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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
Copyright 2007 Prentice Hall 23-
Learning Objectives
1. List the forces in an organization’s specific and general environment that give rise to opportunities and threats
2. Identify why uncertainty exists in the environment
3. Describe how and why an organization seeks to adapt to and control these forces to reduce uncertainty
Copyright 2007 Prentice Hall 33-
Learning Objectives (cont.)
4. Understand how resource dependence theory and transaction cost explain why organizations choose different kinds of interorganizational strategies to manage their environments to gain the resources needed to achieve their goals and create value for the stakeholders
Copyright 2007 Prentice Hall 43-
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
Copyright 2007 Prentice Hall 53-
Figure 3-1: The Organizational Environment
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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
Copyright 2007 Prentice Hall 73-
The General Environment
The forces that shape the specific environment and affect the ability of all organizations in a particular environment to obtain resources
Copyright 2007 Prentice Hall 83-
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
Copyright 2007 Prentice Hall 93-
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
Copyright 2007 Prentice Hall 103-
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
Copyright 2007 Prentice Hall 113-
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
Copyright 2007 Prentice Hall 123-
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
Copyright 2007 Prentice Hall 133-
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
Copyright 2007 Prentice Hall 143-
Figure 3-2: Three Factors Causing Uncertainty
Copyright 2007 Prentice Hall 153-
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
Copyright 2007 Prentice Hall 163-
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
Copyright 2007 Prentice Hall 173-
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
Copyright 2007 Prentice Hall 183-
Figure 3.3: Interorganizational Strategies for Managing Symbiotic Interdependencies
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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
Copyright 2007 Prentice Hall 203-
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
Copyright 2007 Prentice Hall 213-
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
Copyright 2007 Prentice Hall 223-
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
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Figure 3-4: Types of Strategic Alliances
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Figure 3-5: The Fuyo Keiretsu
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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
Copyright 2007 Prentice Hall 263-
Figure 3.6: Joint Venture Formation
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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
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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
Copyright 2007 Prentice Hall 293-
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
Copyright 2007 Prentice Hall 303-
Figure 3-7: Interorganizational Strategies for Managing Competitive Interdependencies
Copyright 2007 Prentice Hall 313-
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
Copyright 2007 Prentice Hall 323-
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
Copyright 2007 Prentice Hall 333-
Figure 3-8: Sources of Transaction Costs
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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
Copyright 2007 Prentice Hall 353-
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
Copyright 2007 Prentice Hall 363-
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
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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
Copyright 2007 Prentice Hall 383-
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
Copyright 2007 Prentice Hall 393-
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
Copyright 2007 Prentice Hall 403-
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
Copyright 2007 Prentice Hall 413-
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