Lecture 8 - External Environment (ii)

OB IILecture 8:The External Environment Part IIAgendaBrief Review of Org EnvironmentAdapting to UncertaintyAshbys Law of Requisite VarietyResource Dependence and Resource ControlEnvironment Part IIall elements outside the boundary of the organization that have the potential to affect the organization

OrganizationalDomainThe orgs niche within the environmentEnvironmental Sectorscore environment; direct impacttask environmentgeneral environmentsubdivisions of the environment that group similar elementseverything else; indirect impactOrganizational EnvironmentStakeholders!Environmental Uncertaintynumber of different factors/forcessimplecomplexstableunstablerate of change; predictability of changesimple + stable = low uncertaintysmall number of external elements and elements are similarelements remain the same or change slowly

examples: soft drink bottlers, beer distributors, container manufacturers, food processors

simple + unstable = high-moderate uncertaintysmall number of external elements and elements are similarelements change frequently and unpredictably

examples: e-commerce, fashion clothing, music industry, toy manufacturerscomplex + unstable = high uncertaintylarge number of external elements and elements are dissimilarelements change frequently and unpredictably

examples: computer firms, aerospace firms, telecommunications, airlinescomplex + stable = low-moderate uncertaintylarge number of external elements and elements are dissimilarelements remain the same or change slowly

examples: universities, appliance manufacturers, chemical, insurance uncertaintychangestablecomplexityunstablesimplecomplexframeworkEnvironmental Uncertainty5Sum Fun ActivityForm groups of 5I will read a series of numbersYour group will report the sum of those numbersIt will be funFive roundsEnvironment Part II6Requisite VarietyAny system designed to control the environment must be as varied and complex as the environment being controlled.

If an organization wants to be successful and avoid being at the mercy of its environment, then it needs to be as varied as complex as its environment, meaning that it will need as many systems as there are sources of uncertainty in the environment

Ashbys Law of

Environment Part IIThe internal diversity of any self-regulating system must match the variety and complexity of its environment if it is to deal with the challenges posed by that environment. 7Requisite VarietyGood (dynamic) systems will:Maintain stable output by making adjustments to the systemi.e., detects disturbances and correctse.g., Room with a thermostatAshbys Law ofEnvironment Part II8Uncertainty and VarietyHow does variety relate to uncertainty?The higher the variety (the number of possible system states), the more uncertain the system is, and the more information is required to specify the current state of the system.

The more complex the environment, the more work you need to put into understanding it before you can even begin to respond to it

Environment Part II9Sources of External DisturbancesCustomersCompetitorsSources of Internal Disturbances Disturbance VarietyIn OrganizationsCoping with VarietyTwo Options:

Reduce the Disturbance Variety

Increase the Response VarietyIn OrganizationsEnvironment Part II11Disturbance VarietyConstraints / Rulese.g. office hoursFilterse.g. email filters, automated phone systemsGrouping of the inpute.g. grouping of business students in programsEliminate varietye.g. price fixingAnd moree.g. Resource Dependence and Environmental ControlTechniques to Reduce theEnvironment Part II

12Response VarietyBuffer between organization and source of varietye.g. inventoryIncrease information processing capacitySophisticated ERP systems; horizontal information linkagesSlack resources e.g. back-up equipmentAnd more..e.g. expertise; innovation; new product development

Techniques to Increase theEnvironment Part II13Adapting to UncertaintyTechniques for Increasing Response VarietyPositions and departments (relate to environmental sectors)Buffering and boundary-spanningDifferentiation and integration (between departments)Mechanistic vs. organic management (efficiency vs. learning)Planning, forecasting, and responsivenessEnvironment Part II14QuestionOrganizational structure & environmentUse Ashbys Law to explain:Why does an organic structure works better for organizations facing a high degree of instability in their environment?Why do organizations in complex and unstable environments need many integrating roles?

Environment Part II15Resource DependenceOrganizations are open systemsDependent on environment / resourcesControl over resources minimizes dependence (Reduces environmental uncertainty, reduces disturbance variety)

controlautonomyEnvironment Part II16Addressing Resource DependenceTechniques for Reducing Disturbance VarietyControlling resources(Inter-organizational Linkages)OwnershipStrategic AlliancesCooptation, interlocking directoratesExecutive recruitmentAdvertising & PRControlling the EnvironmentChange DomainPolitical LobbyingTrade AssociationIllegitimate activities

SummaryOrganizations need to understand all the sectors of their environment Organizations should adapt to the degree of uncertainty present in their environmentAshbys LawAdapting to environmental uncertaintyControlling environmental resourcesOrganizations should consider their impact on the natural environmentEnvironment Part IIYou OT to KnowConsider a club or group that you have been a part of (at Laurier or perhaps in high school)List 5 disturbances the group faced (internal or external)Identify how the group coped (or didnt cope!) with each of the disturbances you listedEnvironment Part IINext ClassInterorganizational Relationships(R) Chapter 5Environment Part II