ORGANIZATIONAL DESIGN, CHANGE AND

TRANSFORMATION
DR. SANGEETA SAHNEY, PROFESSOR, VGSOM, IIT KHARAGPUR
Module 2 Lecture 1
Organizational environment; Forces affecting the organizational environment; Environmental uncertainty, and sources of
uncertainty; Changing environment, and adaptation; Framework for responses to environmental change; Resource
dependence theory; Inter-organizational strategies for managing resource dependencies; Transaction cost theory;
Organization–Environment Integrative Framework; Inter-organizational relationships; E-Org.
ORGANIZATIONAL DESIGN,
CHANGE AND TRANSFORMATION

Organizational Environment
Organizational Environment

Forces affecting the Organizational Environment

Environmental Uncertainty, and Sources of Uncertainty

ORGANIZATIONAL ENVIRONMENT
• The forces that surround an organization, and can affect
organizational performance constitute what is known as an
organizational environment.

• The forces have a potential effect on all or parts of the

organization.

• The environment may be categorized as general and specific.

Organizational domain:
• The collection of product offerings that the organization produces,
and the stakeholders it serves, constitute the organizational domain.
FORCES AFFECTING THE ORGANIZATIONAL ENVIRONMENT
The various forces in the
environment may be
categorized as general
and specific.
• Specific environment
• General environment

Source. Jones, G. R. (2013). Organizational Theory, Design, and Change. Seventh edition,
Pearson Education Limited, UK.
I Specific Environment:
• The specific or the task environment comprises forces that
directly affect an organization's ability to acquire resources.

• In order to survive and obtain resources, organizations must forge

relationships and engage in transactions with the various external
stakeholders, i.e., customers, competitors, vendors and suppliers,
dealers and distributors, unions, and the government.

• The specific or task environment directly influences an

organization’s goal attainment.
II General Environment:
• The various forces that provide shape to the specific
environment and affect the ability of the various organizations in a
specific environment to acquire resources constitute the general
environment.

• These forces do not directly impact the daily operations of an

organization but have an indirect impact.
A) Economic forces:
• Type of economy, whether developed, developing, or
underdeveloped; economic situation, whether boom or recession;
the state of the economy; interest rates – all of these are economic
factors that can affect organizational performance.
• GDP, GNP, Forex Reserves, FDI, etc., act as economic growth rate
indicators.

B) Technological forces:
• A company’s operations are influenced by technological forces
like development in manufacturing technology; improvised
production tools and techniques; advancements in information and
communication technology etc.
 C) Political forces:
• The governmental policy pertaining to the organization and their
stakeholders are affected by political forces.
• The political environment affects the government’s attitude
towards industrialization, privatization and globalization.

D) Demographic, cultural, and social forces:

• Age mix, gender mix, education and literacy levels, socio-economic
levels, lifestyles, values, and norms, as well as other cultural
elements of the people in a country also affect organizational
performance.
E) Legal:
∙ Laws of the land, rules and regulations, and policies and
procedures impact the manner in which organizations function.
∙ Rules and regulations pertaining to employment, wages and
compensation, social security, etc. affect overall costs and can be
either an advantage or a disadvantage in terms of a competitive
advantage.
∙ Consumer and environmental protection movements also affect
organizational functioning.

F) Competitive environment:
∙ Organizational performance is also affected by the competitive
environment i.e., the industry players and extent of competition,
market potential, and power of vendors and suppliers, as well as
dealers and distributors.
 Redrawn.
Source. Jones, G.
R. (2013).
Poor Fit Close Fit Organizational
Theory, Design,
and Change.
Organization Seventh edition,
Pearson Education
Organization Environment Limited, UK.

Environment

Degree of fit
ENVIRONMENTAL UNCERTAINTY, AND SOURCES OF
UNCERTAINTY
•The various forces in an organization’s specific and general
environment cause organizational uncertainty.
o The various environmental domain characteristics impact
uncertainty.
o The extent to which the external domain is simple or
complex and the extent to which events are stable or
unstable are a determinant of uncertainty.
• Uncertainty means that decision makers, generally senior
management find it difficult to:
o Envisage external changes due to the lack of accurate
information about environmental factors.
o Control the flow of resources to safeguard and expand their
areas of operation.
• Uncertainty leads to environmental complexity.
o As environmental complexity increases, the environment
becomes more uncertain, making it more difficult to foresee and
control.
• Uncertainty also affects organizational design as researchers
suggest that there exists a relationship between environmental
uncertainty and the extent of flexibility in an organization.
a) Environmental complexity:
▪ Environmental complexity is assessed in terms of the strength,
number, and interdependency of the specific and general forces
that surround an organization and affect its performance and
must be managed.
▪ As the number and differences between the forces increase, the
environment becomes more complex, uncertain, and difficult to
predict.

▪ Complexity may range from simple to complex.

b) Environmental dynamism:
• Environmental dynamism is assessed in terms of how
much and how quickly forces in the specific and general
environments change over time and increase organizational
complexity.
▪ An environment is perceived as stable if forces impact
the supply of resources in a foreseeable manner.
▪ It is unstable and dynamic if the manner in which the
forces will change over time cannot be predicted.

• Dynamism may range from stable to unstable.

c) Environmental richness:
• Environmental richness is assessed in terms of the quantity of
resources that are available to support an organization’s domain.
▪ Uncertainty is low in rich environments because of plentiful
resources.
▪ It is high in poor environments because resources are few and
limited, and organizations must compete for them.

• Richness may range from rich to poor.

Two reasons why environments may be poor:

i) Location of the organization in a poor or underdeveloped
country or a poor or underdeveloped part of a country.
ii) Fierce competition for available resources.
 Redrawn.
Factors causing Uncertainty Source. Jones, G.
R. (2013).
Organizational
Theory, Design,
Complexity and Change.
Simple to Seventh edition,
Complex Pearson Education
Limited, UK.

