Organizational Impact of Environment on Organizational Structure

1. The Impact of Environment on
Organisational Structure
MHRDM - II
SONAL JAISWAL -14-H-15
SHAILESH KANTHRIA-14-H-18
REEKU LOKHANDE-14-H-20
SWATI MACHCHA-14-H-21
SUNILKUMAR MANGE- 14-H-22

2. Organizational Environment
Organizational environments are composed of forces or institutions surrounding an
organization that affect performance, operations, and resources

3. Factors controlling Organizational Environment

4. Business
Environment
External
Factors
Micro
Factors
Macro
Factors
Internal
Factors

5. Internal Environment
 It relates to all aspects within the boundaries of the organization and generally are
within the control of top management team.
 Direct impact
 Controllable by the company
 Alter or modify

6. Factors affecting Internal Business
Environment
 Value system
 Mission & objectives
 Management structure and nature
 Human resources
 Company image and brand equity
 Other factors:
 Physical assets and facilities
 R & D and technological capabilities
 Marketing resources
 Financial resources

7. Value System
• Value System of founders and those at the helm of affairs
has important bearing on
• Choice of business:
• Mission
• Objectives of the organization
• Business policies and practices

8. Management Structure and Nature
Factors
 Organizational structure
 Composition of the Board of Directors
 Extent of professionalization of management

9. Organizational Structure
Centralized Decentralized

10. Internal Environment
The internal environment consists of the organization's
owners, board of directors, regulators, physical work
environment and culture. In the internal environment include
strength and weakness of an organization. Trade union,
Management, Current employee, Share holders.

11. External Environment
The External environment of an organization refers
to the forces and institutions outside the organization
that potentially affect its performance.
 External environment has two layers –
• General environment
• Task environment

12. Changing Environments
Environmental Change
Environmental Complexity
Resource Scarcity
Uncertainty
Characteristics of
Changing External Environments

13. Environmental Complexity
Environmental Complexity: the number of external factors in
the environment that affect organizations
Simple environments Complex environments

14. General Environment
The General environment refers to the non-specific elements of an organization’s surrounding
that might affect the organization indirectly.
 These external forces are:
• Political
• Economic
• Technological
• Socio-cultural

15.  Political Environment:
 The Political or legal Environment refers to
government laws , regulations, policies and
activities which are designed to influence
organizations indirectly and set boundaries on
what they can and cannot do.
 Economic Environment:
 The Economic Environment includes the impact
of economic factors like interest rates, inflation,
monetary and fiscal policy , taxes.
 These forces are likely to effect organization
production of goods and services.

16.  Technological Environment:
 The Technological Environment refers to the
changes in technology that affect the way that
organization operate and the service they
provide.
 Socio Cultural Environment:
 These factors play an important role because
they determine the kinds of goods, services and
the standard that society values. The socio
cultural forces include the demographics and
values of particular customer base.

17. Task Environment
The task environment is inclusive of those outside
sectors that have a direct working relationship with an
organization.
 The main variables in the task environment are:
• Owners
• Customers
• Suppliers
• Labor
• Competition

18.  Owners:
 Owners expect managers to watch over their
interest and provide a return on investments.
 Suppliers: Suppliers are the people who provide
raw material that particular organization use to
produce goods.
 Customers:
 Customers are the Final purchasers of goods or
services of organizational output.
 Labour: labour markets are people availabe for
hire.

19. . . . The utility of the notions of “mechanistic” and “organic” management systems
resides largely in their being related as dependent variables to the rate of
“environmental” change.
Burns and Stalker, The Management
of Innovation

20.  Tom Burns and G. M. Stalker observed twenty industrial firms in England and
discovered that external environment was related to internal management
structure.
 When the external environment was stable, the internal organization was
characterized by rules, procedures, and a clear hierarchy of authority.
 Organizations were formalized.
 They were also centralized, with most decisions made at the top. Burns and
Stalker called this a mechanistic organization system.
 When uncertainty is low, management structures can be more mechanistic,
and the number of departments and boundary roles can be fewer
Burns and Stalker, The Management
of Innovation

21.  In rapidly changing environments, the internal organization was much looser, free-flowing, and
adaptive.
 Rules and regulations often were not written down or, if written down, were ignored. People had to
find their own way through the system to figure out what to do.
 The hierarchy of authority was not clear. Decision-making authority was decentralized.
 Burns and Stalker used the term organic to characterize this type of management structure.
 As environmental uncertainty increases, organizations tend to become more organic,
which means decentralizing authority and responsibility to lower levels, encouraging
employees to take care of problems by working directly with one another, encouraging
teamwork, and taking an informal approach to assigning tasks and responsibility.
 Thus, the organization is more fluid and is able to adapt continually to changes in the external
environment
Burns and Stalker, The Management
of Innovation

22. Mechanistic and Organic Forms
Mechanistic
I. Task are broken down to specialized
separate parts
II. Tasks are rigidly defined
III. There is a strict hierarchy of authority and
control, and there are many rules
IV. Knowledge and control of tasks are
centralized at the top of organization
V. Communication is vertical
Organic
I. Employees contribute to the common
tasks of the department
II. Tasks are adjusted and redefined through
employee teamwork
III. There is less hierarchy of authority and
control, and there are few rules
IV. Knowledge and control of tasks are
located anywhere in the organization
V. Communication is horizontal.

