Arab Open University

Bahrain Branch

Faculty of Business Studies

T205 – Systems Thinking: Principles and Practice

Session 24

Coping with the organizational environment

One can recognize the perception that ‘inside’, within the organizational boundary, we often feel that we are in a familiar and reasonably manageable world, while ‘outside’ (in the environment) is seen as confusing and a source of unpredictable change and hazard.

Different ways to cope with the environment

1. Problem articulating skills

This refers to the process whereby someone considers a complex, confusing situation, and finds a way to define and express what is needed. ‘I think what we are looking for here, is a way to do X’. We don’t yet have a solution – we don’t yet know how to do X – but we do now know what we are looking for. Out of unarticulated confusion has come an articulated challenge

This is one of the key roles a good manager plays, because if a challenge can be well articulated and communicated, then it becomes accessible – we can name it as a task, schedule it, delegate it, share it, teach people about it, research into it, and all the other things that happen to tasks in organizations

Donald Schon describes the process of problem articulation as:

  • In real-world practice, problems do not present themselves to the practitioners as given. They must be constructed from the materials of problematic situations which are puzzling, troubling, and uncertain
  • When we set the problem, we select what we will treat as the ‘things’ of the situation, we set the boundaries of our attention to it, and we impose upon it a coherence which allows to say what is wrong and in what directions the situation needs to be changed

2. Simplifying strategies

There are various simplifying strategies managers can use to try to grasp the enormous complexity of their organization’s environment and its influence on the organization (Mansfield, 1992):

  • Selective attention
  • Focusing on the areas of the environment that appear to be most relevant to current strategic considerations and ignoring the rest
  • You can’t attend to more than a tiny fraction of what is around you, so for most purposes, attending to the things that look as if they might be directly or indirectly important to you is a more efficient use of this scarce resource than just switching attention at random. Focus on things that are under your control, and things that are changing rather than unchanging. We couldn’t cope at all without this strategy, but its success depends on how good you are at recognizing what is relevant
  • Assuming universality
  • This is the assumption that my experience of environmental events is everyone’s experience. If all my experience so far is of B being troublesome, then the only guess I have evidence to support is that it will be troublesome again
  • Averaging
  • Assuming homogeneity. Many managerial view and theories are based on the assumption that individuals and organizations behave like the average individual or organization
  • Assuming continuity over time
  • This is equivalent to believing that, in future, things will keep going in much the same way, or along the same trend lines, as in the past
  • Local focus
  • Focusing on the nearest part of the environment and assuming that it represents the whole
  • Typifying
  • Assuming that particular cases (e.g. ones that I happen to know well) can be generalized to very different contexts
  • Problem bias
  • Focusing on a subset of the major strategic problems to the exclusion or downplaying of other problems and factors

These simplified views can often be a useful ‘first iteration’, but they are only valid as part of a continuing process of enquiry, where these early guesses are always being checked and developed, and there is a realistic sense of the uncertainties that they involve

Karl Weick (1995) suggests that we make sense of life in and around organizations by adopting a pragmatic cognitive approach based around strong feedback loops

3. Control by colonization

Bonis (1980), when talking about the ways in which organizations can try to control their environment, uses the image of ‘disguised imperialism’ and makes it clear that this ‘empire’ can go much wider than just the supply chain

  • A kind of disguised imperialism results when the organization seeks to control the external elements: customers, suppliers, subcontractors, members of other organizations, politicians and political organizations, the press, public opinion, pressure groups, etc.

What we are really talking about here is where the core organizations are trying to draw their system boundary

4. Finding ways to work with environmental uncertainty

Only a few of the more powerful organizations can hope to exercise significant control over the pattern of changes in their environment – and even then unpredictable occurrences can upset the best made plans

Most organizations and their managers have had to learn to work with the uncertainties and to respond quickly to different emerging situations

Four inter-connected possibilities:

