Organizational Environmental Theory

This paper seeks to explain the organizational environment theory specifically elaborating on the
contingency theory structures, and its application to management of organizations in respect to
the environment. It also focuses on open systems view, including the aspects affecting open
systems, the stages that an open system goes through in relation to the environment, in order to
survive and grow.

Contingency theory is a class of behavioral theory that claims that there is no best way to
organize a corporation, to lead a company or to make decision, instead, the optimal course of
action is contingent (dependent) upon the internal and external situation.

The open systems reflected the newfound belief that all organizations are unique in part because
of the unique environment in which they operate and that they should be structured to
accommodate unique problems and opportunities. An open system is a system that regularly
exchanges feedback with its external environment. Open systems are systems, of course, so
inputs, processes, outputs, goals, assessment and evaluation, and learning are all important.
Definition of Organizational Theory
Organizational theory studies organizations to identify the patterns and structures they use to
solve problems, maximize efficiency and productivity, and meet the expectations of stakeholders.
Organizational theory then uses these patterns to formulatenormative theories of how
organizations function best. Therefore, organizational theory can be used in order to learn the
best ways to run an organization or identify organizations that are managed in such a way that
they are likely to be successful.
An organization is asocial unit of people that are structure and managed to meet a need or to
pursue collective goals. Organizational environment is a set of forces that surrounding an
organization that have the potential to affect the way it operates and access to scarce resources.
Management is the function that coordinates the efforts of people to accomplish goals and
objectives using available recourses efficiently and effectively.

CONTINGENCY THEORY

Contingency theory is a class of behavioral theory that claims that there is no best way to
organize a corporation, to lead a company or to make decision, instead, the optimal course of
action is contingent (dependent) upon the internal and external situation.

Contingency theory posits that there is no one best way of structure and manage organizations.
Instead, structure and management are contingent on the nature of the environment in which the
organization is situated. According to contingent theory, the characteristics of the environment
affect an organization’s ability to obtain resourcesand to maximize the likelihood of gaining
access to resources.Managers must allow an organization’s department to organize and control
their activities in ways most likely to allow them to obtain resources, given the constraints of the
particular environment they face.

An important characteristic of the external environment that affects an organization’s ability to

obtain resources is the degree to which the environment is changing. Changes in the
organizational environment include changes in technology, which can lead to creation of new
products such as compact discs, and result in the obsolescence of existing productsuch as eight
track tapes, the entry of new competitive such as foreign organizations that compete for available
resources and unstable economic conditions. The more the organization is changing, the greater
are the problem associated with gaining access to resources, and the greater is the managers’
need to find ways to coordinate the activities of people in different departments to respond to the
environment quickly and effectively.
Burn and Stalker, Management of Innovation 1965, provided a contingency theory based on
environmental stability. They described how they set out to study workers in the factory but that
was never realized, because it soon become evident that the social structure of the factory
interlocked with and often mirrored that of the small isolated town in which it is situated.

Burn and stalkers noticed that there were two types of management theory that the manager can
use to organize and control an organization’s activities to respond to characteristics of the
external environment. That is,mechanistic structure which rest on theory X and organic structure
which rest on theory Y.

Mechanistic Structure

Mechanistic systems or structureswhich are appropriate for the stable environment, where there
is little change or the change is predictable. They are characterized by specialization,
centralization, clearly defined roles and vertical communication particularly downward
communication. Tasks and roles are clearly specified, subordinates are closely supervised, and
the emphasis is on strict discipline and orders. Mechanistic structure provides the most efficient
ways to operate in a stable environment because it allows managers to obtain inputs at the lower
cost, giving an organization the most control over its conversion processes and enabling the most
efficient production of goods and services with smaller expenditure of resources.

Organic Structure

Organic systems or structures which arerequired in changing environments with unstable

conditions. It is difficult to obtain access to resources and managers need to organize their
activities in a way that allows them to cooperate, act quickly to acquire resources (such as new
type of inputs to produce new kind of product), and to respond effectively to the unexpected.

They have several characteristics which include;

Specialized tasks that are performed in light of interdependence with other specialized tasks.
Jobs and tasks are continually redefined through interaction among organization members.
Communication is both horizontal and vertical and tends to be in the formof consultation rather
than orders. The information is a commodity used in decision making where the limits of feasible
actions are set more widely.
Authority is decentralized to middle and first line managers to encourage them to take
responsibility and act quickly to pursue scarce resources. Departments are encourage to take a
cross-departmental functional perspective, and a cross-functional teams composed of people
from different departments are formed. Managers in organic structure can react quickly to a
changing environment than managers in a mechanistic structure. However organic structure is
generally more expensive to operate because it requires a lot of managerial time, money and
effort to spend on coordination.

