Organizations and Environments

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Organizations and Environments

• MBA 540
• 2/10/03

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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)

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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

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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

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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

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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)

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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

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

• Task (specific) factors
• Customers
• Suppliers
• Distributors
• Regulatory agencies
• Competitors
• Unions
• Partners
• Special Interests

• General factors
• Economic
• International
• Political/legal
• Technology
• Social/demographic
• Cultural
• Physical/natural resources

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Environmental Uncertainty

• Simple -Complex Dimension
• Number of elements and their similarity
• Family restaurant vs. automobile manufacturer
• Determines what information you need

• Stability-Change Dimension
• how fast and unpredictably elements change
• Universities vs. telecommunications
• Determines how often you need to collect
  information

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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.

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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)
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Theories of Organization-Environment Relationships

• Contingency Theory
• Resource Dependence
• Strategic Choice
• Population Ecology
• Institutional Theory
• Transaction Cost Theory

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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)

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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

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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

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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

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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

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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

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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

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Specific Adaptation Devices

• Inter-organizational Linkages
• Symbiotic interdependencies
• Benefit both organizations
• Competitive interdependencies
• Direct competition for scarce resources

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Symbiotic Interdependencies

• 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

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Competitive Interdependencies

• Collusions
• Signaling
• Cartels
• Trade associations

• Regulatory bodies
• Competitive strategic alliances
• Networking

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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

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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

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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

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What is organizational effectiveness?

• Stakeholder Approach
• Stakeholders are any individuals, groups, or
  organizations that have an interest in the firms
  activities and ultimate survival
• Internal stakeholders owners or shareholders,
  employees, and managers
• External stakeholders customers, suppliers,
  government, unions, local community, general
  public, natural environment

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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

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Managing Stakeholders

• Assess importance of stakeholders
• Power, legitimate rights, and urgency
• Assess potential for threat vs. potential for
  cooperation
• Determine appropriate strategies for managing the
  stakeholder

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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
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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.

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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

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Pressures for TRM

• Primary stakeholders owners, employees,
  customers, and suppliers
• Secondary stakeholders NGOs, activists,
  communities, and governments
• Social and institutional pressures and trends
  best of rankings and awards emerging global
  standards (e.g., UNs Global Compact) and
  reporting/accountability initiatives (e.g., GRI
  or SA 8000 or AA1000)

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Three Processes in the TRM Approach

• Institutionalizing a vision and set of valuses
  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