Dynamism
Richness
Degree of Stable to
Rich to Poor Unstable
Uncertainty
References
•Burns, T. and Stalker, G. M. (1961). The Management of Innovation. 1961. University of Illinois
at Urbana-Champaign's Academy for Entrepreneurial Leadership Historical Research Reference
in Entrepreneurship.
•Daft, R. L. (2008). Organizational Theory and Design, Tenth edition. South-Western, Cengage
Learning, USA.
•Duncan, R. B. (1972), “Characteristics of Organizational Environments and Perceived
Environmental Uncertainty”, Administrative Quarterly, Vol. 17 September 1972.
•Emery, F. E. and Trist, E. L. (1965), “The Causal Texture of Organizational Environments”,
Human relations, Vol. 18, No. 1.
•Greenberg, J. (2013), Behavior in Organizations, Tenth Edition, Prentice Hall of India, Delhi.
•Hannan, M. T. and Freeman, J. (1977), “The population ecology of organizations:, American
journal of sociology, Vol. 82, No. 5, pp. 929-964.
•Jones, G. R. (2013). Organizational Theory, Design, and Change. Seventh edition, Pearson
Education Limited, UK.
• Kramer, R.J. Organizing for Global Competitiveness: The Geographic Design (New York: The
Conference Board, 1993), 30.
• Lawrence, P. R. and Lorsch, J. W. (1969). Organization and Environment. Homewood,
Illinois: Richard D. Irwin. Inc., 19&9.
• Lorsch, J. W. and Lawrence, P. R. (1972). Environmental factors and organizational
integration. Organization Planning-Cases and Concepts, 38-48.
• Luthans, F. (2011). Organizational Behavior: An Evidence-based Approach, Published by
McGraw-Hill/Irwin, Twelfth edition, New York.
• Moore, J. (196) The Death of Competition: Leadership and Strategy in the Age of Business
Ecosystems (New York: Harper Collins, 1996).
• Robbins, S.P. and Judge T.A. (2017). Organizational Behaviour, Seventeenth edition,
Pearson Education UK.
• Robbins, S.P., Judge T.A. and Vohra, N. (2018). Organizational Behavior, Eighteenth
edition, Pearson Education India.
• Scott, R.W., Institutions and Organizations (Thousand Oaks, Calif.: Sage, 1995).
• Gerald Zaltman, G., Duncan, R. and Holbek , J., Innovations and Organizations, (New York:
Wiley, 1973)
CONCLUSION
This brings us to the end of the first lecture of Module 2.

We shall continue with the topic in the next lecture.

ORGANIZATIONAL DESIGN, CHANGE AND
TRANSFORMATION
DR. SANGEETA SAHNEY, PROFESSOR, VGSOM, IIT KHARAGPUR
Module 2 Lecture 2
Organizational environment; Forces affecting the organizational environment; Environmental uncertainty, and sources of
uncertainty; Changing environment, and adaptation; Framework for responses to environmental change; Resource
dependence theory; Inter-organizational strategies for managing resource dependencies; Transaction cost theory;
Organization–Environment Integrative Framework; Inter-organizational relationships; E-Org.
ORGANIZATIONAL DESIGN,
CHANGE AND TRANSFORMATION

Organizational Environment
 Changing Environment, and Adaptation

 Framework for responses to Environmental Change

CHANGING ENVIRONMENT AND ADAPTATION
 Organizations will perform effectively if they learn to manage
uncertainty.

 Emery and Trist (1965) carried out a detailed investigation of the

organizational environment.

 They proposed that meaningful knowledge of an organization

requires comprehension of its environment, and they termed this as
– the causal texture of the environment.
 Emery and Trist (1965) identified four distinct types of
environments, ranging from extremely certain to extremely
uncertain:
o Placid
o Ordered
o Reactive
o Turbulent

• According to Emery and Trist, there exist four ‘ideal types’ of

causal textures of the environment, viz., placid, randomized
environments; placid, clustered environments; distributed-reactive
environments; and turbulent environments.
 Placid, randomized environments: Goals/resources remain relatively
unchanged and are randomly distributed, and there is no difference
between tactics and strategies.

 Placid, clustered environments: Goals/resources are clustered and

unchanging, and not randomly distributed; strategies are required
for survival, and organizations are centrally organized, and well-
coordinated.
 Distributed-reactive environments: Similar organizations co-
exist, and strategies are required to design organizational
objectives to meet challenges from competitors as also to
acquire resources; control is decentralized so as to adapt to
environmental changes.

