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Management (MGH)
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Chapter 15: Environment, Strategy, and Technology
The External Environment of Organizations
External Environment: Events and conditions surrounding an organization that
influence its activities
External factors such as changing consumer preferences, economic downturns and
booms, gas prices, etc. effect industries and their functionality (gas
prices=automobile retailers, recession=consumer
Organizations as Open Systems
Open Systems: Systems that take inputs from the external environment, transform
some of them, and send them back into the environment as outputs
Inputs capital, technology, people, energy and outputs- products and services
Ex. Universities take students, give them knowledge, and return educated
individuals to the community as outputs
Open systems sensitize us to the need for organizations to cope with the demands of
the environment on both the input side and then output side
Components of the External Environment
The general economy: Organizations selling products or services suffer from
economic downturns and profit from economic upturns. (except law firms dealing
with bankruptcy) Economic changes affect employment, innovation, production, and
Customers: organizations must be sensitive to changes in customer demands
Suppliers: Shortages in raw materials can cause an increase in price suppliers
offer. Also, strikes and changes in supplying firms may influence your firms
production decisions
Competitors: Environmental competitors vie for resources that include both
customers and suppliers. (consulting firms compete for clients) Successful
organizations devote considerable energy to monitoring the activities of competitors.
Organizations that find themselves in hypercompetitive environments must become
extremely flexible to respond quickly to changes and cope with hypercompetition.
Social/Political Factors: proper age for retirement, corporate social responsibility,
ethnic diversity, environment, government (corruption) organizations must cope
with laws
Technology: Way of doing things, not only some form of machinery. The ability to
adopt proper technology and change according to technological advantages will give
companies a competitive advantage.
Interest Groups: Parties or organizations other than direct competitors that have
some vested interest in how an organization is managed. Examples include
university regulating authorities, the local community, charities, etc.
Environmental Uncertainty

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Environmental Uncertainty: A condition that exists when the external
environment is vague, difficult to diagnose, and unpredictable.
Uncertainty depends on the environments complexity (simple or complex) and the
rate of change (static or dynamic)
Simple environment: few factor which are similar to each other- ex. Firm sells only to
4 suppliers constantly, knows routine, all factors are controlled
Complex environment: large number of dissimilar factors that affect the organization
Static environment: Components of environment fairly stable over time
Dynamic Environment: constant state of change, unpredictable and irregular ex.
Companies manufacturing memory cards; as technology changes, products must
As uncertainty increases, cause-effect relationships become clear, priorities become
harder to agree upon, and more information must be processed by organizations to
make decisions
Resource Dependence
The dependency of organizations on environmental inputs such as capital, raw
materials and human resources
Organizations must develop strategies for managing both resource dependence and
environmental uncertainty
Strategic Responses to Uncertainty and Resource Dependence
Strategy: The process by which top executives seek to cope with the constraints and
opportunities that an organizations environment poses
First, determine the environment (uncertainty and resources), then form a strategy,
then implement strategy through structure, vertical integration, merger, technology,
etc. and finally evaluate organizational effectiveness
Organizational Structure as a Strategic Response
Mature organizations need to become more organic and flexible to adapt to dynamic
environments, but new ventures should be more mechanistic to become established
Strategy determines structure
Vertical Integration
The strategy of formally taking control of sources of organizational supply and
Ex. Starbucks roasts, ages, brews, etc. its own coffee
This can reduce risk for organization but when environment becomes turbulent, it
can actually increase risk and reduce flexibility however, the benefits outweigh the
Mergers and Acquisitions
Merger: The joining together of two organizations
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