An External Perspective of Organizations: Overview

Most books about organizations describe how they operate, and the existence of the organizations is taken for granted. This book discusses how organizations manage to survive. Their existence is constantly in question, and their survival is viewed as problematic. How managers go about ensuring their organization’s survival is what this book is about.

Our position is that organizations survive to the extent that they are effectiverTheir effectiveness derives from the management of de-mands, particularly the demands of interest groups upon which the organizations depend for resources and support. As we shall consider, there are a variety of ways of managing demands, including the obvious one of giving in to them.

The key to organizational survival is the ability to acquire and maintain resources. This problem would be simplified if organizations were in complete control of all the components necessary for their operation. However, no organization is completely self-contained. Organizations are embedded in an environment comprised of other orga- nizations. They depend on those other organizations for the many resources they themselves require. Organizations are linked to environments by federations, associations, customer-supplier relationships, competitive relationships, and a social-legal apparatus defining and controlling the nature and limits of these relationships. Organizations must transact with other elements in their environment to acquire needed resources, and this is true whether we are talking about public organizations, private organizations, small or large organizations, or organizations which are bureaucratic or organic (Bums and Stalker, 1961).

Even seemingly self-contained organizations require some transactions with their environment for survival. The convents and abbeys which flourished during the Middle Ages were designed to be virtually self-sufficient. Needs were kept to a minimum; foods were grown within; and many required utensils, tools, and clothing were made by the abbey’s available labor. An attempt was made, consciously, to isolate the organizations as much as possible from the secular world outside. But, abbeys were peopled by people, usually of one sex, and humans are mortal. This meant that new members had to be recruited from the outside, which required the organization to maintain relations with sources of recruits—prisons, wealthy families with illegitimate offspring, and so forth. Recruitment from the outside, therefore, imposed on the organization a need to devote some energy to elaborate socialization and indoctrination procedures. Moreover, these religious organizations had land, and to maintain their land, it was necessary to ensure a position of social legitimacy and political acceptance so that other groups wouldnot attempt to seize the land for themselves.

The fact that organizations are dependent for survival and success on their environments does not, in itself, make their existence problematic. If stable supplies were assured from the sources of needed resources, there would be no problem. If the resources needed by the organization were pontmually available, even if outside their control, there would be no problem. Problems arise not merely because organizations are dependent on their environment, but because this environment is not dependable. Environments can change, new organizations enter and exit, and the supply of resources becomes more or less scarce. When environments change, organizations face the prospect Cither of not surviving or of changing their activities in response to these environmental factors.

Despite the importance of the environment for organizations, relatively little attention has been focused there. Rather than dealing with problems of acquiring resources, most writers have dealt with the problem of using resource. Theories of individual behavior in organizations, theories of motivation, leadership, interpersonal communication, theories of organizational design—each concerns the use of resources. The central goal of most theories is the maximization of output from given resources. Questions about how to motivate a worker to be productive are common. But questions about how resources cbme to be acquired are left unanaswered or are completely neglected.

Both problems of using resources and problems of acquiring them face organizations, but the use of resources always presupposes their existence. A good deal of organizational behavior, the actions taken by organizations, can be understood only by knowing something about the organization’s environment and the problems it creates for obtaining resources. What happens in an organization is not only a function of the organization its structure, its leadership, its procedures, or its goals. What happens is also a consequence of the environment and the particular contingencies and constraints deriving from that environment.

Consider the following case, described by a student at the University of Illinois. The student had worked in a fast-food restaurant near the campus and was concerned about how the workers (himself) were treated. Involved in what he was studying the student read a great deal about self-actualizing, theories of motivation, and the .management of human resources. He observed at the restaurant that work- ers would steal food, make obscene statements about the boss behind his back, and complain about the low pay. The student’s analysis of the situation was a concise report summarizing the typical human relations palliatives: make the boring, greasy work more challenging and the indifferent management more democratic. The student was asked why he thought management was unresponsive to such suggestions. He considered the possibility that management was cruel and interested only in making a profit (and the operation was quite profitable). He was then asked why the employees permitted management to treat them in such a fashion—after all, they could always quit. The student responded that the workers needed the money and that jobs were hard to obtain.

