Dimensions of the Organizational Environment

Many authors have attempted to describe or dimensionalize organizational environments. One of the earliest and most influential attempts was the work of Emery and Trist (1965). Emery and Trist described four types of environments, which differed according to the source and nature of the interdependence between the environment and the organization. The first type, called placid-randomized, referred to a situation in which the resources desired by the organization were randomly distributed throughout the environment, with a constant probability of uncovering necessary resources as the organization searched the environment. In this environment, organizations survive to the extent they can use different kinds of resources, can store a single resource, or can use an abundant resource, one which they are likely to encounter frequently in the environment. The second type of environment, called placid-clustered, referred to an environment in which the pattern of resources was sequentially predictable. Interdependence with such environments involves the sequential probabilities of the shifts in resource availability and the relationship to the organization’s requirements. Single organizations survive by accumulating enough resources to survive the periods of resource scarcity or by reducing their need for resources during lean periods. H. & R. Block, the tax preparation firm, is an excellent example of such an organization. With activities clustered by the calendar for filing tax returns, the firm must earn enough during this period to last the entire year and also must expand and contract operations with this seasonality.

The third type of environment, called disturbed-reactive, is fundamentally different from the first two. In this environment, the distributions and probabilities of resources are created by the actions of the organizations themselves. Competitive interdependence characterizes such environments. Members of the same organizational class transact with the same environment, compete for resources, and can transact with each other. Predictability in such an environment derives from the ability of organizational actors to identify their interdependencies and to anticipate the sequence of actions and reactions of competitors. In economics, this environment is represented by the concept of oligopoly.

The final type of environment described by Emery and Trist, called turbulent, differs from the third environment in that it involves the connection of sets of actors to other sets of actors, such that any one actor is connected to the set of actors with which he is immediately interdependent, and the environment itself is interconnected with other sets of interdependent actors. The important difference is that pypn greater uncertainty is created for the organizations. Actions in Other parts of the interconnected system, while largely invisible, can have impact on the organization’s immediate exchanges. Although Emery and Trist describe a turbulent field as one in which changes can occur from the field itself rather than from the interconnected components, their examples are not consistent with this argument. Their illustration of a turbulent environment and its effects is the case of a vegetable canning company which had enjoyed a large market share . for many years and suddenly found its sales and market share de-„ dining. In interpreting how this decline in position came about, Emery , and Trist noted a number of factors: the end of wartime controls on steel and tin, allowing cheaper cans; an end to import quotas on vegetables; increased affluence; development of quick-freeze technology, displacement of small stores by large supermarkets. The canner, rather than recognizing these events as part of the environment, continued to concentrate on its immediate competitors in the vegetable canning business. While the events noted took place outside the immediate set of transacting organizations related to the canner, the outcome faced by the canner could have been predicted from knowledge of such events, and these events were clearly in the immediate environment of the canner.

The important contribution of Emery and Trist was the recognition of a distinction between the set of transacting organizations, the organization set (Evan, 1966), and the larger social context within which both the organization and its organization set are embedded. The interconnectedness of one set of actors wth other sets increases the interdependence among all and may increase the uncertainty of outcomes. While interdependence is increased, whether predictability or uncertainty is increased is partially a function of the organization’s ability to recognize and control the increased number of actors which may affect its operation.

Terreberry (196S) extended Emery and Trist’s arguments, claiming that the four types of environments described by Emery and Trist were stages in an evolutionary chain and that organizational environments were becoming increasingly turbulent. She further argued that organizations were increasingly less autonomous and that other orga- nizations were increasingly important components of the environment of formal organizations. Warren (1967; Warren, Rose, and Bergunder, 1974) has also considered the effect of the general network in which interorganizational activity is embedded. Unlike many who have commented on the problems caused by interconnectedness, Turk (1970) fpund that being embedded in a richly connected interorganizational network can benefit organizational achievement. Cities linked to larger national social service networks through the presence of many national ¡ headquarters and containing many community associations were more likely to have an active poverty program. Turk argued that it was easier to introduce new organizations into an environment that was already richly connected. This result might, in part, be a consequence of the fact that it is easier to found organizations or programs in a context which has more organizational experience (Stinchcombe, In addition to the interconnectedness of the organizational environment, writers have examined the effects of other properties of the interorganizational field. Hawley (1963), for instance, defined power as a property of the interorganizational field, measured by the concentration of authority. He measured the concentration of power in a city as the ratio of managers, proprietors, and officials to the total labor force; and he found that the concentration of power was positively related to the probability of the city undertaking and completing urban renwal projects. Presumably, the ability to coordinate the necessary commitment and support was easier with concentrated authority.

Concentration has been the primary dimension used by economists to describe organizational environments. Economic concentration (Adelman, 1951) has been defined as the proportion of an industry[s output, value, added sales, assets, nr employment which is controlled by the largest four, eight, or any number of firms. While there is a diversity of concentration ratio measures thus available, typically four- firm ratios based on sales output or a value-added basis have been used. Concentration is, in a sense, related to Hawley’s measures of the concentration of power, for the inference is that the more concenriated a, market the more economic power is in the hands of a few dominant organizations. However, concentration also is a measure of,uncertainty, asTias been shown by Bernhardt and Mackenzie (1968). Stigler (1964) noted, in discussing oligopolistic pricing practices, that with fewer major customers (rather than firms), policing such pricing arrangements became easier.

