Category: Organizational Theory ಸಾಂಸ್ಥಿಕ ಸಿದ್ಧಾಂತ

Over the last few blogs ending with this one, we have discussed the various organization theories. In today’s blog, we look at the inter-relation between the 3 theories we studied:

The Resource Dependency Theory is formulated at the organizational level of analysis and provides a top-management perspective looking outwards from the organization to its surrounding environment.

The later 2 theories are formulated at the level of environment. The Population ecology model attempts to explain why there are so many different kinds of organizations. institutional theory tries to explain why many organizations look alike in essence, both these theories answer their fundamental questions with the reference to the influence to the environment no the organizations.

When environment has many rules and expectations to which organizations must confirm to derive necessary social legitimacy – institutional theory best explains organization’s structure and outcome.

When the environment is not highly institutionalize and is influenced more by economic and technical competitions – population ecology perspective explains better to begin with.

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In the last blog, we looked at the population ecology model partially. In today’s blog we look at another theory – Institutional Theory.

Environment puts demands on organization in 2 ways

1. They make a technical and economic demands that require organizations to produce and exchange their goods and services in a market or a quasi-market.

2. They may make social and cultural demands that requirer organizations to play particular roles in society and to establish and maintain certain outward appearances.

Institutions generally have a repeated actions and shared concept of reality. Sometimes actions are repeated because explicitly rules or laws exist to ensure their repetition (legal and political influences). Sometimes activity patterns are supported by norms, values, and expectations (cultural influences); sometimes by a desire to be or look like another institution (social influences).

In the institutional perspective, the environment is session as providing a more or less shared view of what organizations should look like and how they should behave.

In this approach the manager would need to analyze the particular organization you should consider how the organization is adapting to its institutional context.

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In the last blog, we looked at the Resource Dependency Theory of relation between organization and environment. In today’s blog we will into another theory – Population Ecology theory.

Similar to the Resource dependency theory, the Population Ecology theory too starts with assumption that organizations depend on their environment for the resources they need to operate.

The population ecology assumes that the environment of an organization is assumed to have the power to select from a group of competitors those organizations which best serve the needs. Organizations which share a resource pool are competitively interdependent and the patters of interdependence that they adopt within the group affect the survival and prosperity of individual members.

The main interest of the theory to explain the evolutionary process of the organization. There are 3 evolutionary processes – variation, selection and retention – which explain the dynamics of a population.

Variation occurs in a population through entrepreneurial innovation and through the adaptation of established organizations.

The new organizations that are formed through birth or adaptation provide the range of choice the environment has during the selection process.

Environment sélects on the basis of fitness – the survival. Retention equals survival.

This model provides a more detached view of the organizations than they are normally used to taking.

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In the last blog, we began our discussion about the relation between organization and environment with the contingency theory. In today’s blog we look at another theory – the Resource Dependency Theory.

The Resource Dependency Theory suggests that “an analysis of inter-organizational relations within the network of the organization can help managers to understand the power/dependence relationships that exist between their organization and other network actors.

Every organization depends on its environment for almost all the tangible requirements – raw materials, labor, capital, equipments, and outlets for its produce.  This dependency of the organization on its environment gives the environment a power over the organization. 

Managers would need to perform this resource dependency analysis by identifying the source of organization’s resources. The next point of focus has to be on environmental actors which can affect these organization-environment relationships and there by the organization. These are generally competitors and regulatory agencies. This is to be followed by sorting these by criticality and scarcity. 

With this analysis done, an apt strategy would have to be developed by the manager towards addressing these challenges from the resource front. There are numerous ways that have been traditionally followed, we would look at them in different cases at a later date.

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In the earlier blog,
we looked at the larger context of International environment and the relevance
to the managers. Beginning today over the next few blogs we would look at some
of the theories that highlight the organization-environment relations. Today we
discuss the first of these theories – Contingency Theory.

The Contingency
Theory talks about the relation between the environmental condition and the
nature of organization that would develop in such an organization. A careful
observation of the business environment around us and we begin to realize that
this theory is really true.

