Organizational Environment

Organizational environment: set of

forces surrounding an organization
May affect its operation and access to
scarce resources

Organizational domain: the range

of goods and services that the organization
produces, and the customers and other
stakeholders whom it serves
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The Organizational Environment
International Forces

Demographic / Cultural Forces Political Forces

Customers Distributors

Suppliers Organization Unions

Government Competitors

Environmental Forces Technological Forces

Economic Forces

General Forces Specific Forces 2

Two Women Boxing

Environment
Initially
Now
Domain
Initially
Now
What aspects of their environment require
adaptation within their organization?
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Sources of Environmental Uncertainty

complexity, dynamism, and richness

As the environment becomes more

complex, less stable, and poorer, the
level of uncertainty increases.

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Organization Theory

Contingency theory: to manage its

environment effectively, an organization
should design its structure to fit its
environment.

Fit with environment determines success.

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Dealing with Uncertainty

When the environment is unstable and

uncertain, organizations are more effective if
their structures are:

Less formalized

More decentralized

More reliant on mutual adjustment

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Ideal Relationship Between Environmental
Uncertainty and Organizational Structure

Low Environmental Uncertainty High

Mechanistic Structure Organic Structure

Low differentiation Complex structure

Low integration High differentiation

Centralized decision making High integration

Standardization Decentralized decision making

Mutual adjustment
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Resource Dependence Theory

The goal of an organization is to:

Minimize its dependence on others for

scarce, critical, nonsubstitutable resources

Influence others to provide resources

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Dilbert on Resource Dependence

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FIGURE 6.6

Interorganizational Strategies
for Managing Symbiotic Interdependencies

Informal Formal

Reputation Co-optation Strategic Merger and

alliances takeover

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FIGURE 6.10

Interorganizational Strategies
for Managing Competitive Interdependencies

Informal Formal

Collusion Third-party Strategic Merger

and cartels linkage alliances and
mechanisms takeover

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Transaction Cost Theory

Transaction costs: the costs of negotiating,

monitoring, and governing exchanges
between people

Transaction costs are low when:

Exchanges are nonspecific
Uncertainty is low

There are many possible exchange partners

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Transaction Cost Theory

Organizations adopt increasingly formal

linkage mechanisms with their exchange
partners as transaction costs increase.

These mechanisms also carry

bureaucratic costs within the organization.

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A Few Good Men

Describe the environment for American

military organizations.
What is their purpose?
List their resource dependencies.

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