The Environment and Organizational Effectiveness

8/10/2019 The Environment and Organizational Effectiveness

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EM502: Principles of Management

Term Paper on

The Environment and Organizational

Effectiveness

For

EM502 Sec 1

Principles of Management

From

S.K. Siddiq AhamedID 3-14-27-033Sharmila PodderID 3-14-27-030

A. S. Md. Ferdousul HaqueID- 3-14-27-044Alia ShamsID 3-14-27-066


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Table of Content:

No Topic Page

1 Introduction 32 Organizational Environment 4

3 Types of Environment 4

3.1 Types of External Environments

3.2 Major Elements of the General Environment

3.3 The Task Environment

3.4 Elements of the Task Environment

4 The Organizational Culture 10

4.1 Components of Organizational Culture

4.2 Organizational Climate

5 Organization-Environment Relationship 13

5.1 Theories of Organization-Environment Relationships

5.2 Organization and Environment Framework

5.3 How Environment affects Organization

5.4 Assessment of Environment

5.5 How Organization Affect Environment6 Organizational Effectiveness 23

6.1 Four approaches to organizational effectiveness

7 Conclusion 26

References


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1.Introduction:

Organizations do not exist in a vacuum. They are constantly being affected by external forceswhich determine an organizations effectiveness and performance. Therefore, it is imperative forthe management of any organization to examine components of their firms external and internalenvironments to understand the dynamic and far-reaching changes that are occurring. This

presentation focuses on the environmental factors that companies need to analyze for developingstrategic options.

The workplace environment impacts employee morale, productivity and engagement - both positively and negatively. The work place environment in a majority of industry is unsafe andunhealthy. These includes poorly designed workstations, unsuitable furniture, lack of ventilation,inappropriate lighting, excessive noise, insufficient safety measures in fire emergencies and lackof personal protective equipment. People working in such environment are prone to occupationaldisease and it impacts on employees pe rformance. Thus productivity is decreased due to theworkplace environment.

It is the quality of the employees workplace environment that most impacts on their level ofmotivation and subsequent performance. How well they engage with the organization, especiallywith their immediate environment, influences to a great extent their error rate, level of innovationand collaboration with other employees, absenteeism and ultimately, how long they stay in the

job.

Creating a work environment in which employees are productive is essential to increased profitsfor your organization, corporation or small business. The relationship between work, theworkplace and the tools of work, workplace becomes an integral part of work itself. Themanagement that dictate how, exactly, to maximize employee productivity center around twomajor areas of focus: personal motivation and the infrastructure of the work environment.


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2.Organi zational Envir onment:Organizational environment refers to the forces that can make an impact. Forces made upopportunities and threats. An organization does not exist in isolation. It works with the overallenvironment. Scholars have divided these environmental factors into two main parts, 1) InternalEnvironment2) External Environment, it is further divided into specific and general environment(Robbins, S.P.2008)

Organizational environment determines the manner and extent to which roles, power, andresponsibilities are delegated, controlled, and coordinated, and how information flows betweenlevels of management. This structure depends entirely on the organization's objectives and thestrategy chosen to achieve them. According to Lusthaus, Anderson and Murphy: Environment is

made up of the administrative, technological, political, economic, socio-cultural, and stakeholderfactors. According to Nabli and Nugent that each organization is set in a particular environmentto which it is inextricably linked. This environment provides multiple contexts that affect theorganization and its performance, what it produces, and how it operates.

3.Types of Envir onment :

a) External Environment

b) Internal Environment

a) External Environment

Major forces outside the organization with potential to influence significantly a productorservice's likely success is called its external environment.

The conditions, entities, events, and factors surrounding an organization that influence itsactivities and choices, and determine its opportunities and risks are called external environment.It is also called operating environment.


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3.1Types of External Environments:

The insights derived from systems theory have helped to highlight the importance of a managedinteraction between an organization and its external environment. Two major divisions have

been made in the external environment:

i. The General Environmentii. The Task Environment

i . The General Envir onment

The general environment as it is sometimes called is that segment of the externalenvironment

that reflects the broad conditions and trends in the societies within which an organizationoperates.

