External Factors Affecting Organizational Structure

Environment

The environment is the world in which the organization operates, and includes conditions that influence the organization such as economic, social-cultural, legal-political, technological, and natural environment conditions. Environments are often described as either stable or dynamic.

Stable environment

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• customers' desires are well understood
• remains consistent for a relatively long time

Examples of organizations that face relatively stable environments include manufacturers of staple items such as detergent, cleaning supplies, and paper products. mechanistic structures to be advantageous. This system provides a level of efficiency that enhances the long-term performances of organizations that enjoy relatively stable operating environments.

Dynamic environment

• Customers' desires are continuously changing—the opposite of a stable environment

This condition is often thought of as turbulent. the technology that a company uses while in this environment may need to be continuously improved and updated. An example of an industry functioning in a dynamic environment is electronics. Technology changes create competitive pressures for all electronics industries, because as technology changes, so do the desires of consumers.  Organic structure provides the greatest benefits. This structure allows the organization to respond to environment change more proactively. Organizations are now increasingly designed to be more organic now days. The HR Organizational Structure has to fit to new challenges born in the external environment. All the important and influencing people speak about the changes in the business world, as the current recession seems to be one of the worst recessions ever.

The way the business was done will be discontinued and new business ethics and new business rules will be born. In Recession for example HRM Organizational Structure should be as flexible as possible, the HRM Employees should be really aware of the needs of the organization and they should be able to help the organization to survive the recession successfully. The HRM Organizational Structure Adjustment has to be based on the detailed analysis of the needs of the organization in the recession. Companies that nurture flexibility, awareness, and resilience are more likely to survive the crisis, and even to prosper.

McKinsey-2009 Technology Advances in technology are the most frequent cause of change in organizations since they generally result in greater efficiency and lower costs for the firm. Technology is the way tasks are accomplished using tools, equipment, techniques, and human know-how. By using tools, equipment and strategy, technology helps workers accomplish their core tasks at a quicker pace. If a company has the appropriate organizational structure blended with the right technology, it can attain organizational success.

Joan Woodward found that the right combination of structure and technology were critical to organizational success. In her book Industrial Organization: Theory and Practice (1965), the English management scholar classified three categories of core-manufacturing technology:

Small-batch production

• Used to manufacture a variety of custom, made-to-order goods.
• Each item is made somewhat differently to meet a customer's specifications by the skills of the workers who work together in small groups.
• A print shop is an example of a business that uses small-batch production. Appropriate structure for this type is decentralized and flexible
• It works well in organic structure.

Mass production

• Automated machines are used that is programmed to make high volumes of standard products.
• It’s used to create a large number of uniform goods in an assembly-line system.
• Workers are highly dependent on one another, as the product passes from stage to stage until completion.
• Equipment may be sophisticated, and workers often follow detailed instructions while performing simplified jobs.
• Example-A company that bottles soda pop. It works well in rigid structure as has routine tasks.
• Formal structure or mechanistic structures is the best choice for workers who must perform repetitive tasks.

Continuous-process production

• Create goods by continuously feeding raw materials, such as liquid, solids, and gases, through a highly automated system.
• Such systems are equipment intensive, but can often be operated by a relatively small labor force.
• Examples-automated chemical plants and oil refineries. A flexible structure is necessary to allow workers to react quickly to unexpected problems.
• It works well in organic structures

The other Technology factor that determines organizational structure is IT-Knowledge management the sharing and integrating expertise within and between functions and divisions through real time interconnected IT that allows for new kinds of task and reporting relationships.

In contrast, the creative section of an ad agency is usually not formalized at all, the division of labor is often blurry, and it is highly decentralized. It appears that certain activities naturally "go with" certain structures. Joan Woodward found that by knowing an organization's primary system of production, you could predict their structure: Unit production/small batch. Companies that make one-of-a-kind custom products, or small quantities of products (e. g. , ship building, aircraft manufacture, furniture maker, tailors, printers of engraved wedding invitation, surgical teams). In these companies, typically, people's skills and knowledge is more important than the the machines used.

Relatively expensive to operate: work process is unpredictable, hard to pre-program or automate.

• Flat organization (few levels of hierarchy).
• Ceo has low p of control (direct reports).
• Relatively low percentage of managers
• Organic structure (see handout)
• Mass production/large batch.
• Companies that sell huge volumes of identical products (e. g. , cars, razor blades, aluminum cans, toasters).
• Make heavy use of automation and assembly lines.

Typically, bigger than small batch

• Taller hierarchies
• bottom level is huge (supervisor p of control is 48)
• Relatively greater number of managers (because hierarchy is so tall)
• Mechanistic, bureaucratic structure
• Relatively cheap to operate
• Continuous Production.

