Topic 3 How Organization Adapt to their Environment

 

Each Organization must assess its own unique situation and then adapt according to the wisdom of its senior management. Organizations attempt to influence their environments – the most common methods for this are through information management strategic response, mergers, takeovers, acquisitions and alliances, organization design and flexibility, and direct influence.

One way organizations adapt to their environment is through Information Management. Information management is especially important when establishing an initial understanding of the environment and when monitoring the environment for signs of change. Organizations use several techniques for information management. One is recognizing the importance of boundary spanners.

Boundary Spanners – is an employee, such as a sales representative or a purchasing agent, who spends much of his or her time in contact with others outside the organization. Such people are in good position to learn what other organizations are doing. All effective managers engage in environments scanning, the process of actively monitoring the environment through activities such as observation and reading.

Another way that an organization adapts to its environment is through a Strategic Response. Options include maintaining the status quo, altering strategy a bit, or adopting an entirely new strategy.

Other response to the environment is through some of the following measures;

·         Combining firms to form new firms.

·         Buying firms and operating them independently.

·         Mergers, acquisitions, alliances and takeovers. 

In an alliance, a firm undertakes a new venture with another firm however, it should not be thought of as an easy option for organizations to embrace when adapting to complex environments. While alliances provide a pathway for competitors to leverage off each other’s expertise and market share, they also invite the attention of regulators and legislators, who rightly demand assurances that the corporation does not erode competition to the detriment of the consumers. Alliances also require continued commitment by the top management of the alliance partners.

Organizations may also adapt to environmental conditions by incorporating flexibility in its structural design.

Example 1:  A firm that operates in an environment with relatively low levels of uncertainty might choose to use a design with many basic rules, regulations and standard operating procedures known as: Mechanistic Organizational Design

Example 2:  A firm that operates in an environment with great levels of uncertainty might choose to use a design with relatively few operating procedures, instead allowing managers considerable discretion and flexibility over management decisions.

Known as: Organic Design more flexible and permits the organization to respond quickly to environment change. While the environment may exert a powerful influence over what an organization does and does not do, does not necessarily means that an organization is powerless when faced with pressure. Many organizations are able to directly influence their environment in many different ways

Example: Firms can influence their suppliers by signing long-term contracts with fixed prices as a hedge against inflation or a firm might become its own supplier. (Campbell Soup Company)

Any major activity a firm engages in does affect its competitors one way or another.

·         Price reduction by one firm will result in another firm also reducing its price.

Organization also influences their customers through the following;

·         One method is creating new uses for a product.

·         Finding entirely new customers.

·         Taking customers away from competitors.

·         Influencing consumers that they need something new.

·         Influencing regulators through lobbying and bargaining.

Organization are no more separated from their environment then fish from water and in order to survive they had to respond to the changes in their business environment by changing strategies and reviewing their short-term and long-term exposure to the inherent risks of operating in any country.

The 1987 Asian stock market crash required the application of high-level management skills to adapt organizations to rapidly changing environments. E.g. the Indonesian currency regained ground after suffering 70 percent devaluation.  Tragically too many organizations have come to grief because they failed to take seriously events of relevance in their environments. Others have sought to offer products and services, or have used organizational structures, that were inappropriate for their environments.

·         Turbulent and dynamic environment demand that organizations operating in them have short time–to-market cycles for their products and services, and that they listen to what their customers are saying about their operations.

Organization Effectiveness

• Given the interactions between organization and their environments, it follows that effectiveness is related to how well and organization understands, reacts to and influence its environment.
• Research and Development in the short run is not important to some firm however, this may have implications in the long-run. To others R&D in the short-run may not please shareholders however; there will be long term benefits.

Effectiveness and Efficiency - Effectiveness is doing the right things while efficiency is using resources wisely and without waste. There are many different models of Organizational Effectiveness. We will look at three.

·         The Systems Resource Approach.

·         The Internal Processes Approach.

·         The Strategic Constituencies Approach

Systems Resource Approach - Focuses on the extent to which organization can acquire the resources it needs.

·         A manufacturer that can get raw materials during a shortage, a faculty that can recruit a qualified academic despite competition from the industry and a firm that can borrow at low interest rate are all effective from this perspective.

·         They are acquiring the materials; human, financial and information resources they need to compete successfully in the marketplace.

Internal Processes Approach - Deals with the internal mechanisms of the organization. It focuses on minimizing strain, integrating individuals and the organization, and conducting smooth and efficient operation. (Employee satisfaction and morale is the main focus)

• Goal Approach focuses on the degree to which an organization achieves its goals. E.g. if a firm set its goal to achieve 10 per cent then achieve that increase, the goal approach maintains that the organization is effective.

Goal Approach - Focuses on the degree to which an organization achieves its goals. E.g. if a firm set its goal to achieve 10 per cent then achieve that increase, the goal approach maintains that the organization is effective.

Example: General Electric Co. is at its goal of being either number one or number two in every industry that it enters is used by its management team as an indicator of the company’s effectiveness.

Strategic Constituencies Approach - Focuses on the groups that have a stake in the organization. This may include its suppliers, lenders, participants, customers and any others who might be influenced by the company. The effectiveness is the extent to which organization is able to satisfy demands and expectations of all these groups.

