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Lecture 15

COMM 222 Lecture Notes - Lecture 15: Communization


Department
Commerce
Course Code
COMM 222
Professor
John Vongas
Lecture
15

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I. The External Environment of Organizations
The external environment consists of events and conditions surrounding an organization that influence its activities. The
external environment has a tremendous influence on organizations and profoundly shapes organizational behaviour.
A. Organizations as Open Systems
Organizations can be described as open systems. Open systems are systems that take inputs from the external environment,
transform some of these inputs, and send them back into the external environment as outputs. This concept is important because it
sensitizes us to the need for organizations to cope with demands of the environment on both the input and the output side.
B. Components of the External Environment
It is useful to divide the external environment into a manageable number of components.
The General Economy. The general economy affects organizations as they profit from an upturn or suffer from a downturn.
Customers. All organizations have potential customers for their products and services. Successful firms are highly sensitive to
customer relations.
Suppliers. Organizations are dependent on the environment for supplies that include labour, raw materials, equipment, and
component parts. Shortages can cause severe difficulties.
Competitors. Environmental competitors vie for resources that include both customers and suppliers. Successful organizations
devote considerable energy to monitoring the activities of competitors.
Social/Political Factors. Organizations cannot ignore the social and political events that occur around them. Organizations must cope
with a series of legal regulations that prescribe fair employment practices, proper competitive activities, product safety, and clients’
rights.
Technology. The environment contains a variety of technologies that are useful for achieving organizational goals. The ability to
adopt the proper technology should enhance an organization’s effectiveness.
In addition to these basic components of organizational environments, there are a large number of interest groups that can exist in
an organization’s environment. Interest groups are parties or organizations other than direct competitors that have some vested
interest in how an organization is managed. Events in various components of the environment provide both constraints and
opportunities for organizations.
C. Environmental Uncertainty
Environmental uncertainty is a condition that exists when the environment is vague, difficult to diagnose, and unpredictable.
Uncertainty depends on the environment's complexity (simple versus complex) and its rate of change (static versus dynamic).
Simple environment. A simple environment involves relatively few factors, and these factors are fairly
similar to each other.
Complex environment. A complex environment contains a large number of dissimilar factors that affect
the organization.
Static environment. The components of this environment remain fairly stable over time.
Dynamic environment. The components of a highly dynamic environment are in a constant state of
change, which is unpredictable and irregular, not cyclical.
It is possible to arrange the rate of change and complexity in a matrix. A simple/static environment should provoke the least
uncertainty, while a dynamic/complex environment should provoke the most. Some research suggests that change has more
influence than complexity on uncertainty. Thus, we might expect a static/complex environment to be somewhat more certain than a
dynamic/simple environment.
Increasing uncertainty has several predictable effects on organizations including being less clear about cause-and-effect
relationships, more difficulty agreeing on priorities, and more information must be processed by the organization to make adequate
decisions. Organizations will act to cope with or reduce uncertainty because uncertainty increases the difficulty of decision making
and thus threatens organizational effectiveness.
D. Resource Dependence
Because organizations are open systems that receive inputs from the external environment and transfer outputs into this
environment, they are in a state of resource dependence with regard to their environments. Resource dependence refers to
the dependency of organizations on environmental inputs, such as capital, raw materials, and human resources. Carefully managing
and coping with this resource dependence is a key to survival and success.
Although all organizations are dependent on their environments for resources, some organizations are more dependent than others.
As well, resource dependence can be fairly independent of environmental uncertainty, and dealing with one issue will not necessarily
have an effect on the other.
Organizations are not totally at the mercy of their environments. However, they must develop strategies for managing both resource
dependence and environmental uncertainty.
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