Organizational Behaviour

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

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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

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Figure 3-1: The
Organizational Environment

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The Specific Environment
The 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

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

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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

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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

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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

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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

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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

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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

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Figure 3-2: Three Factors
Causing Uncertainty

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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

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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

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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

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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

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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

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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

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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

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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

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Et fiyatları Rekabet Kurulu'na şikayet edildi
Tüketiciler Birliği Başkan Vekili Mehmet Muta Şahin
''Et fiyatları üzerinden haksız kazanç elde etmeye
çalışan firmaları Rekabet Kuruluna şikayet ettik'' dedi.

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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

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Figure 3-7: Interorganizational Strategies
for Managing Competitive
Interdependencies

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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

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2009 Nobel Prize in Economics:
Economic governance

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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

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Figure 3-8: Sources of
Transaction Costs

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

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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

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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

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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

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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

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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

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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

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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