  • Accepting uncertainty and preparing for it
  • To learn to expect the unexpected, and to recognize that we live in a world that is constantly changing and full of uncertainty
  • One way to cope with the changing environment is to learn to live with it – recognizing that it certainly is not something we can hope to control (scenario planning)
  • Learning and adaptation
  • If we are to thrive in new and unfamiliar environments then we need to learn how to learn and how to adapt to changing and perhaps unfamiliar surroundings
  • Those who are always learning are those who can ride the waves of change and who see a changing world as full of opportunities not damages. They are the ones who are likely to be the survivors in a time of discontinuity
  • Networking and connecting
  • To spend time networking and making connections with other organizations, or other groups that are connected to your organization, however loosely. This provides an ‘intelligence network’ to keep you in close touch with what is going on in the many environments that surround your organization
  • If you are well-connected, having contacts in the other environments that surround your organization or your business sector, then like a spider in a web, you will sense ‘vibrations’ in your network which may alert you in advance to impending changes or upheavals and give you an opportunity to consider some possibilities for response. Being ‘connected’ helps to keep a ‘living’ system creative and truly alive
  • Creativity and innovation
  • To do things differently – to be creative and highly innovative
  • Having environments around us that are constantly changing offers possibilities

Four environmental challenges

One way to think of an organization’s environment is in terms of the major challenges it creates for the organization

In general, if an organization fails to respond to such challenges, its performance will suffer

Challenges create considerable uncertainty for an organization, and an organization’s attempts to cope with uncertainty explain a great deal about its actions

The analysis that follows is in terms of the four challenges

  • How unstable is the organization’s environment?
  • How complex is the organization’s environment?
  • How hostile the organization’s environment?
  • How dependent the organization’s environment?

These challenges are often combined. For example, an unstable or dynamic environment may also involve greater complexity

Planning, decision-making and implementation are difficult enough within an organization’s boundary. When they are applied to challenges across the boundary they become even more difficult

There are only four broad strategies for tackling the environment; you can

  • Compete better (e.g. on price, performance, etc.)
  • Collaborate with other organizations, looking for ‘win-win’ positions in what is still, at core, a competitive ‘game’
  • Develop greater control by developing power over other organizations
  • Innovate, adapt and learn in ways that allow radical flexibility

Many of the externally directed responses available to an organization require it to manage its relationships with other organizations

1. The challenge of instability

A dynamic, unstable environment, may follow from factors such as

  • Rapidly changing technology
  • Sudden changes in customer tastes or demands
  • The rate at which new products come into the market
  • Broader macro-economic changes and unpredictable government interventions

The unstable variability and unpredictability of a dynamic environment creates uncertainty, and with it many kinds of management problems within organizations

Internal responses to environmental instability: this refers to strategies an organization can adopt internally, to make it better able to cope with whatever environmental challenges impinge upon it, as distinct from ‘external responses’ that attempt to tackle the challenge itself

  • Adopting a more flexible structure: Dynamic organizational environment demand versatile, organic structures that can cope with frequent changes of suppliers, products, staff, markets, and so on better than traditional bureaucracies. Galbraith (1974) advocates two pairs of strategies to achieve this flexibility:
  • Make it easier for small adjustments to be made locally to cope with local variations by:
  • Having sufficient ‘slack’ in the system to ensure that there is always a little spare capacity in hand
  • Organizing the work into self-contained tasks (e.g. the use of semi-autonomous work-groups)
  • Make it easier for the organization to process the large amount of information involved in managing rapid changes by:
  • Enhancing capacity to handle information flowing vertically up and down the organization (e.g. IT-based management information systems, or special people dedicated to information management)
  • Enhanced capacity for information to flow laterally (e.g. using special liaison staff, multi-functional teams, etc.)
  • Developing a more flexible workforce: A flexible workforce is as important as a flexible structure. Options include:
  • Use of team-working of various kinds
  • Reducing job demarcation through job design
  • Placing greater emphasis on skills that allow switching between tasks (multi-skilling)
  • Empowerment
  • Increasing managerial direction
  • Introducing pay and incentive systems
  • Increasing use of part-time staff
  • Adopting organizational cultures that support change: New ways of thinking about organizational life that are better adapted to coping with a turbulent environment
  • The learning organization: this sees the organization as an ‘organism’ that is continually meeting changes in its environment
  • Coping rather than optimizing: coping becomes more important than perfection
  • Thriving on the edge of chaos

External responses to environmental instability:

If my organization depends very strongly on another, then I am vulnerable to uncertainties in their environment as well as to those in my own.

