OD Final Chapter 4 PDF

OD Final Chapter 4: Organiza(ons are open social systems, involved with hundreds of elements in the external environment, which can be very complex. Changes in the environment create both threats & opportuni(es. The env. of an org. can be understood by analyzi...

OD Final Chapter 4: Organiza(ons are open social systems, involved with hundreds of elements in the external environment, which can be very complex. Changes in the environment create both threats & opportuni(es. The env. of an org. can be understood by analyzing its domain, which defines the external sectors it will interact with to accomplish its goals. Define organiza(onal environment? Everything that exists outside the boundary of the organiza(on and has the poten(al to affect all or part of it. Define domain? Chosen environmental field of ac(on. ka2enaha industry Like educa(on, health, entertainment etc. It’s the organiza(on’s territory in terms of products, services and markets served. Defines the niche. Defines the external sectors it will interact with to accomplish its goals. Define sector? A subdivision that contains similar elements in the environment. Each organiza(on can be analyzed based on 11 sectors that are categorized into either the ‘task environment’ or ‘general environment’. 1  Example: Domain = educa(on Sector = private Task Environment (5) Includes the sectors that the organiza(on interacts with directly & that have a direct impact on the organiza(on’s ability to achieve its goals. Sector What it includes Example Industry Compe&tors. Cafés & restaurants incorpora&ng healthy food Industry size & because it’s an industry trend. compe&&veness. Related industries. Department stores in south korea started selling online because online shopping compe&tors’ popularity grew due to the surge of smartphone use & low number of women in the workforce. Raw Suppliers. Adidas’ sales growth slowed in early 2019 Materials Manufacturers. because its suppliers in asia struggled to keep Real estate services. pace with the fast-growth as Adidas started to produce more mid-price clothing instead of high-end products. Nestlé faced challenges in its cocoa supply chain due to poor weather, crop diseases, and labor shortages in West Africa. This disrupted produc&on & inc. costs. Market Customers / Clients. Instapay. Poten&al users of Virtual Learning. products & services. Execu&ves at Univision found that 60% of Hispanics in the U.S. are millennials or younger so they’re adap&ng edgier, fast-paced shows to engage this key demographic. 2 Human Labor market. A &ght labor market can affect any org. even Resources Employment agencies. the FBI is struggling to find skilled candidates to Universi&es. fill the 900 special agent posi&ons that open Training schools. yearly, as they don’t receive enough Employees in other applica&ons to get a healthy pool of candidates. companies. Unioniza&on Interna6onal Compe&&on & Thousands of products were removed from acquisi&on by foreign Amazon’s website in India due to new e- firms. commerce rules that aim to help local retailers Globaliza&on. compete with foreign giants. This affected 40% Entry into overseas of Amazon’s sales in India. markets. Foreign customs. Regula&ons. Exchange rate. What’s the difference between industry sector & market sector? Market sector focuses on iden(fying and filling a gap or crea(ng a need / want in the market but the industry sector focuses on what’s happening in the industry and following it without having to fill any gap. 3  General Environment: (6) Sectors that might not have a direct impact on the daily opera(ons of a firm but will indirectly influence it & eventually affect it. Sector What it includes Example Government City / state / federal laws & Covid regula&ons for public regula&ons. places required organiza&ons Taxes. to add resources & inc. costs. Court system. Johnson & Johnson paid Poli&cal processes. millions of dollars and faced many lawsuits regarding the safety of its baby powder. Natural “All elements that occur naturally on à Inc. importance as consumers, earth.” org. & managers are becoming Green movement. more sensi&ve and focused on Sustainability. diminishing natural resources & Natural resource management. org. environmental impact. à Protec&on of the natural environment is becoming a cri&cal policy focus globally. H&M and Zara paper bags. Starbucks paper straws. Socio-cultural Pressure from various advocacy When McDonalds expanded groups. to Egypt = McFalafel & Demographics (age, values, beliefs, McArabia, France = wine w/ educa&on, religion, work ethic, food, India = no cow meat. consumer movements). In Egypt no cigarefe/ nico&ne ads. In Egypt no rivalry in ads so they blur out names of compe&tors. 4 Economic Recession. Recession affected Briggs Inc. condi6ons Unemployment rate. in 2008 because it’s an event Infla&on rate. planning company & it started Rate of investment. losing customers so it had to Economics. reduce its prices. Growth Infla&on affects demand & supply because consumers can’t buy the same products they used to. Technology Techniques of produc&on. à Massive changes con&nue to Science. occur because of the rise in AI & Computers. digital technologies. Informa&on technology. à People don’t accept E-commerce businesses w/out technology anymore. Hadia Ghaleb used AI to market for her new sunglasses line. Loreal used AI for users to test hair dyes. InstaShop. Waymo launched ride-share service using self-driving cars. Financial Stock markets. à Small businesses turn to Resources Banks. online person-to-person lending Savings and loans. networks due to banks &ght Private investors. lending standard, like valu. The 2008 Global Financial Crisis caused a liquidity crunch, making it hard for businesses like General Motors (GM) to access credit so they had major losses & went bankrupt in 2009. 