The External Environment

The External Environment PowerPoint PPT Presentation


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Business 5301. The Environmental Domain. Organisation environment ? as all elements that exist outside the boundary of the organization and have the potential to affect all or part of the organizationThe environment of an organization can be understood by analyzing its domain within external secto

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The External Environment

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1. The External Environment The External Environment Environmental Uncertainty Adapting to Environmental Uncertainty Framework for Organization Response to Uncertainty Resource Dependence Controlling Environmental Resources

2. Business 5301 The Environmental Domain Organisation environment – as all elements that exist outside the boundary of the organization and have the potential to affect all or part of the organization The environment of an organization can be understood by analyzing its domain within external sector. Domain – is the chosen environmental field of action – defines the organization's niche and defines those external sector with which the organization will interact to accomplish its goals. Sectors – the environment comprises several sectors or subdivisions of the external environment that contain similar elements.

3. Business 5301 An Organization’s Environment

4. Business 5301 The Ten Sectors of an Organisation’s Environment Industry Sector – competitors, industry size and competitiveness, related industries Raw Materials Sector – suppliers, manufacturers, real estate services Human Resources Sector – labour market, employment agencies, universities, training schools, employees in other companies, unionisation Financial Resources Sector – stock markets, banks, saving and loans, private investors Market Sectors – customers, clients, potential users of products and services Technology Sectors – techniques of production, science, computers, information technology, e-commerce

5. Business 5301 The Ten Sectors of an Organisation’s Environment Economic Conditions – recession, unemployment rate, inflation rate, rate of investment, economics, growth Government – city, state, federal laws and regulations, taxes, services, court system, political processes Socio-cultural 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 customers, regulations, exchange rate Domestic sectors can be affected by international events The impact of the international sector has grown rapidly with advances in technology and communication The distinction between domestic and foreign companies have become increasingly irrelevant as advances in transportation and e-business have reduced the impact of distance and time, as well as the differences among political and monetary systems, tastes and standards Competitiveness has reached a new level, as companies are competing on a broader scale than ever before – it also gives companies expand beyond the domestic marketsDomestic sectors can be affected by international events The impact of the international sector has grown rapidly with advances in technology and communication The distinction between domestic and foreign companies have become increasingly irrelevant as advances in transportation and e-business have reduced the impact of distance and time, as well as the differences among political and monetary systems, tastes and standards Competitiveness has reached a new level, as companies are competing on a broader scale than ever before – it also gives companies expand beyond the domestic markets

6. Business 5301 General Environment General environment – includes those sectors that may not have a direct impact on the daily operations of a firm but will indirectly influence it. The general environment often includes the government, sociocultural, economic conditions, technology and financial resources sectors.

7. Business 5301 Organizational Departments Differentiate to Meet Needs of Sub-environments

8. Business 5301 Environmental Uncertainty The patterns and events occurring across environmental sectors can be described among several dimensions. Such as: Stable vs. unstable Homogeneous vs. Heterogeneous Concentrated vs. Dispersed Simple vs. Complex Turbulence vs. Non-Turbulent Resources available vs. Non-Resource Available

9. Business 5301 Environmental Uncertainty Two essential ways the environment influences organisations: The need for information about the environment and The need for resources from the environment The organisation also is concerned with scarce material and financial resources with the need to ensure availability of resources Each sector can be analysed relative to these three analytical categories Organisations must cope with and manage uncertainty to be effective Uncertainty – means that decision makers do not sufficient information about environmental factors, and they have a difficult time predicting external changes Uncertainty increases the risk of failure for organisational responses and makes it difficult to compute costs and probabilities associated with decision alternatives Organisations must cope with and manage uncertainty to be effective Uncertainty – means that decision makers do not sufficient information about environmental factors, and they have a difficult time predicting external changes Uncertainty increases the risk of failure for organisational responses and makes it difficult to compute costs and probabilities associated with decision alternatives

10. Business 5301 Simple-Complex Dimension Simple-complex dimension – concerns environmental complexity which refers to heterogeneity, or the number and dissimilarity of external elements relevant to an organisation’s operations. Complex environment – many diverse external elements interact with and influence the organisation Simple environment – as few as three or four similar external elements influence the organisation

11. Business 5301 Stable-unstable dimension Stable-unstable dimension – refers to whether elements in the environment are dynamic. Stability – domain is stable for a period of months Unstable – abrupt shifts – for example, competitors react with aggressive moves and countermoves regarding advertising and new products Some organisations, by the nature of the type of business and industry they are in, are stable – others are not

