1. Organizational Theory, Design, and Change Fifth Edition Gareth R. Jones Chapter 3 Managing in a Changing Global Environment

2. 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

3. Figure 3-1: The Organizational Environment

4. The Specific Environment

• The forces from outside stakeholder groups that directly affect an organizations 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

5. The General Environment

• The forces that shape the specific environment and affect the ability of all organizations in a particular environment to obtain resources

6. 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

7. 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 nations people

• • Shape organizations customers, managers, and employees

8. 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

9. 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

10. 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

11. Sources of Uncertainty in the Environment (cont.)

• Environmental richness : the amount of resources available to support an organizations 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

12. Figure 3-2: Three Factors Causing Uncertainty

13. 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

14. 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

15. 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

16. Figure 3.3: Interorganizational Strategies for Managing Symbiotic Interdependencies

17. 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

18. 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

19. 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

20. 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 groups interests

21. Figure 3-4: Types of Strategic Alliances

22. Figure 3-5: The Fuyo Keiretsu

23. 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

24. Figure 3.6: Joint Venture Formation

25. 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

26. 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

27. Et fiyatlar Rekabet Kurulu'na ikayet edildi Tketiciler Birlii Bakan Vekili Mehmet Muta ahin ''Et fiyatlar zerinden haksz kazan elde etmeye alan firmalar Rekabet Kuruluna ikayet ettik'' dedi.

28. 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

29. Figure 3-7: Interorganizational Strategies for Managing Competitive Interdependencies

30. Transaction Cost Theory

• Transaction 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

31. 2009 Nobel Prize in Economics: Economic governance

32. Sources of Transaction Costs

• Environmental 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

33. Figure 3-8: Sources of Transaction Costs

34. Cooperation vs. opportunism: The prisoners dilemma Each serves 5 years Prisoner A: goes free Prisoner B: 10 years Prisoner A Betrays Prisoner A: 10 years Prisoner B: goes free Each serves 6 months Prisoner A Stays Silent Prisoner B Betrays Prisoner B Stays Silent

35. 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

36. 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

37. 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

38. 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

39. 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

40. 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

41. Franchising

• A franchise is a business that is authorized to sell a companys 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

42. 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