In developing organizations; Diagnosis and action (1969) Lawrence and Lorchoffered another
contingency theory similar to Burn and Stalker. Whereas Burn and Stalker focus on the stability
of the environment, Lawrence and Lorsch pointed on the environmental uncertainty as the key
issues. They began with premises where more attention had been paid to improving internal
relations in organization than to exploring and improving the organization’s relationship with the
environment.

Lawrence and Lorsch theorized that the organization would have to match certain characteristics
with demand and nature of the environment. Environments that were fairly stable or certain
would require less and less complex information for the organization than would environment
that was more uncertain that is, changing.

The organization that have stable environment can operate more easily from predetermined rules
and any change in the environment can be handled through the hierarchy because time is not a
critical factor. Organization in a more uncertain, changing environment must have more
complex systems for adapting to the information gathered from that environment. To increase the
contact with the environment, they should use a decentralized structure. Rules would be too
constricting, so free flow of communication is necessary. Contingency theory posit a direct
relationship between the internal structure of the organization and the type of environment in
which it is situated.

Implications of contingency theory

Contingency theory rejects the idea that there is one way to manage a company. It suggests
managers must evaluate each situation and make decisions unique to those situations. This
approach requires managers to stay alert and avoid relying on rules, policies and tradition as their
only guides for their choices. All their faculties.

Managers using contingency theory respond to the causes of individual problems, rather than to
the problem itself. Such a manager seeks to understand all of the influences that lead to the
difficulty. For example, decreasing production might seem at first glance to be the result of
negligent employees. A deeper look could reveal that poor lighting and insufficient cooling are
causing sleepiness among employees. Had the manager simply relied on motivational theories as
an automatic response to productivity problems, he might have missed the true cause of the drop
in production.

Contingency theory encourages managers to think about the consequences of a decision as it

relates to the whole company. A manager's actions must reflect the culture, commitment to
employee safety and well-being, profit orientation, branding positioning and customer service
attitudes of the entire organization. At the same time, the manager must respond to the problem
at hand, according to the immediate causes of the issue. This double focus on the overall
organization and the specifics of a problem requires a manager to see the big and small pictures
at the same time.

Managers operating under the principles of contingency theory have to do more than just identify
the one or two influences on an issue. They have to be prepared to evaluate multiple inputs that
may all be contributing to a problem. Using the example of a drop in productivity, the manager
may discover that not only lighting and air conditioning contribute to the problem, but the
company's revised production bonus program, the move from individual recognition to team
recognition, a loss of some benefits and outdated equipment all contribute to the single problem.
Contingency managers have to learn to integrate all of the threads that intertwine to make for
effective decisions and problem-solving.

Companies issue policies to reduce the amount of time spent making routine decisions. However,
a company that embraces contingency theory requires managers who can bend policy or even
override it if circumstances demand a new type of decision. This puts a burden on managers to
interpret policies loosely, yet maintain the company's values and vision in all decisions.
Contingencies arise that may be unforeseen, and managers need the flexibility to adjust to new
circumstances.

Definition of Environment:

An organization's environment is defined as all the elements existing outside the boundary of the
organization that have the potential to affect all or part of the organization (Daft, 1997).

Organizational domain:

This is the range of goods and services that the organization produces, and the customers and
other stakeholders whom it serves.
Contingency theorists argue that organizations are organized in ways that best fit the
environment in which they are embedded.
Institutional theorists see organizations as a means by which the societal values and beliefs are
embedded in organizational structure and expressed in organizational change.
Resource dependency theorists see the organization as adapting to the environment as dictated
by its resource providers. Although there is a great variety in the perspectives provided by open
systems theories, they share the perspective that an organization’s survival is dependent upon its
relationship with the environment.

THE OPEN-SYSTEMS VIEW THEORY:

The open systems reflected the newfound belief that all organizations are unique in part because
of the unique environment in which they operate and that they should be structured to
accommodate unique problems and opportunities. An open system is a system that regularly
exchangesfeedback with its external environment. Open systems are systems, of course, so
inputs, processes, outputs, goals, assessment and evaluation, and learning are all important.

In open systems, it follows that any change to one part of the system will have an impact to one
another,and in return on itsover performance. The open systems school approach to change is
based on these sub systems,inorder to determine how they can change to improve the overall
functioning of organization.
These does not just see organizations as systems in isolation, however they are seen as open in
two aspects. Firstly they are open to interactwith, their external environment. And vice versa
(Buckley, 1968).
These theorists viewed the organization as an open system, a system that take in resources from
its external environment and converts or transfer them into goods and services that are sent back
to the environment where they are bought by customers. The system is said to be open because
the organization draws from and interact with external environment in order to survive and the
organization is open to its environment. A closed system in contrast, is a self-contained system
that is not affected by changes in its external environment. Entropy is the tendency of a closed
system to lose to its ability to control itself and thus to dissolve and disintegrate.
Open system representation:
Input stage where an organization acquires resources such as raw materials, money, and skilled
workers to product goods and services.

