Chapter 15.docx

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Management (MGH)
Julie Mc Donald

Chapter 15: Environment, strategy and Technology The external environment of organization  External factor – Events and conditions surrounding an organization that influence activities. Organization as open system  Open systems – (how organization described) systems that take inputs from the external environment, transform some of them back and send them back into the environment a output  Input include capital  output service and product  Some input are transformed (raw material) and some assist in the transformation ( skilled craftspeople)  Transformation processes may include physical ( manufacturing or surgery), intellectual ( teaching or programming) or emotional ( psychotherapy)  E.g. take insurance information and transform it into insurance premiums  The value of the open systems concept is that it sensitizes us to the need for organizations to cope wit the demands of the environment on both the input and output side  Some coping involves adaptation to environmental demand and other on changing the environment Components of the External Environment  Environment is divided into 6 components: The General Economy  During downturn, increase competition for remaining customers  May postpone capital improvement  Some thrive under poor economy e.g. law firms that deal with unemployment  Downturn may result to downsizing Customers  Organization must be sensitive to changes in customer demand  Successful firms are generally sensitive to customer reactions  E.g. Loreal said they wont test stuff on animal anymore because customer demand Suppliers  Organizations are dependent on the environment for supplies (e.g. labour, raw material and equipment)  Shortage can cause severe difficulties  E.g. shortage of people going to technical school  low labour ; or a strike  Switching to suppliers with better quality now Competitors  Competing for suppliers and customers  Successful organizations devote considerable energy to monitoring the activities of competitors  Very aggressive competition  hypercompetitive ; in this industry must respond quickly and become very flexible Social/political Factors  Must consider changes in public attitudes toward ethnic diversity , retirement of employees and proper role of big business  Must cope with legal regulations Technology  Technology refers to ways of doing things, not simply to some form of machinery  The ability to be able to adopt the proper technology should enhance an organization’s effectiveness  E.g. computer system or production technique  Technology impact organizational life  CAD computer aided design; computer programs that help designers, engineers etc.  Interest groups – parties or organizations other than direct competitions that have some bested interest in how an organization is managed  Different interest group evaluate organizational effectiveness according to different criteria  Different parts of the organization will often be concerned with different environmental component  e.g. marketing would be concerned with customer demand component  Events in various components of the environment provide both constraints and opportunities for organization  E.g. if customer (as a constraint) always complain about price, organization may find a technology that will help decrease price of product development Environmental Uncertainty  Environmental uncertainty – a condition that exists when the external environment is vague, difficult to diagnose and unpredictable  E.g. customer come and go, supplier turn god or bad...  Uncertainty depends on the environment’s complexity ( simple versus complex) and its rate of change (static versus dynamic)  Simple environment – involves relatively few factors and the factors are similar to each other  E.g. pottery manufacturer that obtains raw material from two small firms and sells its entire output to three small pottery outlets  Complex environment – contains large number of dissimilar factors that affect organization  Static environment – remain fairly stable over time  E.g. small town radio plays same must format, relies on same advertisers and same regulations for years  No environment are completely static  Dynamic environment – highly dynamic are constant state of change which is unpredictable and irregular with no cyclical  E.g. firm that designs and manufactures microchips; new technology and new customer demand  It is possible to arrange rate of change and complexity in a matrix  Simple/static  provoke least uncertainty  Dynamic/complex  provokes the most  Some research suggests that change has more influence than complexity on uncertainty  Static/complex  somewhat certain than dynamic/simple  E.g. research and development department of microchip are more uncertain than human resource department  Uncertainty increase cause and effect relationships to be unclear  E.g. if sure that competitor cant match our price then we’ll go ahead and promote, but if not certain than don’t know how to approach  Environmental uncertainty makes priorities harder to agree on and may stimulate political cheating in organization  E.g. if marketing advertising unclear, other functional units might see the increased budget allocation being up for grabs  As environmental allocation increases more information must be processed by organization to make adequate decisions Resource Dependence  Resource dependence – the dependency of organizations on environmental inputs, such as capital, raw material and human resources  Careful coping with this resource dependence is a key to survival and success  Highly resource dependent are for example small business, bankers, manufactures, investors  Resource dependence can be fairly independent of environmental uncertainty;  Organization may be indirectly resource dependent ( e.g. competitors, regulatory agencies) and thus vulnerable to a fair degree of social control Strategic Response to Uncertainty and resource dependence  Strategy – the process by which top executives seek to cope with the constraints and opportunities that an organization’s environments poses  Much environment impact is indirect rather than direct, filtered through the perceptual system of managers and other organizational members  Perceived environment comprises the basis for strategy formulation  Strategy formulation involves determining the mission, goals and objectives of organization  Then the organization’s orientation toward the perceived environment must be determined  There is not single strategy  Finally the strategy must be implemented by selecting the appropriate managers for the task and employing appropriate techniques Organizational Structure as a Strategic Response  PLASTIC; very uncertain, highly differentiated, production manager deals with short term problems and research long term, organic structure, coordination  mutual adjustment,  CONTAINER; certain, decision fix in short term, mechanistic structure, centralized  Research is needed for uncertain (like plastic)  Lawrence and Lorsch experiment  environment, structure and effectiveness  Some found mechanistic more suitable than organic for uncertain  Strategy always determines structure ( but not the other way around) Other Forms of Strategic Response Vertical Integration  Use an inventory policy of stockpiling both inputs and output if concerned with lack of raw material  E.g. automaker make stockpile needed parts in advance if anticipating a strike  Vertical integration- the strategy of formally taking control of sources of organizational supply and distribution (oil company does everything; exploration, drill, transport...)  This can reduces risk for organization but when company becomes confused, it reduces flexibility and will INCREASE risk, also may cause managerial inefficiency  Vertical integration benefit> cost Mergers and Acquisitions  Mergers and acquisition – the joining together of two organizations and the acquiring of one organization by another  E.g. a paper manufacturer might purchase a timber company  When merge two of the same industry, will partly reduce the uncertainty prompted  When across different industry, it’s often to reduce resource dependence on particular segment of the environment (diversification strategy)  A portfolio is created so that if resources become threatened in one part of the environment, the organization can still prosper  Often disappoi
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