ORGANIZATION AND ENVIRONMENT

JAMES D. THOMPSON
SYSTEMS MODEL OF ORGANIZATION

The Organization in its Environment

Organizational Domain
The domain of an organization is the claim it stakes out for itself with respect to: (1) range of products offered, (2) markets served, and (3) services rendered. Domain is closely related to the task environment of the organization.

The Organizational Domain

DOMAIN CONSENSUS
Domain consensus is the extent that there is general agreement on an organizations expectations both for members of an organization and for others with whom they interact, about what the organization will and will not do.
Selection of a specific domain significantly influences other choices that an organization must make (financing, structure, personnel, etc.) Organizations may have multiple domains.

DOMAIN CONFLICT
Domain conflict exists when there is a lack of recognition or agreement about the organizations role within its larger environment. Ex.-Chiropractors in the medical field Self-proclaimed role vs medically recognized role Establishment of a domain cannot be an arbitrary, unilateral action.

UNCERTAINTY IN THE ENVIRONMENT

Simple
Small number of external elements. Elements remain the same or change slowly DEGREE OF HOMOGENEITY Large number of external elements. Element remain the same or change slowly Large number of external elements. Elements are in continuous change. Small number of external elements. Elements are in continuous change

Complex

Stable
DEGREE OF CHANGE

Dynamic

UNCERTAINTY IN THE ENVIRONMENT

Simple
LEAST UNCERTAINTY DEGREE OF HOMOGENEITY MODERATE UNCERTAINTY MOST UNCERTAINTY MODERATE UNCERTAINTY

Complex
Stable
DEGREE OF CHANGE

Dynamic

UNCERTAINTY IN THE ENVIRONMENT

Simple
Soft drink bottlers, beer distributors, container manuf., local utilities Personal computers, fashion clothing, music industry, toy manufacturers

DEGREE OF HOMOGENEITY

Universities, hospitals, Insurance companies

Complex
Stable

American Airlines, oil companies, electronic firms, aerospace firms

Dynamic
DEGREE OF CHANGE

BURNS & STALKER

Used interviews with managers and their own observations to evaluate the impact of environment on organizational structure and management practice. The type of structure that existed in rapidly changing and dynamic environments was different from that in organizations with stable environments. B & S labeled the two types organic and mechanistic, respectively

ORGANIC ORGANIZATION
Organic organizations are relatively flexible and adaptable. They rely on lateral communication rather than vertical communication. Influence is based upon expertise and knowledge rather than on authority of position. Responsibilities are defined loosely rather than rigid job definitions. Emphasis is on exchanging information rather than on giving direction.

MECHANISTIC ORGANIZATION
Mechanistic structures are characterized by high complexity, formalization and centralization. They perform routine tasks, rely heavily on programmed behaviors, and are relatively slow in responding to the unexpected.

BURNS & STALKER

CHARACTERISTIC MECHANISTIC ORGANIC

Task Definition

Rigid

Flexible

Communication
Formalization Control Influence

Vertical
High Centralized Authority

Lateral
Low Diverse Expertise

EMERY & TRIST

Offer a model that identifies four kinds of environments that organizations might confront:
1. 2. 3. 4. Placid-randomized Placid-clustered Disturbed-reactive Turbulent-field

Placid-randomized is least complex, Turbulent-field is the most complex.

PLACID-RANDOMIZED ENVIRONMENTS
This environment is relatively unchanging. Therefore, environmental uncertainty is low. Environmental demands are distributed randomly, and change slowly. Managerial decision making does not give much attention to the environment.

PLACID-CLUSTERED ENVIRONMENT
Environment changes slowly, but threats are clustered, not random. The forces in the environment are linked, and pose a higher threat than randomized changes. These organizations use long-range planning and forecasting to learn as much as possible about their environments. Structures will tend to be centralized.

DISTURBED-REACTIVE ENVIRONMENTS
A more complex environment than either placid one. Many similar organizations seeking similar ends. One or more may be large and have ability to influence the environment. Two or three large companies can dominate an industry.
Organizations in this type of environment used planned tactical initiatives, calculate reactions by other, and develop counteractions. This requires flexibility and a structure with some decentralization.

TURBULENT-FIELD ENVIRONMENTS
The most dynamic of the environments and has the highest level of uncertainty associated with it. Environmental elements are increasingly organized and interrelated.
Major, dynamic shifts can occur in the environment as one, or a small group of large companies change the rules of competition. Thus, planning is not as useful here.

STRUCTURAL IMPLICATIONS
Emery and Trist did not recommend specific structural configurations associated with each environmental type. However, the two placid environments should be responded to with mechanistic structures, whereas the disturbed and turbulent environments require more organic structures. As the environment becomes more volatile, increasing flexibility Is needed to cope with or manage the uncertainty that increases.

ENVIRONMENTAL UNCERTAINTY - THOMPSON

The central core of the organization requires technical rationality.

Norms of rationality require that the organization attempt to seal-off or protect its technical core from environmental influences.

INTERNAL STRATEGIES
Organizations regulate the flows of inputs and outputs to their central technical cores through such internal responses as buffering, smoothing (leveling), forecasting, and rationing.