3.2 M ajor El ements of the General Environment

1. TheTechnological E lement: It reflects the current state of knowledge regarding the production of products and services.

a. Technology is a particular state of knowledge. It is not "things." A computer, for instance, isan artifact or an example of technology and is not technology itself.

b. Research indicates that technology tends to evolve through periods of incremental change punctuated by technological breakthroughs that either enhance or destroy the competence of

firms in an industry.

c. Numerous publications (such as Business Week, Forbes, etc.) and on-line services (such asLEXIS/NEXIS) provide information regarding technological and other environmental elements


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2.The Economic Element: The mega-environment encompasses the systems of producing,distributing, and consuming wealth.

a. In a capitalist economy, economic activity is governed by market forces and the means of production are privately owned by individuals, either directly or through corporations.

b. In a socialist economy, the means of production are owned by the state andeconomic activity is coordinated by state plan.

c. In practice, countries tend to have hybrid economies, incorporating elements ofcapitalism and socialism.

d. Organizations are influenced in any given economic system by a variety ofeconomic conditions over which they have little control, such as inflation and interest rates

3. The L egal-politi cal E lement: The mega-environment includes the legal andgovernmental systems within which an organization must function.

a. Organizations must operate within the general legal framework of the countries in which theydo business.

b. Organizations are subject to an increase in lawsuits filed by customers oremployees.

c. The political issues which affect organizations include those which influence theextent of government regulation

4. The Socio-cul tur al E lement: The mega-environment includes the attitudes, values,norms, beliefs, behaviors, and associated demographic trends that are characteristic of a givengeographic area.

a. The sociocultural element is of particular importance to multinational corporations.

b. Sociocultural trends can result in important shifts in demand for products


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5. The I nternational E lement: The mega-environment includes the developments incountries outside an organization's home country that have the potential impact to theorganization. International factors far beyond the direct influence of a particular organization canhave profound effects on its ability to operate successfully.

a. Fluctuations of the dollar against foreign currencies influence the ability of anorganization to compete in international markets.

b. Free-trade agreement, such as the NAFTA, GATT can affect an organizationeither positively or negative

3.3 The Task Environment

The task environment is that segment of the external environment made up of specific outsideelements (usually organizations) with which an organization interfaces in the course ofconducting its business. The task environment depends on the products and services theorganization offers and the locations where it conducts business. The organization may be moresuccessful in affecting its task environment than it is its mega-environment.

3.4 El ements of the Task Envi ronment:

1 An organization's customers and clients are those individuals and organizations that purchaseits products and/or services. It is becoming increasingly important to stay in touch withcustomers' needs.


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Figure: 1 Types of Environment

2. An organization's competitors are other organizations that either offers of have a high potential of offering rival products or services.

a. Organization needs to keep abreast of who their competitors are and what they are doing.

b. Ways to track what competitors are doing include obtaining information from commercial data bases, specialty trade publications, news clippings from local newspaper, help-wanted ads,


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published market research reports, business reports, trade shows, public filings, advertisements,and personal contacts.

3. An organization's suppliers are those individual organizations that supply the resources (suchas raw materials, products, or services) the organization needs to conduct its operations.

4. An organization's labor supply consists of those individuals who are potentially employable by the organization.

5. Various government agencies provide services and monitor compliance with laws andregulations at local (e.g., consumer affairs), state or regional (e.g., health department), andnational (e.g., CBR) levels

b) The I nternal Envir onment

An organization's internal environment is composed of the elements within the organization,including current employees, management, and especially corporate culture, which definesemployee behavior. Although some elements affect the organization as a whole, others affectonly the manager. A manager's philosophical or leadership style directly impacts employees.Traditional managers give explicit instructions to employees, while progressive managersempower employees to make many of their own decisions. Changes in philosophy and/orleadership style are under the control of the manager. The following sections describe some ofthe elements that make up the internal environment.