 Turbulent environments: The most complex environment; the

overall field is an important force, and introduces dynamism to
the organization; all actors are interlinked.
• Duncan (1972) introduced another framework that defines the
environment as the “totality of physical and social factors that are
taken directly into consideration in the decision making behaviours of
individuals in the organization.”
• According to him, the environment can be classified into internal and
external.
• To analyze as to how perceived uncertainty influenced executive
decision making, Duncan classified organizational environments on
the basis of two dimensions, viz., simple- complex, and static-
dynamic.
 Simplicity: defined as the extent to which factors that influence
decision making in the internal and external environment are
fewer in number and similar to one another and located in a few
components.
 Dynamism: defined as the extent to which factors considered
during decision making change, and the frequency with which
new and different factors are considered.
Source. Duncan, R.
B. (1972).
In Daft, R. L.
(2008).
Organizational
Theory and Design,
Tenth edition.
South-Western,
Cengage Learning,
USA.
To explain the same in terms of Simple-Complex and Stable-Unstable:
Simple-complex dimension:
 It relates to the heterogeneity or the number and dissimilarity of
external factors that pertain to the operations of an organization.
 Complexity is high if the number of other companies in an
organization's domain and the external factors influencing the
organization are high.
Stable-unstable dimension:
 It refers to the dynamism of an environment's elements.
 When the environmental domain has not changed over a long
period, it is said to be stable.
• Stable (S) + Simple (S) + = Low Uncertainty
• Stable (S) + Complex (C ) = Low-Moderate Uncertainty
• Unstable (U) + Simple (S) = High-Moderate Uncertainty
• Unstable (U) + Complex (C ) = High Uncertainty
Source. Duncan, R.
B. (1972).
In Daft, R. L.
(2008).
Organizational
Theory and Design,
Tenth edition.
South-Western,
Cengage Learning,
USA.
Source. Duncan, R.
B. (1972).
In Daft, R. L.
(2008).
Organizational
Theory and Design,
Tenth edition.
South-Western,
Cengage Learning,
USA.
Organizations must balance their internal structure with the external
environment. How?
I Adding positions and Departments:
• As environmental complexity increases, there occurs an increase in the
roles and departments, and this results in internal complexity.
• New positions and departments may be added to deal with such a
problem.
II Building relationships:
• Buffering departments can absorb environmental uncertainty by
safeguarding the technical core against environmental change so that it
can operate efficiently.
• However, a new method may involve exposing the technical core to
environmental changes, making it flexible so that it can adapt to change.
• Boundary-spanning roles keep the organization up to date on external
environmental changes by bringing in updated information and
disseminating information that positively portrays the organization.
III Differentiation and Integration:
• Differences in orientation (cognitive and emotional), between functional
managers and the variance in the formal arrangement and structure
between the departments constitute differentiation.
• The quality of cooperation, team work and collaboration between
departments is referred to as integration.
• Often, departments are need to be coordinated by formal integrators.
• In highly uncertain environments, frequent changes are required; this
necessitates greater information processing so that horizontal
coordination can be achieved, and this makes the inclusion of
integrators as an essential addition to the organizational structure.
 Differentiation and Integration was examined by Paul Lawrence and
Jay Lorsch (1972).

 They studied three departments, viz., manufacturing, research, and

sales, across 10 organizations.

 Findings revealed that in order to deal with the external environment,

each department developed and practiced a different orientation and
structure.
o Complex and Unstable Environment: Orientation of each
department differed significantly.
o Unstable and Uncertain Environment: Lesser formalization, more
decentralization, and reliance on mutual adjustment lead to
greater effectiveness.
 Organizational Departments Differentiate to Meet Needs of Sub-
environments
President

R&D Manufacturing Sales

Department Department Department
Scientific Manufacturing Market
Sub-environment Sub-environment Sub-environment
Scientific Research Raw
Journals Centers Labour Suppliers Customers Advertising
Material agencies
Professional Production Distribution
associations system Competitors
equipment

Redrawn. Source. Lawrence, P. R. and Lorsch, J. W. (1969). In Daft, R. L. (2008). Organizational

Theory and Design, Tenth edition. South-Western, Cengage Learning, USA.
Differences in Goals and Orientations among Organizational Redrawn. Source.
Lawrence, P. R. and
Departments Lorsch, J. W. (1969).
Manufacturing Sales In Daft, R. L. (2008).
Characteristics R & D Department Organizational
Department Department Theory and Design,
New developments, Customer Tenth edition. South-
Goals Efficient production Western, Cengage
quality satisfaction
Learning, USA.

Time Horizon Long Short Short

Interpersonal
Mostly task Task Social
Orientation

Formality of
Low High High
Structure
IV Organic versus Mechanistic Management Processes:
• The response to environmental uncertainty manifests in the form of formal
structure and control imposed on employees.
• Tom Burns and G. M. Stalker (1961) examined 20 industrial organizations in
the UK.
• Findings revealed that the internal management structure of an organization
is related to the external environment.
o Stable external environment: Internal structure of the organization is
characterized by centralization, formalization, standard rules and
procedures, a clear hierarchy of authority. Burns and Stalker termed this
a mechanistic organization system.
o Rapidly changing environments: Internal structure of the organization is
loose, free-flowing, and adaptive; rules and regulations are not written
down, and in case they are, they are ignored; hierarchy of authority is
unclear; decision making is decentralized. Burns and Stalker termed this
an organic organization structure.
 Adapted. Redrawn.
Mechanistic Organic
Source. Zaltman et. al.
 Tasks are broken into distinct and  Common tasks of the department, (1973), In Daft, R. L.
specific parts. where everyone contributes. (2008). Organizational
Theory and Design,
 Rigidly defined tasks  Tasks are not rigidly defined; they are Tenth edition. South-
amenable to redefinition through Western, Cengage
 Rules and procedures exist.
employee teamwork. Learning, USA.
 Existence of strict hierarchy of
authority and control  Rules and procedures do not exist, and
even if they exist, they are loosely
 Centralization with respect to followed.
knowledge and control of tasks, as
well as decision making.  Less hierarchy of authority and control.

 Communication is vertical.  Knowledge and control of tasks as well

as decision making can happen
anywhere in the organization.
 Communication is horizontal.
FRAMEWORK FOR RESPONSES TO ENVIRONMENTAL CHANGE

Contingency
Framework for
Environmental
Uncertainty
and
Organizational
Responses

Source. Duncan, R. B. (1972). In Daft, R. L. (2008). Organizational Theory and Design,

