Chapter 2: The External Environment Flashcards
The Environmental Domain:
refers to everything outside of the organization
Organizational environment
all elements that exist outside the boundary of the organization and have the potential to affect all or part of the organization
Green environment
the natural environment
Domain
an organization’s chosen environmental field of activity
- Defines an organization’s niche, and defines the external sectors with which the organization will interact to accomplish its goals
Sectors
subdivisions of the external environment that contain similar elements
List of the sectors
- industry, raw materials, hr, financial resources, market, technology, economic conditions, governemnt, sociocultural, international
Industry sector
Competitors, industry size and competitiveness, related issues
Raw Materials Sector
Suppliers, manufacturers, real estate, services
Human Resources Sector
Labour market, employment agencies, universities, training schools, employees in other companies, unionization
Financial Resources Sector
Stock markets, banks, savings and loans, private investors
Market Sector
Customers, clients, potential users of products and services
Technology Sector
Techniques of production, advances in science, computers, info technology
Economic conditions Sector
Recession, unemployment rate, inflation rate, rate of investment, economics, growth
Government Sector
City, province, federal laws and regulations, taxes, services, court system, political processes
Sociocultural Sector
Age, values, beliefs, education, religion, work ethic, consumer and green movements
International Sector
Competition from and acquisition by foreign firms, entry into overseas markets, foreign customs, regulations, exchange rates
Task enviornment
- Or “core” environment, sectors that organizations deal with directly, have a direct impact on the org
- Includes: industry, raw materials, market sectors
General Environment
- Sectors that have an indirect impact on the organization
- Includes: government, sociocultural, technology, financial resources, and economy
Environmental Uncertainty
Environment influences organizations: (1) the need for information about the environment (2) the need for resources from the environment
Uncertainty
- occurs when decision makers do not have sufficient information about environmental factors and have a difficult time predicting external changes
- Organization should focus on task sector
- Environmental uncertainty is a function of (1) degree of complexity (2) degree of stability
Simple Complex - Dimension
- The number and dissimilarity of external elements relevant to an organization’s operation
- Organization interacts with and is influenced by numerous diverse and different external elements
Stable-Unstable Dimension
Whether elements in the environment are dynamic,
- rate of change or degree of predictability of change
Adapting to Uncertainty
- Differentiation and integration between departments
- Add positions and departments
- Buffering and boundary spanning roles
- Mechanistic vs. organic management (efficiency vs learning)
- Planning, forecasting, and responsiveness
Differentiation
the cognitive and emotional differences among managers in various functional departments of an organization, and formal structure differences among these departments
Integration
the quality of collaboration between departments of an organization
Add positions and departments
As the uncertainty in the external environment increases, the number of positions and departments increase, which increases internal complexity
Buffering roles
- activities that absorb uncertainty from the environment
Ex - stockpiling supplies and raw materials
Boundary-spanning roles
- Activities that link and coordinate an organization with key elements in the external environment
- Primarily concerned with the exchange of information to (1) detect and bring into the organization information about changes in the environment and (2) send information into the environment that presents the organization in a favourable light
Ex - BI
Mechanistic
- an organization system marked by rules, procedures, a clear hierarchy of authority, and centralized decision making
Organic
an organization system marked by free-flowing, adaptive processes, an unclear hierarchy of authority, and decentralized decision making
Planning, forecasting, and responsiveness
The goal of increasing internal integration and shifting to more organic processes is to enhance the organization’s ability to quickly respond to sudden changes in an uncertain environment
Resource Dependence
a situation in which organizations depend on the environment, so they:
- Strive to acquire control over resources to minimize their dependence
- Try to minimize vulnerabilities
- May team up with others when resources are scare (interorganizational linkages)
Address resource dependence through:
- Controlling resources
- Controlling Enviornment
Controlling resources
- ownership
- formal strategic alliance
- cooptaion, interlocking directorates
- executive recruitment
- advertising and PR
Ownership
- Buying part of or controlling interest in another company, gives the company access to technology, products or other resources it doesn’t currently have
- Increase ownership through M&A
Formal Strategic Alliance
High level of complementarity between the business liens, geographical positions, or skills of the two companies form a strategic alliance through contracts and joint ventures
Joint venture
result in the creation of a new organization that is formally independent of the parents, although the parents will have some control, organizations share the risk and cost associated with large products of innovations
- contracts and joint ventures, gives rights to use and asset/supplier arrangment
Cooptation
when leaders from important sectors in the environment are made part of an organization
Interlocking directorate
a formal linkage that occurs when a member of the board of directors of one company sits on the board of another company
Direct interlock
a situation that occurs when a member of the board of directors of one company sits on the board of another
Indirect interlock
a situation that occurs when a director of one company and a director of another are both directors of a third company
Executive Recruitment
Transferring or exchanging executives
Advertising and Public Relations
Advertising is important in highly competitive consumer industries and in industries that experience variable demand
- PR - case the org in a favourbale light
Controlling the environment
- change of domain
- political lobbying
- trade associations
- illegitimate acitivites
Change of Domain
The organization decides which business it is in; the market to enter; and the suppliers, banks, employees, and location to use - and this domain can be changed
Political Lobbying
Political strategy can be used to erect regulatory barriers against new competitors or to quash unfavourable legislation
Trade associations
Work to influence the external environment is accomplished ny jointly with other organizations that have similar interests
Illegitimate activities
Represent the final technique companies sometime use to control their environmental domain
- Certain conditions such as low profits, pressure from senior managers, or scarce environmental resources may lead managers to adopt behaviours not considered legitimate