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Figure: 2 Multiple stakeholders in the environment of an organization

4. The Organizational Culture :

It is an organization's personality. Just as each person has a distinct personality, so does eachorganization. The culture of an organization distinguishes it from others and shapes the actionsof its members.


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4.1Components of Organi zational Cul tur e:

a) Values

b) Heroes

c) Rites and rituals

d) Social network

a) Values: The basic beliefs that define employees' successes in an organization. Forexample, many universities place high values on professors being published. If a facultymember is published in a professional journal, for example, his or her chances of receivingtenure may be enhanced. The university wants to ensure that a published professor stays withthe university for the duration of his or her academic career and this professor's ability towrite for publications is a value.

b) H eroes: The second component is heroes. A hero is an exemplary person who reflects theimage, attitudes, or values of the organization and serves as a role model to other employees.A hero is sometimes the founder of the organization (think Sam Walton of Wal Mart).However, the hero of a company doesn't have to be the founder; it can be an everydayworker, such as hard working paralegal Erin Brockovich, who had a tremendous impact onthe organization.

c) Rites and Ritu als :The third component, are routines or ceremonies that the company

uses to recognize high performing employees. Awards banquets, company gatherings, and

quarterly meetings can acknowledge distinguished employees for outstanding service. Thehonorees are meant to exemplify and inspire all employees of the company during the rest ofthe year.


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d) Social N etwork :The final component, the social network, is the informal means ofcommunication within an organization. This network, sometimes referred to as the companygrapevine, carries the stories of both heroes and those who have failed. It is through thisnetwork that employees really learn about the organization's culture and values.

4.2 Organi zational Cli mate

A byproduct of the company's culture is the organizational climate. The overall tone of theworkplace and the morale of its workers are elements of daily climate. Worker attitudes dictatethe positive or negative atmosphere of the workplace. The daily relationships and interactionsof employees are indicative of an organization's climate.

a) Resources are the people, information, facilities, infrastructure, machinery, equipment,supplies, and finances at an organization's disposal. People are the paramount resource ofall organizations. Information, facilities, machinery equipment, materials, supplies, andfinances are supporting, nonhuman resources that complement workers in their quests to

accomplish the organization's mission statement. The availability of resources and theway that managers value the human and nonhuman resources impact the organization'senvironment.

b) Philosophy of management is the manager's set of personal beliefs and values about people and work and as such, is something that the manager can control. McGregoremphasized that a manager's philosophy creates a self fulfilling prophecy. Theory Xmanagers treat employees almost as children who need constant direction, while Theory

Y managers treat employees as competent adults capable of participating in work relateddecisions. These managerial philosophies then have a subsequent effect on employee

behavior, leading to the self fulfilling prophecy. As a result, organizational philosophiesand managerial philosophies need to be in harmony.


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c) The number of coworkers involved within a problem solving or decision making processreflects the manager's leadershi p style. Empowerment means delegating to subordinatesdecision making authority, freedom, knowledge, autonomy, and skills. Fortunately, mostorganizations and managers are making the move toward the active participation andteamwork that empowerment entails.

When guided properly, an empowered workforce may lead to heightened productivity andquality, reduced costs, more innovation, improved customer service, and greater commitmentfrom the employees of the organization. In addition, response time may improve, becauseinformation and decisions need not be passed up and down the hierarchy. Empoweringemployees makes good sense because employees closest to the actual problem to be solved orthe customer to be served can make the necessary decisions more easily than a supervisor or

manager removed from the scene.

5. Organi zation-Environment Relationshi p

Organizations are open systems and must relate to their environments. They must acquire the

resources and information needed to function; they must deliver products or services that arevalued by customers.An organization's strategy--how it acquires resources and delivers outputs--is shaped by particular aspects,and features of the environment.

Thus, organizations can devise a number of responses for managing environmental interfaces,frominternal administrative responses, such as creating special units to scan the environment, toexternalcollective responses, such as forming strategic alliances with other organizations.

