8.

ENVIRONMENT

1. What is environment?

Environment is everything outside an organisation’s boundaries.

Organisations interact with their environment and they must adapt to their environment if
they want to maintain or increase their effectiveness.
Open-system organisations develop, monitor and have feedback mechanisms in place to
identify and follow their environments, sense changes in environments, and make
necessary changes.
All organisations face some level of uncertainty and managers try to eradicate or
minimise the impact of such uncertainties on their organisation.

2. Differentiate between general and specific environment

General environment of an organisation encompasses all the conditions that may have
an impact on the organisation, but their relevance is not overtly clear. These include:
economic factors, political conditions, the ecology, social factors, legal structure, and
cultural conditions. The general environment is assessed on the basis of the PESTEL
analysis. Too much emphasis on the specific environment rather than the general
environment leads to the failure of the organisation in the long run.

Specific environment of an organisation includes all the factors that directly influence
functioning and the success of the organisation. It consists of the critical constituencies
that can positively or negatively influence the organisation’s effectiveness. These
constituencies include clients or customers, input suppliers, competitors, government
regulatory bodies, labour unions, trade associations, and public pressure groups, etc.
the organisation’s specific environment varies depending on the domain/ niche market
that the organisation belongs to. A change in the domain will lead to a change in the
specific environment of an organisation.

3. Key dimensions of environmental uncertainty

Environments of various organisations differ by what we call environmental uncertainty.

Some organisations face relatively static environments- that is fewer forces in their
specific environment are changing.
● No new competitors
● No new technological breakthroughs by current competitors
● Little activity by public pressure groups to influence the organisations, etc

Other organisations face very dynamic environments-

● Rapidly changing government regulations affecting their business
● New competitors
 ● Difficulties in acquiring raw materials
● Continually changing product preference by customers, etc

State environments create significantly less uncertainty for managers than dynamic
ones do. Uncertainties are a threat to an organisation’s effectiveness and hence, the
management will try to reduce them. This can be accomplished through manipulation of
the organisation’s structure.

4. Contributions of Burns and Stalker, Emery and Trist, Lawrence and Lorsch

Major environment changes in India:

1. Technological
2. Social
3. Economic
4. Political

Burns and Stalker:

● Tom Burns and GM Stalker
● Studied 20 English and Scottish industrial firms to determine how their
organisational structure and managerial practice might differ based on different
environmental conditions
● Evaluated firms’ environmental conditions in terms of the rate of change in their
scientific technology and their relevant product markets
● Findings- type of structure that existed in rapidly changing and dynamic
environments significantly different from that in organisations with stable
environments.
● They labelled the two structures as- organic and mechanistic. (refer to 6)
● Conclusion: the most effective structure is one that adjusts to the requirements of
the environment. Both organic and mechanistic forms are ideal types defining two
ends of a continuum.
● No organisation is purely mechanistic or purely organic but moves toward one or
the other.
● The nature of the organisation’s environment determines which structure is
superior.

Emery and Trist: Four environment model

● Offered a model that identified four kinds of environments that an organisation
might confront:
1. Placid-randomized
2. Placid clustered
3. Disturbed-reactive
4. Turbulent field
● The first two environments will be responded to with more mechanistic structures
whereas the dynamic environments will require an organic structure.
● The less routine the technology, the greater the uncertainty, the less effective the
mechanistic qualities and the more important it is to use flexible structural forms.
● PLACID RANDOMISED ENVIRONMENT-
● Relatively unchanging environment
● Least threat to an organisation
● Changes take place slowly over time
● However, changes are not predictable
● Similar to the perfect competition environment where nothing that the
organisation does affects the market.
● Uncertainty is low
● Slow and random change, so managerial decision making doesn’t impact
the environment. No single client can have a significant impact on the
agency’s operation.
● Examples: government employees
● PLACID-CLUSTERED ENVIRONMENT-
○ Threats to the organisation are clustered rather than random
○ Forces in the environment are linked to one another
○ Example: input suppliers or output distributors may join forces to form a
powerful coalition
○ It is important for organisations to know their environment than when
threats were random
○ Organisations in this environment are motivated to engage in long-range
planning, and their structures will tend to be centralised.
● DISTURBED-REACTIVE ENVIRONMENT-
○ More complex than the previous two
○ There are many competitors seeking similar ends
○ One or more organisations may be large enough to exert influence over
their own environment and over other organisations
○ Two or three large companies in an industry can dominate
○ Organisations facing this environment develop planned series of tactical
initiatives, calculate reactions by others and evolve counter-actions.
○ Competition requires flexibility to survive
○ Organisation structure is usually inclined towards decentralisation
● TURBULENT-FIELD ENVIRONMENT-
○ Most dynamic and has the highest uncertainty
○ Change is ever present, elements in the environment are increasingly
interrelated
○ Elements shift together and create a compounded effect on the
organisation
○ Change is dramatic and cannot be predicted
○ Hence, management’s efforts to anticipate it through planning will have
little positive value.
○ Organisation may be required to develop new products or services on a
continuing basis to survive
 ○ Needs to continually reevaluate its relationship to government agencies,
customers, suppliers, etc.

