Copyright 2007 Prentice Hall 1 3- Organizational Theory, Design, and Change Fifth Edition Gareth R. Jones Chapter 3 Managing in a Changing Global Environment
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1. Organizational Theory, Design, and Change Fifth Edition
Gareth R. Jones Chapter 3 Managing in a Changing Global
Environment
2. What is the Organizational Environment?
Environment : the set of forces surrounding an organization
that have the potential to affect the way it operates and its
access to scarce resources
Organizational domain : the particular range of goods and
services that the organization produces, and the customers and
other stakeholders whom it serves
3. Figure 3-1: The Organizational Environment
4. The Specific Environment
The forces from outside stakeholder groups that directly affect
an organizations ability to secure resources
Outside stakeholders include customers, distributors, unions,
competitors, suppliers, and the government
The organization must engage in transactions with all outside
stakeholders to obtain resources to survive
5. The General Environment
The forces that shape the specific environment and affect the
ability of all organizations in a particular environment to obtain
resources
6. The General Environment (cont.)
Economic forces : factors, such as interest rates, the state of
the economy, and the unemployment rate, determine the level of
demand for products and the price of inputs
Technological forces : the development of new production
techniques and new information-processing equipment, influence many
aspects of organizations operations
7. The General Environment (cont.)
Political and environmental forces : influence government
policy toward organizations and their stakeholders
Demographic, cultural, and social forces : the age, education,
lifestyle, norms, values, and customs of a nations people
Shape organizations customers, managers, and employees
8. Sources of Uncertainty in the Organizational Environment
All environmental forces cause uncertainty for
organizations
Greater uncertainty makes it more difficult for managers to
control the flow of resources to protect and enlarge their
domains
9. Sources of Uncertainty in the Environment (cont.)
Environmental complexity : the strength, number, and
interconnectedness of the specific and general forces that an
organization has to manage
Interconnectedness: increases complexity
10. Sources of Uncertainty in the Environment (cont.)
Environmental dynamism : the degree to which forces in the
specific and general environments change over time
Stable environment: forces that affect the supply of resources
are predictable
Unstable (dynamic) environment: it is difficult to predict how
forces will change that affect the supply of resources
11. Sources of Uncertainty in the Environment (cont.)
Environmental richness : the amount of resources available to
support an organizations domain
Environments may be poor because:
The organization is located in a poor country or in a poor
region of a country
There is a high level of competition, and organizations are
fighting over available resources
12. Figure 3-2: Three Factors Causing Uncertainty
13. Resource Dependence Theory
The goal of an organization is to minimize its dependence on
other organizations for the supply of scare resources and to find
ways of influencing them to make resources available
14. Resource Dependence Theory (cont.)
An organization has to manage two aspects of its resource
dependence:
It has to exert influence over other organizations so that it
can obtain resources
It must respond to the needs and demands of the other
organizations in its environment
15. Interorganizational Strategies for Managing Resource
Dependencies
Two basic types of interdependencies cause uncertainty
Symbiotic interdependencies : interdependencies that exist
between an organization and its suppliers and distributors
Competitive interdependencies : interdependencies that exist
among organizations that compete for scarce inputs and outputs
Organizations aim to choose the interorganizational strategy
that offers the most reduction in uncertainty with least loss of
control
16. Figure 3.3: Interorganizational Strategies for Managing
Symbiotic Interdependencies
17. Strategies for Managing Symbiotic Resource
Interdependencies
Developing a good reputation
Reputation : a state in which an organization is held in high
regard and trusted by other parties because of its fair and honest
business practices
Reputation and trust are the most common linkage mechanisms for
managing symbiotic interdependencies
18. Strategies for Managing Symbiotic Resource
Interdependencies (cont.)
Co-optation : a strategy that manages symbiotic
interdependencies by neutralizing problematic forces in the
specific environment
Make outside stakeholders inside stakeholders
Interlocking directorate: a linkage that results when a
director from one company sits on the board of another company
19. Strategies for Managing Symbiotic Resource
Interdependencies (cont.)
Strategic alliances : an agreement that commits two or more
companies to share their resources to develop joint new business
opportunities
An increasingly common mechanism for managing symbiotic (and
competitive) interdependencies
The more formal the alliance, the stronger and more prescribed
the linkage and tighter control of joint activities
Greater formality preferred with uncertainty
20. Types of Strategic Alliances
Long-term contracts
Networks : a cluster of different organizations whose actions
are coordinated by contracts and agreements rather than through a
formal hierarchy of authority
Minority ownership
Keiretsu: a group of organizations, each of which owns shares
in the other organizations in the group, that work together to
further the groups interests
21. Figure 3-4: Types of Strategic Alliances
22. Figure 3-5: The Fuyo Keiretsu
23. Types of Strategic Alliances (cont.)
Joint venture : a strategic alliance among two or more
organizations that agree to jointly establish and share the
ownership of a new business
24. Figure 3.6: Joint Venture Formation
25. Strategies for Managing Symbiotic Resource
Interdependencies (cont.)