5.1 Theori es of Organization -Envi ronment Relationshi ps

A) Contingency Theory

Most effective way to organize is contingent on complexity and change in environment


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Stable environments: Mechanistic structures (specialization, formality, hierarchy

Changing environments: Organic structures (less specialization, informality, lateralrelations)

B) Resource Dependence

Organizations obtain scarce and valued resources from environments

Desire to control these resources to minimize dependencies

Processes and transactions used to obtain resources develop dependencies

Balancing act of maintaining autonomy and recognizing dependencies

C) Strategic Choice

Managers perceive environments

Make strategy and design structure Re-strategize when changes are perceived

Managers enact environments through their decision-making choices

Since managers perceive differently, they bring organizations in differentdirections

Example: Sears vs. Montgomery Ward

D) Population Ecology

Focus is on whole population of organizations (e.g., gasoline stations in Canada; wine

industry in California)

Natural selection processes:Variation Selection Retention

Unsuccessful organizational forms die out

Environmental determinism


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select from a range of raw material suppliers, applicants for employment,customerdemographics, and production technologies to achieve desired outcomes effectively.

Organizations are thus dependent on their environments. They need to manage externalconstraints andcontingencies and take advantage of external opportunities. They also need toinfluence the environment infavorable directions through such methods as political lobbying,advertising, and public relations.

Second, several useful dimensions capture the nature of organizational environments. Someenvironmentsare rapidly changing and complex, and so require different organizationalresponses than do environmentsthat are stable and simple. For example, chewing gummanufacturers face a stable market and use well-understood production technologies. Their

strategy and organization design issues are radically different fromthose of software developerswho face product life cycles measured in months instead of years, where laborskills are rare andhard to find, and where demand can change drastically overnight identify environmentaldimensions that influence organizational responses to external forces.

5.3 H ow Environments Affect Organizations

Three basic perspectives can be used to describe how environments affect organization-

Environmental Change and Complexity

Competitive Forces

Environmental Turbulence


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Environmental Change and Complexi ty

According to the theory of James Thompson, environment can be described alongtwo dimensions

Degree of Change

Degree of Homogeneity

Degree of Change :The extent to which the environment is relatively stable or relativelydynamic

Degree of H omogeneity : The extent to which the environment is relatively simple havingfew elements and little segmentation or complex having many elements and many segmentation.

These two dimensions interact to determine the level of uncertainty faced by the organization.

Uncertainty:

Uncertainty in turn is a driving force that influences many organizational decisions.

a) Least Uncertainty: It is faced by organizations with stable and simple environments.

Although no environment is totally without uncertainty, so these kind of uncertainty is inthe lowest level of uncertainty.

b) Moderate Uncertainty: Organizations having dynamic but simple environments generallyface a moderate degree of uncertainty. Another combination of factors is is one of thestability and complexity, also for this reason moderate uncertainty occurs.


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C) Most Uncertainty:

Very dynamic and complex environmental conditions yield a high degree of uncertainty. The

environment has large number of elements and the nature of those elements is constantlychanging. Internet based firms face high levels of uncertainty.

Figure: 3 Environmental Changes, Complexity & Uncertainty


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5.4. Assessment of Environment:

Michhael E.Portar, a Harvard professor and expert in strategic management, has proposed a moredefined way to assess environment. Particullarly, he suggests that managers view theenvironments of their organization in terms of five competitive forces.

Competitive Forces

The threat of new entrants Competitive Rivalry The threat of substitute products

The power of Buyer The power of Suppliers

The Threat of New Entrants:

It is the extent through which new competitors can easily enter a market or market segment. Theadvent of the Internet has reduced the costs and other barriers of entry in many market segments,

so the threat of new entrants has increased for many firms in recent years.

Complexity Rivalry:

It is the nature of competitive relationship between dominant firms in the industry.

The threat of substitute products:

It is the extent to which alternative products or services may supplant or diminish the need forexisting products or services.


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The power of buyers:

It is the extent to which buyers of the products or services in an industry have the ability toinfluence the suppliers.

The power of Suppliers:

It is the extent to which suppliers have the ability to influence potential buyers.

