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ORGANIZATION AND

ENVIRONMENT

JAMES D. THOMPSON
SYSTEMS MODEL OF
ORGANIZATION

The Organization in its


Environment

Organizational Domain
The domain of an organization is the claim it stakes
out for itself with respect to: (1) range of products
offered, (2) markets served, and (3) services rendered.
Domain is closely related to the task environment of the
organization.

The Organizational Domain

DOMAIN CONSENSUS
Domain consensus is the extent that there is general
agreement on an organizations expectations both for
members of an organization and for others with whom
they interact, about what the organization will and will
not do.
Selection of a specific domain significantly influences
other choices that an organization must make (financing,
structure, personnel, etc.)
Organizations may have multiple domains.

DOMAIN CONFLICT
Domain conflict exists when there is a lack of
recognition or agreement about the organizations
role within its larger environment.
Ex.-Chiropractors in the medical field
Self-proclaimed role vs medically recognized role
Establishment of a domain cannot be an arbitrary,
unilateral action.

UNCERTAINTY IN THE
ENVIRONMENT
Simple

DEGREE OF
HOMOGENEITY

Complex

Small number of
external elements.
Elements remain the
same or change slowly

Small number of
external elements.
Elements are in
continuous change

Large number of
external elements.
Element remain the
same or change slowly

Large number of
external elements.
Elements are in
continuous change.

Stable

Dynamic
DEGREE OF CHANGE

UNCERTAINTY IN THE
ENVIRONMENT
Simple
LEAST
UNCERTAINTY

MODERATE
UNCERTAINTY

DEGREE OF
HOMOGENEITY
MODERATE
UNCERTAINTY

MOST
UNCERTAINTY

Complex
Stable

Dynamic
DEGREE OF CHANGE

UNCERTAINTY IN THE
ENVIRONMENT
Simple

DEGREE OF
HOMOGENEITY

Soft drink bottlers,


beer distributors,
container manuf.,
local utilities

Personal computers,
fashion clothing,
music industry, toy
manufacturers

Universities, hospitals,
Insurance companies

American Airlines,
oil companies,
electronic firms,
aerospace firms

Complex
Stable

Dynamic
DEGREE OF CHANGE

BURNS & STALKER


Used interviews with managers and their own
observations to evaluate the impact of environment
on organizational structure and management practice.
The type of structure that existed in rapidly changing
and dynamic environments was different from that
in organizations with stable environments.
B & S labeled the two types organic and mechanistic,
respectively

ORGANIC ORGANIZATION
Organic organizations are relatively flexible and adaptable.
They rely on lateral communication rather than vertical
communication. Influence is based upon expertise and
knowledge rather than on authority of position.
Responsibilities are defined loosely rather than rigid job
definitions. Emphasis is on exchanging information rather
than on giving direction.

MECHANISTIC
ORGANIZATION
Mechanistic structures are characterized by high
complexity, formalization and centralization. They
perform routine tasks, rely heavily on programmed
behaviors, and are relatively slow in responding to
the unexpected.

BURNS & STALKER


CHARACTERISTIC

MECHANISTIC ORGANIC

Task Definition

Rigid

Flexible

Communication

Vertical

Lateral

Formalization

High

Low

Control

Centralized

Diverse

Influence

Authority

Expertise

EMERY & TRIST


Offer a model that identifies four kinds of environments
that organizations might confront:
1.
2.
3.
4.

Placid-randomized
Placid-clustered
Disturbed-reactive
Turbulent-field

Placid-randomized is least complex, Turbulent-field is


the most complex.

PLACID-RANDOMIZED
ENVIRONMENTS
This environment is relatively unchanging. Therefore,
environmental uncertainty is low. Environmental
demands are distributed randomly, and change slowly.
Managerial decision making does not give much
attention to the environment.

PLACID-CLUSTERED
ENVIRONMENT
Environment changes slowly, but threats are clustered,
not random. The forces in the environment are linked,
and pose a higher threat than randomized changes.
These organizations use long-range planning and
forecasting to learn as much as possible about their
environments. Structures will tend to be centralized.

DISTURBED-REACTIVE
ENVIRONMENTS
A more complex environment than either placid one.
Many similar organizations seeking similar ends. One
or more may be large and have ability to influence the
environment. Two or three large companies can
dominate an industry.
Organizations in this type of environment used planned
tactical initiatives, calculate reactions by other, and
develop counteractions. This requires flexibility and a
structure with some decentralization.

TURBULENT-FIELD
ENVIRONMENTS
The most dynamic of the environments and has the
highest level of uncertainty associated with it.
Environmental elements are increasingly organized
and interrelated.
Major, dynamic shifts can occur in the environment as
one, or a small group of large companies change the
rules of competition. Thus, planning is not as useful
here.

STRUCTURAL IMPLICATIONS
Emery and Trist did not recommend specific structural
configurations associated with each environmental
type. However, the two placid environments should be
responded to with mechanistic structures, whereas the
disturbed and turbulent environments require more
organic structures. As the environment becomes more
volatile, increasing flexibility Is needed to cope with or
manage the uncertainty that increases.

ENVIRONMENTAL
UNCERTAINTY - THOMPSON
The central core of the organization requires technical
rationality.
Norms of rationality require that the organization
attempt to seal-off or protect its technical core from
environmental influences.

INTERNAL STRATEGIES
Organizations regulate the flows of inputs and outputs to
their central technical cores through such internal
responses as buffering, smoothing (leveling), forecasting,
and rationing.

