The Organization–Environment Relationship

Why do organizations  care so much about factors in the external environment? The reason is that the environment  creates uncertainty  for organization  managers, and they must respond by designing the organization to adapt to the environment.

1. ENVIRONMENTAL  UNCERTAINTY

To  be  effective,  organizations   must manage environmental   uncertainty. Uncertainty means that managers do not have sufficient information  about environmental factors to understand and predict  environmental  needs and changes.28 As indicated in Exhibit 2.3, environmental  characteristics that influence  uncertainty  are the number of factors that affect the organization and the extent to which those factors change. A large multinational such as Nortel Networks  has thousands of factors in the external environment creating un- certainty for managers. When  external factors change rapidly, the organization  experiences high uncertainty.  Examples are telecommunications  and aerospace firms, computer and electronics companies, and e-commerce organizations that sell products  and services over the Internet.  Companies have to make an effort to adapt to the rapid changes in the envi- ronment. When an organization deals with only a few external factors and these factors are relatively stable, such as for soft-drink bottlers or food processors, managers experience low uncertainty  and can devote less attention to external issues.

2. ADAPTING TO THE ENVIRONMENT

If an organization faces increased uncertainty with respect to competition,  customers, suppliers, or government reg- ulations, managers can use several strategies to adapt to these  changes,  including boundary-spanning  roles, interorganizational partnerships, and mergers  or joint ventures.

People in departments such as marketing and purchas- ing span the boundary to work with customers and suppli- ers, both face-to-face  and through  market research. Some organizations  are staying in touch with customers through the Internet,  such as by monitoring  gripe sites, communi- cating with customers on company websites, and contract- ing with market-research firms that use the web to moni- tor  rapidly  changing marketplace trends.29 Another approach to boundary  spanning  is the use of business intel- ligence, which results from using sophisticated software to search through large amounts of internal and external data to spot patterns, trends, and relationships that might be significant. For example,  Verizon uses business  intelli- gence software  to actively monitor customer interactions and fix problems almost immediately.30

Boundary spanning  is an increasingly  important task in organizations because environmental shifts can happen so quickly  in today’s world. To make good de- cisions,  managers need good information about their competitors, customers, and other elements of the en- vironment. Thus, the most successful companies  in- volve everyone in boundary-spanning activities. People at the grassroots often  can see and interpret significant changes sooner than managers who are more removed from the day-to-day work.31 But top executives, too, have to stay in tune with the environment. Tom Stemberg, CEO of Staples, visits a competi- tor’s store  once  a week  and shares what he learns with others on the management team.32 Perceiving environmental shifts that could impact the organization isn’t always easy. Managers  must learn to not only interpret the data right in front of them but also to see weak  signals  on the periphery and answer the question, “What don’t we know that might matter?”

Managers  are shifting from an adversarial orientation  to a partnership orientation,  as summarized in Exhibit 2.4. The new paradigm  is based on trust and the ability  of partners to work out equitable solutions to conflicts so everyone  profits from the relationship. Managers work to reduce costs and add value to both sides rather than try to get all the benefits for their own company. The new model also is characterized by a high level of information sharing,  including e-business  link- ages for automatic ordering, payments, and other transactions.

In addition, person-to-person interaction pro- vides corrective  feedback  and solves problems. People from other companies may be onsite  or participate in virtual teams to enable close coordi- nation. Partners frequently  are involved  in one another’s product design and production,  and they are committed  for the long term. It is not unusual for business partners  to help one another,  even outside of what is specified in the contract.34

A  step beyond  strategic  partnerships  is for companies to become involved in mergers or joint ventures to reduce environmental uncertainty.  A merger occurs when two or more organizations combine to become  one. For example,  Wells Fargo merged with Norwest Corp. to form the nation’s fourth largest  banking corporation.  A joint venture  involves  a  strategic  alliance or program by two or more organizations. A joint venture typically occurs when a project  is too com- plex, expensive, or uncertain for one firm to han- dle alone. Oprah Winfrey’s Harpo Inc. formed  a joint venture with Hearst Magazines to launch O, The Oprah Magazine.

Source: Daft Richard L., Marcic Dorothy (2009), Understanding Management, South-Western College Pub; 8th edition.