This fact, that the workers were drawn from an almost limitless labor pool of students looking for any kind of part-time employment was nowhere to be found in the student’s discussion of the operation of the restaurant. Yet, it was precisely this characteristic of the labor market which permitted tKe~operation to disregard the feelings of the workers. Since there were many who wanted to work, the power of an individual worker was severely limited. More critical to the organization’s success was its location and its ability both to keep competition to a minimum and to maintain a steady flow of supplies to serve a virtually captive market. If the workers were unsatisfied, it was not only because they did not like the organization’s policies; in the absence of any base of power and with few alternative jobs, the workers had neither the option of voice nor exit (Hirschman, 1970).

More important to this organization’s success than the motivation of its workers was its location on a block between the campus and dormitories, the path of thousands of students. Changes in policies and facilities for housing and transportation of students would have a far greater effect than some disgruntled employees. Our example illustrates, first, the importance of attending to contextual variables in understanding organizations, but also that organizational survival and success are not always achieved by making internal adjustments. Dealing with and managing the environment is just as important a component of organizational effectiveness.

A comparison of the phonograph record and the pharmaceutical industries (Hirsch, 1975) illustrates this point more directly. These two industries, Hirsch noted, are strikingly different in profitability. This difference in profits is more striking because the industries in many ways are otherwise similar: both sell their products through intermediaries, doctors in the case of pharmaceuticals, disc jockeys in the case of records; both introduce many new products; both protect their market positions through patent or copyright laws. What could account for the difference in profit? Hirsch argued that the pharmaceuti- cal industry’s greater profits came from its greater control of its environment; a more concentrated industry, firms could more effectively restricFentrylmcl manage distribution channels. Profits resulted from a favorable institutional environment. Aware of the importance of the institutional environment for success, firms spent a lot of strategic effort maintaining that environment. They would engage in activities designed to modify patent laws to their advantage and in other efforts to protect their market positions.

The Environment as treated in the Social Sciences

Hie social sciences, even if not frequently examining the context of behavior, have long recognized its importance. The demography of a city has been found to affect the particular form of city government used, and particularly the use of a city manager ( Kessel, 1962; Schnore and Alford, 1963). Some political economists have argued that party positions are developed with reference to the distribution of preferences for policies in the population (e.g., Davis and Hinich, 1966), which means that political platforms are affected by context. The importance of external influences on individual voting behaviors has been recognized, while participation in political activities, as well as other forms of voluntary associations, is also partially determined by the context, particularly the demographic and socioeconomic dimensions of the community.

As in the case of political science, some theorists writing about organisational behavior have recognized that the organization s context shapes the activities and structures of formal organizations. Katz and Kahn ( 1966) argued for the necessity of viewing organizations as open systems, and Perrow (1970) forcefully illustrated the analytical benefits to be gained by considering the environment of the organization: in addition to its internal operating characteristics. Bendix ( 1956 ) showed how ideologies shaped the use of authority in organizations, and Weber (1930) proposed a theory of economic development that held the religion of a country to be critical. He suggested that the development of mercantile capitalism depended on a legitimating ideology which stressed hard work and delayed gratification, such as that provided by Protestantism, as contrasted with Catholicism.

Economists were even more explicit in giving critical importance to the context of organizations, but they tended to take the environment as a given. Competition is a critical variable distinguishing between the applicability of models of monopoly, oligopoly, imperfect competition, or perfectly competitive behavior. The study of oligopoly is explicitly the study of interorganizational behavior (e.g., Phillips, 1960; Williamson, 1965; Fellner, 1949). And, the study of antitrust policy implicidy recognizes the fact that organizations do make efforts to limit or otherwise manage the competitiveness of their environments.

In recent years, it has become fashionable for those writing about management and organizations to acknowledge the importance of the open- systems view and the importance of the environment, particularly in the first chapter or in a special section of the book. Except for some special terminology, however, the implications of the organization’s context for analyzing and managing organizations remains undeveloped. Indeed, if one examines Katz and Kahn’s (1966) book carefully, one might argue that the bulk of the material they present in chapters on leadership, communication, and organizational change could have been included with equal ease in any book. This material is not linked to the open-systems perspective Katz and Kahn develop in the beginning of their book. Such a situation is typical of many books, even those with contingency or environment in their titles. Prescriptions for, and discussions of, the operation of organizations remain predominantly concerned with the internal activities, organizational adjustments, and the behavior of individuals.

Source: Pfeffer Jeffrey, Salancik Gerald (2003), The External Control of Organizations: A Resource Dependence Perspective, Stanford Business Books; 1st edition

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