The Impact of Environment on Organisational Structure

MHRDM - II

SONAL JAISWAL -14-H-15

SHAILESH KANTHRIA-14-H-18

REEKU LOKHANDE-14-H-20

SWATI MACHCHA-14-H-21

SUNILKUMAR MANGE- 14-H-22

Organizational Environment

Organizational environments are composed of forces or institutions surrounding an organization that affect performance, operations, and resources

Factors controlling Organizational Environment

Business Environment

External Factors

Micro Factors

Macro Factors

Internal Factors

Internal Environment

It relates to all aspects within the boundaries of the organization and generally are within the control of top management team.

Direct impact Controllable by the company Alter or modify

Factors affecting Internal Business Environment

Value system Mission & objectives Management structure and nature Human resources Company image and brand equity Other factors:

Physical assets and facilities R & D and technological capabilities Marketing resources Financial resources

Value System

• Value System of founders and those at the helm of affairs has important bearing on

• Choice of business:• Mission• Objectives of the organization• Business policies and practices

Management Structure and Nature

Factors Organizational structure Composition of the Board of Directors Extent of professionalization of management

Organizational Structure

Centralized Decentralized

Internal Environment

The internal environment consists of the organization's owners, board of directors, regulators, physical work environment and culture. In the internal environment include strength and weakness of an organization. Trade union, Management, Current employee, Share holders. 

External Environment

The External environment of an organization refers to the forces and institutions outside the organization that potentially affect its performance.

External environment has two layers –

• General environment• Task environment

Changing Environments

Environmental Change

Environmental Complexity

Resource Scarcity

Uncertainty

Characteristics ofChanging External Environments

Environmental Complexity

Environmental Complexity: the number of external factors in the environment that affect organizations

Simple environments Complex environments

General Environment

The General environment refers to the non-specific elements of an organization’s surrounding that might affect the organization indirectly.

These external forces are:• Political• Economic• Technological• Socio-cultural

Political Environment: The Political or legal Environment refers to

government laws , regulations, policies and activities which are designed to influence organizations indirectly and set boundaries on what they can and cannot do.

Economic Environment: The Economic Environment includes the impact

of economic factors like interest rates, inflation, monetary and fiscal policy , taxes.

These forces are likely to effect organization production of goods and services.

Technological Environment: The Technological Environment refers to the

changes in technology that affect the way that organization operate and the service they provide.

Socio Cultural Environment: These factors play an important role because

they determine the kinds of goods, services and the standard that society values. The socio cultural forces include the demographics and values of particular customer base.

Task Environment

The task environment is inclusive of those outside sectors that have a direct working relationship with an organization.

The main variables in the task environment are:• Owners• Customers• Suppliers• Labor• Competition

Owners: Owners expect managers to watch over their

interest and provide a return on investments.

Suppliers: Suppliers are the people who provide raw material that particular organization use to produce goods.

Customers: Customers are the Final purchasers of goods or

services of organizational output.

Labour: labour markets are people availabe for hire.

. . . The utility of the notions of “mechanistic” and “organic” management systems resides largely in their being related as dependent variables to the rate of “environmental” change.

Burns and Stalker, The Managementof Innovation

Tom Burns and G. M. Stalker observed twenty industrial firms in England and discovered that external environment was related to internal management structure.

When the external environment was stable, the internal organization was characterized by rules, procedures, and a clear hierarchy of authority.

Organizations were formalized. They were also centralized, with most decisions made at the top. Burns and

Stalker called this a mechanistic organization system. When uncertainty is low, management structures can be more mechanistic,

and the number of departments and boundary roles can be fewer

Burns and Stalker, The Managementof Innovation

In rapidly changing environments, the internal organization was much looser, free-flowing, and adaptive.

Rules and regulations often were not written down or, if written down, were ignored. People had to find their own way through the system to figure out what to do.

The hierarchy of authority was not clear. Decision-making authority was decentralized. Burns and Stalker used the term organic to characterize this type of management structure. As environmental uncertainty increases, organizations tend to become more organic, which

means decentralizing authority and responsibility to lower levels, encouraging employees to take care of problems by working directly with one another, encouraging teamwork, and taking an informal approach to assigning tasks and responsibility.