Conversion stage where the organization’s workforce using appropriate tools, technique and
machinery transforms the inputs into outputs of finished goods and services such as cars,
hamburgers, or flights.

Output stage where the organization releases finished goods and services to its external
environment, where customers purchase and use them to satisfy their needs. The money the
organization obtains from its sales output allows the organization to acquire more resources so
the cycle can begin again.

Systems theorists argue that the whole is greater than the sum of its parts; this mean that
organizations performs at higher level when its department works together rather than separately.
Synergy the performance gains that result from combined actions of individuals and department,
is possible only in an organized system.

Aspects that are critically important to open systems include the boundaries, external
environment and equifinality.

External Environment:

The external environment includes a wide variety of needs and influences that can affect the
organization, but which the organization cannot directly control. Influences can be political,
economic, ecological, societal and technological in nature.

A highly effective organization is regularly exchanging feedback with its external environment –
it is an open system. Healthy organizations regularly try to understand their environments
through use of environmental scanning, market research and evaluations.
These organizations often try to influence their external environment, as well, for example,
through use of public relations, advertising and promotions, lobbying and advocacy, and
educating industry and local leaders.Environmental influences that affect open systems can be
described as either specific or general. The specific environment refers to the network of
suppliers, distributors, government agencies, and competitors with which organization interacts.
The general environment encompasses four influences that emanate from the geographic area in
which the organization operates. These are;Cultural values, which shape views about ethics and
determine the relative importance of various issues.

Economic conditions, which include economic upswings, recessions, regional unemployment,

and many other regional factors that affect anorganization's ability to grow and prosper.
Economic influences may also partially dictate an organization's role in the economy.

Legal and political environment, which effectively helps to allocate power within a society and
to enforce laws. The legal and political systems in which an open system operates can play a key
role in determining the long-term stability and security of the organization's future. These
systems are responsible for creating a fertile environment for the business community, but they
are also responsible for ensuring regulations pertaining to operation and taxationneeds of the
larger community are addressed.

Quality of education, which is an important factor in high technology and other industries that
require an educated work force. Businesses will be better able to fill such positions if they
operate in geographic regions that feature a strong education system.

Boundaries:

All systems have boundaries, although the boundaries can be difficult to identify because
systems can be very dynamic. Open systems have porous boundaries through which useful
feedback can readily be exchanged and understood. Closed systems, unlike open systems, have
hard boundaries through which little information is exchanged. Organizations that have closed
boundaries often are unhealthy. Examples include bureaucracies,monopolies and stagnating
systems.

Outcomes (Results Among Customers):

Outcomes are critically important to the success of an organization. Outcomes are in regard to
the changes, or benefits, that customers accomplish as a result of using a particular product or
service.Outcomes are usually specified in terms of changed:Knowledge (usually short-term
outcomes).Behaviors, notably those that comprise useful skills (often intermediate
outcomes).Attitudes, values and conditions, such as increased security, stability or pride (usually
long-term outcomes).

CONCLUSION

The contingency approach is an effort to determine through research which management

practices and techniques are appropriate in specific situations. It is a situational appropriateness
management; this is because different situations require different managerial responses.
Managers need contingency plans, plans that are flexible and that can adapt quickly to changes in
today’s unstable environment. The contingency approach has grown in popularity because it
recognizes that there is no magical formula for managerial effectiveness. As far as the
organization need stable environment to operate effectively, the circumstances of the
surrounding are still unpredictable if there comes an open system view which are not favorable
to the organization operations. Open systems thinking does not permit the manager to become
pre-occupied with one aspect or organizational management while ignoring other internal and
external factors. These factors include resources availability, technological developments, market
trends and service provision. Companies providing services to the public will normally consider
the environment they are operating in.

The objective of the open systems approach is to structure the functions of a business in such a
manner that, throughclearly defined lines of coordination and interdependence. The emphasis is
on achieving overall synergy, rather than on optimizing the performance of any one individual
part (Mullins, 1989).

The implication to communication of open system theory

Is that it recognize and Change Patterns of Communication for Effective Relational

Maintenance.

Become Aware of Patterns of Communication That Contribute to Stability and Well-Being

Maintaining the stability and well-being of a relationship requires that you develop a kind of
mindfulness. With that, you gain an awareness of how you communicate with a partner and what
impact each of your behavior has on the overall climate of communication. Sometimes, having
that mindfulness is a matter of stepping back from the relationship to see the patterns and how
they recur. But keep in mind that patterns of communication are not actions performed
unilaterally by one of the people in a relationship. Patterns of communication are created and
performed in tandem by both partners in a relationship. Over time, the patterns are repeated with
great frequency. The Human Behavior School

The Human Behavior School shifts the emphasis from the structure of organizations, work
design, and measurement to the interactions of individuals, their motivations, and their influence
on organizational events.

The Human Behavior Perspective assumes that work is accomplished through people and
emphasizes cooperation, participation, satisfaction, and interpersonal skills.

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