Chapter 15 Notes

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Published on 1 Jun 2011
School
UTSC
Department
Management (MGH)
Course
MGHB02H3
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Chapter 15 Environment, Strategy, and Technology Notes
The External Environment of Organizations
x external environment Æ events and conditions surrounding an organization that influence its activities
x the external environment profoundly shapes organizational behaviour
Organizations as Open Systems
x open systems Æ systems that take inputs from environment, transform them, and send them back into the environment as outputs
x inputs include capital, energy, materials, information, technology, and people; outputs include various products and services
x some inputs are transformed, which other inputs assist in the transformation process
x transformation processes may be physical, intellectual, or even emotional
Components of the External Environment
x components include: the general economy, customers, suppliers, competitors, social/political factors, and technology
x organizations that survive through selling products or services often suffer from an economic downturn and profit from an upturn
x when downturn occurs, competition for remaining customers increases, and organizations might postpone needed improvements
x all organizations have potential customers for their products and services
x organizations are dependent on environment for supplies, which include labour, raw materials, equipment, and component parts
x organizations cannot ignore the social and political events that occur around them
x changes in public attitudes toward ethic diversity, the proper age for retirement, the environment, corporate social responsibility,
or the proper role of big business will soon affect them—they find expression in law through the political process
x the environment contains a variety of technologies that are useful for achieving organizational goals
x the ability to adopt proper technology should enhance an organization’s effectiveness
x interest groups Æ parties or organizations other than direct competitors that have some interest in how organization is managed
x different parts of the organization will often be concerned with different environmental components
x finally, events in various components of the environment provide both constraints and opportunities for organizations
x although environments with many constraints (e.g., high interest rates, strong competition, and so on) appear pretty hostile, an
opportunity in one environmental sector might offset a constraint in another
Environmental Uncertainty
x environmental uncertainty Æ condition that exists when external environment is vague, difficult to diagnose, and unpredictable
x uncertainty depends on the environment’s complexity (simple vs. complex) and its rate of change (static vs. dynamic):
o simple environment—involves relatively few factors, and these factors are fairly similar to each other
o complex environment—contains a large number of dissimilar factors that affect the organization
o static environment—components remain fairly stable over time
o dynamic environment—constant state of change, which is unpredictable and irregular, not cyclical
x simple/static environment should provoke the least uncertainty, while a dynamic/complex environment should provoke the most
x it might be expected that a static/complex environment to be somewhat more certain than a dynamic/simple environment
Resource Dependence
x resource dependence Æ the dependency of organizations on environmental inputs, such as capital, raw materials, and HR
x carefully managing and coping with this resource dependence is a key to survival and success
x although all organizations are dependent on their environments for resources, some are more dependent than others
x this is because some environments have a larger amount of readily accessible resources
x can be fairly independent of environmental uncertainty, and dealing with one issue will not have an effect on the other
x competitors, regulatory agencies, and various interest groups can have a stake in how a firm obtains and transforms its resources
Strategic Responses to Uncertainty and Resource Dependence
x strategy Æ process by which top executives seek to cope with the constraints and opportunities that a firm’s environment poses
x much of the impact that the environment has on organizations is indirect rather than direct, filtered through the perceptual system
(personality characteristics and experiences) of managers and other organizational members
x strategy formulation itself involves determining the mission, goals, and objectives of the organization
Other Forms of Strategic Response
x vertical integration Æ the strategy of formally taking control of sources of organizational supply and distribution
x merger Æ the joining together of two organizations
x acquisition Æ the acquiring of one organization by another
x strategic alliances Æ actively cooperative relationships between legally separate organizations
x joint venture Æ two or more organizations form an alliance in the creation of a new organizational entity
x interlocking directorates Æ a condition existing when one person serves on two or more boards of directors
x establishing legitimacy Æ taking actions that conform to prevailing norms and expectations
The Technologies of Organizations
x technology Æ the activities, equipment, and knowledge necessary to turn organizational inputs into desired outputs
x the inputs that are transformed by the technology come from various segments of the organization’s environment
x in turn, the outputs that the technology creates are returned to the environment
x in addition, the activities, equipment, and knowledge that constitute the technology itself seldom spring to life within the firm
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x rather, they are imported from the technological segment of the environment to meet the organization’s needs
Basic Dimensions of Technology
x technological routineness Æ the extent to which exceptions and problems affect the task of converting inputs into outputs
o craft technologies—deal with fairly standard inputs and outputs; however, when exceptions are encountered (a special
order or a slow learner), analysis of the correct action might be difficult
o routine technologies—deal with standardized inputs and outputs; however, when exceptions do occur (a new product line
or a new subject to teach), the correct response is fairly obvious
o non-routine technologies—deal frequently with exceptional inputs or outputs, and analysis is often difficult
o engineering technologies—many exceptions of input or required output, but can be dealt with standardized responses
x from most routine to least routine, Perrow’s technological classifications can be ordered: routine, engineering, craft, non-routine
x technological interdependence Æ extent to which organizational subunits depend on other for resources, raw materials, or info
x pooled interdependence (mediating technologies) Æ a condition in which organizational subunits are dependent on the pooled
resources generated by other subunits but are otherwise fairly independent
x sequential interdependence (long-linked technologies) Æ a condition in which organizational subunits are dependent on the
resources generated by units that precede them in a sequence of work
x reciprocal interdependence (intensive technologies) Æ a condition in which organizational subunits must engage in considerable
interplay and mutual feedback to accomplish a task
Implications of Advanced Information Technology
x advanced information technology Æ the generation, aggregation, storage, modification, and speedy transmission of information
made possible by the advent of computers and related devices
Learning Objectives Checklist
1. Organizations are open systems that take inputs from the external environment, transform some of these inputs, and send them
back into the environment as outputs. The external environment includes all the events and conditions surrounding the
organization that influence this process. Major components of the environment include the economy, customers, suppliers,
competitors, social/political factors, and existing technologies.