Thus, the organization is more fluid and is able to adapt continually to changes in the external environment

Burns and Stalker, The Managementof Innovation

Mechanistic and Organic Forms

Mechanistic

I. Task are broken down to specialized separate parts

II. Tasks are rigidly definedIII. There is a strict hierarchy of authority and

control, and there are many rulesIV. Knowledge and control of tasks are

centralized at the top of organizationV. Communication is vertical

Organic

I. Employees contribute to the common tasks of the department

II. Tasks are adjusted and redefined through employee teamwork

III. There is less hierarchy of authority and control, and there are few rules

IV. Knowledge and control of tasks are located anywhere in the organization

V. Communication is horizontal.

Organisational structure in an innovative environment

increased customer expectation and demand new entrants to the market a need for innovation significant regulation following the recent global financial crisis.

Communication channels

Open and effective communication is crucial for all organisations and is affected by the span of control.

A narrow span of control in tall hierarchical organisations can lead to communication problems because of the large number of layers between the top and the bottom.

These tall hierarchical structures can also be rigid and inflexible. This can stifle ideas, innovation and creativity.

In contrast, a wider span of control encourages and involves employees. This helps to generate ideas and promote new ways of thinking.

Team decision making

Making effective decisions as a team is dependent on a number of factors,

the size of the team the task that has to be completed.

Nokia's Evolving Organizational Structure

• Organization structure, helps to show how activities in an organization are arranged.

• The arrangement of activities is crucial in determining the levels of authority and the hierarchy level.

• The study is going to focus on how departmentalization and organization structure have influenced the profitability of Nokia Corporation.

• Nokia Corporation changes its organization structure depending on the external environment.

• The external environmental factors have influenced the change of organization structure by Nokia Corporation.

• Some of these factors include competition, technological changes, political and legal factors.

Case Study Analysis: NOKIA

The case is about Nokia Corporation and the environmental impact on organization structure. Nokia Corporation has been applying product based organization structure since1990s. Nokia manufacturers a wide range of products that include consumer electronics, power transmission cables,

industrial rubber and telecommunication devices such as mobile handsets. The different types of products make it possible to apply the product based departmentalization process. This

type of departmentalization is important as it enables managers to become experts in their field of interest. Nokia Corporation is the market leader in cell phones since 1998. Motorola was the market leader before

being overtaken by Nokia. Nokia adopted functional and product based organizational structure in order to remain as the market leader in the cell phone industry.

The Nokia's Evolving Organizational Structure 4 various functional groups in Nokia Corporation included finance functions, human resource functions and engineering functions. Innovation and technological changes led to incorporation of photography, music, game and other multimedia content on cell phones.

Nokia Corporation came up with a multimedia division in its organization structure. This helped to ensure that products manufactured by the company are of high quality and meet customer specifications.

Increase in competition, in the cell phone market, led to Nokia Corporation changing its organization structure. Nokia Corporation faced stiff competition from Canada based corporations, which were involved in the manufacture of BlackBerry and iPhone.

The new organization structure focused more on power, resources and products. They came up with a smart devices division, mobile phones division, markets division and functional groups. The type of organization structure, which is being, used by Nokia Corporation is known as the matrix organizational structure. The matrix organization structure incorporates functional structure and divisional structure

Nokia Corporation has been applying product based organization structure in the past three decades.

Product based organization structure is important in organizations which produce multiple products. The products are manufactured and sold together.

There is, therefore, need to ensure that each product is manufactured using the right process. This is to ensure high quality products are produced. Nokia Corporation manufactures different products.

The product based organization structure helps the managers of the corporation to develop expertise in their duties.

Nokia Corporation changed its organization structure from product based organization structure to matrix organization structure.

The change of the organization structure is meant to ensure that Nokia Corporation remains competitive in cell phone market.

External environment plays a very crucial role in the operations of a company. Competition, technological changes, political changes and legal changes are examples of the external environment.

There have been changes in technology and competition, in the market place. Nokia has adapted to this change by changing its organizational structure.

For example, Nokia Corporation introduced a new department called multimedia division due to changes in technology. The change in organization structure has been useful to the corporation

The organic organization structure is flexible in nature and takes into account the external knowledge from third parties.

The type of organization structure exists where all employees are on the same level, and there are no defined job descriptions or classifications.

On the other hand, is rigid, high degree of job specialization and involves many levels of hierarchy.. Nokia Corporation should incorporate organic organization structure in product development.

The workers should be involved in decision-making regarding the components to be included in cell phones. High degree of decentralization acts as a motivation for workers.