12. Business 5301 Framework for Assessing Environmental Uncertainty See Framework for Assessing Environmental Uncertainty Environmental uncertainty represents an important contingency for organisation structures and internal behaviours An organisation in a certain environment will be managed and controlled differently from an organisation in an uncertain environment with respect to positions and departments, organisational differentiation and integration, control processes and future planning and forecasting Organisations needs to have the right fit between internal structure and the external environment Environmental uncertainty represents an important contingency for organisation structures and internal behaviours An organisation in a certain environment will be managed and controlled differently from an organisation in an uncertain environment with respect to positions and departments, organisational differentiation and integration, control processes and future planning and forecasting Organisations needs to have the right fit between internal structure and the external environment

13. Business 5301 Adapting to Environmental Uncertainty Positions and Departments As the complexity in the external environment increases, so does the number of positions and departments within the organisation, which in turn increases internal complexity Buffering and Boundary Spanning The traditional approach to coping with environmental uncertainty was to establish buffer departments. The buffer role is to absorb uncertainty from the environment. Example would be the purchasing department and the human resource department.

14. Business 5301 Adapting to Environmental Uncertainty Boundary-spanning roles – link and co-ordinate an organisation with key elements in the external environment. Boundary spanning is primarily concerned with the exchange of information to: (1) Detect and bring into the organisation about changes in the environment and (2) Send information into the environment that presents the organisation in a favourable light Organisations have to keep in touch with what is going on in the environment so that managers can respond to market changes and other developments Boundary Spanning Roles Competitive intelligence Sending information into the environment to represent the organisation is used to influence other people’s perception of the organisation includes: Marketing PR Purchasing Legal Boundary Spanning Roles Competitive intelligence Sending information into the environment to represent the organisation is used to influence other people’s perception of the organisation includes: Marketing PR Purchasing Legal

15. Business 5301 Differentiation and Integration A response to environmental uncertainty is the amount of differentiation and integration among departments Differentiation – is the differences in cognitive and emotional orientations among managers in different functional departments and the difference in formal structure among these departments Differentiation means that co-ordination between departments is quite difficult Integration – is the quality of collaboration among departments. Formal integrators are often required to co-ordinate departments – these include project managers, brand managers and co-ordinators

16. Business 5301 Differences in Goals and Orientations Among Organisational Departments

17. Business 5301 Organic vs. Mechanistic Management Processes Another response to environmental uncertainty is the amount of formal structure and control imposed on employees Mechanistic – when the external environment was stable, the internal organisation was characterised by rules, procedures, and a clear hierarchy of authority. Organisations were formalised, centralised and decisions made at the top Organic – rapidly changing environment – rules and regulations not written down, or if written down were ignored. People had to find their own way through the system to find out what to do. Decision making was decentralised Organisation response to uncertainty is to increase planning and environmental forecasting When the environment is stable, the organisation can concentrate on current operational problems and day-to-day efficiency. Long-range planning and forecasting are not needed because environmental demands in the future will be the same as they are today Planning can often soften the adverse impact of external shiftingOrganisation response to uncertainty is to increase planning and environmental forecasting When the environment is stable, the organisation can concentrate on current operational problems and day-to-day efficiency. Long-range planning and forecasting are not needed because environmental demands in the future will be the same as they are today Planning can often soften the adverse impact of external shifting

18. Business 5301 Mechanistic and Organic Forms Mechanistic Tasks are broken down into specialised separate tasks Tasks are rigidly defined There is a strict hierarchy of authority and control, and there are many rules Knowledge and control of tasks are centralised at the top of the organisation Communication is vertical Organic Employees contribute to the common tasks of the department Tasks are adjusted and redefined through employee teamwork There is less hierarchy of authority and control, and there are few rules Knowledge and control of tasks are located anywhere in the organisation Communication is horizontal

19. Business 5301 Contingency Framework for Environmental Uncertainty and Organizational Responses

20. Business 5301 Controlling Environmental Resources Two strategies can be adopted to manage resources in the external environment: Establish favourable linkages with key elements in the environment Shape the environmental domain When organisations believe that valued resources are scarce, they will use the above strategies rather than go in along Note that strategies for controlling resources is different that controlling resources

21. Business 5301 Organising Strategies for Controlling the External Environment Establishing Inter-organisational Linkages Ownership Contracts, joint ventures Co-optation, interlocking directories Executive recruitment Advertising public relations Controlling the Environmental Domain Change of domain Political activity, regulation Trade association Illegitimate activities

22. Business 5301 Establishing Interorganisational Linkages Ownership – through acquisition or merger Formal strategic alliances – including supplier arrangements, license agreements and joint ventures Co-optation, Interlocking Directorates Executive recruitment Advertising and public relationships

23. Business 5301 Controlling the Environmental Domain Change of domain – changing the sectors Trade associations Illegitimate activities Political activity, regulation

24. Business 5301 Relationship Between Environmental Characteristics and Organizational Actions

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