Environmental Turbulence:

Although always subject to unexpected changes and upheavals, the five competitive forces cannever be studied and assessed systematically and plans developed for dealing with them. At thesame time, organizations face the possibility of environmental change or turbulence,occasionally with no warning at all. The most common form of organizational turbulence is acrisis of some sort.

5.5 H ow Organi zation Af fect Environment:Each organization must assess its own unique situation and then adapt according to the wisdomof its senior management.

The below figure shows six basic mechanisms through which organizations adapt to theirenvironment.


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a) Information Management:

One way organizations adapt to their environments is through information management.Information management is especially important when forming an initial understanding of theenvironments and when monitoring the environment for signs of change. One technique formanaging information is relying on boundary spanners. A boundary spanner is an employee suchas a sales representative or a purchasing agent, who spends much of his time in contact with

others outside the organization. Such people are in a good position to learn what otherorganizations are doing. All effective managers arrange in environmental scanning , the processof actively monitoring the environments through activities such as observation and reading.Within the organization, most firms have also established computer-based information systemsto gather and organize relevant information for managers and to assist in summarizing thatinformation in the form most pertinent to each managers needs.


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b) Strategic Response :

Another way that an organization adapts to its environments is through a strategic response.Options include maintaining the job status guo, altering strategy a bit and adapting the newstrategy. If any market having a company finds that the company currently serves is growing

rapidly, the firm might decide to invest to invest even more heavily in products and services forthe market. If any market is shrinking or does not provide reasonable possibilities for growth, thecompany may decide to cut back.

c) Mergers, Actuations and Alliances:

A merger occurs when two or more firms combine to form a new firm.

Acquisition occurs when one firm buys another firm sometimes against its will. The firm takenover may cease to exist and becomes part of the other company.

The acquired firm may continue to operate as a subsidiary of the acquiring company. In a partnership or alliances, firm undertakes a new venture with another firm. A company engages inthese kinds of strategies for a variety of reasons, such as easing an entry into new markets orexpanding its presence in a current market.

d) Organization design and flexibility:

An organization may also adapt to environmental conditions by incorporating flexibility in itsstructural design. A company that operates in in an environment with relatively low levels ofuncertainty might choose to use a design with many basic rules, regulations and standardoperating systems. A company that faces a great deal of uncertainty might choose a design withrelatively few standards operating system, instead of allowing managers considerable discretionand flexibility with decisions.

e) Direct Influence:

Organizations are not always helpless in the face of their environments indeed; manyorganizations are able to directly influence their environments in many different ways. Companycan influence their suppliers by signing long-term contacts with fixed prices. Organizationsinfluence their consumers by creating new users for a product, finding new customers, taking


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customers away from competitors and convincing them that they need something new.Organizations influence their regulators through lobbying and bargaining.

f)

Social Responsibility:Ethics relate to individuals and their decisions and behaviors. Organizations do not have ethics,

but relate to their environment in ways that often involve ethical dilemmas and decisions. Thesesituations are generally referred to within the context of the organizations social responsibility. .Social responsibility is the set of obligations of an organization that has to protect and enhancethe social context in which it functions. Organizations may execise social responsibility towardtheir stakeholders, toward the natural environment and toward general social welfare. Someorganizations acknowledge their responsibilities in all three areas and strive diligently to meeteach of them, whereas others emphasize only one or two areas of social responsibility.

6. Organizational Effectiveness :

The effective organization has integrating devices consistent with the diversity of its

envir onment. The more diverse the envir onment and th e more dif ferentiated the organization,the more elabor ate the integrating devices.

Paul L awrence and Jay Lorsch

It is the concept of how effective an organization is in achieving the outcomes the organizationintends to produce. Organizational effectiveness is an abstract concept and is basicallyimpossible to measure.It follows that effectiveness is related to ultimately to how well anorganization

understands

reacts to

And influences its environments.

Instead of measuring organizational effectiveness, the organization determines proxy measureswhich will be used to represent effectiveness. We may include such things as efficiency of


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management, performance of employees, core competencies, number of people served, types andsizes of population segments served and so on . So we focused on the performance of theemployees that to what extend this proxy measure contributes in Organizational effectiveness.