Tenth edition. South-Western, Cengage Learning, USA.
References
• Burns, T. and Stalker, G. M. (1961). The Management of Innovation. 1961. University of
Illinois at Urbana-Champaign's Academy for Entrepreneurial Leadership Historical Research
Reference in Entrepreneurship.
• Daft, R. L. (2008). Organizational Theory and Design, Tenth edition. South-Western, Cengage
Learning, USA.
• Duncan, R. B. (1972), “Characteristics of Organizational Environments and Perceived
Environmental Uncertainty”, Administrative Quarterly, Vol. 17 September 1972.
• Emery, F. E. and Trist, E. L. (1965), “The Causal Texture of Organizational Environments”,
Human relations, Vol. 18, No. 1.
• Greenberg, J. (2013), Behavior in Organizations, Tenth Edition, Prentice Hall of India, Delhi.
• Hannan, M. T. and Freeman, J. (1977), “The population ecology of organizations:, American
journal of sociology, Vol. 82, No. 5, pp. 929-964.
• Jones, G. R. (2013). Organizational Theory, Design, and Change. Seventh edition, Pearson
Education Limited, UK.
• Kramer, R.J. Organizing for Global Competitiveness: The Geographic Design (New York: The
Conference Board, 1993), 30.
• Lawrence, P. R. and Lorsch, J. W. (1969). Organization and Environment. Homewood,
Illinois: Richard D. Irwin. Inc., 19&9.
• Lorsch, J. W. and Lawrence, P. R. (1972). Environmental factors and organizational
integration. Organization Planning-Cases and Concepts, 38-48.
• Luthans, F. (2011). Organizational Behavior: An Evidence-based Approach, Published by
McGraw-Hill/Irwin, Twelfth edition, New York.
• Moore, J. (196) The Death of Competition: Leadership and Strategy in the Age of Business
Ecosystems (New York: Harper Collins, 1996).
• Robbins, S.P. and Judge T.A. (2017). Organizational Behaviour, Seventeenth edition,
Pearson Education UK.
• Robbins, S.P., Judge T.A. and Vohra, N. (2018). Organizational Behavior, Eighteenth edition,
Pearson Education India.
• Scott, R.W., Institutions and Organizations (Thousand Oaks, Calif.: Sage, 1995).
• Gerald Zaltman, G., Duncan, R. and Holbek , J., Innovations and Organizations, (New York:
Wiley, 1973)
CONCLUSION
This brings us to the end of the second lecture.

We shall continue with the topic in the next lecture.

ORGANIZATIONAL DESIGN, CHANGE AND
TRANSFORMATION
DR. SANGEETA SAHNEY, PROFESSOR, VGSOM, IIT KHARAGPUR
Module 2 Lecture 3
Organizational environment; Forces affecting the organizational environment; Environmental uncertainty, and sources of
uncertainty; Changing environment, and adaptation; Framework for responses to environmental change; Resource
dependence theory; Inter-organizational strategies for managing resource dependencies; Transaction cost theory;
Organization–Environment Integrative Framework; Inter-organizational relationships; E-Org.
ORGANIZATIONAL DESIGN,
CHANGE AND TRANSFORMATION

Organizational Environment
 Resource Dependence Theory

 Inter-organizational Strategies for Managing Resource

Dependencies
RESOURCE DEPENDENCE THEORY
 The objective of any and every organization must be to lessen its
dependence on resources from other organizations and to identify
ways and means by which it can influence the supply of needed
resources to its favor.

 It must find ways by which it can secure the access and availability of
scarce and unique resources by influencing other organizations,
keeping cost efficiencies in mind.
Two aspects of resource dependence that require attention:
 An organization must exercise power over other organizations so
that it can secure its resources.
 It must also respond to the needs and interests of other
organizational players in its environment.

The strength of resource dependence depends on two factors:

 How vital are the resources for an organization’s survival?
 To what extent do other organizations have control over the
resource?
INTER-ORGANIZATIONAL STRATEGIES FOR
MANAGING RESOURCE DEPENDENCIES
 An organization must formulate inter-organizational strategies to
reduce uncertainty, as this would help it safeguard and enlarge its
domain.

 Uncertainty is caused by two types of interdependencies, viz.,

symbiotic and competitive.

 Organizations may use various linkage strategies and mechanisms to

control their interdependencies.
 An organization would opt for a strategy that reduces uncertainty but
with the least loss of power and control.
Strategies for Managing Symbiotic Resource Interdependencies

Symbiotic interdependency:
a dependency that exists between an organization and its vendors and suppliers or
with the dealers and distributors; outputs of one organization are inputs for the
another.

Informal Formal

Strategic Merger and

Reputation Cooptation
alliance takeover

Redrawn. Source. Jones, G. R. (2013). Organizational Theory, Design, and Change.

Seventh edition, Pearson Education Limited, UK.
I. Reputation:
 Most commonly used linkage mechanism; Lowest on formality and
least direct way to manage interdependencies back-end with
suppliers, and front-end customers; the organization is respected
for its honest and fair business practices and dealing with others,
and hence earns regard and goodwill.

II. Cooptation:
 Problem creating forces in a firm’s specific environment are
defused by winning over the former by giving a stake or claim in
business, and hence, satisfy their interests.
III. Strategic Alliances:
 Again, a common mechanism for managing interdependencies, is
wherein two or more organizations get together, share their
resources, and create new joint business opportunities.
 The mechanism is adopted by companies within a country or across
countries.
 Strategic alliances help manage both symbiotic and competitive
interdependencies.
 They may manifest as Long-term contracts, Networks, Minority
ownership, and Joint ventures, and on a continuum, would range
from informal to formal in that order.
 As an arrangement becomes more formal, stronger are the linkages
and control of joint activities.
 Also, as uncertainty rises, organizations opt for more formal alliances
to safeguard their access to resources.
 Types of Strategic Alliances

Informal Formal

Long-term Minority Joint

Networks
contracts ownership ventures

Redrawn. Source. Jones, G. R. (2013). Organizational Theory, Design, and Change.

Seventh edition, Pearson Education Limited, UK.
Long-term contracts: Least formal of all strategic alliances; resource sharing as
well as risk sharing with respect to R&D, sales and marketing, etc., leads to
cost reduction.

Network: A cluster of organizations where interactions are contract and

agreement based; the group members support and complement each other.

Minority ownership: An organization may buy a minority ownership stake in

another organization and form a formal linkage. For example, Keiretsu in
Japan, wherein considerable control over the exchange relationship can be
gained, without the costs of full ownership.

Joint venture: Organizations get together and form a strategic alliance whereby
they create and share the ownership of a new business; bound by a legal
agreement pertaining to mutual rights and responsibilities; the most formal of
all strategic alliances.
IV. Merger and Takeover:
 Most formal of all the symbiotic resource interdependencies; can
also be used to manage competitive interdependencies.

 It leads to intra-organizational resource exchanges rather than

inter-organizational resource exchanges.

