Chapter Four

The External Environment

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1
The Environmental Domain
 Organisational environment includes all
the elements that exist outside the boundary
of the organisation and have the potential to
affect all or part of the organisation
 Environmental domain is the chosen
territory of action defining the niche and
external sectors with which the organisation
will interact to accomplish its goals

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The Environmental Domain
 Task Environment – includes sectors with which
the organisation interacts directly including – industry
sector, raw material sector, market sector, human
resources sector, international sector
 General environment – includes those sectors that
may not have a direct impact on the daily operations
of the firm but that influence the industry or
economy in general ways that in turn indirectly
influence the organisation – govt. sector,
sociocultural sector, economic conditions, technology
sector, financial resources sector.

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 An Organization’s Environment
(a) Competitors, industry size and (g) Recession, unemployment
competitiveness, related issues inflation rate, rate of investm
(b) Suppliers, (j) (a) economics, gro
International Industry
manufacturers, real Sector Sector
(h) City, state, federal
estate, services (i)
and regulations, ta
(c) Labor market, (b) services, court sys
Sociocultural DOMAIN Raw Materials
employment agencies, Sector political proce
Sector
universities, training (i) Age, values, bel
schools, employees (c)
education, relig
(h)
in other companies, Government
Human work ethic, consu
unionization Resources and g
Sector ORGANIZATION
Sector
(d) Stock markets, movem
banks, savings and (g) (d) (j) Competition f
loans, private Economic Financial and acquisitio
investors Conditions Resources foreign fi
Sector Sector
(e) Customers, clients, (e) entry into over
(f)
potential users of products Technology
Market markets, fore
Sector
and services Sector customs, regulati
(f) Techniques of production, science, exchange r
computers, information technology

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 Organizational Departments
Differentiate to Meet Needs of
Sub-environments
President

R&D Manufacturing Sales

Division Division Division
Scientific Manufacturing Market
Sub-environment Sub-environment Sub-environment

Scientific Research Labor Raw Suppliers Customers Advertising

journals centers materials Competitors agencies

Professional Production Distribution

associations equipment system

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 Differences in Goals and
Orientations Among Organizational
Departments
R&D Manufacturing Sales
Characteristic Department Department Department
New
Goals developments, Efficient Customer
quality production satisfaction
Time
Horizon Long Short Short
Interpersonal
Orientation Mostly task Task Social
Formality of
Structure Low High High
Source: Based on Paul R. Lawrence and Jay W. Lorsch,
Organization and Environment
(Homewood, Ill.: Irwin, 1969), pp. 23-29. 4-6
 Environmental Uncertainty
and Organizational Integrators

Industry: Plastics Foods Container

Environmental
Uncertainty High Moderate Low

Departmental
Differentiation High Moderate Low

Percent of
management in 22% 17% 0%
integrating
roles
Source: Based on Jay W. Lorsch and Paul R. Lawrence,
“Environmental Factors and Organizational Integration,”
Organization Planning: Cases and Concepts (Homewood, Ill.: 4-7
Irwin and Dorsey, 1972), 45.
 Organization Forms
Mechanistic: Organic:
 Tasks are broken down  Employees contribute to the
into specialized, separate common task of the
parts. department.
 Tasks are rigidly defined.  Tasks are adjusted and
redefined through teamwork.
 There is a strict hierarchy
of authority and control,
 There is less hierarchy of
and there are many rules. authority and control, and
there are few rules.
 Knowledge and control of  Knowledge and control of
tasks are centralized at the tasks are located anywhere in
top of the organization. the organization.
 Communication is vertical.  Communication is horizontal.
Source: Adapted from Gerald Zaltman, Robert Duncan, and Jonny Holbek,
Innovations and Organizations (New York: Wiley, 1973), 131.
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Environmental Uncertainty
 Uncertainty means that decision makers have
some degree of insufficient information about
environmental factors, making prediction of
external changes difficult. Characteristics of
environmental domain that influence
uncertainty are the extent to which the
external domain is simple or complex and the
extent to which events are stable or unstable.

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The Environmental Domain
 Simple-complex dimension – concerns
heterogeneity, or the number and dissimilarity of
external elements relevant to an organisations
operations.
 Stable-Unstable dimension refers to whether
elements in the environment are dynamic: the
domain is stable if it remains the same over a
period or months or years.
 Framework - the two dimensions are combined in
a framework for assessing environmental
uncertainty.

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 Contingency Framework for
Environmental Uncertainty and
Organizational Responses
Low Uncertainty Low-Moderate Uncertainty
1. Mechanistic structure; formal,
1. Mechanistic structure; formal,
centralized
centralized
2. Few departments
2. Many departments, some boundary
STABLE 3. No integrating roles
spanning
3. Few integrating roles
4. Some planning; moderate speed
4. Current operations orientation;
UUn response
ENVIRONMENTAL low speed response ncecr
etra
CHANGE High-Moderate Uncertainty
tian
it
nyt High Uncertainty
y
1. Organic structure, teamwork;
1. Organic structure, teamwork;
participative, decentralized
participative, decentralized
2. Many departments differentiated,
2. Few departments, much boundary
UNSTABLE spanning
extensive boundary spanning
3. Many integrating roles
3. Few integrating roles
4. Planning orientation; fast
4. Extensive planning, forecasting;
response
high speed response
SIMPLE COMPLEX
ENVIRONMENTAL COMPLEXITY

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 Organization Strategies for
Controlling the External
Environment
 Establishing  Controlling the
Interorganizational Linkages:
 Ownership
Environmental
 Contracts, joint ventures Domain:
 Cooptation, interlocking  Change of domain
directorates  Political activity,
 Executive recruitment
regulation
 Advertising, public relations
 Trade associations
 Illegitimate activities

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 Relationship Between Environmental
Characteristics and Organizational
Actions
Environment Organization
High Many departments and boundary roles
complexity Greater differentiation and more
High integrators for internal coordination
uncertainty
Organic structure and systems with low
High rate formalization, decentralization,
of change and low standardization to enable
a high-speed response
Environmental
domain Establishment of favorable linkages:
(ten sectors) ownership, strategic alliances, cooptations,
interlocking directorates, executive recruitment,
advertising, and public relations
Resource
Scarcity of dependence Control of the environmental domain:
valued change of domain, political activity,
resources regulation, trade associations, and
illegitimate activities

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