5 Interna?onal Environment: Countries & organiza(ons around the world are more connected than ever, and economic, poli(cal & sociocultural changes in one part of the world eventually affect other areas. Uncertainty when entering a new market such as Uber trying to enter China and take from DiDi’s market-share. Interna(onal events such as the US and China trade war which increased import prices around the world. The Changing Environment Changes in the environment can de described along 3 primary dimensions: 1. Dynamism (events are stable or unstable). 2. Complexity (environment is simple or complex). 3. Abundance (amount of financial resources available). 6 What are the 2 essen(al ways that changes in the environment influence organiza(ons? 1. Need for info. about changes in the env. to be able to respond. 2. Need for resources from the env. to solve concerns about scarcity of finances & ensure availability. What is uncertainty? When decision makers don’t have sufficient info. about env. factors & they can’t predict external changes. Increases risk of failure for org. decisions. Makes it difficult to compute costs & probabili(es associated with decision alterna(ves. Organiza(ons must cope with & manage uncertainty to be effec(ve. How is uncertainty assessed? Each sector of the task environment is analyzed along dimensions such as dynamism & complexity. Total amount of uncertainty = the uncertainty accumulated across relevant task environment sectors. Complexity Defini(on: ‘Heterogeneity’ or the number & dissimilarity of external elements that affect an organiza(on’s opera(ons. Such as: compe(tors, suppliers, industry changes, gov. regula(ons. Complex environment = the org. interacts with & is influenced by many diverse external elements. e.g: pharmaceu(cal companies like Pfizer. Simple environment = the org. interacts with & is influenced by a few similar external elements. e.g: family-owned hardware store in a suburban community. 7 Dynamism Define: Whether the environment that the organiza(on operates in is stable or unstable. Stable / Low dynamism = remains essen(ally the same over a period of months or years. Unstable / High dynamism = environmental elements shi] rapidly. Instability can occur due to: Shi]s in the environment. Like changing consumer preferences, compe(tor innova(ons, new tech etc. e.g: fashion retailers (GAP), toy companies (Toys”R”Us). Specific, unpredictable events. e.g: Posts on the internet such as when United Airlines refused to compensate a musician for breaking his $3,500 guitar & he posted a song about it on Youtube & they ended up paying him a seelement. Framework for assessing environmental uncertainty 8  The dimensions of dynamism (stable–unstable) & complexity (simple–complex) can be combined into a framework for assessing environmental uncertainty. Simple, stable Low uncertainty Few external Slow changes, not environment elements rapid or unexpected. e.g: customers & suppliers. Complex, stable Moderate Many external Slow changes, not environment uncertainty elements rapid or unexpected. e.g: customers & suppliers & gov. regula(ons & labor market & raw materials… Simple, unstable Moderate to high Few external Rapid unexpected environment uncertainty elements changes that are hard to predict. e.g: social trends. Complex, unstable Greatest Many external Rapid unexpected environment uncertainty elements in changes that are various sectors hard to predict. of the env. 9 Adap?ng to Environmental Uncertainty (Dynamism & Complexity) From ch.3: Environmental uncertainty is a con(ngency to organiza(onal structure & internal processes, organiza(ons with high uncertainty encourage horizontal communica(on & collabora(on to adapt to changes. Organiza(ons with diff. levels of uncertainty will be managed & controlled differently in terms of: à posi(ons & departments. à rela(onship building. à differen(a(on & integra(on. à control processes. à future planning & forecas(ng. To obtain the right fit between the internal structure & external environment. 1. Adding Posi?ons & Departments: When environmental uncertainty increases internal complexity increases, because the number of posi(ons & departments increase as each sector in the external env. requires someone to deal with it. Under great uncertainty, managers allocate more resources to departments that will plan, deal with specific environmental elements & integrate diverse internal ac(vi(es. This rs is part of being an ‘open system’. à HR deals with labor market. à Marke(ng deals with customers. à Procurement deals with suppliers. 