 An organization would merge or take over a supplier or a

distributor only when it is highly crucial. This is because this
strategy is expensive and riskier, and an organization would have to
face the challenges of managing a new business.
 Strategies for Managing Competitive Resource
Interdependencies

Competitive interdependency:
a dependency that exists among organizations that compete against each other
for scarce inputs and outputs.

Informal Formal

Collusion Third party Strategic Merger and

and cartels linkage alliances takeover
mechanism
Redrawn. Source. Jones, G. R. (2013). Organizational Theory, Design, and Change.
Seventh edition, Pearson Education Limited, UK.
I. Collusion and cartels:
 Collusion: A secret deal between competitors for the exchange of
information for deceptive or unlawful purposes. This kind of arrangement
may affect industry standards and norms.
 Cartel: A group of companies that makes an explicit commitment to
coordinate their activities. This kind of arrangement may impact the price
structure of the market.
• Cartels and collusion help an organization enhance the stability and richness of
its environment. They also help decrease the complexity with respect to
competitor relations.

II. Third-party linkage mechanism:

 This involves making use of a regulatory agency that enables information
sharing among organizations and also regulates the manner in which they
compete.
 Organizations are able to coopt themselves, and the coordination via the
third-party linkage mechanism helps gain benefits jointly.
III. Strategic alliances:
 As mentioned earlier, strategic alliances may be used to manage both
symbiotic and competitive interdependencies.
 Companies can get together to share resources and gain cost advantages,
even though they may compete for customers with their final products.

IV. Merger and takeover:

 As mentioned earlier, mergers and takeovers may be used to manage
both symbiotic and competitive interdependencies.
 They can strengthen an organization’s competitive position; the
organization can strengthen and expand its domain.
References
• Burns, T. and Stalker, G. M. (1961). The Management of Innovation. 1961. University of
Illinois at Urbana-Champaign's Academy for Entrepreneurial Leadership Historical Research
Reference in Entrepreneurship.
• Daft, R. L. (2008). Organizational Theory and Design, Tenth edition. South-Western, Cengage
Learning, USA.
• Duncan, R. B. (1972), “Characteristics of Organizational Environments and Perceived
Environmental Uncertainty”, Administrative Quarterly, Vol. 17 September 1972.
• Emery, F. E. and Trist, E. L. (1965), “The Causal Texture of Organizational Environments”,
Human relations, Vol. 18, No. 1.
• Greenberg, J. (2013), Behavior in Organizations, Tenth Edition, Prentice Hall of India, Delhi.
• Hannan, M. T. and Freeman, J. (1977), “The population ecology of organizations:, American
journal of sociology, Vol. 82, No. 5, pp. 929-964.
• Jones, G. R. (2013). Organizational Theory, Design, and Change. Seventh edition, Pearson
Education Limited, UK.
• Kramer, R.J. Organizing for Global Competitiveness: The Geographic Design (New York: The
Conference Board, 1993), 30.
• Lawrence, P. R. and Lorsch, J. W. (1969). Organization and Environment. Homewood,
Illinois: Richard D. Irwin. Inc., 19&9.
• Lorsch, J. W. and Lawrence, P. R. (1972). Environmental factors and organizational
integration. Organization Planning-Cases and Concepts, 38-48.
• Luthans, F. (2011). Organizational Behavior: An Evidence-based Approach, Published by
McGraw-Hill/Irwin, Twelfth edition, New York.
• Moore, J. (196) The Death of Competition: Leadership and Strategy in the Age of Business
Ecosystems (New York: Harper Collins, 1996).
• Robbins, S.P. and Judge T.A. (2017). Organizational Behaviour, Seventeenth edition,
Pearson Education UK.
• Robbins, S.P., Judge T.A. and Vohra, N. (2018). Organizational Behavior, Eighteenth edition,
Pearson Education India.
• Scott, R.W., Institutions and Organizations (Thousand Oaks, Calif.: Sage, 1995).
• Gerald Zaltman, G., Duncan, R. and Holbek , J., Innovations and Organizations, (New York:
Wiley, 1973)
CONCLUSION
This brings us to the end of the third lecture of Module 2.

We shall continue with the topic in the next lecture.

ORGANIZATIONAL DESIGN, CHANGE AND
TRANSFORMATION
DR. SANGEETA SAHNEY, PROFESSOR, VGSOM, IIT KHARAGPUR
Module 2 Lecture 4
Organizational environment; Forces affecting the organizational environment; Environmental uncertainty, and sources of
uncertainty; Changing environment, and adaptation; Framework for responses to environmental change; Resource
dependence theory; Inter-organizational strategies for managing resource dependencies; Transaction cost theory;
Organization–Environment Integrative Framework; Inter-organizational relationships; E-Org.
ORGANIZATIONAL DESIGN,
CHANGE AND TRANSFORMATION

Organizational Environment
 Transaction Cost Theory

 Organization–environment Integrative Framework

 Inter-organizational Relationships
TRANSACTION COST THEORY
 Jones (2013) has defined transaction costs as “the costs of
negotiating, monitoring and governing, interpersonal exchanges
between people”.

 Transaction costs arise when people work together, and the

organization must incur costs to coordinate their activities and
exchange resources or information.

 According to the Transaction Cost theory, an organization's objective

must be to minimize the costs of resources exchange from the
environment, as well as minimize the costs of managing exchanges
within the organization.
 Redrawn.
Sources of Transaction Costs Source. Jones,
G. R. (2013).
A combination of human and environmental factors results in Organizational
transaction costs. Theory, Design,
Environment Bounded and Change.
Seventh
Uncertainty Rationality edition,
Pearson
Small Education
Opportunism Limited, UK.
Numbers

Risk Specific Assets

I Environmental uncertainty and Bounded rationality
• The environment is highly uncertain and complex.
• People have limited ability to process information and analyze
and understand the environment. Bounded rationality.

II Opportunism and small numbers

• Individuals and organizations may act opportunistically; they
may exploit forces or other stakeholders in the environment.
• A small number of providers increases the likelihood of
opportunism, for example, an organization dependent on one
supplier.
III Risk and specific assets
 An investment in knowledge, skills, or technology that helps create
value in one particular exchange relationship but holds no value for
other exchange relationships is termed as a specific asset.