BUFFERING
On the input side, buffering usually takes the form of stockpiling critical resources whose supply is uncertain or whose price fluctuates widely over time. On the output side, buffering typically involves building and keeping up warehouse and distribution inventories.
By buffering, environmental uncertainties are absorbed because an organizations technical core produces at a constant rate. Other methods of buffering might include preventative maintenance and recruiting and training.

SMOOTHING (LEVELING)
Where buffering absorbs environmental uncertainties, smoothing involves efforts to manage environmental uncertainties. Smoothing attempts to protect the technical core by reducing uncertainties associated with cyclical variations in product or service demand.
Examples might include differential costs of long distance telephone calls that are lower during non-peak times, discount airline fares for off-time flights.

FORECASTING
When buffering and smoothing will not effectively protect an organizations technical core, organizations can often reduce uncertainty and behave in a logical, rational manner by developing accurate forecasting capabilities. To the degree that environmental fluctuations can be predicted, they can be treated as constraints and adapted to.

RATIONING
Finally, when the organization finds that neither buffering, smoothing, nor forecasting is sufficient to prevent environmental penetration, organizations can turn to rationing. The allocation or assignment of resources according to established priorities can be seen in restaurant reservations, reserved seats at theaters, etc., and rationing (such as gasoline rationing during the oil embargo). In general, rationing is a less than satisfactory solution, because it indicates that the organization is not fully serving its task environment. It can be costly in terms of lost revenue and customer goodwill (Atari, Cabbage Patch dolls, etc.)

EXTERNAL STRATEGIES
Besides strategies for dealing with uncertainty in their internal environments, organizations also have strategies for dealing with uncertainty in their external (general) environments.
The actual relations, or interactions, between organizations are the responsibility of boundary personnel. The boundary spanners or gatekeepers, are important because they mediate the flow of information, products or services, and personnel between organizations in its environment.

ROLE OF THE BOUNDARY SPANNER

EXTERNAL STRATEGIES II
Thompson identified two direct strategies for managing external dependencies such as suppliers, customers, banks, etc.: COMPETITIVE STRATEGIES COOPERATIVE STRATEGIES

COMPETITION
Refers to rivalry between two or more organizations which is mediated by a third party. In the case of a manufacturer, the third party might be a customer, distributor, supplier or potential employee. In each instance, the third party must select among alternative courses of action (For example, which of several competing products to purchase).

COOPERATION
There are three types of cooperative strategies available to organizations: 1. Bargaining 2. Coopting 3. Coalescing

BARGAINING
In an effort to limit the uncertainty caused by competition, organizations often respond by entering into cooperative relationship. Bargaining refers to direct negotiations between organizations for the exchange of goods and services. Such contractual arrangements, to the extent that they are binding and enforceable, serve to reduce environmental uncertainty. Examples might include long term contracts with suppliers or customers, labor contracts, etc.

COOPTING
Is the process of absorbing external elements into the decision-making or policy-determination structure of an organization as a means of averting threats to its stability or existence. This allows for a reduction of environmental uncertainty, but not its elimination.
Examples might include members of a Board of Directors chosen from primary groups in the organizations environment (A banker, a major supplier, a Board member from a competitor, etc.)

COALESCING
Is the combination of two or more organizations (groups or individuals) for a single purpose. It requires a joint commitment for mutual action. Examples might include mergers, joint ventures, interlocking directorates, price fixing, etc.

COSTS
Competition, bargaining, cooptation, and coalescing represent a continuum of increasingly costly methods of gaining support in terms of decision making power. Competition is seen to be the least costly method, through coalescing being the most costly.

INDIRECT STRATEGIES
Thompson also identified four different indirect strategies for dealing with external environmental uncertainty:
1. 2. 3. 4. Influencing government regulations and legislation Trade associations and professional organizations Lobbies Political Action Committees

LAWRENCE & LORSCH

Studied ten firms in three industries: plastics, food and containers. The three industries were deliberately chosen as they differ significantly in the environmental uncertainty associated with each one.
The underlying hypothesis was that internal environments of the firms must match the external environmental requirements. The better the match, the more successful the firm.

DIFFERENTIATION & INTEGRATION

Differentiation and integration was posited as the variables to examine to determine the state of the internal environment.
Differentiation, a la Lawrence & Lorsch, closely resembles the traditional definition of horizontal differentiation, but in addition to task segmentation, suggested that managers will differ in their: (1) time frame, (2) interpersonal orientation, and (3) goal orientation Integration is the quality of collaboration needed to overcome differentiation and achieve unity of effort among units.

LAWRENCE & LORSCH MODEL

DEPARTMENTAL DIFFERENTIATION BASED UPON SUBENVIRONMENT CHARACTERISTICS

TIME, GOAL & INTERPERSONAL ORIENTATIONS

INTEGRATION TECHNIQUES AND APPROPRIATE ENVIRONMENTS

LAWRENCE & LORSCH FINDINGS

STRUCTURE VS ENVIRONMENT

ENVIRONMENT AND ORGANIZATION DESIGN CHARACTERISTICS Environment Simple Stable Complex II Low Many High High I Design Characteristics Low Few High Low Funct./ Mech. Funct./ Mech. w/T/T.F. Product/ Organic Matrix & Combos
Degree of Degree of Quad- Decentral- Span of Formal- Complexity Design Change Complexity rant ization Control ization Strategy

Simple
Dynamic

III

High Few

Low

Low

Complex IV

High

Many

Low

High