10 Example: PepsiCo added a new posi(on called ‘chief design officer’ to handle development & marke(ng, because the environment’s customers started to care more about appealing designs. 2. Building Rela?onships: § Buffering Roles: Tradi(onal approach Purpose = absorbs uncertainty from the environment to help stabilize the technical core. Acts as an intermediary between the external environment & the technical core to help it operate efficiently and focus on its primary ac(vi(es. How? Buffer departments surround the technical core & exchange materials, resources and money between the environment and the organiza(on. à HR department buffers the technical core by handling the uncertainty surrounding finding, training & hiring employees. à Procurement department buffers the technical core by stockpiling raw materials & supplies. A more recent approach is to drop buffering roles & expose the technical core to the uncertain(es in the env. Org. that do this believe that: à Being well connected to customers & suppliers is more imp. than internal efficiency. à Opening up the org. to the env. by building closer rs with external par(es will make it more fluid & adaptable. 11 Example: One way of doing this is by using cross-func(onal teams. At ‘Total Aeorneys’, a company providing so]ware & services to small law firms, teams engage directly with customers during development to test products and gather feedback. § Boundary-Spanning Roles: Link & coordinate the org. with key elements in the external environment. Main purpose: Exchange of informa(on à Detect & bring into the org. imp. info. about changes in the env. Why? To help with decision-making, keep managers informed and prevent the org. from stagna(ng. Example? Market research dep. scans & monitors trends in consumer tastes. à Send info. into the env. that makes the org. look good. Why? To influence people’s percep(on of the org. Example? Webpages, blogs, salespeople etc. Approaches to boundary-spanning: 1. Business Intelligence: High-tech analysis of large amounts of internal & external data, to spot paeerns & rela(onships that might be significant. Example: universi(es tracking applicants’ demonstrated interest. 2. Social Media Analy?cs: Gathering & analyzing data from social media plakorms to help make decisions about specific issues and keep up with latest trends. 12  3. Compe??ve Intelligence: Systema(c collec(on & analysis of public info. about rivals (new products, manufacturing costs etc.) to help strategic decision making. à Intelligence teams: Made up of? A cross-func(onal group of managers & employees, usually led by a CI professional. What do they do? Work together to gain a deep understanding of a specific business issue. Why? To present insights, possibili(es & recommenda(ons to top leaders. The best way for an organiza(on to cope with a complex environment is to develop a complex structure. True, as an organiza(on’s environment becomes more complex, it has to add jobs, departments & boundary-spanning roles to cope with all the elements in the environment and to stay effec(ve. 3. Differen?a?on & Integra?on: Differen?a?on: The differences in cogni(ve & emo(onal orienta(ons and formal structure among departments. (amtudes, values, goals, work orienta(on etc.) High environmental uncertainty = High differen(a(on, because departments become highly specialized to effec(vely handle uncertainty in their respec(ve external env. sector. Disadvantage of high differen(a(on? Coordina(on & collabora(on between departments becomes difficult and requires more (me and resources. 13 Integra?on: The quality of collabora(on among departments. Effec(ve integra(on achieves horizontal coordina(on across departments & mi(gates the challenges caused by high differen(a(on, improving organiza(onal performance. Hiring formal integrator roles, called: liaison personnel /project managers/ brand managers/ coordinators. Assigning management personnel to integra(on roles, like: commieees/ task forces. Organiza(ons perform beeer when differen(a(on & integra(on levels align with environmental uncertainty & complexity. à High uncertainty = high differen(a(on & high integra(on. à Low uncertainty = low differen(a(on & low integra(on. 4. Organic vs Mechanis?c Management Processes: As environmental uncertainty increases organiza(ons become more organic to be more fluid & able to adapt to changes rapidly. Stable environment à mechanis(c. Rapidly changing environment à organic. 