 The decision to invest in developing specific assets for a relationship

with another organization is risky.
Transaction Costs and Linkage Mechanisms
• Conditions where transaction costs are low:
 Nonspecific goods and services are traded between organizations.
 Low uncertainty.
 Several potential exchange partners.

• Conditions where the transaction costs are high:

 More specific goods and services are traded between organizations.
 High uncertainty.
 The number of possible exchange partners decreases.
 As firms adopt formal linkage mechanisms with their exchange
partners, transaction costs rise.
 The formal mechanisms carry huge bureaucratic costs.
 Bringing transactions inside an organization lessens but does not
remove the costs of managing transactions.
Transaction Costs and Strategy:
 Transaction cost theory can aid in choosing an inter-organizational
strategy. It helps weigh the pros and cons, i.e., the savings in
transaction costs of a particular linkage mechanism vis a vis the
bureaucratic cost of managing the mechanism.

 While deciding on a strategy, the following must be considered:

o Identify sources of transaction costs that may affect an exchange
relationship and assess their severity.
o Assess the transaction cost savings of the linkage mechanisms.
o Calculate the bureaucratic costs of operating a particular linkage
mechanism.
o Select the linkage mechanism which provides the maximum
transaction cost savings with the minimum bureaucratic cost.
ORGANIZATION–ENVIRONMENT INTEGRATIVE
FRAMEWORK
The framework presents two themes pertaining to organization–
environment relationships.
 The complexity and volatility in an organization’s domain affects the
need for information, and the resultant uncertainty.
o To resolve this, organizations must have greater structural flexibility, additional
departments and boundary roles.
o In case of lower uncertainty, the management structure can be more
mechanistic in nature, and departments and boundary roles can be lesser.
 Scarcity of material and financial resources:
o The higher the dependence of an organization on another organization,
the more critical that it establishes linkages with others, and controls
entry into the organizational domain.
o If case dependence is low, the organization need not establish linkages
or exercise control on the external domain.
•
 Relationship
between
Environmental
Characteristics and
Organizational
Actions

Source. Daft, R. L. (2008). Organizational Theory and

Design, Tenth edition. South-Western, Cengage Learning,
USA.
INTER-ORGANIZATIONAL RELATIONSHIPS
 Organizations must forge relationships with other organizations, and
they help manage the environment.

 The various perspectives for inter-organizational research include:

resource dependence, collaborative networks, population ecology, and
institutionalism.
Organizational Ecosystems
 Inter-organizational relationships include resource transactions,
flows, and linkages between organizations; these relationships
are relatively long-term.

 Due to environmental instability and complexity, inter-

organizational relationships are necessary.

 James Moore (1996) has stated that organizations are evolving

into business ecosystems.
 An organizational ecosystem is a system that arises out of an
interaction between a community of organizations and the
environment that surrounds them, and in which they operate.
A Framework of Inter-organizational Relationships

 The various perspectives and frameworks for comprehending inter-

organizational relationships help shift from a philosophy of top-down
to horizontal management across organizations.

 A framework for understanding organizational relationships is based

on two dimensions:
o Organization type: Similar or Dissimilar
o Organization relationship: Competitive or Cooperative
 Organization Type
Dissimilar Similar A Framework of
Inter-
organizational

Competitive
Relationships
Resource
Population Ecology
Dependence
Organization
Relationship
Cooperative

Collaborative
Institutionalism
Network

Redrawn. Source. Daft, R. L. (2008). Organizational Theory and Design, Tenth edition. South-
Western, Cengage Learning, USA.
a) Resource dependence
• According to resource dependence theory, organizations attempt
towards reducing their dependence on other organizations for the
supply of critical and scarce resources; they also try to effect
environmental forces for access and availability of resources.
• Organizations strive towards gaining independence and autonomy.
• Resource dependence has been discussed earlier.
b) Collaborative networks
• In contrast with the resource dependence theory, the approach is
towards building collaborative networks so that scarce resources
can be shared and competitiveness can be enhanced.
• Organizations believe that by becoming dependent on other
organizations, productivity and value creating activities can be
enhanced.
 Redrawn.
Changing Characteristics of Inter-organizational Relationships Source. Daft,
R. L. (2008).
Traditional Orientation: Adversarial New Orientation: Partnership Organizational
Theory and
• Suspicion, competition, arm’s • Trust, addition of value to both sides, high Design, Tenth
length commitment edition. South-
Western,
• Price, efficiency, own profits • Equity, fair dealing, both profit Cengage
Learning, USA.
• Limited information and feedback • Electronic linkages to share key information,
• Legal resolution of conflict problem feedback and discussion

