Textbook Notes (290,000)
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Chapter 15

Textbook Notes - Chapter 15

Management (MGH)
Course Code
Joanna Heathcote

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MGTB27 / 01 Week 13
- The merger between Suncor and Petro-Canada was a result of soaring gasoline prices
- Appropriate organizational structure is contingent on environmental, strategic, and
technological factors
The External Environment of Organizations
- The external environment are events and conditions surrounding an organization that
influence its activities
- E.g. the influence of the external environment is the SARS outbreak in 2003 for Toronto.
Bus, hotel, restaurant, theatre, and travel companies experienced a sharp decline in business
- The external environment profoundly shapes organizational behaviour
Organizations as Open Systems
- Open systems are systems that take inputs (e.g. capital, labour, materials, information) from
the external environment, transform some of them (e.g. raw materials, skilled craftspeople),
and send them back into the environment as outputs (e.g. products and services)
- Transformation process may be physical (e.g. manufacturing or surgery), intellectual (e.g.
teaching or programming), or even emotional (e.g. psychotherapy)
- E.g. Universities import seasoned scholars and aspiring students from the environment,
through the teaching process, they 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 and coping may be oriented toward changing the environment
Components of the External Environment
- External environment involves any person, group, event, or condition outside the firm
- The external environment can be divided into these components:
- The General Economy
o Organizations that survive through selling products or services often suffer from an
economic downturn and profit from an upturn
o Welfare offices or law firms specializing in bankruptcies gain profit from downturn
o If a poor economy is accompanied by high unemployment, organizations might find
the opportunity to upgrade the quality of their staffs since they have ample selection
of candidates (RIM recruited the best staffs during the recent recession)
- Customers
o All organizations have potential customers for their products and services (e.g. Piano
makers have musicians, Universities have students and employers)
o Successful firms are generally highly sensitive to customer reactions (e.g.
automobile manufacturers are making more smaller and energy efficient vehicles)
- Suppliers
o Organizations are dependent on the environment for supplies which may include
labour, raw materials, equipment, and component parts
o When there are shortages, this shock will affect & be troublesome to the organization
o Recent practices is to reduce the number of suppliers in order to establish a strong
relationship based on quality and reliable delivery
- Competitors
o Environmental competitors compete for resources that include customers & suppliers
o Successful organizations devote considerable energy to monitoring the activities of
Chapter 15 ± Environment, Strategy, and Technology (pg. 495 ± 522)

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MGTB27 / 02 Week 13
o Organizations today may experience hypercompetitive environments where
organizations must remain extremely flexible to respond quickly to changes and
cope with hypercompetition
- Social/Political Factors
o Organizations cannot ignore social and political events that occur around them such
as changes in public attitudes toward ethnic diversity, the proper age for retirement,
and CSR (often times found in expressions in laws through political processes)
o Organizations must cope with a series of legal regulations that prescribe fair
employment practices, proper competitive activities, prRGXFWVDIHW\FOLHQWV¶ULJKWV
and environment protectionism
- Technology
o Environment contains a variety of technologies (ways of doing things) that are useful
for achieving organizational goals (e.g. business firm adopts computer system)
o Impact of CAD (computer-aided design) reduced design lead times and increased
productivity for organizations
- Interest groups are parties or organizations other than direct competitors that have some
vested interest in how an organization is managed can also be found in the external
- Different parts of the organization will often be concerned with different environmental
components (e.g. marketing department is concerned with customer demands)
- Coordination is once again necessary within the organization
- As environmental demands change, it is important that power shifts occur to allow the
appropriate functional units to cope with these demands
- Various components in the environment may provide both constraints and opportunities for
the organization (e.g. may experience customer dissatisfaction as well as exploiting new
technologies that give it an edge in costs or new product development)
Environmental Uncertainty
- Environmental uncertainty is a condition that exists when the external environment is
vague, difficult to diagnose, and unpredictable
- E.g. customers may come and go, suppliers may turn good or bad, and competitors may
make surprising decisions
- 8QFHUWDLQW\GHSHQGVRQWKHHQYLURQPHQW¶Vcomplexity (simple versus complex) and its rate
of change (static versus dynamic)
o Simple environment
Involves relatively few factors and these factors are similar to each other
E.g. pottery firm buys raw materials from 2 firms and sells to 3 firms
o Complex environment
Contains a large number of dissimilar factors that affect the organization
E.g. a university has a more complex environment than the pottery firm
o Static environment
Components of environment remain fairly stable over time
E.g. small-town radio station that plays the same music format, relies on the
same advertisers, and works under the same CRTC regulations year after year
o Dynamic environment
Components of a highly dynamic environment are in a constant state of
change (unpredictable, irregular and not cyclical)

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MGTB27 / 03 Week 13
E.g. firm that designs and manufactures computer chips are faced with
customer demands that are highly dynamic and new technological advances
- A simple/static environment should provoke the least uncertainty and a dynamic/complex
environment should provoke the most uncertainty
- A static/complex environment is somewhat more certain than a dynamic/simple
environment since change has more influence than complexity on uncertainty
- Since different parts of an organization are concerned with different aspects of the
environment, some subunits might be faced with more uncertainty than others (e.g. R&D
department may face more uncertainty than a HR department)
- With increasing uncertainty, there may be effects on organizations and their decision maker:
o Cause-and-effect relationships become less clear (confidence in decision making)
o Environmental uncertainties makes priorities harder to agree on (effectiveness)
- Uncertainty increases the difficulty of decision making and thus threatens organizational
Resource Dependence
- Resource dependence is the dependency of organizations on environmental inputs, such as
capital, raw materials, and human resources (careful managing is key to survival & success)
- Some organizations may be more dependent on their environments for resources than others
(e.g. a new small business is highly dependent on bank, credit suppliers, and customers)
- Historically the computer & software industries were located in very generous environment
(not resource dependent) where capital was readily available, human resources were trained
in relevant fields, and new uses for computers were continually being developed
- Resource dependent is fairly independent of environmental uncertainty (e.g. can have fairly
certain environment but remain highly resource-dependent and vice versa)
- Competitors, regulatory agencies, and various interest groups can have a considerable stake
in how an organization obtains and transforms its resources
- Organizations must develop strategies for managing both resource dependence and
environmental uncertainty
Strategic Responses to Uncertainty and Resource Dependence
- Strategy is the process by which top executives seek to cope with the constraints and
- The nature of the relationship between environment and strategy:
o Objective organizational environment is portrayed in terms of uncertainty and
available resources
o The impact that the environment has on an organization is filtered through the
perceptual system of managers and other organizational members (e.g. inexperienced
manager may perceive environment to be more complex and unstable)
The perceived environment is the basis for strategy formulation
o Strategy formulation involves determining the mission, goals, and objectives of the
organization (holding largest market share, developing new products)
o Chosen strategy must correspond to constraints & opportunities in the environment
o Implement strategy by selecting appropriate managers
Organizational Structure as a Strategic Response
- Lawrence and Lorsch from the Harvard University studied three industries ± plastics,
packaged food products, and paper containers
- Found that the plastics industry was very uncertain, paper containers are quite certain, and
the certainty for packaged food products fell between plastics industry and paper containers
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