External Environment

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Chapter 4
The External Environment

The Environmental Domain

Organization Environment is composed of all elements that exist outside the boundary of the organization that have the potential to affect all or part of the organization. Its domain is the chosen field of action. The environment comprises several sectors or subdivisions of the environment that contain similar elements (ie. industry, raw materials, human resources, market, technology, financial resources, economic conditions, government, sociocultural, and international. •Task Environment – includes sectors with which the organization interacts directly and that have a direct impact on the organization’s ability to achieve its goals. oIndustry, raw materials, market sector and hr and international sectors •General Environment – includes sectors that might not have a direct impact on the daily operation of a firm but will directly influence it. oGovernment, sociocultural, economic conditions, technology, and financial resources sectors •International Context

oDomestic sectors can be affected by international events

Environmental Uncertainty

Responding to the need for information.
2 Ways the environment influences organizations: (1) the need for information about the environment and (2) the need for resources from the environment. Uncertainty applies to sectors that the organization deals with on a regular basis, the task environment, and this must be analyzed along dimensions of stability and degree of uncertainty. •Simple Complex Dimension concerns environmental complexity, the heterogeneity, or the number and dissimilarity of external elements relevant to an organization’s operations. o↑ in external factors and ↑ in # of organizations in that domain = ↑ complexity •Stable-Unstable Dimension refers to whether elements in the environment are dynamic oIf an environmental element remains the same over a period of months/ years = ↑ stability

Environmental Complexity
Environmental ChangeStableLow Uncertainty
Low number of external factors
Low change Low-Moderate Uncertainty
High number of external factors
Low change
UnstableHigh-Moderate Uncertainty
Low number of external factors
High changeHigh Uncertainty
High number of external factors
High change

Adapting to Environmental Uncertainty

Positions and Departments
An ↑ in complexity and uncertainty in the external environment = ↑ in # of positions and departments in the firm, which in turn ↑ internal complexity Buffering and Boundary Spanning
The purpose of buffering roles is to absorb uncertainty from the environment. Buffer departments (hr, purchasing, finance, legal) surround the technical core (primary org. function) and exchange resources and information between the organization and the external environment. •Some firms rid the organization of buffers and expose the technical core to the uncertain environment opening up the organization and making it more fluid and adaptable. •Boundary-spanning roles link and coordinate an organization with key elements in the external environment. Primarily concerned with exchange of information to: oDetect and bring in to the organization information about changes in the environment, and oSend information into the environment that presents the organization in a favourable light. •Business intelligence and competitive intelligence is necessary to analyze large amounts of data and find patterns. Differentiation and Integration

Organizational differentiation is “the differences in cognitive and emotional orientations among managers in different functional departments, and the difference in formal structure among these departments.” •When the external environment is complex and unstable, organizational departments become highly specialized to handle the uncertainty in the external sector. •High differentiation = difficult to coordinate between...
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