Organization Environment &

Strategys Influence on Design

Prof. Vishal Gupta
Chaos was the law of nature;
Order was the dream of man
- Henry Adams
Orgs. as Open Systems
Organizations are goal-oriented entity of differentiated components
(Session 1)
Designed as deliberately structured and coordinated activity systems
(Sessions 3, 4, 5, 6, 7, 8, 9, 10, 11, 13, 14, 16)
Components interact within a structure and are interdependent
Issues of structure, power, culture
System takes inputs from the environments and gives outputs to
it (Session 2, 13, 14, 15)
Linked to external environment and interacts with it
Feedback from output to change or correct its operation
Structure is separated from its environment by a boundary
(Session 2, 13, 14, 15)
System grows, differentiates, matures and dies (Session 12)
Lecture 1 2
Session 2 3
Interacting Structural Dimensions of
Design and Contingency Factors
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
Session 2 4
Organizational
Environment
Session 2 5
Types
Task Environment: Sectors that the organization interacts with directly
to achieve goals.
E.g., Industry and market sectors, Human Resources, International Sector, Raw
Materials Sector
General Environment: Sectors that might not have a direct impact on
the daily operations of a firm.
E.g., Government sector (regulation), Sociocultural sector (the green movement),
Economic conditions (global recession), Technology sector (massive and constant
changes), Financial resources (Extremely important to entrepreneurs)
International Environment: Distinction between foreign and domestic
operations. All organizations face domestic and global uncertainty
Session 2 6
Dimensions of the
Environment
Simple-complex: heterogeneity; the
number of dissimilarity of external
elements
Stable-Unstable: whether elements in
the environment are dynamic
Session 2 7
Framework for Assessing
Environmental Uncertainty
Session 2 8
Strategy
A strategy is a plan for interacting with the competitive
environment
Specific pattern of decisions and actions that managers
take to use core competences to achieve a competitive
advantage and outperform competitors
Core competences: the skills and abilities in value
creation activities that allow a company to achieve superior
efficiency, quality, innovation, or customer responsiveness
Session 2 9
Business Level Strategy
Prospector
Values creativity, risk-taking, and innovation; Exploit new opportunities
E.g., Apple (iTunes), Samsung (Smartphones)
Analyzer
Fast followers; Emphasis on creativity, research, risk-taking for innovation
E.g., Sony (smartphones), Apple (iPod)
Low Cost Defenders
Emphasis on production efficiency, low overhead
E.g., Nokia (feature phones)
Differentiated Defenders
Direct products to stable segments of market; emphasis on providing
outstanding service and high quality
E.g., Samsung (smartphones), Apple (iPhone)
Session 2 10
Strategy and Structure
Prospector: Learning orientation; flexible, fluid, decentralized
structure
Analyzer: Balance efficiency and learning; tight cost control with
flexibility and adaptability
Low Cost Defender: Efficiency orientation; centralized authority and
tight cost control
Differentiated Defender: Efficiency orientation; centralized authority
and tight cost control
May also be loosely knit, flexible, strong horizontal coordination
Depends on the context
Session 2 11
Impact of Environment and
Strategy on Design of
Organizations
Adapting to a Changing Environment
through Differentiation
Session 2 13
Adapting to a Changing
Environment
Integration: Organizations need the right fit between
internal structure and the external environment
Adding Positions and Departments
Buffering roles
Building Relationships
Boundary-spanning roles
Business intelligence
Differentiation and Integration
Organic vs. Mechanistic Management Process
Planning, Forecasting, and Responsiveness
Session 2 14
Differentiation and Integration
(Lawrence and Lorsch)
Session 2 15
Session 2 16
Mechanistic and Organic Forms
(Burns and Stalker)
Tasks are specialized
Tasks are rigidly defined
Strict hierarchy of
authority and control
Knowledge and control of
tasks are centralized
Communication is vertical
Employees contribute to the
common task of the
department
Tasks are adjusted and
redefined through teamwork
Less hierarchy of authority
and control
Knowledge and control of
tasks are located anywhere in
the organization
Communication is horizontal
Task and Role Relationships
Session 2 17
Session 2 18
Dependence on External
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
Session 2 19
Influencing External Resources
Balance linkages and independence
Reach out and change or control elements in the env.
Session 2 20
Environmental Characteristics and
Organizational Actions
Session 2 21
Business Level Strategy and
Structure
Session 2
22
People Express
Session 2 23
Q. How did environment influence PE?
People Express (Analysis)

Period: 1981- 84
Stakeholders:

Goals(SixPrecepts):
Lowcostairtravelservice
Wonderfulworkplace
Makingprofits
Amodelintheindustry

Analysis:
Environment Strategy
Organization
archetype
Performance(1982
19831984)
Persisting
Problems
NoMajorcarrier/
Competition
MarketUntapped
GovernmentStable
Rawmaterialeasily
available

Prospector
Initiator(better
service/product)
Lowcost
defender

CustomerCentric
CostController
Effectiveness(Ex.3,4):
Cities162033
204066aircrafts
NetIncome1,002
10,4341,648
WC:
(989)36,563(33,885)

Efficiency(Exhibit3):
LF60.774.669.8%
ASM.054.056.054
RSM.089.078.076
Workload

Crossutilization

Peopledistress
Overselling
PoorService

Lowtechnology

Customer
Employee
Society
Government
Investor
P.E
Structure:

Fluid,Lowformalization.
Autonomy,Lowcentralization
LessHierarchy
Functionaltype(Ex.2)
Moderatespecialization
Crossutilization

In1982:Onemorehierarchybecauseofgrowingsize(toreducespanofcontrol)

DonBurr+7managingofficers
8GeneralManagers
FlightManager
CustomerService
Manager
Maintenance
manager
8GeneralManagers
FlightManager
CustomerService
Manager
Maintenance
manager
TeamManagers TeamManagers
DonBurr+7managingofficers
Period 1985-1986:
Goals:
Survival
Growth
Resourceindependence
Analysis:
Environment Strategy Structure
Performance(1985
1986)
Complex,Unstable

Direct
competition
withmajor
carriers
Market
stabilizing
Gates(raw
material)not
easilyavailable

Analyzerfollowslarger
airlines(e.g.,yield
management,
conveniencesetc.)

Differentiateddefender
Differentiatesitselfbased
onserviceand
conveniences(e.g.,
frequentflyers,firstclass,
VIPandlounges).

Acquisitionofotherairlines
toobtainresource
independence
(establishmentoffavorable
relationships:ownershipof
routes,gates,customers)
tocontrolthe
environmentaldomainand
compete
Sizeincreaseanditleadsto
increaseinhierarchy.

Increaseindifferentiation
tomanagethecomplex
environmentandsize
(refertoExhibit5).

Increasedintegrationalong
withincreased
differentiation

Effectiveness:
Netincome:(27,537)
(245,360)
WC:(83,067)(141,333)

Efficiency:
LF:61.1%,58.6%
ASM:.053.053
RSM:.085.077