23. Organisational structure in an
innovative environment
 increased customer expectation and demand
 new entrants to the market
 a need for innovation
 significant regulation following the recent global financial crisis.

24. Communication channels
 Open and effective communication is crucial for all organisations and is affected
by the span of control.
 A narrow span of control in tall hierarchical organisations can lead to
communication problems because of the large number of layers between the top
and the bottom.
 These tall hierarchical structures can also be rigid and inflexible. This can stifle
ideas, innovation and creativity.
 In contrast, a wider span of control encourages and involves employees. This
helps to generate ideas and promote new ways of thinking.

25. Team decision making
Making effective decisions as a team is dependent on a number of factors,
 the size of the team
 the task that has to be completed.

27. Nokia's Evolving Organizational
Structure
• Organization structure,
 helps to show how activities in an
 organization are arranged.
• The arrangement of activities
 is crucial in determining the levels of
 authority and the hierarchy level.
• The study is going to focus on how
 departmentalization and organization
 structure have influenced the profitability of Nokia Corporation.
• Nokia Corporation changes its organization structure depending on the external environment.
• The external environmental factors have influenced the change of organization structure by Nokia Corporation.
• Some of these factors include competition, technological changes, political and legal factors.

28. Case Study Analysis: NOKIA
 The case is about Nokia Corporation and the environmental impact on organization structure.
 Nokia Corporation has been applying product based organization structure since1990s.
 Nokia manufacturers a wide range of products that include consumer electronics, power transmission cables,
industrial rubber and telecommunication devices such as mobile handsets.
 The different types of products make it possible to apply the product based departmentalization process. This
type of departmentalization is important as it enables managers to become experts in their field of interest.
 Nokia Corporation is the market leader in cell phones since 1998. Motorola was the market leader before
being overtaken by Nokia. Nokia adopted functional and product based organizational structure in order to
remain as the market leader in the cell phone industry.
 The Nokia's Evolving Organizational Structure 4 various functional groups in Nokia Corporation included
finance functions, human resource functions and engineering functions. Innovation and technological changes
led to incorporation of photography, music, game and other multimedia content on cell phones.

29.  Nokia Corporation came up with a multimedia division in its organization structure. This helped to ensure
that products manufactured by the company are of high quality and meet customer specifications.
 Increase in competition, in the cell phone market, led to Nokia Corporation changing its organization
structure. Nokia Corporation faced stiff competition from Canada based corporations, which were
involved in the manufacture of BlackBerry and iPhone.
 The new organization structure focused more on power, resources and products. They came up with a
smart devices division, mobile phones division, markets division and functional groups. The type of
organization structure, which is being, used by Nokia Corporation is known as the matrix organizational
structure. The matrix organization structure incorporates functional structure and divisional structure

30.  Nokia Corporation has been applying product based organization structure in the past three
decades.
 Product based organization structure is important in organizations which produce multiple
products. The products are manufactured and sold together.
 There is, therefore, need to ensure that each product is manufactured using the right process.
This is to ensure high quality products are produced. Nokia Corporation manufactures different
products.
 The product based organization structure helps the managers of the corporation to develop
expertise in their duties.

31.  Nokia Corporation changed its organization structure from product based organization structure to matrix
organization structure.
 The change of the organization structure is meant to ensure that Nokia Corporation remains competitive in
cell phone market.
 External environment plays a very crucial role in the operations of a company. Competition, technological
changes, political changes and legal changes are examples of the external environment.
 There have been changes in technology and competition, in the market place. Nokia has adapted to this
change by changing its organizational structure.
 For example, Nokia Corporation introduced a new department called multimedia division due to changes
in technology. The change in organization structure has been useful to the corporation

32.  The organic organization structure is flexible in nature and takes into account the external knowledge from third
parties.
 The type of organization structure exists where all employees are on the same level, and there are no defined job
descriptions or classifications.
 On the other hand, is rigid, high degree of job specialization and involves many levels of hierarchy.. Nokia
Corporation should incorporate organic organization structure in product development.

