The External Environment

Chapter

4
Organization Theory and Design
Twelfth Edition
Richard L. Daft

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 The Organization Environment
• All the elements that exist outside the
boundary of the organization
• Potential to affect all or part of the
organization
– Domain is the chosen environmental field of
action
– Sectors or subdivisions that contain similar
elements

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 An
Organization’s
Environment

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 The Task Environment
Sectors that the organization interacts with
directly to achieve goals
– Industry Sector
– Raw Materials Sector
– Market Sector
– Human Resources Sector
– International Sector

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 General Environment
• Sectors that indirectly impact a firm
– Government sector: regulation
– Natural sector: sustainability
– Sociocultural sector: working conditions
– Economic conditions: global recession
– Technology sector: massive and constant changes
– Financial resources: important to entrepreneurs

©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 International Environment
• Can directly affect many organizations
• Has grown in importance
• International events influence domestic
sectors of the environment
• All organizations face domestic and global
uncertainty

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 The Changing Environment
As the environment becomes more complex,
• Events become less stable
• Financial resources become less available
• The level of uncertainty increases

The environment influences organizations

– Need for information changes
– Need for resources changes

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 Elements of Uncertainty
• Uncertainty: lack of sufficient information
about environmental factors
• Complexity: number and dissimilarity of
external elements
• Dynamism: whether the organization
operates in a stable or unstable environment

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 Factors Causing Uncertainty

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 Dimensions of Environmental
Uncertainty
• Simple, stable environment: uncertainty is
low
• Complex, stable environment: greater
uncertainty
• Simple, unstable environment: even greater
uncertainty
• Complex, unstable environment: greatest
uncertainty
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 Framework for Assessing
Environmental Uncertainty

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Adapting to Complexity and Dynamism
• Organizations need the right fit between internal
structure and the external environment
– Adding Positions and Departments
– Building Relationships
• Boundary-spanning roles
• Business intelligence
– Differentiation and Integration
– Organic vs. Mechanistic Management Process
– Planning, Forecasting, and Responsiveness

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Organizational Departments Differentiate to
Meet Needs of Sub-environments

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Different Goals and Orientations among
Departments

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 Environmental Uncertainty and
Organizational Integrators

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 Mechanistic and Organic Forms
• Tasks are specialized • Employees contribute to the
common task of the
• Tasks are rigidly defined department
• Strict hierarchy of authority • Tasks are adjusted and
and control redefined through teamwork
• Knowledge and control of • Less hierarchy of authority
tasks are centralized and control
• Communication is vertical • Knowledge and control of
tasks are located anywhere in
the organization
• Communication is horizontal

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Contingency Framework for Uncertainty and
Organizational Responses

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 Dependence on Financial
Resources
Resource-dependence perspective means
organizations depend on the environment
– Strive to acquire control over resources to
minimize dependence
– Organizations are vulnerable if resources are
controlled by other organizations
– Minimize vulnerabilities
– Will team up with others when resources are
scarce

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 Influencing Financial Resources

• Balance linkages and independence

• Reach out and change or control elements in
the environment
- Establish favorable relationships with key
elements of the environment

- Shape the environment by influencing key

sectors
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Organizing Strategies for Controlling
the External Environment

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Environmental Characteristics and
Organizational Actions

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 Design Essentials
Dynamism and complexity have major
implications for organizations

Organizational environments differ regarding

uncertainty and resource dependence

The goal for organizations is managing

efficiencies and survival

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 Design Essentials
Managers must understand how the
environment influences the structure and
functioning of an organization

When risk is great, organizations can establish linkages

to maintain a supply of resources

Organizations can learn and adapt to the

environment and change and control the
environment
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