2. The challenge of complexity

Decentralizing decision-making

  • A common response to complexity is to decentralize decision-making. There are two main reasons for this:
  • The periphery offers more options
  • Decentralized decision-making minimizes information transmission

Self-contained tasks

  • If a market is very diverse, it makes sense to split the organization into market-based units so that the different units can develop appropriate responses to their own markets

Focusing on core processes

  • The essence of this strategy is to ‘stick to the knitting’, i.e. ‘stick to the business you know best and are best at’. Limit your organization to doing what you do best, and buy in any other materials or services you need from others who are doing what they do best
  • In a sense, you are exporting some of the environmental complexity and uncertainty to other organizations, so simplifying what your own organization has to deal with

3. The challenge of hostility

Hostility may come from various sources

  • Competition arising from the number and the power of other competitors in the market
  • Government regulatory pressure
  • Social pressure by pressure groups

Hostility from competitors (three types of threat)

  • The threat of new entrants
  • The threat of substitution
  • The threat from existing competitors. Responses to this may be
  • Do nothing
  • Try to improve position
  • Collaborate with others
  • Control the market place

Responses to extreme hostility

  • In the face of extreme hostility, organizations tend to centralize their structures, particularly if survival is at stake. The idea behind this strategy is that a faster response will be possible if decisions are all handled at the centre

4. The challenge of dependency

Dependency has the effect of moving power away from the dependent person or organization, towards the person or organization depended on

Some of the possible responses to dependency include

  • The dependent organization may centralize and formalize its structure
  • Diversification: to reduce its dependence, the supplier might find other customers, or develop other products for the same customer
  • Increase mutual dependence: a small supplier organization might try to make itself indispensable to its dominant customer

Simple tools for exploring the environment

TOOL 1: STEPS checklist (Social, Technological, Economic, Political, and Sustainability)

  • Its advantage is its simplicity and wide applicability
  • You must first decide whether the five STEPS categories are likely to be relevant to your concerns
  • You could perhaps map out the various STEPS factors you identify on an influence diagram. Alternatively, you might incorporate them into a multiple cause diagram to depict the network of factors directly and indirectly affecting, or resulting from, the performance of your organization
  • You might like to use STEPS either to think about current patterns of influence, or to think about possible future developments and changes

TOOL 2: SWOT analysis (Strengths, Weaknesses, opportunities and Threats)

  • Strengths and Weaknesses are those of your organization, and Opportunities and Threats are those of its environment
  • Impact matrix (see the table below)

If it happened, the impactIf it happened, the impact

would be lowwould be high

______

More likely toLikely, non-critical, events.Critical events

HappenHandle with routine proceduresNeed careful, well-planned,

Management

Less likely toMarginal eventsEvents that are unlikely, but

HappenIgnore or handle in ad hoc wayswould be serious if they

happened. Need insurance

and contingency planning

  • Combining the two analyses
  • Explore ways in which you might best use your strengths to exploit the opportunities and manage the threats
  • Explore ways in which you might prevent your weaknesses undermining what you want to achieve
  • Prioritize a set of actions you wish to take, set time-scales, and identify necessary resources

TOOL 3: 5 Ws and H (Who, What, Where, When, Why and How)

TOOL 4: Inputs, Transformations and Outputs

  • Consider your organization as a transformation process
  • If it is well constructed such a diagram can generate a checklist of input, transformation, and output phrases around which you can begin to brain storm environmentally-related questions such as
  • What environmental factors could affect this input
  • What environmental factors could affect your transformation process
  • What environmental factors could affect your rate or quality of output

TOOL 5: Auditing Mintzberg’s Stakeholders

TOOL 6: Economic-Sector Analysis

  • Economists group economic activity according to sectors. All the organizations in a particular sector produce similar products or services, and tend to be affected by similar influences
  • A useful way to explore an organization’s environment is to identify a sector. This then leads to questions such as:
  • What other organizations are there in the same sector?
  • Who are the sector’s customers and hoe are they differentiated?
  • What is distinctive about organizations in this sector?
  • How do organizations in this sector relate to one another and differentiate themselves from one another?
  • How does the network of supply chains and distribution channels work within the sector?

List of readings and resources:

  1. Concept file 5 (Networks):

-Readings8, 9 & 10

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