The workers can contribute important ideas regarding the production process and how to improve on the quality of cell phones manufactured

Conclusion Organization structure is important in determining the success of an organization. A corporation should design an organization structure that incorporates all functional activities of Nokia's

Evolving Organizational Structure 6 the corporation. It is, therefore, important to have a good organizational structure with well defined duties and roles.

Case study Analysis: Things are changing at Procter & Gamble

For decades, procter & gamble was the dominant force in the soap and packaged- food industry. Its large bureaucratic structure- with autonomous divisions and centralized decision making- worked efficiently because p & g was the dominant player in almost every market in which it competed.

The practice of high centralization- for example the decision on whether the company’s new decaffeinated instant folger's coffee should have a green or gold cap went up to p & g’s ceo- worked because the company faced a stable environment. P & g didn’t introduce many new products because it didn’t have to. And when new products were developed, they went through long and through test-marketing before actual launching. P & g prided itself on following a low-risk approach to its business.

• In rece3nt years, however, P & G’s most respected and long-dominant brand names have found themselves up against vigorous competition.

• Long-time competitors were no longer content to live in P & G’s shadow.

• For example, Crest was losing market share to Colgate and new rival liquid detergents were eroding some of Tide’s market. P & G has responded with some dramatic structural changes.

• Interdivisional teams have been created to coordinate projects across divisional lines. Top management has begun to loosen its stranglehold on decision making: business teams have been created that can make decisions on everything from product development to cost-cutting.

• And production employees are making most day-to day operating decisions. As a result of theses changes, P & G has become a more aggressive and responsive force in its markets. It is now developing more products than ever before and getting them to the marketplace much quicker.

• We discussed organisations in an open-systems framework. The key to understanding organisations as open systems, we said, was the recognition that organisations interact with their environment. But since that introduction, we have said little about the environment and its impact on the organisation. In its Chapter, that omission will be rectified.

• A common theme in organisation theory is that organisations must adapt to their environments if they are to maintain or increase their effectiveness. In open- systems terms, we can think of organisations as developing monitoring and feedback mechanisms to identify and follow their environments, sense changes in those environments, and make appropriate adjustments as necessary. At Procter & Gamble, management realized that its environment had changed- competitors had become more aggressive- which required P & G to adapt if it were to continue to be the dominant force in its industry.

• We clarify what we mean by the term environment and assess the relationship between environment and structure. A central point throughout this chapter is that different organisations face different degrees of environmental uncertainty. Because managers do not like uncertainty, they try to eliminate it or, at least, minimize its impact on their organisation. We demonstrate that structural design is a major tool that managers have for controlling environmental uncertainty.

Environmental Uncertainty

• The environment is important because not all environments are the same. They differ by what we call environmental uncertainty. Some organisations face relatively static environments: few forces in their specific environment are changing.

• There are no new competitors, no new technological breakthroughs by current competitors, little activity by public pressure groups to influence the organisations, or such. Other organisations face very dynamic environments: rapidly changing government regulations affecting their business, new competitors, difficulties in acquiring raw materials, continually changing product preferences by customers, and so on. Static environments create significantly less uncertainty for managers than do dynamic ones. And since uncertainty is a threat to an organisation’s effectiveness, management will try to minimize it.

• We show that management’s concern is with reducing environmental uncertainty and that this can be accomplished through manipulation of the organisation’s structure.

Summaries of case study

Any organization is an open system between itself and its external environment up to aseries of relationships that influence each other. Organization influence the external environment primarily through its products and services, but also that it is socially responsible, is geared to various relationships with other organizations make their mark on the social community to which they belong. In turn, the external environment affecting the organization's work available in market information, input supply, the looming trends, new organizational and managerial changes.

It can be said that the following types of external environment are:• turbulent, characterized by rapid changes caused by technology, economic changes,political, legislative;• hostility, characterized by strong competition between customers, resources, or both,• diffracted, characterized by a variety of technologies, markets and cultures.As a result, the organization must be attentive to any stimulus from the externalenvironment, must continually adapt to it, and primarily involves adapting knowledge andinformation.

Conclusion

The structure of an organisation varies depending on a number of influencing factors Structure is influenced by the external environment in which the business operates as well

as its culture and the nature of the work and activities it undertakes. The structure can have both a positive and negative impact on a business. Having the right structure allows a business to respond and adapt to changes in the market

quickly. Innovation and creativity are usually found in flatter organisational structures and in

organisations with an entrepreneurial and employee focused culture,