External Environment

External Environment Techno MBA 과정 조안기 Purpose of This Chapter  Identify the organizational domain  Identify the sectors that influence the organization  Explorer two major environmental forces on the organization   The need for information The need for resources Environmental Domain  Organizational environment   All elements that exist outside the boundary of the organization All elements have the potential to affect all or part of the organization Organization’s Environment (a) Industry Sector (i) International Sector DOMAIN (b) Raw Materials Sector (h) Sociocultural Sector (c) Human Resource Sector (h) Government Sector (d) Financial Resource Sector ORGANIZATION (g) Economic Condition Sector (f) Technology Sector (e) Market Sector Task Environment  The task environment includes sectors with which the organization interacts directly and that have a direct impact on the organization’s ability to achieve its goals      (a) Industry sector  Competitors, industry size and competitiveness, related industries (b) Raw materials sector  Suppliers, manufacturers, real estate, services (e) Market sector  Customers, clients, potential users of products and services (c) Human resources sector  Labor market, employment agencies, universities, training schools, empolyees (j) International sector  Competition from and acquisition by foreign firms, entry into overseas markets, foreign customers, regulations General Environment  The general environment includes those sectors that might not have a direct impact on the daily operations of a firm but will indirectly influence it      (h) Government sector  City, state, federal laws and regulations, taxes, services, court system, political processes (i) Sociocultural sector  Age, values, beliefs, education, religion, work ethic, consumer and green movements (g) Economic conditions sector  Recession, unemployment rate, inflation rate, rate of investment, economics, growth (f) Technology sector  Techniques of production, science, computers, information technology, e-commerce (d) Financial resource sector  Stock markets, banks, savings and loans, private investors International Context The international sector can directly affect many organizations  The distinctions between foreign and domestic operations have become in creasingly irrelevant  The growing importance of the international sector means that the environment for all organizations is becoming extremely complex and extremely competitive  Environmental Uncertainty How does the environment influence an organization?  The patterns and events occurring in the environment can be described along several dimensions, such as whether the environment is stable or unstable, homogeneous or heterogeneous, simple or complex  These dimensions boil down to two essential ways the environment influences organizations  (1) the need for information about the environment    The environmental conditions of complexity and chage create a greater need to gather information and to respond based on that information (2) the need for resources from the environment  The organization also is concerned with scarce material and financial resources and with the need to ensure availability of resources Planning, Forecasting, and Responsiveness      It might seem that in an environment where everything is changing all the time, planning is useless However, in uncertain environments, planning and environmental forecasting actually become more important as way to keep the organization geared for a coordinated, speedy response When the environment is stable, Long-range planning and forecasting are not needed With increasing environmental uncertainty, planning and forecasting become necessary Planning, however, cannot substitute for other actions, such as effective boundary spanning and adequate internal integration and coordination Framework for Organizational Responses to Uncertainty Low Uncertainty Low-Moderate Uncertainty Mechanistic structure : formal, centralized Mechanistic structure : formal, centralized Stable Many departments, some boundary spanning Few departments No integrating roles Few integrating roles Current operations orientation; low-speed response e nc rt y High-Moderate Uncertainty nt Unstable U ENVIRONMENTAL CHANGE Some planning; moderate-speed response High Uncertainty Organic structure, teamwork : participative, decentralized Organic structure, teamwork : participative, decentralized Few departments, much boundary spanning Many departments differentiated, extensive boundary spanning Few integration roles Many integration roles Planning orientation; fast response Extensive planning, forecasting; high-speed response Simple Complex ENVIRONMENTAL COMPLEXITY Resource Dependence    Resource dependence means that organizations depend on the environment but strive to acquire control over resources to minimize their dependence Organizations seek to reduce vulnerability with respect to resources by developing links with other organizations, but they also like to maximize their own autonomy and independence Interorganizational relationships thus represent a tradeoff between resources and autonomy Controlling Environmental Resources  In response to the need for resources, organizations try to maintain a balance between linkages with other organizations and their own independence  Two strategies can be adopted to manage resources in the external environment   (1) establish favorable linkages with key elements in the environment (2) shape the environmental domain Establishing Interorganizational Linkages  Ownership    A greater degree of ownership and control is obtained through acquisition or merger An acquisition involves the purchase of one organization by another so that the buyer assumes control A merger is the unification of two or more organizations into a single unit  Formal Strategic Alliance      The firms often go the route of a strategic alliance rather than ownership through merger or acquisition Such alliances are formed through contracts and joint ventures Contracts and joint ventures reduce uncertainty through a legal and binding relationship with another firm Contracts come in the form of license agreements and supplier arrangements Joint ventures result in the creation of a new organization that is formally independent of the parents, although the parents will have some control  Cooptation, Interlocking Directorates   Cooptation occurs when ldeaders from important sectors in the environment are made part of organization Interlocking directorates is formal linkage that occurs when a member of the directors of on e company sits on the board of directors of another company  Direct interlocking - When one individual is the link between two companies  Indirect interlocking – When a director of company A and a director of company B are both directors of company C  Executive Recruitment   Transferring or exchanging executives also offers a method of establishing favorable linkages with external organizations Having channels of influence and communication between organizations to reduce financial uncertainty and dependence for an organization  Advertising and Public Relations    A traditional way of establishing favorable relationships is through advertising Advertising is especially important in highly competitive consumer industries and in industries that experience variable demand Public relations is similar to advertising, except that stories often are free and aimed at public opinion Controlling the Environmental Domain  Change of Domain   Acquisition and divestment are two techniques for altering the domain Political Activity, Regulation   Political activity includes techniques to influence government legislation and regulation Political activity is so important that “informal lobbyist” is an unwritten part of almost any CEO’s job description  Trade Associations   Much of the work to influence the external environment is accomplished jointly with other organizations that have similar interests Illegitimate Activities  Illegitimate activities represent the final technique companies sometimes use to control their environmental domain Organization-Environment Integrative Framework Environment Organization High complexity High uncertainty Organic structure and systems with low formalization, decentralization, and low standardization to enable a high speed response High rate of change Environmental domain (ten sectors) Scarcity of valued resources Many departments and boundary roles Greater differentiation and more integrators for internal coordination Resource dependence Establishment of favorable linkages : ownership, strategic alliances, cooptations, interlocking directorates, executive recruitment, advertising, and public relations Control of the environmental domain : change of domain, political activity, regulation, trade associations, and illegitimate activities Summary and Interpretation The concept in this chapter provide specific frameworks for understanding how the environment influences the structure and functioning of an organization  Two important themes in this chapter are that organizations can learn and adapt to the environment and that organizations can change and control the environment  These strategies are especially true for large organizations that command many resources  Such organizations can adapt when necessary but can also neutralize or change problematic area in the environment  Key Concepts           boundary-spanning roles buffering roles business intelligence cooptation differentiation direct interlock domain general environment indirect interlock integration           interlocking directorate mechanistic organic organizational environment resource dependence sectors simple-complex dimension stable-unstable dimension task environment uncertainty Thank you