BUFFERING
On the input side, buffering usually takes the form of
stockpiling critical resources whose supply is uncertain
or whose price fluctuates widely over time.
On the output side, buffering typically involves building
and keeping up warehouse and distribution inventories.
By buffering, environmental uncertainties are absorbed
because an organizations technical core produces at a
constant rate. Other methods of buffering might include
preventative maintenance and recruiting and training.

SMOOTHING (LEVELING)
Where buffering absorbs environmental uncertainties,
smoothing involves efforts to manage environmental
uncertainties. Smoothing attempts to protect the technical
core by reducing uncertainties associated with cyclical
variations in product or service demand.
Examples might include differential costs of long distance
telephone calls that are lower during non-peak times,
discount airline fares for off-time flights.

FORECASTING
When buffering and smoothing will not effectively protect
an organizations technical core, organizations can often
reduce uncertainty and behave in a logical, rational manner
by developing accurate forecasting capabilities. To the
degree that environmental fluctuations can be predicted,
they can be treated as constraints and adapted to.

RATIONING
Finally, when the organization finds that neither buffering,
smoothing, nor forecasting is sufficient to prevent
environmental penetration, organizations can turn to
rationing. The allocation or assignment of resources
according to established priorities can be seen in
restaurant reservations, reserved seats at theaters, etc.,
and rationing (such as gasoline rationing during the
oil embargo). In general, rationing is a less than
satisfactory solution, because it indicates that the
organization is not fully serving its task environment.
It can be costly in terms of lost revenue and customer
goodwill (Atari, Cabbage Patch dolls, etc.)

EXTERNAL STRATEGIES
Besides strategies for dealing with uncertainty in their
internal environments, organizations also have strategies
for dealing with uncertainty in their external (general)
environments.
The actual relations, or interactions, between organizations
are the responsibility of boundary personnel. The boundary
spanners or gatekeepers, are important because they mediate
the flow of information, products or services, and personnel
between organizations in its environment.

ROLE OF THE BOUNDARY SPANNER

EXTERNAL STRATEGIES II
Thompson identified two direct strategies for managing
external dependencies such as suppliers, customers,
banks, etc.:
COMPETITIVE STRATEGIES
COOPERATIVE STRATEGIES

COMPETITION
Refers to rivalry between two or more organizations which
is mediated by a third party. In the case of a manufacturer,
the third party might be a customer, distributor, supplier or
potential employee. In each instance, the third party must
select among alternative courses of action (For example,
which of several competing products to purchase).

COOPERATION
There are three types of cooperative strategies
available to organizations:
1. Bargaining
2. Coopting
3. Coalescing

BARGAINING
In an effort to limit the uncertainty caused by competition,
organizations often respond by entering into cooperative
relationship. Bargaining refers to direct negotiations
between organizations for the exchange of goods and
services.
Such contractual arrangements, to the extent that they are
binding and enforceable, serve to reduce environmental
uncertainty. Examples might include long term contracts
with suppliers or customers, labor contracts, etc.

COOPTING
Is the process of absorbing external elements into the
decision-making or policy-determination structure of
an organization as a means of averting threats to its
stability or existence. This allows for a reduction of
environmental uncertainty, but not its elimination.
Examples might include members of a Board of Directors
chosen from primary groups in the organizations
environment (A banker, a major supplier, a Board member
from a competitor, etc.)

COALESCING
Is the combination of two or more organizations (groups
or individuals) for a single purpose. It requires a joint
commitment for mutual action.
Examples might include mergers, joint ventures, interlocking directorates, price fixing, etc.

COSTS
Competition, bargaining, cooptation, and coalescing
represent a continuum of increasingly costly methods
of gaining support in terms of decision making power.
Competition is seen to be the least costly method, through
coalescing being the most costly.

INDIRECT STRATEGIES
Thompson also identified four different indirect strategies
for dealing with external environmental uncertainty:
1.
2.
3.
4.

Influencing government regulations and legislation


Trade associations and professional organizations
Lobbies
Political Action Committees

LAWRENCE & LORSCH


Studied ten firms in three industries: plastics, food and
containers. The three industries were deliberately
chosen as they differ significantly in the environmental
uncertainty associated with each one.
The underlying hypothesis was that internal environments
of the firms must match the external environmental
requirements. The better the match, the more successful
the firm.

DIFFERENTIATION &
INTEGRATION
Differentiation and integration was posited as the variables
to examine to determine the state of the internal environment.
Differentiation, a la Lawrence & Lorsch, closely resembles the
traditional definition of horizontal differentiation, but in
addition to task segmentation, suggested that managers will
differ in their: (1) time frame, (2) interpersonal orientation,
and (3) goal orientation
Integration is the quality of collaboration needed to overcome
differentiation and achieve unity of effort among units.

LAWRENCE & LORSCH


MODEL

DEPARTMENTAL DIFFERENTIATION
BASED UPON SUBENVIRONMENT
CHARACTERISTICS

TIME, GOAL & INTERPERSONAL


ORIENTATIONS

INTEGRATION TECHNIQUES AND


APPROPRIATE ENVIRONMENTS

LAWRENCE & LORSCH


FINDINGS

STRUCTURE VS
ENVIRONMENT

ENVIRONMENT AND ORGANIZATION DESIGN


CHARACTERISTICS
Environment

Design Characteristics

Degree of Degree of Quad- Decentral- Span of


Change Complexity rant
ization Control

Simple

Formal- Complexity Design


ization
Strategy

Low

Few

High

Low

Funct./
Mech.

Complex II

Low

Many High

High

Simple

III

High

Few

Low

Low

Funct./
Mech.
w/T/T.F.
Product/
Organic

Complex IV

High

Many

Low

High

Stable

Dynamic

Matrix &
Combos