The measurement of economic concentration has become quite refined, with Weiss (1963) introducing adjustments for over and under aggregation in industrial categories and for geographic characteristics of the competition in the industry. Research has utilized industry concentration as an independent variable and traced, for instance, the impact of concentration on profitability and price-cost margins (Weiss, 1963; Collins’andlrieston, 1968; Bain, 1968).

Concentration in organizational systems has been associated with tile ability to achieve desữed outcomes by thẻ organizations in that system. The reason for this shouIcTbe evident from our description of interdependence and its effect on achieving outcomes. Concentration reduces some of the problems of interdependence for organizational actors by reducing the number of separate social units that must be coordinated. The ultimate form of concentration, of course, is that of a single organization with the legitimacy and power to coordinate all of the behaviors under its control.

A related characteristic of organizational systems is conflict and dissensus. In one sense, conflict is the opposite of concentration, for it signifies a_lack of ability to coordinate interdependent activities. Coordination is~3mumsEeabythepresence of conflict. (Conflict differs from interdependence in that conflict refers to dỉsagreenìentsiíbout the ends or goals of the social system. Interdependence need not result in conflict if the interdependent actors share similar preferences. On the otEerhand, conflict is not possible without interdependence, for unless social actors are interdependent, there is no connection between them and hence no basis for conflict. Interdependence, therefore, is a necessary but not sufficient cause of conflict in social systems.

Political scientists have examined the degree of conflict or dissensus existing in the environments of political organizations. Kessel (1962), for example, found that city manager forms of government were used in cities with relatively less conflict over fundamental values and objectives. The governmental function in such settings was to administer; in cities with diverse populations and conflicts over goals, a politically more sensitive mayor-council form of government was needed to resolve conflicts and make decisions. On the level of state government, Walker (1969) observed that innovation among Arneri- . can states was partly predictable from the political conflict or consensus in the state.

One source of conflict in interorganizational fields derives from resource scarcity. Interdependent organizations faced with the problem of resource scarcity frequently seek wavs to coordinate their conflict. Litwak and Hylton (1962) argued that coordinating agencies, such as the United Fund, developed and included more of the local agencies when resources were either very plentiful or very scarce. Agencies affiliated with strong national organizations, like the Ameri-can Cancer Society, were less willing to participate in the United Fund. Integration with the national organization provided these agencies with resources and a buffer against uncertainty which local agencies could achieve only through coordination. The adequacy of presources has been observed by Assael (1969) to be a major determi-nant of the level of conflict between automobile dealers and manufacturers. However, there has been relatively little empirical attention to the effects of scarcity or munificence on organizational actions (e.g., Staw and Szwajkowsld, 1975).

One of the more prominent themes in the literature has been the description of organizational environments in terms of their uncer-tainty. Uncertainty refers to the degree to which future states of the world cannot be anticipated..and accurately predicted. Uncertainty, according to the prevailing literature, tends to be associated with decentralized, less formalized organizations. Uncertainty has been used by a number of authors (Lawrence and Lorsch, 1967; Duncan, a. 1972) to explain organizational structures. Occasionally nnnerf-ainfv has been confused with change (e.g., Osbome and Hunt, 1972). It is, of course, quite possible to have rapid change which is predictable and, therefore, not uncertain. Uncertainty is determined by the level of forecasting capability of the organization at a given point in time; as forecasting techniques improve, uncertainty diminishes.

Uncertainty itself is not problematic. It is a problem for organizations only when the uncertainty involves important interactions with other environmental elements that are important for the organization. Uncertainty is only problematic when it involves an element of critical organizational interdependence.

From the preceding discussion of the various environmental dimensions that have been used in the organization-environment literature, it should be evident that the dimensions are not really independent of each other. In fact, one can argue that the dimensions are likely to be causally related. In Figure 4.1, the simple linear rela- tions among environmental dimensions is presented. In that figure, structural characteristics of the environment are distinguished from relationships among social actors, and both are distinguished from uncertainty, which is viewed as a result. Such conceptual distinctions are not frequently observed in the current literature.

The three most elemental structural characteristics of environments are concentration, the extent to which power and authority in the environment is widely dispersed; munificence, or the availability or scarcity of critical resources; and interconnectedness, the number and pattern of linkages, or connections, among organizations. These three structural characteristics, in turn, determine the relationships among social actors—specifically, the degree of conflict and interdependence present in the social system. Conflict and interdependence, in turn, determine the uncertainty the organization confronts. Uncertainty, then, can be viewed as one outcome of other environmental dimensions. Demands on the focal organization is another possible outcome. From the viewpoint of the external control of organizational behavior, the importance of concentration, munificence, and interconnectedness as basic dimensions describing the environment should be clear.

FIGURE 4.1 Relationships Among Dimensions of Organizational Environments

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

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