Chapter 4

The External
Environment

Organization Theory and

Design
Eleventh Edition
Richard L. Daft
2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

The Organization
Environment
All the elements that exist outside
the boundary of the organization
Potential to affect all or part of the
organization
Domain is the chosen
environmental field of action
Sectors or subdivisions that contain
similar elements
2

2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

An
Organization
s
Environment

2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

The Task Environment

Sectors that the organization interacts
with directly to achieve goals
Typically the industry and market
sectors- competition
Human Resources
International Sector
Raw Materials Sector

2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

General Environment
Sectors that might not have a direct impact
on the daily operations of a firm
Government sector: regulation
Sociocultural sector: the green movement
Economic conditions: global recession
Technology sector: massive and constant
changes
Financial resources
Extremely important to entrepreneurs
why?

2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

International Environment
Can directly affect many
organizations
Has grown in importance
Distinction between foreign and
domestic operations
All organizations face domestic and
global uncertainty
6

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The Changing
Environment
The dimensions of the environment range:
Unstable
Homogeneous
Organizations must cope
Heterogeneous
with and manage
uncertainty to be effective.
Simple
Complex
The dimensions boil down to:
The need for information about the
environment
The need for resources from the
environment
7

2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Dimensions of the
Environment
Simple-complex:
heterogeneity; the number of
dissimilarity of external elements
Stable-Unstable: whether
elements in the environment are
dynamic
8

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Framework for Assessing

Environmental Uncertainty

2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Adapting to a Changing
Environment
Organizations need the right fit between
internal structure and the external
environment
Adding Positions and Departments
Building Relationships
Boundary-spanning roles
Business intelligence
Differentiation and Integration
Organic vs. Mechanistic Management Process
Planning, Forecasting, and Responsiveness
10

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Organizational Departments
Differentiate to Meet Needs of
Sub-environments

11

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Different Goals and

Orientations among
Departments

12

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Environmental Uncertainty
and Organizational
Integrators

13

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Mechanistic and Organic

Forms
Mechanistic
Tasks are specialized
Tasks are rigidly
defined
Strict hierarchy of
authority and control
Knowledge and control
of tasks are centralized
Communication is
vertical

14

Organic
Employees contribute to
the common task of the
department
Tasks are adjusted and
redefined through
teamwork
Less hierarchy of authority
and control
Knowledge and control of
tasks are located anywhere
in the organization
Communication is
horizontal

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Contingency Framework for

Uncertainty and Organizational
Responses

15

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Dependence on External
Resources
Resource-dependence perspective
means organizations depend on the
environment
Strive to acquire control over resources
to minimize dependence
Organizations are vulnerable if resources
are controlled by other organizations
Minimize vulnerabilities
Will team up with others when resources
are scarce
16

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Influencing External
Resources
Balance linkages and independence
Reach out and change or control
elements in the environment
1. Establish favorable relationships with
key elements of the environment
2. Shape the environment by influencing
key sectors
17

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Organizing Strategies for

Controlling
the External Environment

18

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Environmental
Characteristics and
Organizational Actions

19

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Design Essentials
Change and complexity have major implications for
organizations
Organizational environment differs regarding
uncertainty and resource dependence
The goal for organizations is managing efficiencies
and survival
Managers must understand how the environment
influences the structure of an organization
When risk is great, organizations can attempt to
change or influence the environment
Organizations can learn and adapt to the
environment
20

2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Foundations of Organizational
Design

Structural Contingency Theory

Contextu
Contextu
al
al
Factors
Factors
Strategy
Strategy

Environme
Environme
nt
nt
Orgl
Orgl Tech
Tech
Size
Size
Culture
Culture

Uncertai
Uncertai
nty
nty

(The
(The need
need to
to
process
process
information)
information)

Organizati
Organizati
on
on
Structure
Structure
(The
(The capacity
capacity
to
process
to process
information)
information)

