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Copyright 2007 Prentice Hall 13-

Organizational Theory, Design, and Change

Fifth EditionGareth R. Jones

Chapter 3

Managing in a Changing Global

Environment


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


Figure 3-1: The Organizational Environment


The Specific EnvironmentThe forces from outside

stakeholder groups that directly affect an organization’s 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


The General Environment

The forces that shape the specific environment and affect the ability of all organizations in a particular environment to obtain resources


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


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 nation’s people Shape organization’s customers,

managers, and employees


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


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


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


Sources of Uncertainty in the Environment (cont.) Environmental richness: the

amount of resources available to support an organization’s 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


Figure 3-2: Three Factors Causing Uncertainty


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


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


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


Figure 3.3: Interorganizational Strategies for Managing Symbiotic Interdependencies


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


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


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


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 group’s interests


Figure 3-4: Types of Strategic Alliances


Figure 3-5: The Fuyo Keiretsu


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


Figure 3.6: Joint Venture Formation


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


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


Et fiyatları Rekabet Kurulu'na şikayet edildi

Tüketiciler Birliği Başkan Vekili Mehmet Muta Şahin ''Et fiyatları üzerinden haksız kazanç elde etmeye çalışan firmaları Rekabet Kuruluna şikayet ettik'' dedi.


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


Figure 3-7: Interorganizational Strategies for Managing Competitive Interdependencies


Transaction Cost TheoryTransaction 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


2009 Nobel Prize in Economics: Economic governance


Sources of Transaction CostsEnvironmental 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


Figure 3-8: Sources of Transaction Costs


Cooperation vs. opportunism: The prisoner’s dilemma

Prisoner B Stays Silent Prisoner B Betrays

Prisoner A Stays Silent Each serves 6 months Prisoner A: 10 yearsPrisoner B: goes free

Prisoner A Betrays Prisoner A: goes freePrisoner B: 10 years

Each serves 5 years


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


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


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


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


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


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


Franchising

A franchise is a business that is authorized to sell a company’s 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


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