The interconnectedness of the environment is a dimension that is attracting growing research concern as empirical investigations of organization-environment activity move from analyzing the strategic actions taken by single organizations to consider the design of networks of organizations. The concept of interconnectedness is well illustrated by the following sequence of events occurring while wage and price controls were in effect in the early 1970s. Under the wage and price regulations, prices were controlled so as to prevent margins from expanding from their precontrol levels. However, margins were defined on an organization-wide basis. It so happened that a company operat-ing primarily in the Northeast was found by the Price Commission to be making too much profit and, under the prevailing regulations, was told to cut prices so that its margins would be reduced and the excess profit returned to consumers. The regulations, however, did not specify how or where price was to be cut. The corporation was expanding its retailing activities into the South and had not yet established a firm position there. So, the decision was made to slash prices in the few stores in the South, thereby attracting additional business and gaining a more secure market position. The consequence of this strategy was that some small competing stores in the region were forced out of business. Thus, stores in one region were adversely affected by policies implemented because of events taking place literally thousands of miles away. Moreover, the foundation for these events had been laid months earlier by officials attempting to halt inflation.
Interconnectedness results in problems for organizations because, as can be seen in our example, the greater the level of system connectedness, the more uncertain and unstable the environment for given organizations. Changes can come from anywhere without notice and produce consequences unanticipated by those initiating the changes and those experiencing the consequences. Simon (1969) argued persuasively that systems were more likely to survive jf they were loosely connected. In a system with n elements, the number of possible connections between the elements is: n(n-1)/2. If each link were actually effective, if the system were tightly interconnected, then any distur- bance entering the system at any point would quickly affect every element. If the system were loosely coupled.‘on the other hand, disturbances would have more chance of being localized, andjthe^system would be more stable and, more certain.
Furthermore, adaptation is likely to be easier in a loosely joined system. When everything is connected to everything else, it is difficult to change anything because there are more constraints, deriving from
the large number of interrelationships. On the other hand, in a loosely joined system, snhs-vstem-adaptation is better able to proceed, as there are not so many constraining links to be confronted. Simon (1969) argued that a loosely joined set of elements would evidence short-run independence of subsystems from each other and long-run dependence only in the aggregate. There is some limited empirical evidence that is consistent with our portrayal of organizational environments as loosely coupled networks of clusters of organizations which are themselves more closely interconnected (Freeman, 1968).
Organizations that are only loosely coupled, or networks of organizations that are not tightly interconnected, produce situations in which the actions of one element bears little predictable relationship to the actions of other elements or agents. When a system of organizations is not tightly interconnected, the actions of the organizations are less predictable giverL_amexternal stimulus on one, or some subset,..of them. Because of this unpredictability, loose-coupling may be perceived as a problem by managers of organizations or organizational systems. After all, if you are an agency head attempting to introduce change into the organizational system, the fact that loose-coupling makes the system more stable (i.e., less responsive to your interventions ) will probably be seen as a problem rather than as an advantage. Social stability is not favorably perceived by those attempting to introduce change.
It is our impression that organizations are becoming more interconnected and that the cause of this increasing system connectedness is most often government action. In the example at the beginning of this section, we saw how the wage and price controls made economic areas more interconnected. Other governmental laws have similar effects. Certainly, regulations requiring similar responses from all organizations lead to more system responsiveness, though less variation within the system. We would argue that the increase in cn.n.necfednpss derives from the motivation we have described: managers want control and predictability and want to be able to intervene with effect relatively rapidly. To the extent the system is interconnected, just such results will be observed. System connectedness, then, is a substitute for concentration in that both assure predictability and provide increasingly powerful levers tor change.
Organizationsemploy a variety of strategies for bringing stability and certainty to their environments. They may restructure the organization to avoid instability or its consequences; stabilize exchange relationships; or restructure the set of exchange relationships to enhance stability. Each organizational action taken to reduce uncertainty or manage problematic transactions may alter the connectedness of the system, possibly altering the transaction flows to other organizations.
In other words, actions taken to manage interdependence may, in the long run, increase the interdependence among environmental elements, requiring further actions to manage the new uncertainties. Two sellers merging, thereby reducing competitive interdependence, increases the interdependence among the buyers previously served by the two. The buyers may in turn form cooperatives, merge themselves, Or undertake a variety of other actions. Such actions over time may lead to the creation of new forms of organization or, even more likely, new forms of managing interdependence among organizations.
Source: Pfeffer Jeffrey, Salancik Gerald (2003), The External Control of Organizations: A Resource Dependence Perspective, Stanford Business Books; 1st edition