In summary these four methods;

·         System Resources Approach focuses on input.

·         The Internal Processes Approach focuses on transformational processes.

·         The Goal Approach focuses on output.

·         The Strategic Constituencies Approach focuses on feedback

 

           

 

·         At the core of this unifying model (Figure 3.6) is the organizational system, with its inputs, output and feedback and transformations. 

·         Surrounding this core are the four basic approaches to effectiveness, together with a fifth approach – the combined approach – which incorporates each of the other four. 

·         Achieving the organizational effectiveness is not an easy task. The key to doing so is to understand the environment in which the organization functions. 

·         With this understanding as a foundation, managers can chart the correct path for the organization as it positions itself in that environment, and how to best get there, they stand a good chance of achieving organizational effectiveness. 

·         On the other hand, if they pick the wrong target to aim for, or if they go about achieving their goals in the wrong way, they are likely to be less effective.  

Towards a Framework for Business Ethics

Is it fair to discuss corporate social responsibility if business enterprises and corporations are already contributing to the economic growth of an economy through the production of goods and services, paying taxes, creating jobs etc. Such questions are important because corporations and companies can argue that they are paying taxes and it is the responsibility of the government to take care of any social responsibilities of its people.

What is a Corporation? – Key Features

·         Regarded as an artificial person in the eyes of the law. Corporation have certain rights and responsibilities in society, just as an individual citizen might. 

·         Corporations are notionally owned by shareholders but exist independently of them. The corporation holds its own assets and shareholders are not responsible for the debts or damages caused by the corporation (they have limited liability). 

·         Manager and directors have a fiduciary responsibility to protect the investment of shareholders. (Involving trust, especially in a situation where a person or company controls money or property belonging to others. 

Can A Corporation Have Social Responsibility?

·         Only human beings have a moral responsibility for their actions. According to economist Milton Friedman questioning; Corporations are not human beings therefore cannot assume true moral responsibility for their actions. Since corporations are set up by individual human beings. It is those human beings who are then individually responsible for the actions of the corporation. 

·         It is a Managers responsibility to act solely in the interests of shareholders. Friedman’s second point was that as long as a corporation abides by the legal framework society has set for business, the only responsibility of the managers of the corporation is to make profit, because it is for this task that the firm has been set up and the managers have been employed. Acting for any other purpose constitutes a betrayal of their special responsibility to shareholders and thus essentially represents a theft from shareholders pockets. 

·         Social issues and problems are the proper province of the state rather than corporate managers. Friedman’s third main point was that managers should not, and cannot decide what is in society’s best interests. This is the job of government. Corporate managers are neither trained to set and achieve social goals, nor (unlike politicians) are they democratically elected to do so.

 

Can a corporation be morally responsible for its actions?

Is a corporation just a collection of individuals who works together under the same roof, or is the corporation not only a legal entity in its own right, but also a moral one? We can look at several questions?

Can a corporation actually assume moral responsibility for the rights and wrong of its actions? (J. Bakan, 2004)

Two arguments; (Moore 1999).

·         Every company has a Corporate Internal Decision Structure which directs corporate decisions in line with pre-determined goals. The structures are manifested with various elements which acting together results in situations. No action can be assigned to any individual decision. 

·         Second argument supports the moral dimension of corporate responsibility is the fact that all companies have an internal corporate decision structures manifest by a set of beliefs, and values (Corporate Culture).

 

Corporate Social Responsibility (CSR)

CSR started about half a century ago, and during this time many different concepts and principles have been aired and debated. Such debates have focused on two key questions:

1)      Why might it be argued that corporations have social as well as financial responsibilities?

2)      What is the nature of these social responsibilities?

 

Why do Corporations have Social Responsibility?

If we look at the above two questions, we may get different responses based on how widely acceptable is the issue of responsibilities by businesses as against their main objective of maximising profits. (Crane and Matten, 2007:47). Some businesses go for social responsibilities so as to promote the business interests which can be good for business. In other cases, business may not have acted in a responsible manner thus it may be shunned and boycotted by consumers. A good example was the Exxon Mobil experiences in the 2000’s where there were international consumer boycott co-ordinated by Greenpeace.

Another issue that may go in favour of socially responsibilities is that of employees attracted to work for or against a company based on it acts of responsibilities. Also positive contributions may be regarded as a long-term investment in a safer, better and more equitable community.

What is the nature of Corporate Social Responsibility?

Carroll and Buchholtz, 2000 came up with a four-part model of Corporate Social Responsibility as follows;

·         Philanthropic Responsibilities is Desired by Society

·         Ethical Responsibilities is Expected by Society

·         Legal Responsibilities is Required by Society

·         Economic Responsibilities is Required by Society

Please read more about this subject.

 

Sources:

Crane, Matten, (2007) Business Ethics; Managing Corporate Citizenship and Sustainability in the Age of Globalization. Oxford.
Nickel, McHugh, McHugh, (2005) Understanding Business 7^th Edition, McGraw-Hill
Johnson, Abramov, Business Ethics 2004, “A Publication of the Good Governance Program” International Trade Administration Washington D.C. 2004
The Environmental Context of Management by Kohler
International Business 3^rd Edition P. Subba Rao