• Minimal involvement and up-front • Mechanisms for close coordination, people on-
site
• investment, separate resources
• Involvement in partner’s product design and
• Short-term contracts production, shared resources
• Contract limiting the relationship • Long-term contracts
• Business assistance beyond the contract
References
• Burns, T. and Stalker, G. M. (1961). The Management of Innovation. 1961. University of
Illinois at Urbana-Champaign's Academy for Entrepreneurial Leadership Historical Research
Reference in Entrepreneurship.
• Daft, R. L. (2008). Organizational Theory and Design, Tenth edition. South-Western, Cengage
Learning, USA.
• Duncan, R. B. (1972), “Characteristics of Organizational Environments and Perceived
Environmental Uncertainty”, Administrative Quarterly, Vol. 17 September 1972.
• Emery, F. E. and Trist, E. L. (1965), “The Causal Texture of Organizational Environments”,
Human relations, Vol. 18, No. 1.
• Greenberg, J. (2013), Behavior in Organizations, Tenth Edition, Prentice Hall of India, Delhi.
• Hannan, M. T. and Freeman, J. (1977), “The population ecology of organizations:, American
journal of sociology, Vol. 82, No. 5, pp. 929-964.
• Jones, G. R. (2013). Organizational Theory, Design, and Change. Seventh edition, Pearson
Education Limited, UK.
• Kramer, R.J. Organizing for Global Competitiveness: The Geographic Design (New York: The
Conference Board, 1993), 30.
• Lawrence, P. R. and Lorsch, J. W. (1969). Organization and Environment. Homewood, Illinois:
Richard D. Irwin. Inc., 19&9.
• Lorsch, J. W. and Lawrence, P. R. (1972). Environmental factors and organizational
integration. Organization Planning-Cases and Concepts, 38-48.
• Luthans, F. (2011). Organizational Behavior: An Evidence-based Approach, Published by
McGraw-Hill/Irwin, Twelfth edition, New York.
• Moore, J. (196) The Death of Competition: Leadership and Strategy in the Age of Business
Ecosystems (New York: Harper Collins, 1996).
• Robbins, S.P. and Judge T.A. (2017). Organizational Behaviour, Seventeenth edition, Pearson
Education UK.
• Robbins, S.P., Judge T.A. and Vohra, N. (2018). Organizational Behavior, Eighteenth edition,
Pearson Education India.
• Scott, R.W., Institutions and Organizations (Thousand Oaks, Calif.: Sage, 1995).
• Gerald Zaltman, G., Duncan, R. and Holbek , J., Innovations and Organizations, (New York:
Wiley, 1973)
CONCLUSION
This brings us to the end of the fourth lecture of Module 2.

We shall continue with this topic in the next lecture.

ORGANIZATIONAL DESIGN, CHANGE AND
TRANSFORMATION
DR. SANGEETA SAHNEY, PROFESSOR, VGSOM, IIT KHARAGPUR
Module 2 Lecture 5
Organizational environment; Forces affecting the organizational environment; Environmental uncertainty, and sources of
uncertainty; Changing environment, and adaptation; Framework for responses to environmental change; Resource
dependence theory; Inter-organizational strategies for managing resource dependencies; Transaction cost theory;
Organization–Environment Integrative Framework; Inter-organizational relationships; E-Org.
ORGANIZATIONAL DESIGN,
CHANGE AND TRANSFORMATION

Organizational Environment
 Inter-organizational Relationships

 E-org
INTER-ORGANIZATIONAL RELATIONSHIPS
 Organizations must forge relationships with other organizations, and
they help manage the environment.

 The various perspectives for inter-organizational research include:

resource dependence, collaborative networks, population ecology, and
institutionalism.
 Organization Type
Dissimilar Similar A Framework of
Inter-
organizational

Competitive
Relationships
Resource
Population Ecology
Dependence
Organization
Relationship
Cooperative

Collaborative
Institutionalism
Network

Redrawn. Source. Daft, R. L. (2008). Organizational Theory and Design, Tenth edition. South-
Western, Cengage Learning, USA.
c) Population ecology
• The population ecology perspective assesses as to how new
organizations are able to fill positions or niches left open and
unexplored by already existing and established organizations and
explain as to how new organizational forms benefit society at
large.
• The focus is on organizational diversity, along with adaptation
within a populace of organizations.
• The populace or population refers to a group of organizations that
involve themselves in similar activities, arrangements of resource
use, and outcomes.
• Organizations within a populace contend for similar resources and
customers.
• The population ecology model was proposed by Michael Hannan
and John Freeman, and they stated that there are several
constraints on an organization’s ability to change.
Organizational Form and Niche:
• Organizational form is the firm specific goals, structure,
technology, etc., which are amenable to be chosen or not chosen.
• Every new organization attempts to find a niche (an unexplored
domain of distinctive environmental resources and demands)
adequate enough to sustain it. In case it cannot, it would weaken
and perish.
Process of Ecological Change:
• The population ecology model proposes that a populace sees the
continuous emergence of new organizations, and hence
organizational populations are incessantly experiencing change.
• Stages in the process of change: 3 stages: variation, selection, and
retention.
• Variation:
o Variation refers to the emergence of novel and diverse forms in a population
of organizations.
o Similar to mutations in biology, variation expands and complicates the scope
and complexity of organizational forms.
• Selection:
o Selection implies as to whether a new organizational form is suitable for the
environment and will have the likelihood of survival.
o Few variations are "selected in" by the environment and continue for a
longer period of time; also, some are more suited than others.
• Retention:
o Retention refers to the conservation and institutionalisation of specific
organizational forms (goals, structure, technology, products, services, etc.).
o The retained organizational form has the potential to become a dominant
feature of the environment.
Strategies for Survival:
 Struggle for existence, or competition is another principle that
underlies the population ecology model.
 The various organizations in the populace compete for resources
and go through a struggle for survival.
 The struggle is greater among new organizations; both birth and
survival relate to factors in the larger environment.
 There are two strategies for survival, viz., generalist and
specialist, and the adoption of either helps distinguish
organizational forms.
o Organizations that possess a wider niche or domain, offer a
wide product offering and cater to large market or customer
segments, are generalists.
o Organizations with a narrower domain are specialists.
 Variation Selection Retention

Large number of Some A few

variations organizations organizations
appear in the find a niche and grow large and
population of survive become
organizations institutionalized
in the
environment

Redrawn. Source. Daft, R. L. (2008). Organizational Theory and Design, Tenth edition.
South-Western, Cengage Learning, USA.
d) Institutionalism:
 Institutionalism explains why and how organizations design structures
by using ideas from each other, and legitimize themselves in the
context of the larger environment.
o The institutional standpoint explains how organizations live and
prosper by acting in congruence with the expectations of their
surroundings.
 The institutional environment comprises norms and values from the
various stakeholder groups.
 Organizations must adopt structures and have policies and processes
to please the various stakeholders; this defines legitimacy, i.e., an
organization's actions are perceived as suitable and appropriate as
they fit into organizational norms, values, and beliefs.
o The institutional perspective concerns itself more with the
intangible (values and norms) rather than the tangible (structure,
technology, etc.).
• Institutional Similarity:
 Organizations desire legitimacy.
 The tangibles like structure and technology are directed toward
acceptance rather than efficiency.
 Forces that aid toward the perception of organizations in a similar
populace to look like one another determine inter-organizational
relationships.

