Advance Topics in Change Management

Lecture 8: The External Environment of Organizations

Objectives

• To consider how environments vary and affect the internal structures and processes of organizations

• To develop a framework to help assess environments, how they are changing and how managers might need to respond to those changes

Managing inter-organisational relations: modes of co-ordination and influence

• Ownership links• Contractual links: alliances, joint ventures etc.• Inter-locking directorates• Transfer and exchange of executives/senior

managers• Profit pooling and federation of firms• Co-operative marketing• Advertising and public relations• Trade associations• Obligational contracting• Patent exchange and pooling

Ownership Links: Cross-ShareholdingDaimler, Nissan and Renault announce three-way

tie-up• German carmaker Daimler is to give Renault

and Nissan a 3.1% stake in its business as part of a global tie-up of the brands, it has been announced.

• In exchange, Daimler will take a 3.1% stakes in both Renault and Nissan, who have been in an alliance since 1999.

• The deal will see the companies remain separate, but allow them to share technology and development costs.

• Daimler's Mercedes-Benz brand will benefit from shared technology

• http://news.bbc.co.uk/1/hi/8606593.stm

Ownership Links: Other Examples

• Japanese keiretsu that usually involve cross-shareholding (eg Mitsubishi keiretsu built around Bank of Tokyo-Mitsubishi, Mitsubishi Heavy Industries, Mitsubishi Electric, and Kirin Brewery amongst others; Toyota group built around Tokai Bank, Toyota, and Ricoh amongst others)

• Pyramid groups do not necessarily involve cross-shareholdings (VW which covers Porsche, MAN Trucks, Scania Trucks; FIAT, including FIAT, Iveco Trucks, and CNH)

Another Pyramid Group: The Arab Malaysian Group, controlled by Azman Hashim

Joint Ventures

• An example of an equity-based joint venture: Li-Tec Battery

• a Joint Venture between Evonik Industries AG (which holds 50.1% of the shares in the company) and Daimler AG (49.9%)

• It develops, produces and markets large-scale lithium ion battery cells for automotive applications and battery systems for industrial and stationary applications.

• Can also have non-equity joint ventures (co-operative agreements to co-develop a business using another company’s brand or to develop a technology, such as Nokia and Sony Ericsson)

Inter-Locking Directorates

• This refers to the membership on the boards of directors of two or more firms by the same individual.

• Examples:• Some Hong Kong companies• Deutsche Bank and Daimler (until early 2000s)•

Inter-Locking Directorates: A Recent Example?• Eric Schmidt, CEO of Google, used to have a seat on the

board of Apple. (Not sure if any Apple board member sat on the board at Google.)

• But did this lead to anti-competitive practices?

• Silicon Valley groups face antitrust probe on recruiting• http://www.ft.com/cms/s/0/ff94ea24-509f-11de-9530-00144feabdc0.html

• The US justice department has begun a civil antitrust inquiry into hiring behaviour at some of the largest technology companies in Silicon Valley, including Google, Yahoo, Apple and Genentech.

• Officials have sent as many as a dozen companies civil investigative demands seeking documents that would shed light on whether some of them have an agreement not to poach talent from one another.

Back to the List!

• Transfer and exchange of executives/senior managers – e.g. Toyota

• Profit pooling and federation of firms• Co-operative marketing• Advertising and public relations• Trade associations• Obligational contracting• Patent exchange and pooling

The Environment for Universities

• Complex:– Government (fees, numbers of students, types of

awards)– Students (current and prospective ones)

• Their parents!• Student union

– Graduate employers (public and private sector)– Other universities/research organizations at home

and abroad– Unions (support staff and academics)

• Stable – usually, yes, but not currently!

Questions

• Think of a large mobile-phone company.• What activities – in broad terms – does it

engage in?• How would you describe its environment

(in terms of stability and complexity)?• Does this vary for different parts of the

organization?• If it does vary, how might the different

parts of the organization be structured?

MECHANISTIC AND ORGANIC ORGANISATIONS

MECHANISTIC ORGANIC

Task Specialisation and Separation

Task and Skill Integration

Precise and Rigid Role Definitions

Diffuse and Flexible Roles

Vertical Co-ordination of Tasks Multiple Co-ordination and Responsibilities

Centralisation of Knowledge and Control

Diverse Sources of Knowledge and Expertise

Vertical Communication of Instructions and Decisions

Multiple Communication Channels for Information and Advice

Loyalty to Firm and Obedience to Superiors

Commitment to Tasks and to Expertise

Other Ways to Deal with Environmental Uncertainty

• Buffering

• Boundary Spanning

• Leading to differentiation within organizations

Questions

• Think back to that mobile-phone company.

• What are the priorities of those involved in its different activities (e.g. research and development) likely to be?

• Will they adopt a short-term or a long-term perspective on those activities?

• What level of formality would you associate with each activity and why?

DIFFERENCES BETWEEN DEPARTMENTS

R & D MANUFACTURING SALES

CHARACTERISTIC      

PRIORITIES New DevelopmentsQuality

Efficiency Customer Satisfaction

TIME HORIZON Long Short Short

DOMINANT INTERPERSONAL ORIENTATION OF EMPLOYEES

Task Task Process

FORMALITY OF STRUCTURE

Low High High

UNCERTAINTY AND INTEGRATORS

Conclusion

• The external environment is likely to influence the ways in which any company, as a whole, is designed as well as the ways in which individual departments/divisions within it are designed.