The below figure shows six basic mechanisms through which organizations adapt to their
environment.

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a) Information Management:
One way organizations adapt to their environments is through information management.
Information management is especially important when forming an initial understanding of the
environments and when monitoring the environment for signs of change. One technique for
managing information is relying on boundary spanners. A boundary spanner is an employee such
as a sales representative or a purchasing agent, who spends much of his time in contact with
others outside the organization. Such people are in a good position to learn what other
organizations are doing. All effective managers arrange in environmental scanning , the process
of actively monitoring the environments through activities such as observation and reading.
Within the organization, most firms have also established computer-based information systems
to gather and organize relevant information for managers and to assist in summarizing that
information in the form most pertinent to each managers needs.

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b) Strategic Response:
Another way that an organization adapts to its environments is through a strategic response.
Options include maintaining the job status guo, altering strategy a bit and adapting the new
strategy. If any market having a company finds that the company currently serves is growing
rapidly, the firm might decide to invest to invest even more heavily in products and services for
the market. If any market is shrinking or does not provide reasonable possibilities for growth, the
company may decide to cut back.

c) Mergers, Actuations and Alliances:

A merger occurs when two or more firms combine to form a new firm.

Acquisition occurs when one firm buys another firm sometimes against its will. The firm taken
over may cease to exist and becomes part of the other company.

The acquired firm may continue to operate as a subsidiary of the acquiring company. In a
partnership or alliances, firm undertakes a new venture with another firm. A company engages in
these kinds of strategies for a variety of reasons, such as easing an entry into new markets or
expanding its presence in a current market.

d) Organization design and flexibility:

An organization may also adapt to environmental conditions by incorporating flexibility in its
structural design. A company that operates in in an environment with relatively low levels of
uncertainty might choose to use a design with many basic rules, regulations and standard
operating systems. A company that faces a great deal of uncertainty might choose a design with
relatively few standards operating system, instead of allowing managers considerable discretion
and flexibility with decisions.

e) Direct Influence:
Organizations are not always helpless in the face of their environments indeed; many
organizations are able to directly influence their environments in many different ways. Company
can influence their suppliers by signing long-term contacts with fixed prices. Organizations
influence their consumers by creating new users for a product, finding new customers, taking
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customers away from competitors and convincing them that they need something new.
Organizations influence their regulators through lobbying and bargaining.

f) Social Responsibility:
Ethics relate to individuals and their decisions and behaviors. Organizations do not have ethics,
but relate to their environment in ways that often involve ethical dilemmas and decisions. These
situations are generally referred to within the context of the organizations social responsibility. .
Social responsibility is the set of obligations of an organization that has to protect and enhance
the social context in which it functions. Organizations may execise social responsibility toward
their stakeholders, toward the natural environment and toward general social welfare. Some
organizations acknowledge their responsibilities in all three areas and strive diligently to meet
each of them, whereas others emphasize only one or two areas of social responsibility.

6. Organizational Effectiveness:

The effective organization has integrating devices consistent with the diversity of its
environment. The more diverse the environment and the more differentiated the organization,
the more elaborate the integrating devices.
Paul Lawrence and Jay Lorsch

It is the concept of how effective an organization is in achieving the outcomes the organization
intends to produce. Organizational effectiveness is an abstract concept and is basically
impossible to measure.It follows that effectiveness is related to ultimately to how well an
organization

understands

reacts to

And influences its environments.

Instead of measuring organizational effectiveness, the organization determines proxy measures

which will be used to represent effectiveness. We may include such things as efficiency of
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management, performance of employees, core competencies, number of people served, types and
sizes of population segments served and so on. So we focused on the performance of the
employees that to what extend this proxy measure contributes in Organizational effectiveness.

6.1 Four Approaches to Organizational Effectiveness

A) Goal Approach
The Goal Approach is also called rational-goal or goal-attainment approach; it has its origins
in the mechanistic view of the organization. This approach assumes that organizations are
planned, logical, goal-seeking entities and they are meant to accomplish one or more
predetermined goals. Goal approach is worried with the output side and whether or not the
organization attains its goals with respect to preferred levels of output. It sees effectiveness with
respect to its internal organizational objectives and performance. Typical goal-attainment factors
include profit and efficiency maximization.
The key constraint of this approach pertains to the content comparability of organizational goals.
The dependable identification of comparable and practically appropriate goals within groups of
organizations is thus a serious problem. What a company declares as its formal goals dont
always echo the organizations actual goals. Therefore, an organizations formal goals are
typically dependent upon its standards of social desirability. As goals are dynamic, hence they
will probably change as time passes, simply because of the political make-up of an
organization. Organizations short-term goals are usually not the same as their long term
goals. The utilization of goals as a standard for assessing Organizational Effectiveness is
challenging. The goal approach presumes consensus on goals. Considering the fact that there are
numerous goals and varied interests inside an organization, consensus, is probably not possible.

B) System Resource Approach

This approach to Organizational Effectiveness was developed in response to the goal
approach. The System Resource Approach sees an organization as an open system. The
organization obtains inputs, participates in transformation processes, and generates outputs. This
approach emphasizes inputs over output. It sees most organizations as entities which function in
order to survive, at the same time rivaling for scarce and valued resources. It assumes that the
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organization consists of interrelated subsystems. If any sub-system functions inefficiently, it is

going to influence the performance of the whole system.
The disadvantages of this approach relate to its measurement of means. An issue with this
approach is that a higher amount of obtained resources is not going to promise effective usage. In
addition, it is tough to define an ideal degree of resource acquisition across distinct
organizations.

C) Internal-Process Approach
This approach has been developed in response to a fixed output view of the goal approach. It
looks at the internal activities. Organizational effectiveness is assessed as internal organizational
health and effectiveness. According to Internal-Process Approach effectiveness is the
capability to get better at internal efficiency, co-ordination, commitment and staff satisfaction.
This approach assesses effort as opposed to the attained effect.
Some experts have criticized the internal-process approach, like the system-resource approach,
cannot lead to legitimate indicators of organizational effectiveness itself. Rather, it is accepted as
an approach for studying its assumed predictors. Similar to the system-resource approach, the
internal-process approach could possibly be applied only where comparable organizational
outcomes can hardly be assessed accurately.

D) Strategic Constituencies Approach

This approach suggests that an efficient organization is one which fulfills the demands of those
constituencies in its environment from whom it needs support for its survival. It assesses the
effectiveness to satisfy multiple strategic constituencies both internal and external to the
organization. Strategic Constituencies Approach is ideal for organizations which rely highly
on response to demands. The Strategic-constituencies approach takes explicitly into
consideration that organizations fulfill multiple goals: each kind of organizational constituency
(like proprietors, workers, consumers, the local community, etc.) is supposed to have distinct
interests vis--vis the corporation, and will thus use different evaluation criteria.
However, the job of isolating the strategic constituencies from their environment within which
they function is a challenging and tricky task. Because the environment swiftly changes, what
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was a crucial goal today might not be so tomorrow. Individual constituents may create
significantly diverse ratings of organizations effectiveness. These constituents may use diverse
factors or weight the same criteria in a different way.

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