Managing Organizational Environment in Industry.

- G Ojha

Organizational environment is the set of forces surrounding an organization that have the potential to affect the way it operates and its access to scarce resources. The organization needs to properly understand the environment for effective management.

It is not always clear as to who or what is included in any specific organization’s relevant environment

There are Two Types of Environment.

Internal ExternalA.Task Environment.B.General Environment.

Owners EmployeesPhysical

EnvironmentCulture

Competitors

Regu

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rs

Suppliers Custom

ers

Strategy

Partners

International Dimension

Technology

Dim

ension

Economic

Dimension

Polit

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lega

l Di

men

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Socio - Cultural

Dimension

General Environment.

Government regulations, Laws, Policies and activities influence organizational performance in a significant way.

Technological environment includes changes in technology that affect the way organizations operate and service they provide.

The economic dimensions include GDP, Wage rates, Unemployment rates, Taxes, Monetary and Fiscal Policy, Consumer price index, Interest rates & Inflation.

Task Environment I.

It includes those elements which have a direct working relationship with the Organization. Some of the critical variables in task environment are:

Customers Suppliers Labour Competition

Task Environment II.

Research shows the workers with high level of competencies, knowledge and training increase the overall performance of organisation.

Analysis of customer profiles enable the organizations to deliver goods/services that best suit the customer need.

A supplier’s pricing strategy does affect the organization’s revenues.

Competitors’ strategy greatly affects an organization’s external environment.

Internal Environment.

It consists of employees, management and the shared organizational culture.

Analysis of internal environment enables the top management to assess the strengths and weaknesses of the organization.

This assessment has implication for human resource management policy, procedure and employee training & development.

Environmental Scanning.

Such scanning is significant for planning. This also enables proper setting of goals and adaptation of strategy in the decision making process.

Contingency Theory. To manage its environment effectively, an organisation

should design its structure to fit its environment.

Resource Dependence Theory of Pfeffer and Salancik (1978) The two basic principles in the resource dependence

theory are as follows :A. Organizations respond more to forces/element in the environment

which control critical resources.B. Managers manage dependencies to ensure survival and greater

autonomy. The three important factors in determining dependence

are :A. Importance of resource.B. Extent of discretion over resource allocation.C. Paucity of alternatives.

Specialists Vs. Generalists. There are two types of organizations : Specialists and

Generalists.Specialists offer one service/niche.Generalists have various services/products and have advantage over specialists in times of change. But Specialists can quickly move into a new niche and

exploit it to their advantage.

Environmental Uncertainty.

This uncertainty increases or decreases as per variations in the following parameters :

Homogeneity Vs. Heterogeneity (the number & diversion) Stability Vs. Turbulence (rate & magnitude of change) Resource Security Vs. Abundance (availability of reason) Hostility Vs. Supportiveness (Extent of competition and level of

acceptance of the organization) Uncertainty is the highest when the Environment is both

unstable and complex.

Environment & Organization Structure I.

Organizations have to sense changes in their environments and make appropriate adjustments, necessary.

Changing environments produce uncertainty. Alternations in the organizational structure is a major tool for controlling uncertainty.

If uncertainty is high, the organization will be designed along flexible lines in order to adapt to rapid changes. The organic structure would be the choice.

If uncertainty is low, management may opt for the mechanistic structure which offers the highest degree of managerial control.

Environment & Organization Structure II. Formalization & environmental uncertainty are

inversely related. Stable environments lead to high formalization.

This is because stable environments have a minimal need for rapid response.

Centralization is affected by the environment. If the environment is large and multi-faceted, it becomes difficult for Management to monitor. Therefore, the structure tends to become decentralized like the marketing function.

If there are large number of customers and their needs are prone to rapid changes, management must respond quickly if it wants to retain them. Therefore, decisions will have to be taken by the local marketing managers who are close to the customers.

Environment & Organization Structure III.

Environment & Organization Structure IV.

In the present business environment marked by pervasive use of Information Technology, Management can reduce formalization and become more decentralized, thus making their organization more organic without giving up control.

There will be fewer managers and hence fewer levels in the hierarchy.

How to Face Uncertain Environment? I

Organizations should be less formal, more decentralised and more reliant on mutual adjustment.

Negotiation with various actors on the Environment stage like Customers, Suppliers, Unions may also make the environment favourable.

Formation of Alliances and Joint Ventures is another way to alter the pattern of inter-dependence.

How to Face Uncertain Environment? II Initiating recruitment action for more suitable

managers to handle the situation. Diversification and divestment is another method to

handle uncertainty. Advertising & Public Relations. Political Activity & Lobbying. Formation of trade Associations.

How to Face Uncertain Environment? III Leadership at all levels is an excellent way to interact

with uncertain environment. This has to be cultivated on a continuing basis.

If the top leadership of an organization is fumbling and faltering then a new top leader should be brought to improve the situation. A visionary and courageous leader with proven track record of success may change the situation quickly which many other methods will take a longer time to do.

Relationship between Environmental Uncertainty and Organizational Structure.

Low HighEnvironmental Uncertainty

•Low Differentiation•Low Integration•Centralized Decision Making•Standardization

•Complex Structure•High Differentiation•High Integration•Decentralized Decision Making•Mutual Adjustment •

Mechanistic Structure Organic Structure

Conclusion. Adaptive Capacity is the ideal quality of a manager to

handle organization’s environment marked by uncertainty, complexity and volatility.

It is the ability to understand the context and to recognize and seize opportunities with confidence and optimism.

Organizational Environment will always be dynamic but a timely and proper response is the answer.

Questions?

Thank you!