Lawrence and Lorsch-

● Paul Lawrence and Jay Lorsch
● Explored the relationship between environmental differences and effective
organisational structures
● Conducted studies on three different industries- plastics, food, containers
● Sought to match up the internal environments of the firms with their respective
external environments
● Measured the degree of uncertainty through the external environment by looking
at- rate of change of environment over time, the clarity of information that
management held about the environment and the length of time it took for the
management to get feedback from the environment on actions taken by the
organisation
● For internal environment, they considered differentiation and integration
● Unique point: they did not assume that the organisation or the environment had
to be uniform and singular. Instead, they perceived that parts of the organisation
deal with parts of the environment.
● Differentiation:
○ Managers in different depts hold different attitudes and behave differently
in terms of their goal perspective, time frame and interpersonal orientation
○ Hence, members in each dept might often have disagreements on
integrated plans of action
○ This makes degree of differentiation a measure of complexity and
indicates greater complications and more rapid changes
○ Differentiating into depts or subsytems was to deal more effectively with
subenvironments
○ The more turbulent, complex and diverse the external environment, the
greater the degree of differentiation is among its parts. This would also
bring in the need for an elaborate internal integration mechanism to avoid
units going separate ways.
● Integration:
○ It is the quality of collaboration that exists among interdependent units or
depts that are required to achieve unity of effort
○ Common integration devices are- rules and procedures, formal plans, the
authority hierarchy and decision-making committees
○ Need for increased integration in order to accommodate increases in
differentiation of goals among the dept managers
○ The most successful firms have a higher degree of integration than their
low-performing counterparts
 Successful organisation subunits meet the demands of their sub-environments.
Differentiation and integration represent two opposing forces and the key is to match
them both.
Differentiation between depts helps deal with specific problems and tasks within the
organisation while integration ensures that people come together and work as a
cohesive unit towards achieving the organisational goals. The environment in which an
organisation functions is important in terms of selecting the most appropriate structure
for achieving organisational effectiveness.

5. Mechanistic vs organic structures

MECHANISTIC STRUCTURE:
● Characteristics- high complexity, formalisation, centralisation
● Performed routine tasks, relied heavily on programmed behaviours, relatively
slow with the unfamiliar

ORGANIC STRUCTURE:
● Characteristics- relatively flexible and adaptive, emphasis on lateral rather than
on vertical communication, influence based on expertise and knowledge rather
than on authority of position
● Loosely defined responsibilities, emphasis on exchanging information rather than
on giving directions

6. CONTINGENCY THEORY:
● an organisation should design its structure to fit with the environment in which it
operates
● an organisation’s environment is likely to vary along a continuum from extremely
stable to extremely dynamic
● different units or departments of the same organisation are likely to face differing
degrees of environmental stability or dynamism, and hence different levels of
uncertainty
● an organisation operating in a relatively predictable and stable environment
(assured supply of resources, less competition, steady demand of products /
services, stable technology etc.) is less likely to need swift and innovative
responses to environmental demands. Hence its activities can be more stable
and routine.
● an organisation operating in a relatively dynamic environment is likely to need
faster response times and hence more flexibility and adaptability to rapidly
changing environmental demands. This would call for greater flexibility and less
routinization in its tasks.