Primarily companies that refine liquids and powders (e. g. , chemical companies, oil refineries, bakeries, dairies, distilleries/breweries, electric power plants). Machines do everything,  humans just monitor the machines and plan changes. These organizations are tall and thin or even inverted pyramid:

• Almost nobody at the bottom
• At the very top there is an organic structure
• Lower levels more mechanistic, but because machines do everything, there is not much paper work, low level supervision, etc.

Chick Perrow '67 looked at how the frequency and type of exceptions that occurred during production affected structure. Two types of exceptions:

1. can be solved via orderly, analytic search process (like mechanic fixing car),
2. no analytic framework, rely on intuition, guesswork (like advertising, film-making, fusion research).

At the other extreme, the top right organizations (unanalyzable and many exceptions) are not well handled by bureaucracies. There are so many exceptions and new situations that having a set of formal procedures which specify how to handle every situation is out of the question. Organizations in this box tend to be highly decentralized and use informal means of coordination and control. The reasons have to do with human bounded rationality. Bounded rationality refers to the fact that since humans have limited brain capacity, we cannot always find the absolute optimal solution to a given problem - we only have the time and capacity to consider a few possible solutions, and choose the best among those. But we can't consider all possible solutions. Really complex systems are difficult to pre-plan: there are too many contingencies. We simply can't figure it all out. Need to allow for real-time, flexible adjustment.

Environment Adaptation

Organizations actively adapt to their environments. For example, organizations facing complex, highly uncertain environments typically differentiate so that each organizational unit is facing a smaller, more certain problem. for example, if Japanese tastes in cars are quite different from American tastes, it is really hard to make a single car that appeals to both markets. It is easier to create two separate business units, one that makes cars for the Japanese market, and the other that makes cars for the US market.

Natural Selection

Organizations whose structures are not fitted to the environment will not perform well and will fail. Most new organizations fail within the first few years. If the environment is stable, this selection process will lead to most organizations being well-adapted to the environment, not because they all changed themselves, but because those that were not well-adapted will have died off. Dependence The economy is a giant network of organizations linked by buying and selling relationships. Every company has suppliers (inputs) and customers (outputs). Every company is dependent on both their suppliers and their customers for resources and money.

To the extent that a company needs it's suppliers less than they need it, the company has power. That is, power is a function of asymmetric mutual dependence. Dependence is itself a function of the availability of alternative supply. A depends on B to the extent that there are few alternatives to B that are available to A. Dependence is also a function of how much A needs what B has got. If the Post It's company starts to play hardball with you, and there are no good alternatives, it's still not a big deal because Post It's are just not that important. Organizations that have power over others are able to impose elements of structure on them.

For example, GM is famous for imposing accounting systems, cost controls, manufacturing techniques on their supplier. The sets of entities in an organization's environment that play a role in the organization's health and performance, or which are affected by the organization, are called stakeholders. Stakeholders have interests in what the organization does, and may or may not have the power to influence the organization to protect their interests. Stakeholders are varied and their interests may coincide on some issues and not others. Therefore you find stakeholders both cooperating with each other in alliances, and competing with each other.

When stakeholders are unconnected to each other, the organization usually has an easier time of playing the different parties off one another. For example, it can represent its goals and needs differently to each stakeholder, without fear of being found out. Or, such competitive stakeholders into outbidding each other. Furthermore, when the stakeholders are unconnected, they cannot coordinate their efforts, and so have trouble controlling the organization.

Furthermore, if the bonds among the stakeholders are closer than the bonds with the organization, the stakeholders may side with each other against the organization, and won't act in ways that negatively affect other stakeholders. Institutionalization Under conditions of uncertainty, organizations imitate others that appear to be successful. In other words, if nobody really knows what makes a movie successful, and then somebody has a blockbuster hit, everybody else copies the movie, and the organizational structure that produced the movie, hoping that they will get the same results. This can cause whole industries to adopt similar structural features. One reason why this happens is the fear of litigation or simply blame.

If several well-known, successful companies start adopting some new management style - say, self-governing teams - and you don't because you know its not appropriate for your company, and then things start to go wrong for your company, people will say 'see? you should have adopted self-governing teams. we told you so'. So to avoid that, if the top companies in a field all adopt some new style, then all the others do to to avoid being blamed. In addition, diffusion of ideas due to personnel transfer and professional school training can create uniformity as well.

References

1. Organizational Theory: Determinants of Structure Stephen P. Borgatti October 08, 2001
2. http://www. practical-management. com/Organization-Development/Organization-s-External-Environment. html

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