Page 21

Behavi
Behavi
or
or

Organizati
Organizati
on
on
Outcomes
Outcomes
,, e.g.
e.g.
Innovation
Innovation
Adaptability
Adaptability
Efficiency
Efficiency

Commitment/
Commitment/
Satisfaction
Satisfaction

Introduction and Overview

Analytical Problem Solving

5
Decision/
Recommendati
on

PROBLEM SOLVING
PROCESS

4
Evaluation
of
3

--Give rationale for choice

-Each alternative should be evaluated against the criteria

-Pros and cons of alternatives should be considered

Alternative
-sUsing theory generate several alternatives

Generation
of
Alternatives
2

--Choose single best alternative

-Each alternative should be a complete solution to the problems

identified
-Each alternative should address specified criteria

--Use THEORY to interpret what is happening in case

-- Thorough understanding of cause/effect relationships

Problem
Analysis /Root - -Thorough understanding of criteria essential for a good solution
Causes
1
- Clear, succinct statement of the problem

Problem
Stateme
nt

- Identifies a specific focus or goal

- Understood by all

TIME

Page 33

Case Analysis
1. Problem Statement
2. Problem Analysis
3. Root Causes
4. Generation of Alternative Solutions
5. Evaluation of Alternatives Against Root Causes
(See # 3)
6. Recommendation

1. Problem Statement
PS1: The problem associated with IBM was its
inability to accept and allow fast paced innovation
and change to penetrate bureaucratic red tape within
a time line that was conducive to a favorable and
secured market share. The process to receive
approval flowed through a hierarchal format that
delivered a stagnant or depleted competitive
advantage in the PC business segment.
PS2: PS2: IBMs Personal Computer (PC) division
is struggling to compete and be profitable in the
exploding PC market.
PS3: IBM's PC market share decreased from 50% to
10%.

2. Problem Analysis
Avoid using a laundry list symptoms only
approach, e.g.
Highly bureaucratic
Slow decision making (e.g. pricing)
Inability to forecast accurately (e.g. We studied
the market. We missed the market.)
Closed-system mentality
Not innovating quickly enough

2. Problem Analysis
(contd)
Use theory to analyze the case:
IBM (Big Blue) was designed for a simple/stable task
environment.
The task environment for the IBMs PC business (IBM PC)
was simple/unstable
IBM PC was not well designed to handle the instability in
its task environment.
High environmental instability (uncertainty) for the PC
business was primarily a result of instability in 3 sectors

Technology sector (e.g., not innovating

fast enough),
Market sector (e.g. forecasts wrong),
Industry sector (e.g. decision making too
slow, unable to react to competitor price
points)

3. Root Causes

1. IBM PC is not able to manage the instability in

its Market Sector.
2. IBM PC is not able to manage the instability in
its Technology Sector.
3. IBM PC is not able to manage the instability in
its Industry Sector.

4. Generation of
Alternatives
Each alternative should be a complete solution to the problem.
I.e., each alternative should solve for the full set of Root
Causes.

How each alternative solves for the full set of Root Causes
should be explicit.

E.g. How specifically does the alternative solve

for instability (uncertainty) in the
Market sector?,
Industry sector?
Technology sector?

Recommendations contained in alternatives should be specific

E.g. make org. more organic is not specific.

5. Evaluation of
Alternatives
Each alternative should be
evaluated against the full set root
causes (See #3.)

Might want to use a chart to

summarize this evaluation

Evaluating Alternatives
Root Causes

Alternative 1

Alternative 2

#1: IBM PC unable to

manage the instability
in the Market Sector

Discussion of how well

Root Cause #1 is addressed
by Alt 1

Discussion of how well

Root Cause #1 is addressed
by Alt 2

#2: IBM PC unable to

manage the instability
in the Technology
Sector.

Discussion of how well

Root Cause #2 is addressed
by Alt 1

Discussion of how well

Root Cause #2 is addressed
by Alt 2

#3: IBM PC unable to

manage the instability
in the Industry Sector.

Etc.

Etc.

6. Recommendation
Select best Alternative and provide
rationale.