7. Effect of environmental uncertainty on complexity, formalisation and centralisation

 Environment and complexity-
● Environmental uncertainty and environmental complexity are directly related-
high environmental certainty leads to greater complexity
● To respond to such environments, organisations become more differentiated
● Organisations in volatile environments need to monitor their environments more
closely
● This is accomplished by creating differentiated units
● A complex environment requires the organisation to buffer itself with a greater
number of depts and specialists

Environment and formalisation-

● Stable environments are usually highly formalised since there is very minimal
need for rapid responses and because of the advantages of standardising
activities
● But dynamic environments don’t necessarily mean a low formalisation throughout
the organisation.
● In order to insulate operating activities from uncertainty, a dynamic environment
will lead to low formalisation of the boundary activities while maintaining relatively
high formalisation within other functions.

Environment and centralisation-

● The more complex the environment, the more decentralised the structure
● If a large number of dissimilar factors and components exist within the
environment, the organisation can meet uncertainties through decentralisation.
● To prevent management information processing capacity from becoming
overloaded, decisions can be carved into subsets and delegated to different
people
● Different subenvironments require different responses and the organisation
creates decentralised subunits to deal with them, that is, selective
decentralisation.
● Example: decentralised marketing activities in organisations that are generally
highly centralised.
● Extreme hostility in the environment drives the organisation to centralise their
structures, at least temporarily.
● Example: random strikes by the union, government law suits, loss of a major
customer, etc. Here, the need for innovation and responsiveness (through
decentralisation) is overpowered by top management’s fear of wrong decisions
being made.

8. Strategies for managing environment- RESOURCE DEPENDENCY THEORY

● The theory argues that the goal of an organisation is to minimise its dependence
on other organisations for the supply of scarce resources in its environment
 ● The organisation needs to analyse- 1) how vital the resources are 2) extent to
which other control these resources
● Strategies for managing environment:
1. Domain choice- changing domain of operation to change operational
environment
2. Recruitment- recruiting talent based on professional competence and
experience in operating in similar environments
3. Vertical integration- in order to extend the organisation’s control over input
and output ends of the environment and to decrease supply and
distribution uncertainties.
4. Buffering- it is a cost-effective alternative to vertical integration. This can
include maintaining high inventories of input and output
5. Smoothening- some environments have demands that are predictable but
extreme. In order to smoothen out demand fluctuations, incentives can be
offered to the customers
6. Advertising- can be used to create brand loyalty, reduce competitive
pressures, stabilise demand or even lure away customers.
7. Contracting- long-term contracts with input or output agencies to protect
the organisation form input/output related uncertainties
8. Mergers/ acquisitions/ strategic alliances- horizontal integration to
decrease resource dependency on external factors
9. Lobbying- a type of political behaviour that is used to get favourable
treatment from government and regulatory bodies.

7. TECHNOLOGY

1. What is technology?

Technology refers to the skills, abilities, knowledge, information, equipment, techniques

and processes required to transform inputs into outputs. It determines ‘how’ inputs are
converted into outputs.

Technology is measured through:

1. Operations techniques used in work-flow activities
2. Characteristics of materials used in the workflow
3. Complexities in the knowledge system used in the work-flow
4. Extent of automation
5. Degree of continuous, fixed-sequence operations
6. Degree of interdependence between work systems, etc
2. Woodward’s approach, findings and limitations

● Mid 1960s
● Works of Joan Woodward
● Research focused on production technology- first major attempt to the study of
technology as a determinant of organisational structure

● Gathered data on- the number of hierarchical levels, the span of control, the
administrative component, the extent of formalisation,etc. Also gathered financial
information on each firm and classified them as above average, average and
below average in terms of success or organisational effectiveness. Sought to find
it there was a relationship between organisational structure and effectiveness.
Failed attempt.

● Then grouped the firms based on their typical mode of production. That was a
success.

● Categorised firms into- unit, mass and process production. It was a scale with
increasing degree of technological complexity
1. Unit- manufactured custom-made products. Ex- tailor-made suits
2. Mass- products made in large-batches or mass-produced. Ex-
refrigerators, automobiles.
3. Process- heavily automated continuous-process producers such as oil
and chemical refineries.
● Findings-
1. There is a distinct relationship between the structure of the firm and the
technology classifications they were classified into
2. The “fit” between organisational structure and technology determined the
effectiveness of the organisation
3. The administrative component varied directly with the type of technology-
as technological complexity increased, so did the proportion of
administrative and supportive staff personnel.
● Criticism-
1. Her methodology, since it was based on subjective observations and
interviews, is open to interpretation bias
2. All her firms were British companies that were almost exclusively involved
in manufacturing
 3. Perrow’s approach