2. One key aspect of the external environment is its uncertainty. More uncertain environments are vague, difficult to diagnose, and
unpredictable. Uncertainty is a function of complexity and rate of change. The most uncertain environments are complex and
dynamic—they involve a large number of dissimilar components that are changing unpredictably. More certain environments are
simple and stable—they involve a few similar components that exhibit little change. As environmental uncertainty increases,
cause-and-effect relationships become harder to diagnose, and agreeing on priorities becomes more difficult because more
information must be processed. Another key aspect of the external environment is the amount of resources it contains. Some
environments are richer or more munificent than others, and all organizations are dependent on their environments for resources.
Firms must develop strategies for managing environmental uncertainty and resource dependence for their survival and success.
3. Strategy is the process that executives use to cope with the constraints and opportunities posed by the organization’s
environment, including uncertainty and scarce resources. One critical strategic response involves tailoring the organization’s
structure to suit the environment. In general, as the Lawrence and Lorsch study demonstrates, mechanistic structures are most
suitable for more certain environments, and organic structures are better suited to uncertain environments.
4. Some of the more elaborate strategic responses include vertical integration, mergers and acquisitions, strategic alliances,
interlocking directorates, and establishing legitimacy. Vertical integration involves taking control of sources of organizational
supply and distribution; mergers and acquisitions involve two firms joining together or one taking over another; strategic
alliances involve cooperative relationships between legally separate organizations; interlocking directorates exist when one
person serves on two or more boards of directors; and establishing legitimacy involves taking actions that conform to prevailing
norms and expectations.
5. Technology includes the activities, equipment, and knowledge necessary to turn organizational inputs into desired outputs. One
key aspect of technology is the extent of its routineness. A routine technology involves few exceptions to usual inputs or outputs
and readily analyzable problems. A non-routine technology involves many exceptions that are difficult to analyze. Another key
aspect of technology is the degree of interdependence that exists between organizational units. This may range from simple
pooling of resources, to sequential activities, to complex reciprocal interdependence. Woodward classified technologies as unit,
mass, or process production, which reflects both increasing smoothness of production and increasing impersonalization of task
requirements.
6. According to Perrow, routine technologies should function best under mechanistic structures, while non-routine technologies call
for more organic structures. According to Thompson, mediating technologies require formalization that calls for a mechanistic
structure; long-linked technologies must also be structured mechanistically; and intensive technologies require intensive
coordination, which is best achieved with an organic structure. The most famous study of the relationship between technology
and structure was Joan Woodward’s. She determined that unit and process technologies performed best under organic structures,
while mass production functioned best under a mechanistic structure. In general, less routine technologies and more
interdependent technologies call for more organic structures.
7. Advanced information technology generates, aggregates, stores, modifies, and speedily transmits information. In the factory, it
permits flexible manufacturing that calls for organic structures, enriched jobs, and increased teamwork. In the office and the
organization as a whole, the flexibility of advanced information technology means that its effects are highly dependent on
management values and culture.
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Document Summary

N components include: the general economy, customers, suppliers, competitors, social/political factors, and technology. N organizations that survive through selling products or services often suffer from an economic downturn and profit from an upturn. N when downturn occurs, competition for remaining customers increases, and organizations might postpone needed improvements. N merger  the joining together of two organizations. N advanced information technology  the generation, aggregation, storage, modification, and speedy transmission of information made possible by the advent of computers and related devices. Learning objectives checklist: organizations are open systems that take inputs from the external environment, transform some of these inputs, and send them back into the environment as outputs. The external environment includes all the events and conditions surrounding the organization that influence this process. Major components of the environment include the economy, customers, suppliers, competitors, social/political factors, and existing technologies: one key aspect of the external environment is its uncertainty.