Organizational Environment Theory

1. Organizational Environment Theory
JAYSON S. GAYUMA

2.  Definition- The set of forces and
conditions that operate beyond an
organization’s boundaries but affect a
manager’s ability to acquire and utilize
resources.
 Application within an Organization-
The study of the external environment
and it’s impact on an organization has
become a central issue in management
thought.
Organizational Environment Theory

3. Organizational Environment Theory:
Beginnings
• Daniel Katz(1903-1998)- American
psychologist and founder of social psychology. He
worked as a psychology professor at Princeton
University and gained notoriety for his research
on the open system theory.
• Robert L. Kahn(1918)- American psychologist
and colleague to Daniel Katz at the Institute for
Social Research. His biggest contribution came
from his studies within survey methodology.
• James D. Thompson(1920-1973)- American
Sociologist and Business major from Indiana
University. His contributions derived from
studying social sciences within organizations.
Responsible for one of the most influential
organization publishing; Organizations in Action:
Social science bases of Administrative theories.
The
Organizational
Environment
Theory was
influenced in
the 1960’s by
leading
researchers
Daniel Katz,
Robert Kahn,
and James
Thompson.

4. Organizational Environmental Theory: External Factors

5. Organizational Environmental Theory: External Factors (cont’d)

6. Application of the Organizational Environment
Theory within
Organizational Systems
Open
System Closed
System
-VS-

7. Open-System’s Recycling Method of Production
Input Stage
• Organization obtains inputs from its environment. i.e.
raw materials, capital/ money, human resources.
Conversion
Stage
• Organizations transforms inputs and adds value to
resources. i.e. machinery, computers, human skills.
Output stage
• Organizations releases outputs to its environment. i.e.
Goods & Services
Outcome phase
• Sales of outputs allow organizations to obtain new
supplies of outputs. Restarts the process at the input
stage once outcome has been derived.

8. Organizational Systems
Open System
A system that
takes in
resources from
its external
environment
and converts
them into goods
and services
that are then
sent back into
that
environment for
purchase by
customers.
• The Open System is
dependent upon the
external environment
which effects its
evolution, Production,
Supply and Demand
Needs, Sustainability,
competitive
advantage and Profit
gains within markets.
• Similar to a Recycling
process method for
producing, selling,
and gaining.
Closed System
• Unlike the open
system, the
closed system is
independent and
processes in an
outward process
rather than
circular.
• Entropy- The
tendency of a
closed system to
lose its ability to
control itself and
thus to dissolve
and disintegrate.
A System
that is
self-
contained
and thus is
not
affected by
occurring
in its
external
environme
nt.

9. Examples of Open Systems Organizations

10. Jackson Health System as an Open System
RECYCLING SHIFT

11. ENTROPY
Electrical
Companie
s
Compute
r
Software
Compani
es
CREDIT
CARD
COMPANI
ES
The Organizational Environment in a
Closed System
By the 1900’s, closed
system approaches were
adopted within
companies to minimize
any external factors that
could off track companies
from maintaining their
supply and demand
chains. This system was
extremely popular for its
simplistic approach within
the organizational culture
and created benefits for
companies. Some of the
benefits were seen in
productivity, product
efficiency, and
consistencies
manufacturing. However,
The closed system
approach has evolved
over time because of its
external environment.
Eventually it revealed its
negative consequences
from using this approach
as a business strategy.
Organizations that opt
for the closed systems
approach would
eventually minimize its
value over time. As
time has changed,
many organizations
have found that
ignoring the external
environment would be
detrimental to the
business performance
and would minimize
company value over
time. The external
environment needs to
be examined to avoid
Entropy. As part of the
Value Driven
Management Strategies
, Closed System
companies have now
molded their rigid
systems to include the
external factors that
may create implications
over time.

12. IBM Industries as a Closed System
• Some IBM divisions have the capabilities to run with only IBM’s
internal resources.

13. Financial Banks as Closed Systems
 VISA CITIBANK
 MASTERCARD
BANK OF AMERICA
AMEX
• Banks have control, power and capabilities to
run themselves.

14. References
 Johnson, William C. & Weinstein, Art (2004) Superior Customer Service Value
in the New Economy: Concepts and Cases, 2nd Edition, CRC Press, Boca Raton,
Florida, pp. 230
 Jones, Gareth R. & George, Jennifer M. (2009) Contemporary Management, 6th
Edition, McGraw-Hill/ Irwin Inc., New York, N.Y., pp. 61-62
 http://en.wikipedia.org/wiki/Daniel_Katz
 http://www.drda.umich.edu/news/michigangreats/kahn.html
 http://en.wikipedia.org/wiki/JamesD.Thompson
 http://epress.anu.edu.au/info_systems/mobile_devices/ch11s02.html