5. Planning, forecas?ng and responsiveness: In a Stable Environment: Organiza(ons concentrate on current opera(onal problems & day- to-day efficiency. Long-term planning & forecas(ng are not as important, because environmental demands in the future are predictable and will probably stay the same. 14 In an Uncertain Environment: Planning and environmental forecas(ng are cri(cal to prepare the organiza(on for coordinated, quick responses & to so]en the impact of external changes. Good planning is not sufficient on its own & it’s not a subs(tute to other ac(ons like boundary-spanning and effec(ve integra(on. ‘Scenario Planning’ = Managers mentally rehearse different scenarios by an(cipa(ng various future changes that could affect the org. and poten(al moves & countermoves. In a vola(le, fast-changing environment, serious planning ac(vi(es are a waste of (me & resources? False, serious planning becomes more important in a turbulent environment, even though a plan will not last long it helps managers an(cipate and be prepared to respond to changes. Lack of planning makes more sense in a stable, easily predictable environment. Framework for Adap?ng to Environmental Uncertainty 15  Low Low-Moderate High-Moderate High Uncertainty Uncertainty Uncertainty Uncertainty Posi?ons & Few Many Few Many Departments departments departments departments departments Rela?onship Some Much boundary- Extensive Building boundary- spanning boundary- spanning spanning Control Mechanis(c Mechanis(c Organic Organic Processes Formal Formal Teamwork Teamwork Centralized Centralized Par(cipa(ve Par(cipa(ve Decentralized Decentralized Differen?a?on No integra(ng Few Few integra(ng Many & Integra?on roles integra(ng roles. integra(ng roles roles. Future Current Some Planning Extensive Planning & opera(ons planning. orienta(on. Planning. Forecas?ng orienta(on. Moderate- Fast- High-speed Low-speed speed response. response. response. response. Q: Why is a high uncertainty environment the most difficult from a management perspec(ve? Organiza(ons are large with many departments, but they are also organic. A lot of management personnel has to be assigned to coordina(on & integra(on roles such as task forces. Boundary spanning, planning & forecas(ng must be used effec(vely, to enable high-speed responses to environmental changes. 16 Abundance 1. Dependance on Financial Resources: ‘Resource Dependance’ = Organiza(ons depend on the env. for scarce financial resources but strive to acquire control over these resources to minimize dependance & vulnerability. Strategies to cope with resource scarcity: 1. Cumng costs by laying off employees, reducing investments etc. 2. Acquiring control over financial resources. 3. Sharing scarce resources with other org. to reduce costs & risks & become more compe((ve on a global level. Why does sharing resources present a dilemma to managers? Because they want to reduce resource vulnerability but also maintain independence & autonomy. Developing formal linkages with other organiza(ons provides access to resources but limits decision-making freedom due to coordina(on needs. So, organiza(ons with abundant resources avoid linkages to preserve independence, while org. lacking resources may sacrifice autonomy to secure them. 2. Influencing Financial Resources: Organiza(ons try to maintain a balance between dependency on other org. & preserving their own independence and autonomy by influencing (modify, manipulate, control) elements of the external env. to meet their needs. 2 strategies can be adopted to do this: 1. Establishing favorable rs with other org. 2. Shape the org. env. 17 Establishing Formal Rela?onships: 1. Acquiring an Ownership Stake: Par?al Ownership: When a firm invests in another company to get access to resources it doesn’t currently have. Acquisi?on: When an organiza(on buys another organiza(on & assumes control over it. Merger: Unifica(on of 2 or more organiza(ons into a single unit, so they combine resources & share risks to be more compe((ve. 2. Form Joint Ventures & Partnerships: Purpose à Formed when 2 companies have complementary business lines, geographical posi(ons, or skills as an alterna(ve to mergers or acquisi(ons. How à Through contracts & joint ventures, which reduce uncertainty through a legal binding agreement with another firm. Contracts: Provide long-term security by tying customers & suppliers to specific amounts & prices. License Agreements: Purchase of the right to use an asset (e.g: a new technology) for a specific (me. Example: Versace forged a deal to license its primary asset (its name) for a line of designer eyeglasses. Supplier Agreements: Sale of one firm’s output to another. 18 Joint Ventures: Crea(ng a new organiza(on that is formally independent but par(ally controlled by the parent companies. Why à To share risks, especially when companies are doing business in another country or on a global scale. Example: Arabian Cement Company (ACC) is a joint venture between a group of Egyp(an investors & Cementos La Unión, a Spanish company. The partnership combined the financial backing & local market knowledge of the Egyp(an investors with the technical exper(se & opera(onal capabili(es of Cementos La Unión. 3. Lock in Key Players: Coopta?on: When leaders from important sectors in the environment are made a part of the organiza(on. Their interests become aligned with the organiza(on’s goals. This psychological alignment results in favorable decision-making for the organiza(on. Example: If Influen(al customers or suppliers get appointed to the board of directors, like a senior bank execu(ve simng on the board of a manufacturing company. Interlocking Directorate: Formal linkage that occurs when a member of one company’s board of directors sits on another company’s board of directors. This member become a communica(on link between the 2 companies & can influence policies and decisions. Direct Interlock: When 1 person is the link between 2 companies. Indirect Interlock: 2 people from separate companies are linked through their shared membership on a 3rd company's board. 