 Institutional similarity, also termed as institutional isomorphism,

refers to the development of a common structure and approach
among organizations in the same populace.
 Isomorphism causes one organizational unit in a populace to bear a
resemblance to other organizational units that are surrounded by and
affected by the same set of environmental conditions.
 Institutional adaptation may take place through three mechanisms, viz.,
mimetic forces, coercive forces, and normative forces.
Mechanisms for Institutional Adaptation
• Mimetic forces: result as a response to uncertainty.
• Organizations desire to copy successful practices followed in other
organizations within the same population.
• Companies often imitate each other without clear evidence that it
would improve organizational performance.
• Coercive forces: result from political influence.
• Organizations face external pressures to adopt structures, technology,
leadership styles, behaviours, etc., similar to other organizations.
• They can also occur between interdependency organizations with
power differentials.
• Normative forces: result from common training and professionalism.
o These are pressures to change so that standards of professionalism
can be achieved.
o Changes can pertain to R&D, sales and marketing, information
technology, accounting and reporting, corporate finance, etc.
 Redrawn. Source.
Mechanisms for Institutional Adaptation Scott (1995). In Daft,
R. L. (2008).
Mimetic Coercive Normative Organizational
Theory and Design,
Reasons to become Uncertainty Dependence Duty, Obligation Tenth edition. South-
similar: Western, Cengage
Learning, USA.
Events: Innovation visibility Political law, Rules, Professionalism -
Sanctions Certification,
Accreditation

Social bias: Culturally Legal Moral

supported
Example: Re-engineering, Pollution control, Accounting
Benchmarking School regulations standards,
Consultant training
E-ORG
 The internet revolution has brought about powerful changes
leading to the reshaping the business organizations at both
local and global levels.

 Computers and the internet have reshaped the concepts of

structure, strategy, work design, leadership and decision
making, and information sharing.
Organization Systems in E-ORG
I Organization Structures
 Traditional organizational structures won’t fit in.
 E-orgs would be team-based structures planned around projects
that allow employees to work in synergy; structure to be
determined by closely linked information networks; people
would be tolerant to dynamically changing environments and
would be tolerant to ambiguity.
 E-org structures would be typically organic in a form
characterized by the following:
-High vertical, horizontal and lateral communication.
-Cross-hierarchical and cross-functional teams.
-More informal for flexibility and openness.
II Organization Control:
 Traditional organizations exert control over individuals and
groups in order to achieve their missions and goals; Control is
exercised through the organization structure and leadership
styles.
 In E-orgs, such control mechanisms are diluted; virtual meetings
and open discussions; information sharing both within and
outside the organization; and chain of command can be bypassed
with the click of a mouse.

III Work Design :

 The electronic communication network has restructured the
workday and redesign jobs; virtual offices and virtual teams;
teams to work electronically; work from home.
IV Work-life Balance:
 The long working hours demanded by these -organizations are a
new phenomenon in e-orgs.
 A 60 – 70 hours per week is common in e-orgs.
 In e-organizations, balancing work and personal life will become
a critical issue.

VI Interpersonal Relationships in E-ORGs:

 Technology will create a large physical barrier, and people in e-
organizations will live virtual lives; this will result in limited
physical and social interaction.
 The definition of "good interpersonal skills" will shift to mean
one’s ability to communicate, bond, and trust through screens
and the internet.
References
• Burns, T. and Stalker, G. M. (1961). The Management of Innovation. 1961. University of
Illinois at Urbana-Champaign's Academy for Entrepreneurial Leadership Historical Research
Reference in Entrepreneurship.
• Daft, R. L. (2008). Organizational Theory and Design, Tenth edition. South-Western, Cengage
Learning, USA.
• Duncan, R. B. (1972), “Characteristics of Organizational Environments and Perceived
Environmental Uncertainty”, Administrative Quarterly, Vol. 17 September 1972.
• Emery, F. E. and Trist, E. L. (1965), “The Causal Texture of Organizational Environments”,
Human relations, Vol. 18, No. 1.
• Greenberg, J. (2013), Behavior in Organizations, Tenth Edition, Prentice Hall of India, Delhi.
• Hannan, M. T. and Freeman, J. (1977), “The population ecology of organizations:, American
journal of sociology, Vol. 82, No. 5, pp. 929-964.
• Jones, G. R. (2013). Organizational Theory, Design, and Change. Seventh edition, Pearson
Education Limited, UK.
• Kramer, R.J. Organizing for Global Competitiveness: The Geographic Design (New York: The
Conference Board, 1993), 30.
• Lawrence, P. R. and Lorsch, J. W. (1969). Organization and Environment. Homewood,
Illinois: Richard D. Irwin. Inc., 19&9.
• Lorsch, J. W. and Lawrence, P. R. (1972). Environmental factors and organizational
integration. Organization Planning-Cases and Concepts, 38-48.
• Luthans, F. (2011). Organizational Behavior: An Evidence-based Approach, Published by
McGraw-Hill/Irwin, Twelfth edition, New York.
• Moore, J. (196) The Death of Competition: Leadership and Strategy in the Age of Business
Ecosystems (New York: Harper Collins, 1996).
• Robbins, S.P. and Judge T.A. (2017). Organizational Behaviour, Seventeenth edition,
Pearson Education UK.
• Robbins, S.P., Judge T.A. and Vohra, N. (2018). Organizational Behavior, Eighteenth edition,
Pearson Education India.
• Scott, R.W., Institutions and Organizations (Thousand Oaks, Calif.: Sage, 1995).
• Gerald Zaltman, G., Duncan, R. and Holbek , J., Innovations and Organizations, (New York:
Wiley, 1973)
CONCLUSION
This brings us to the end of the last lecture of Module 2.

We shall start with a new topic next week.