Organization and Environmental 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.

Environmental Uncertainty

Organizations must manage environmental uncertainty to be effective. Uncertainty means that managers do not have sufficient information about environmental factors to understand and predict environmental needs and changes. As indicated in Exhibit 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 like Nortel Networks has thousands of factors in the external environment creating uncertainty for managers. When external factors change rapidly, the organization experiences very 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 environment. 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 mangers experience low uncertainty and can devote less attention to external issues.

Adapting to the Environment

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

Boundary Spanning Roles:

Roles assumed by people and / or departments that link and coordinate the organization with key elements in the external environment.

Departments and boundary spanning roles link and coordinate the organization with key elements in the external environment. Boundary spanners serve two purposes for the organizations. They detect and process information about changes in the environment and they represent the organization’s interest to the environment. Employees in engineering or research and developments scan for new technological developments, innovations and raw materials. People in departments such as marketing and purchasing span the boundary to work with customers and suppliers, 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, communicating with customers on company Web sites and contracting with market research firms such as Look-Look that use the Web to monitor rapidly changing marketplace trends.

A growing area in boundary spanning is competitive intelligent (CI), which refers activities to get as much information as possible about one’s rivals. Membership in the Society of Competitive Intelligence Professionals more than doubled between 1997 and 2001, and colleges are introducing master’s degree programs in CI.
Competitive intelligence specialists use Web sites commercial databases, financial reports, market activity, news clippings, trade publications, personal contacts, and numerous other sources to scan sources to scan an organization’s environment and spot potential threats or opportunities. Visa has an employee who searches the Web for two hours each day for insights on master card and other competitors. Harley Davidson, there is an outside research firm to search through massive amounts of data and real patterns that help decipher and predict competitors actions.

Managers need good information about their competitors’ customers and other elements of the environment to make good decisions. In today’s turbulent environment the most successful companies involve everyone in boundary spanning activities. People to the grass roots level, for instance are often able to see and interpret significant changes sooner than managers who are more removed from the day to day work. However, top executives too need to stay in tune with the environmental Tom Stemberg; CEO of Staples visits a competitor’s store once a week and shares what he learns with others on the management team.

Source: New Era Management