● Looked at knowledge technology rather than production technology

● Defined technology as “the action that an individual performs upon an object,
with or without the aid of tools or mechanical devices, in order to make some
change in that object”
● Identified two underlying dimensions of knowledge technology
1. Task variability- the number of exceptions countered in one’s work.
● Looks at work b evaluating it along the variety-routineness
continuum
● Exceptions will be few if the job is very routine
● Ex: assembly lines, workers at fast food centres
● If the job has a great deal of variety, a large number of exceptions
can be expected.
● Ex: top management positions, consulting jobs, etc.
2. Problem analysability
● Assesses the type of search procedures followed to find
successful methods of responding adequately to task exceptions
● To what extent is there a clearly known way to do the major types
of work you normally encounter?
● To what extent is there a clearly defined body of knowledge of
subject matter which can guide you in doing your work?
● To what extent is there an understandable sequence of steps that
can be followed in doing your work?
● To do your work, to what extent can you actually rely on
established procedures and practices?

Perrow’s technology classification-

Task variability> Few exceptions- Many exceptions-

Problem analysability Problems are familiar Unusual or unfamiliar
< problems appear regularly

Ill defined and Craft - Nonroutine-

unanalysable- Relatively difficult problems Many exceptions
Problems can only be But limited set of exceptions Difficult to analyse problems
solved by intuition, Ex: shoemaking, furniture restoring, Ex: strategic planning, basic
guesswork, etc. etc research activities

Well defined and Routine- Engineering-

analysable - Few exceptions, easy to analyse Large no. of exceptions
Problems can be problems Handled in a systematic and
solved systematically Ex: mass production, bank teller’s job rational manner
● Control and coordination methods should vary with technology type
● Nonroutine technologies require greater structural flexibility, decentralisation, have high
interaction among all members, minimal formalisation.
● Routine technologies need standardised coordination and control, formalisation and
centralisation, members require greater knowledge and experience

4. Thompson’s approach

● Demonstrated that technology determines the selection of a strategy for reducing

uncertainty and that specific structural arrangements can facilitate uncertainty
reduction
● Sought to create a classification scheme that would be general enough to deal
with the range of technologies found in complex organisations
● Proposed three types that are differentiated by the tasks that an organisational
unit performs
1. Long-linked technology-
● If tasks or operations are sequentially interdependent
● There’s a fixed sequence of repetitive steps
● Ex: mass-production assembly lines, school cafeterias
● Require efficiency and coordination among activities
● But because of sequential interdependencies, the major
uncertainties lie on the input and output sides of the organisation
● Response- control inputs and outputs through planning and
scheduling
● Means- integrate vertically- forward (output related- manufacturing
process, quality practices, effluent treatment), backward (inputs-
quality checks, procurement, research), or both
● Moderate complexity, moderate formalisation
2. Mediating technology-
● It links clients on the input and output side of the organisation
● Coordinated effectively through rules and procedures
● Has pooled interdependencies- two or more units each
contribute separately to a larger unit
● Ex- banks, retail stores, online dating services, post offices, etc
● Mediators perform an interchange function by linking units that are
otherwise independent.
● Managers of mediating technologies face uncertainty as a result of
the organisation’s potential dependency on clients
● This dependency can be decreased by increasing the populations
served. More the clients one has, the lesser the dependency on a
client.
● Low complexity, high formalisation
3. Intensive technology-
● Customised responses to diverse set of problems/ uncertainties
 ● Has reciprocal interdependencies- the output of units influences
each other in a reciprocal manner.
● Responses depend on the nature of the problem and the variety of
the problems
● Ex: technology in hospitals, universities, research labs, military
combat teams, etc.
● Achieve coordination through mutual self adjustment
● A number of resources are available to the organisation but only a
limited combination is used at any given time, depending on the
situation.
● Selection, combination and ordering of these resources are
determined by feedback from the object itself
● The biggest uncertainty faced is the problem itself. So managers
ensure that there is an availability of resources to prepare for any
problem.
● High complexity and low formalisation

