MGHB02H3 Lecture Notes - Computer-Aided Design, Vertical Integration, Advanced Manufacturing

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28 Feb 2013
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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
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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
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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
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Document Summary

External factor events and conditions surrounding an organization that influence activities. 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. During downturn, increase competition for remaining customers. Some thrive under poor economy e. g. law firms that deal with unemployment.

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