Merger and takeover : results in resource exchanges taking
place within one organization rather than between
organizations
New organization better able to resist powerful suppliers and
customers
Normally involves great expense and problems managing the new
business
26. Strategies for Managing Competitive Resource
Interdependencies
Collusion and cartels
Collusion : a secret agreement among competitors to share
information for a deceitful or illegal purpose
May influence industry standards
Cartel : an association of firms that explicitly agrees to
coordinate their activities
May influence price structure of market
27. Et fiyatlar Rekabet Kurulu'na ikayet edildi Tketiciler
Birlii Bakan Vekili Mehmet Muta ahin ''Et fiyatlar zerinden haksz
kazan elde etmeye alan firmalar Rekabet Kuruluna ikayet ettik''
dedi.
28. Strategies for Managing Competitive Resource
Interdependencies (cont.)
Third-party linkage mechanism : a regulatory body that allows
organizations to share information and regulate the way they
compete
Strategic alliances : can be used to manage both symbiotic and
competitive interdependencies
Merger and takeover : the ultimate method for managing
problematic interdependencies
29. Figure 3-7: Interorganizational Strategies for Managing
Competitive Interdependencies
30. Transaction Cost Theory
Transaction costs : the costs of negotiating, monitoring, and
governing exchanges between people
Transaction cost theory : a theory that states that the goal of
an organization is to minimize the costs of exchanging resources in
the environment and the costs of managing exchanges inside the
organization
31. 2009 Nobel Prize in Economics: Economic governance
32. Sources of Transaction Costs
Environmental uncertainty and bounded rationality
Bounded rationality: refers to the limited ability people have
to process information
Opportunism and small numbers
Attempt to exploit forces or stakeholders
Risk and specific assets
Specific assets: investments that create value in one
particular exchange relationship but have no value in any other
exchange relationship
33. Figure 3-8: Sources of Transaction Costs
34. Cooperation vs. opportunism: The prisoners dilemma Each
serves 5 years Prisoner A: goes free Prisoner B: 10 years Prisoner
A Betrays Prisoner A: 10 years Prisoner B: goes free Each serves 6
months Prisoner A Stays Silent Prisoner B Betrays Prisoner B Stays
Silent
35. Transaction Costs and Linkage Mechanisms
Transaction costs are low when:
Organizations are exchanging nonspecific goods and
services
Uncertainty is low
There are many possible exchange partners
36. Transaction Costs and Linkage Mechanisms (cont.)
Transaction costs are high when:
Organizations begin to exchange more specific goods and
services
Uncertainty increases
The number of possible exchange partners falls
37. Transaction Costs and Linkage Mechanisms (cont.)
Bureaucratic costs: internal transaction costs
Bringing transactions inside the organization minimizes but
does not eliminate the costs of managing transactions
38. Using Transaction Cost Theory to Choose an
Interorganizational Strategy
Transaction cost theory can be used to choose an
interorganizational strategy
Managers can weigh the savings in transaction costs of
particular linkage mechanisms against the bureaucratic costs
39. Using Transaction Cost Theory to Choose an
Interorganizational Strategy (cont.)
Managers deciding which strategy to pursue must take the
following steps:
Locate the sources of transaction costs that may affect an
exchange relationship and decide how high the transaction costs are
likely to be
Estimate the transaction cost savings from using different
linkage mechanisms
Estimate the bureaucratic costs of operating the linkage
mechanism
Choose the linkage mechanism that gives the most transaction
cost savings at the lowest bureaucratic cost
40. Keiretsu
Japanese system for achieving the benefits of formal linkages
without incurring its costs
Example: Toyota has a minority ownership in its suppliers
Affords substantial control over the exchange relationship
Avoids bureaucratic cost of ownership and opportunism
41. Franchising
A franchise is a business that is authorized to sell a companys
products in a certain area
The franchiser sells the right to use its resources (name or
operating system) in return for a flat fee or share of profits
42. Outsourcing
Moving a value creation that was performed inside the
organization to outside companies
Decision is prompted by the weighing the bureaucratic costs of
doing the activity against the benefits
Increasingly, organizations are turning to specialized
companies to manage their information processing needs