5. Influence of industry and size on the technology-structure relationship

Industry-
● Industry determines the organisational structure by impacting its strategy
● Industry influences the efficient operating size of an organisation, its degree of
competition, extent of government regulation and also the viable set of
technology options
● It also constraints technological options available
● The organisation’s industry and the niche within that industry don’t dictate a given
technology. But their influence is definitely seen
Size-
● Organisational size is considered a much more critical determinant of structure
than technology by some people.
● The Aston Group’s research found that technology has an effect on the structure
of an organisation when it influences the activities that are closest to that
technology itself
● The larger the size of the organisation, the smaller the role of technology.
● The smaller the organisation, the more likely it is that the whole organisation is
affected by the production workflow or operations.
● The size of an organisation moderates the impact of technology on structure

Industry and size on technology:

● Organisations need to reach a particular size before advantages can be obtained
from the benefits offered by the more complex technologies
● Complex technology are adopted only after organisations are large enough to
capitalise on economies of scale, so, size determines technology
● But technology can also influence size
 ● In order to upgrade to better technology, decisions might be taken to increase the
organisation’s size in order to better utilise the technology and to increase
profitability

6. Manufacturing vs service industry-

Service Manufacturing Technology

Technology

1. Intangible product 1. Tangible product

2. Production and consumption take 2. Production can be inventoried for later
place simultaneously consumption
3. Labour & knowledge intensive 3. Capital asset intensive
4. Customer interaction generally high 4. Little direct customer interaction
5. Human element very important 5. Human element may be less important
6. Quality is perceived and difficult to 6. Quality is directly measured
measure 7. Longer response time is acceptable
7. Rapid response time usually 8. Site of facility is moderately important
necessary
8. Site of facility is extremely important

Structure Service Product

1. Separate Few Many

boundary roles
2. Geographical Much Little
dispersion
Decentralised Centralised
3. Decision making
Lower Higher
4. Formalisation

Human resources

1. Employee skill Higher Lower

level Interpersonal Technical
2. Skill emphasis
 7. Effect of technology on complexity, formalisation and centralisation

Technology and complexity:

● Routine technology associated with low complexity
● Greater the routineness, the fewer the number of occupational groups and the
less training possessed by professionals, especially for activities in or near the
operating core
● Nonroutine technology is likely to lead to high complexity
● As the work becomes more sophisticated and customised, span of control
narrows and vertical differentiation increase

Technology and formalisation:

● Routineness associated with the presence of manuals, job descriptions, and the
degree of job descriptions were specified
● Management can implement rules and other formalised regulations. Since the job
is repetitive, the cost to develop formalised systems is justified.
● Nonroutine technologies require control systems that permit greater discretion
and flexibility
● When size is controlled, technology’s impact on formalisation disappears.
● But, technology and formalisation are related when it comes to small
organisations and activities at or near the core of operations

Technology and centralisation:

● Technology-centralisation relationship is moderated by the degree of
formalisation
● Formal regulations and centralised decision making are control mechanisms, and
management can substitute them for one another
● Routine technology- high centralisation- minimal formalisation
● Routine technology- high decentralisation- high formalisation

5. STRATEGY

1. Define strategy

● It is the determination of the basic long-term goals and objectives of an enterprise

and adoption of basic courses of action towards achieving those
● This includes allocation of resources necessary for carrying out those goals
● Strategy refers to both the means and the ends
● Two views of strategy:
1. Planning mode- describes strategy as a plan or explicit set of guidelines
developed in advance. Identifying goals and making roadmaps
 2. Evolutionary mode- instead of a well thought out plan, strategy evolves
over time as a pattern in a stream of significant decisions. Strategy
becomes clear with time.

2. Types of strategy

● Organisations that are in multiple businesses need to develop different strategies

for different levels of activities- corporate level strategy and business level
strategy
1. Corporate-level strategy- if the organisation is in more than one line of
business
● Determines the roles that each business in the organisation will play
● Seeks to answer- in what set of businesses should we be?
2. Business-level strategy-
● Seeks to answer- how should we compete in each of our businesses?
● For small organisations in only one line of business or large organisations
that avoid diversification (non diversified large organisations), business
level strategy=corporate level strategy
● For organisations in multiple businesses, each division will have its own
strategy
● Each division defines products and services to be offered, customers it
wants to reach, etc

3. Strategic dimensions

4. TOWS matrix for strategy development

5. Business portfolio matrix
6. Chandler on strategy and structure
7. Miles and Snow
8. Porter’s five force model
9. Miller’s integrative framework
10. Industry-structure relationship
11. Industry analysis