 Organizational environment is defined as all elements that exist outside the boundary

FUNDAMENTALS of the organization and have the potential to affect all or part of the organization.
OF ORGANISATION  The environment can be understood by analysing the organization’s domain within the
external sectors.
CHAPTER FIVE Domain is the chosen environmental field of action
Sectors or subdivisions that contain similar elements
 Task of Specific environment: It includes sectors with which the organization interacts
directly and that have a direct impact on the organization’s ability to achieve its goals.
THE EXTERNAL  It typically includes sectors as:
ENVIRONMENT  The industry  Human resources sector
 Raw materials sector  International sector
 Market sector
Organizational  It includes sectors that might not have a direct impact on the daily operations of a firm
environment is defined but will indirectly influence it.
as all elements that exist  It typically includes sectors as:
outside the boundary of  Sociocultural sector  Technology sector
the organization and  Economic conditions  Financial resources
have the potential to  The events occurring in the environment can be described along several dimensions:
 Stable or unstable
affect all or part of the
 Simple of complex
organization
 Whether available resources are concentrated or dispersed (richness; munificence)
 The dimensions boil down to two essential ways:
Task of Specific  The need for information about the environment
environment: It includes  The need for resources from the environment
sectors with which the  The Simple-Complex dimension concerns environmental complexity, which refers to
organization interacts heterogeneity, or the number and dissimilarity of external elements relevant to an
directly and that have a organization’s operation.
direct impact on the  The Stable-Unstable dimension refers to whether elements in the environment are
dynamic.
organization’s ability to
 The simple-complex and stable-unstable dimensions are combined into a framework for
achieve its goals
assessing uncertainty.
Simple + Stable = Low Uncertainty
The Simple-Complex Complex + Stable = Low-Moderate
dimension concerns Uncertainty
environmental Simple + Unstable = High-Moderate
complexity, which refers Uncertainty
to heterogeneity, or the Complex + Unstable = High
number and Uncertainty
dissimilarity of external
elements relevant to an HOW DO ORGANIZATIONS
organization’s ADAPT TO EACH LEVEL OF ENVIRONMENTAL UNCERTAINTY?
operation.  Organizations need the right fit between internal structure and the external
environment.
The Stable-Unstable  Positions and departments
dimension refers to  As the complexity and uncertainty increase, the number of positions and
whether elements in the departments tends to increase, which in turn increases organizational internal
environment are complexity. Each sector in the external environment requires an employee or
dynamic. department to deal with it.
 Buffering and boundary spanning
 THE EXTERNAL  Boundary-spanning roles link and coordinate an organization with key elements in
ENVIRONMENT the external environment.
 Business intelligence is a new approach to boundary spanning. It refers to the
Simple + Stable = Low high tech analysis of large amounts of internal and external data to monitor the
Uncertainty market, and spot pattern and relationships that might be significant
Complex + Stable = Low-  Differentiation is the differences in cognitive and emotional orientations
Moderate Uncertainty among managers in different departments (use of integrators).
Simple + Unstable =  Mechanistic system: formalized and centralized
High-Moderate  Organic System: not formalized and decentralized
Uncertainty Mechanistic Organic
Complex + Unstable =  Tasks are specialized  Employees contribute to the common task
 Tasks are rigidly defined  Tasks are adjusted and redefined through
High Uncertainty
 Strict hierarchy of authority and teamwork
control  Less hierarchy of authority and control
Mechanistic system:  Knowledge and control of tasks  Knowledge and control of tasks are located
formalized and are centralized anywhere in the organization
 Communication is vertical  Communication is horizontal
centralized
 Resource-dependence means organizations depend on the environment but
Organic System: not
strive to acquire control over resources to minimize their dependence
formalized and
 Establishing interorganizational linkages
decentralized
 Ownership: a greater degree of ownership through acquisitions or mergers
 Formal strategic alliances are formed through contracts and joint ventures.
 Cooptation, interlocking directorates
 Executive recruitment
 Advertising and public relations. It is important in highly competitive consumer
industries and in the ones that experience variable demand.
 Shape the environmental domain influencing key sectors
 Change of domain. Acquisition and divestment are two techniques for altering the
domain
 Political activity, regulation. Political strategy can be used to erect regulatory
barriers against new competitors or to squash unfavourable legislation
 Trade associations with other organizations that have similar interests.
 Illegitimate activities. Companies in industries with low demand, shortages and
strikes were more likely to be convicted for illegal activities.
Establish Formal Relationship Controlling the domains
 Ownership  Change domain
 Formal strategic alliances  Political activity, regulation
 Cooptation, interlocking directorates  Trade associations
 Executive recruitment  Illegitimate activities
 Advertising and public relations
