Impact of Environmental Changes on Modern Organizational Design and

Management Functions: A case Study of General Motors

Introduction:

Organizational adaptation to environmental change has long been an important research concern
for management scholars. In the absence of an appropriate response, changes in the contextual
forces surrounding organizations can cause a firm to lose an important customer segment, a cost
advantage in its operating process, and, if left unattended for too long, can even threaten the
firm’s survival. The concept of the “environment” in management has been approached from a
variety of perspectives. Andrews (1971) defines the environment of an organization as “the
patterns of all the external conditions and influences that affect its life and development” (p. 48)
and identified five environmental dimensions: technological, economic, physical, social, and
political.

But before that there is a need to get understanding about different environmental factors;
internal and external, which are explained below.

External Environment

The first factor to influence an organization’s design will be that of the external environment.
The external environment consists of everything outside of organizations that can affect their
performance and outcomes. Availability and need for raw materials, human resources, and
financial resources are elements of the environment. Further key elements include customers and
suppliers, competitors, cultural factors, and the types of regulatory frameworks or governmental
influences on the organization.

The greater the number of external forces, the greater the complexity of the external
environment. A pharmaceutical company operates in a very complex environment dealing with
many groups such as doctors, hospitals, pharmacists, external research establishments,
regulators, health insurance providers, labor markets, and many suppliers. In addition, a
pharmaceutical company would deal with these groups in many countries with varying local
economic conditions, health care arrangements, and regulatory regimes.

Environmental stability refers to how stable all of the environmental forces are over time. There
was a time when certain external forces were considered stable, such as governmental
regulations and laws, which could continue for many years, even with new political
administrations in place. However, the financial crisis of 2008 and political changes in the
United States have added volatility. The high-tech and software industries would be considered
unstable because of the relative ease for new software and technology companies to enter and
take over an existing market.

Internal Environment

The internal environment is influenced by the jobs and the employees as they relate to those jobs.
The employees’ influence on the internal environment is directly related to their level of
engagement, or job satisfaction. The job characteristics model, proposed by Richard Hackman
and Greg Oldham in 1980, proposes that the right combination of skill variety, task identity, task
significance, autonomy, and feedback can lead to high-quality performance, high internal
motivation, and high satisfaction.

Skill Variety: This is the degree to which the job requires a person to use multiple high-level
skills. A department store greeter whose job consists of greeting customers and giving them a
shopping cart demonstrates low levels of skill variety, whereas the employee who acts as a
cashier, stocks shelves, and manages the inventory of outdoor furniture demonstrates high skill
variety.
Task Identity: This is the degree to which a person is responsible for completing an identifiable
task from start to finish. A graphic designer who creates images for a website might have low
task identity. This is because the designer’s work is only part of a larger whole; other designers
and coders contribute their work to completing the website. However, a graphic designer who
creates a brochure for a client from the idea phase to the final proof will have a high task
identity.
Task Significance: This is the degree to which a person’s job affects customers or other
people’s work. A nurse handling the diverse needs patients in the intensive care unit may score
high on significance, whereas new nurses aiding in the same department may feel that they
perform only busy work and feel a low level of significance.
Autonomy: This is the degree to which a person can decide how to perform his or her tasks. For
instance, a grocery store clerk who is given a list of tasks to complete by the end of the day has
greater autonomy than a clerk who is given that same list and told that the list needs to be
completed in a particular order, with certain tasks needing to be done by certain times of the day.
Feedback: This is the degree to which people learn whether they are doing their job well.
Feedback may come from other people, such as managers, peers, subordinates, and customers, or
it may come from the job itself. For instance, a customer service representative might receive
feedback from a supervisor, as well as from the customers he or she has tried to help.

Taken all together, the job characteristics model links the task itself to employee motivation.
More specifically, a job that is challenging will improve employee motivation but a job that is
boring and repetitive will hamper employee motivation.  To make a job challenging, managers
can ensure the following:

 There are a variety of tasks for the employee to complete.

 The employee feels a sense of autonomy.

 The employee is empowered to make certain decisions.

Environmental Uncertainty

Organizations are open systems and have to interact with the environment. To survive,
organizations must make sound judgment of their surroundings and avoid costly errors. While
there are multiple characteristics of the environment, one fundamental dimension that can affect
how organizations respond has always been the degree of uncertainty. An environment of low
uncertainty exhibits stable conditions such as less variable customer demands, fewer radical
technological innovations, and less rivalries among competitors, which puts less pressure on
organizations information processing capability. On the other hand, an environment of high
uncertainty features diverse and unstable condition such as variable customer demands, radical
technological innovations, and fierce rivalries among competitors, and is thus more
unpredictable. High environmental uncertainty thus places more pressure on the organization to
respond effectively. Researchers in organization studies have indeed overwhelmingly
acknowledged the importance of environmental uncertainty. Scholars in the field of population
ecology, in particular, have even argued that environmental forces can ultimately determine an
organizations survival. Given this perspective and the importance of uncertainty to
organizational performance, we may derive the following proposition.

Environmental factors and Organizational Design

While there is the grave concern of the impact of environmental uncertainty on organizational
decision making, research in organization science has also been exploring how organizations can
actively design themselves to fend off such external threats. The need for a fit among a firm’s
strategy, structure, and its operating environment has been extensively discussed by management
and strategy scholars at least since Chandler’s Strategy and Structure (1962). Building on this
literature, this article analyzes from an agency-theoretic perspective the effects of a firm’s
operating environment on its optimal choice of organizational structure, as captured by the
allocation of decisions rights (governance structure), the compensation structure of its managers,
and the underlying configuration of its productive assets, which I will refer to as the level of
operational integration. The model itself is motivated by the large management literature that
views the central challenge of organizational design to be the dual goal of achieving coordination
among the interdependent tasks of the organization while maintaining its capacity to adapt to its
changing environment.

The organization I consider consists of two divisions, headed by self-interested division

managers, and a profit-maximizing headquarters. The profitability of the two divisions depends
on both how well their actions are adapted to their local conditions and how well they are
coordinated with each other. To solve this problem of coordinated adaptation, the division
managers first acquire information about their local conditions, then communicate that
information (strategically) to the decision maker(s), who finally choose how the divisions will
respond, given the information available to them. The organizational design problem is then to
choose the governance and compensation structures, together with the level of operational
integration, to maximize the expected organizational performance given the operating
environment of the firm, which in this case is captured by the two parameters of volatility
(amount of uncertainty over future local conditions) and predictability (how costly it is to acquire
information about the local conditions).

Environmental factors and Management Function

Organization environment influenced by the political environment, technological environment,

and social environment. “All factors, including institutions, groups, individuals, events and so
on, that are outside the organization being analyzed, but have a potential impact on that
organization. These factors are influencing the organization to draw attention towards a change
in one or more elements. It leads to the consequent changes in an organization. By vast changes
in the technology, the organization are triggered to change in there structure.

Practice has shown that managers in many cases fail to anticipate or adequately respond to
change for a number of reasons. It happens that, managers simply do not notice change in their
business environments. As a result, they are blinded by the changes that have occurred quite
unexpectedly. Certain research has also shown that managers can be aware of changes in their
industries, but they may fail to interpret these changes correctly. They often underestimate the
importance of these changes, and they may wait too long to respond, or may not respond at all.
Research has also shown that those managers that correctly notice changes can even correctly
interpret the possible impact of these industry changes, but they might still fail to adopt an
appropriate course of action.