19  Creates a network of communica(on & poten(al collabora(on only as they have access to each other but don’t have direct influence over their respec(ve companies so they can’t directly influence the opera(ons, policies, or decisions of each other's organiza(ons. Firm’s financial fortunes dec. à direct interlocks with financial ins(tu(ons inc. Industry’s financial uncertainty inc. à indirect interlocks between compe(tors inc. Appoin?ng Leaders to Commicees / Task Forces: Important business or community leaders can be appointed to other organiza(onal commieees, task forces or advisory panels. They learn about the needs of the company & are more likely to consider its interests in their decision making. 4. Recruit Execu?ves: Transferring or exchanging execu(ves establishes favorable linkages with external organiza(ons. Benefits: Access to Informa(on: Execu(ves with prior roles in key external organiza(ons bring insider knowledge, improving understanding and enhancing effec(veness and strategic decision-making. Influence: Personal rela(onships and connec(ons enable beeer representa(on of the organiza(on's interests. Compe((ve Advantage: Personal connec(ons make org. beeer posi(oned to secure opportuni(es. Example: Aerospace industry hires re(red generals or former Department of Defense execu(ves to leverage their networks & knowledge for securing contracts & aligning with departmental needs. 20  5. Get Your Side of the Story Out: a) Adver?sing: To influence the taste & opinions of consumers. Imp. in industries that experience variable demand / are highly compe((ve. b) Public Rela?ons: To shape the company’s image in the mind of stakeholders (like customers, suppliers, gov. etc.) & cast it in a favorable light through speeches, websites, press reports, TV etc. Stories are free and aimed at public opinion. PR efforts can be enhanced by u(lizing modern tools like blogging, twee(ng & social networking. Example: Google does effec(ve PR through dona(ons, fellowship programs & conferences. Influencing Key Sectors: 1. Change Where You Do Business: Seek new environmental rela(onships & drop old ones. Change domain to stay compe((ve, find one that has: à liele compe((on. à no gov. regula(ons. à abundant suppliers. à affluent customers. à barriers to keep compe(tors out. E.g: Walmart selling online & Amazon opening physical stores. 2 techniques to changing domain: Acquisi?ons: Buying another company that does something else. E.g: Google acquiring Youtube to expand its domain beyond search. Divestments: Selling an asset or business to another company. E.g: Google selling Motorola Mobility smartphone to Lenovo to get out of the business of manufacturing phones. 21  2. Get Poli?cal: Poli(cal techniques & strategies are used to influence government legisla(on & regula(ons in favor of the organiza(on, such as: Erec(ng regulatory barriers to hinder new compe(tors. Preven(ng or nullifying unfavorable legisla(on. Influencing the appointment of officials who align with the organiza(on’s needs. Lobbying: Direct efforts to shape policies & regula(ons, o]en targe(ng local, state, and federal levels. à CEOs act as informal lobbyists due to their access & influence, making poli(cking a key aspect of their role. Example: ‘The American Hotel and Lodging Associa(on’ lobbied to restrict Airbnb because it’s a threatening compe(tor to it, including legisla(on imposing fines on hosts viola(ng housing rules. 3. Unite with Others: Influencing the external environment o]en requires joint efforts with other organiza(ons that share similar interests. So, org. join trade associa?ons = organiza(ons formed by businesses within a specific industry to advocate for their collec(ve interests. By pooling resources trade associa(ons can: Pay lobbying legislators. Influence new regula(ons. Develop PR campaigns to enhance public image of the industry. Make collec(ve poli(cal campaign contribu(ons to support favorable candidates. Provide networking opportuni(es for members to connect, share best prac(ces & collaborate on common goals. 22  4. Don’t Fall into Illegi?mate Ac?vi?es: Under condi(ons such as low profits, resource scarcity & pressure from senior managers, some managers turn to illegi(mate ac(vi(es to cope. But these usually backfire. Examples: Pay-offs to foreign governments. Price-fixes. Promo(onal gi]s. Illegal poli(cal contribu(ons. Bribes. à Most common especially when opera(ng globally. Q: Managers shouldn’t get involved in poli?cal ac?vi?es. A: False, they should get involved in lobbying & other poli(cal ac(vi(es to try to ensure that the consequences of new laws & regula(ons are in favor of their firms. Companies pay huge fees to associa(ons & lobbyists to make sure government ac(ons work out in their favor. 23