Simply put, this
theory finds that a stable environment would have the organization with strict
line of authority, distinct areas of assigned responsibilities etc. Since, this
resembles a machine with strict rules and predictability – this is called
mechanistic organization. On the other hand if the environment is very dynamic,
the organization operating within it would have to be very flexible and
employees would have the freedom to respond with a fitting reply relevant to
the context. Given this lively nature, this is called an organic organization.

Of these 2 types –
mechanical and organic, none could be said as superior to the other. Each is
appropriate to different environmental conditions. In stable environment, the
mechanistic form is advantageous through the standard procedures to perform
routine activities. Under rapidly changing environment, the organic model
scores over the mechanistic model or organizations. Flexibility of organic
organizations, support the need for innovations and adaption.

To summarize – the most
effective way to organize is “contingent” upon the conditions of
complexity and change in the environment – Thus the name “Contingency
Theory”.

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In the last blog, we looked at the general environment view of the organization, in today’s blog we look at a larger view – the international environment and the elements that would be part of it.

We could visualize the international organization in the following manner:

In the fast paced global world of today, managers cannot afford to just be limited to the general environment of an organization which generally operates within a national boundary. Today’s businesses are always getting global. We have numerous companies opening up their manufacturing set up in China, and the software giant’s their offices in India. These trends come in with their own complexity. Such international context of the organization also get along with it the numerous treaties, etc that generally rule the international business environment. Let’s understand with an example:

Consider the Earth Summit held in Rio de Janeiro in 1992, (). Managers would need to be aware of the specific ways in which these changes might affect and are already affecting their inter-organizational network and their organization. 

As soon as an organization decides to expand its activities beyond the boundaries of its home nation, it will interact with representatives of organizations from other nations – joint venture partners, consumer groups, tariff collecting agencies, tax authorities all these will be part of the organization’s network. Even before the organization enters international market or exchanges, it would have to face competition not just with in the international market but by firms that entre the organization’s domestic markets from abroad!

Managers would have to broaden themselves in a way that more local aspects of the inter-organizational network are taken care of. This is pretty important and we have multiple cases where organizations ignoring such local flavors have had to pay a heavy price. In essence, organizations dealing in the international environment have to – “Think global, act local”

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In the last blog, we looked at the most significant factors that affect the organizational environment in the inter-organizational network view of the environment. In today’s blog let’s look at the general environment view and the factors involved in it. 

The general environment could be looked at as – social, cultural, legal, political, economic, technological and physical. These could be depicted in the following diagram:

Though for the case of understanding the environment we have divided the various sectors, in reality these are interrelated. This classification assist us reduce the complexity into a manageable unit of analysis. A manager would have to take calls on which of these sectors would be the most significant and which of these would be better classified differently. It is again a call that the manager trying to analyze the industry has to take.

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In the last blog, we began looking at the organization in association with its environment. This is interesting since, it enables us look at the organization which is so central to our business in a larger context. In today’s blog, we look at the first angle of looking at organization in context of its environment -“inter-organizational network”. 

It should be by this time obvious to all the readers that any organization is a member of its environment and would definitely interact with other members in the environment. One could classify the other members in the environment as Regulatory Agencies (primarily the government arms which regulate the business environment as a whole), Customer, Partners, Competitors, Special interest groups, Suppliers, Labor Unions and so on. 

We could represent these by the following diagram:

When we as managers look at our organization with a central focus, and in some cases skip the information from its environment. A view as shown above in the diagram, an inter-organizational view could potentially impose a threat to the practicing manager! 

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In the earlier blog, we concluded our discussion about the various dimensions of organization structure. In our pursuit of understanding organization, it would be important to understand the concept of environment. We begin this journey of understanding the concept of environment from this blog and continue this over the next few blogs.

Simply put, environment could be defined as something that exists outside the boundaries of an organization! 

The following picture shows this understanding that we have!

Surely, this definition looks vague and needs some more thought. We could better understand it when we look at it from 3 different angles

Over the next few blogs, we will look at these and understand them better.

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