33.  The workers should be involved in decision-making regarding the components to be included in cell
phones. High degree of decentralization acts as a motivation for workers.
 The workers can contribute important ideas regarding the production process and how to improve on
the quality of cell phones manufactured
 Conclusion Organization structure is important in determining the success of an organization.
 A corporation should design an organization structure that incorporates all functional activities of Nokia's
Evolving Organizational Structure 6 the corporation. It is, therefore, important to have a good
organizational structure with well defined duties and roles.

34. Case study Analysis: Things are changing
at Procter & Gamble
 For decades, procter & gamble was the dominant force in the soap and packaged- food industry. Its
large bureaucratic structure- with autonomous divisions and centralized decision making- worked
efficiently because p & g was the dominant player in almost every market in which it competed.
 The practice of high centralization- for example the decision on whether the company’s new
decaffeinated instant folger's coffee should have a green or gold cap went up to p & g’s ceo-
worked because the company faced a stable environment. P & g didn’t introduce many new
products because it didn’t have to. And when new products were developed, they went through long
and through test-marketing before actual launching. P & g prided itself on following a low-risk
approach to its business.

35. • In rece3nt years, however, P & G’s most respected and long-dominant brand names have
found themselves up against vigorous competition.
• Long-time competitors were no longer content to live in P & G’s shadow.
• For example, Crest was losing market share to Colgate and new rival liquid detergents were
eroding some of Tide’s market. P & G has responded with some dramatic structural
changes.
• Interdivisional teams have been created to coordinate projects across divisional lines. Top
management has begun to loosen its stranglehold on decision making: business teams have
been created that can make decisions on everything from product development to cost-
cutting.

36. • And production employees are making most day-to day operating decisions. As a result of theses changes,
P & G has become a more aggressive and responsive force in its markets. It is now developing more
products than ever before and getting them to the marketplace much quicker.
• We discussed organisations in an open-systems framework. The key to understanding organisations as
open systems, we said, was the recognition that organisations interact with their environment. But since that
introduction, we have said little about the environment and its impact on the organisation. In its Chapter,
that omission will be rectified.
• A common theme in organisation theory is that organisations must adapt to their environments if they are to
maintain or increase their effectiveness. In open- systems terms, we can think of organisations as
developing monitoring and feedback mechanisms to identify and follow their environments, sense changes in
those environments, and make appropriate adjustments as necessary. At Procter & Gamble, management
realized that its environment had changed- competitors had become more aggressive- which required P & G
to adapt if it were to continue to be the dominant force in its industry.
• We clarify what we mean by the term environment and assess the relationship between environment and
structure. A central point throughout this chapter is that different organisations face different degrees of
environmental uncertainty. Because managers do not like uncertainty, they try to eliminate it or, at least,
minimize its impact on their organisation. We demonstrate that structural design is a major tool that
managers have for controlling environmental uncertainty.

37. Environmental Uncertainty
• The environment is important because not all environments are the same. They differ by what we call
environmental uncertainty. Some organisations face relatively static environments: few forces in their
specific environment are changing.
• There are no new competitors, no new technological breakthroughs by current competitors, little activity
by public pressure groups to influence the organisations, or such. Other organisations face very dynamic
environments: rapidly changing government regulations affecting their business, new competitors,
difficulties in acquiring raw materials, continually changing product preferences by customers, and so on.
Static environments create significantly less uncertainty for managers than do dynamic ones. And since
uncertainty is a threat to an organisation’s effectiveness, management will try to minimize it.
• We show that management’s concern is with reducing environmental uncertainty and that this can be
accomplished through manipulation of the organisation’s structure.

38. Summaries of case study
 Any organization is an open system between itself and its external environment up to a
series of relationships that influence each other. Organization influence the external environment
primarily through its products and services, but also that it is socially responsible, is geared to various
relationships with other organizations make their mark on the social community to which they belong. In
turn, the external environment affecting the organization's work available in market information, input
supply, the looming trends, new organizational and managerial changes.
It can be said that the following types of external environment are:
• turbulent, characterized by rapid changes caused by technology, economic changes,
political, legislative;
• hostility, characterized by strong competition between customers, resources, or both,
• diffracted, characterized by a variety of technologies, markets and cultures.
As a result, the organization must be attentive to any stimulus from the external
environment, must continually adapt to it, and primarily involves adapting knowledge and
information.

39. Conclusion
 The structure of an organisation varies depending on a number of influencing factors
 Structure is influenced by the external environment in which the business operates as
well as its culture and the nature of the work and activities it undertakes.
 The structure can have both a positive and negative impact on a business.
 Having the right structure allows a business to respond and adapt to changes in the
market quickly.
 Innovation and creativity are usually found in flatter organisational structures and in
organisations with an entrepreneurial and employee focused culture,