6.1 F our Approaches to Organizational Ef fectiveness

A) Goal A pproach

The Goal Approach is also called rational-goal or goal-attainment approach ; it has its originsin the mechanistic view of the organization. This approach assumes that organizations are

planned, logical, goal-seeking entities and they are meant to accomplish one or more predetermined goals. Goal approach is worried with the output side and whether or not theorganization attains its goals with respect to preferred levels of output. It sees effectiveness withrespect to its internal organizational objectives and performance. Typical goal-attainment factorsinclude profit and efficiency maximization.

The key constraint of this approach pertains to the content comparability of organizational goals.The dependable identification of comparable and practically appropriate goals within groups oforganizations is thus a serious problem. What a company declares as it s formal goals dontalways echo the organizations actual goals. Therefore, an organizations formal goals are

typically dependent upon its standards of social desirability. As goals are dynamic, hence theywill probably change as time passes, simply because of the political make-up of anorganization. Organizations short-term goals are usually not the same as their long termgoals. The utilization of goals as a standard for assessing Organizational Effectiveness ischallenging. The goal approach presumes consensus on goals. Considering the fact that there arenumerous goals and varied interests inside an organization, consensus, is probably not possible.

B) System Resour ce Approach

This approach to Organizational Effectiveness was developed in response to the goalapproach. The System Resource Approach sees an organization as an open system. Theorganization obtains inputs, participates in transformation processes, and generates outputs. Thisapproach emphasizes inputs over output. It sees most organizations as entities which function inorder to survive, at the same time rivaling for scarce and valued resources. It assumes that the


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organization consists of interrelated subsystems. If any sub-system functions inefficiently, it isgoing to influence the performance of the whole system.

The disadvantages of this approach relate to its measurement of means. An issue with thisapproach is that a higher amount of obtained resources is not going to promise effective usage. In

addition, it is tough to define an ideal degree of resource acquisition across distinctorganizations.

C) I nternal -Process Approach

This approach has been developed in response to a fixed output view of the goal approach. Itlooks at the internal activities. Organizational effectiveness is assessed as internal organizationalhealth and effectiveness. According to Internal-Process Approach effectiveness is thecapability to get better at internal efficiency, co-ordination, commitment and staff satisfaction.This approach assesses effort as opposed to the attained effect.

Some experts have criticized the internal-process approach, like the system-resource approach,cannot lead to legitimate indicators of organizational effectiveness itself. Rather, it is accepted asan approach for studying its assumed predictors. Similar to the system-resource approach, theinternal-process approach could possibly be applied only where comparable organizationaloutcomes can hardly be assessed accurately.

D) Strategic Consti tuencies Appr oach

This approach suggests that an efficient organization is one which fulfills the demands of thoseconstituencies in its environment from whom it needs support for its survival. It assesses theeffectiveness to satisfy multiple strategic constituencies both internal and external to theorganization. Strategic Constituencies Approach is ideal for organizations which rely highlyon response to demands. The Strategic-constituencies approach takes explicitly intoconsideration that organizations fulfill multiple goals: each kind of organizational constituency(like proprietors, workers, consumers, the local community, etc.) is supposed to have distinctinterests vis --vis the corporation, and will thus use different evaluation criteria.

However, the job of isolating the strategic constituencies from their environment within whichthey function is a challenging and tricky task. Because the environment swiftly changes, what


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was a crucial goal today might not be so tomorrow. Individual constituents may createsignificantly diverse ratings of organizations effectiveness. These constituents may use diversefactors or weight the same criteria in a different way.

REFERENCES

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12) Higgs, Julia L., Workplace Environment in a Professional Services Firm, BehavioralResearch in Accounting , January 2002 .

13) Kaczmarczyk, S., Murtough, J., "Measuring the performance of innovative workplaces",Journal of Facilities Management, Vol. 1, 2002, pp.163-176.

14) Lee S.Y., "Expectations of employees toward the workplace and environmental satisfaction",Journal of Facilities Management, Vol. 24, 2006, pp.343-53.

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The Environment and Organizational Effectiveness