Chapter 11:
Managing
the Environment
By Muhammet Said
Dinç
Contents
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Explain why management seeks to control the
organization's environment
Compare internal and external environment control
strategies
Describe the most comprehensive action that
management can take when faced with an unfavorable
environment
Explain environmental scanning
Identify several techniques for buffering the organization
from the input side
Explain how organizations smooth out fluctuations in
the environment
Describe when an organization would apply rationing
Differentiate between co-opting and coalescing.
Management's quest to control
its environment
Successful interaction with environment is
necessary for the organization's viability and
survival according to description of
organizations as open systems.
 But, environment is constantly changing in
unpredictable and uncertain ways.
 However, we know that managers don't like
unpredictability and uncertainty.
 They want to reduce this uncertainty.
 But can the environment be managed?
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Classifying Strategies
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Managers have two general strategies they
can adopt in their attempt to lessen
environmental uncertainty.
• Internal Strategies are those which adapt
and change organizational practices to better fit
the environment.
• making design changes to a product
• recruiting executives from its competitors
• By these strategies, the fit between the
organization and the environment is improved.
Classifying Strategies(cont.)
 External
strategies are efforts
designed to change the environment.
• F.e: merging with another company
• If changes suggested in a tax reform proposal
affect superannuation companies, the large
companies and their trade associations may
lobby against the tax changes.
• Using the internal-external separation, we
can categorize a number of uncertaintyreduction techniques.
Classifying Strategies(cont.)
Internal Strategies
• Domain choice
• Domain refers to that part of the
environment in which the organization
operates.
• Organizations make deliberate choices as
to which domain they operate in.
• Wool-worths operates in the environment
relevant to the mass market for groceries;
• Optus (BH Telekom) operates in the
telecommunications environment.
Internal Strategies (cont.)
• One action that management can take
when faced with an unfavorable
environment is to change to a domain
with less environmental uncertainty.
• Management could, for example, consider
• moving into an environmental niche that has the
advantage of fewer or less powerful competitors
• spreading its risk over a wider geographic area
• introducing a new range of products or investing in
research and development to gain a comparative
advantage.
Internal Strategies (cont.)
 If
management cannot change to a more
favorable domain, it may choose to
broaden its strategy to take a generalist
format.
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Qantas Airways, for instance, is composed of a
number of airlines each catering to a specific
market niche.
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They include mainline Qantas, Qantas Link,
Jet Star, both in Australia and Asia, Australian
Airlines and New Zealand based Jet
Connect.
Internal Strategies (cont.)
Recruitment
 The recruitment of staff with appropriate
skills can lessen the influence of the
environment on an organization.
 If an organization faces an environmental
challenge which it feels it lacks the
expertise to manage, it may recruit staff
with the appropriate management skills.
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Internal Strategies (cont.)
 F.e:
Corporations can hire executives with
skills that the company does not already
possess.
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On their retirement from the armed forces,
senior officers are often employed by defense
contractors because of their knowledge of the
operations of the defense establishment.
High-tech firms entice scientists from other
companies to gain the technical expertise
possessed by their competitors.
Internal Strategies (cont.)
Environmental scanning requires
exploring the environment to identify
actions by competitors, government, unions
and the like that might affect on the
organization's operations.
 Scanning activities also include
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• predicting levels of economic activity and
• undertaking research to determine changes in
fashions and demand patterns.
Internal Strategies (cont.)
Boundary spanners are staff whose specific
jobs require them to act as channels
between the organization and its
environment.
 Examples of typical boundary-spanning jobs
include
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• sales representatives, market researchers,
purchasing managers, lobbyists, public relations
specialists and recruitment specialists.
Internal Strategies (cont.)
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Senior managers also regularly scan the
environment to identify threats to and
opportunities for their organization.
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attendance at lunches,
trade fairs,
conferences and industry gatherings, and
reading business journals,
are other means of scanning the boundaries
of the organization.
Internal Strategies (cont.)
Buffering protecting the operating core
from environmental variations in supply and
demand.
 On the input side, buffering is evident when
organizations stockpile materials and
supplies, reduce reliance on one supplier,
undertake preventive maintenance or
recruit and train new employees.
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• Oil refineries typically keep reserves of crude oil
on hand.
Internal Strategies (cont.)
• The newspaper that buys newsprint from two or
three different paper companies
• On the output side, the most obvious method is
the use of inventories.
 Buffering typically involves building and keeping
up warehouse and distribution inventories.
• Toy manufacturers, for example, typically ship most
of their products to retailers in early October for
selling during the Christmas season.
Internal Strategies (cont.)
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Smoothing seeks to level out the impact of
fluctuations in the environment.
This mechanism is commonly used in service
industries, where the product cannot be placed
into inventory or where the product is
perishable.
• Organizations that use this technique include
telecommunication providers, retail stores, car
rental companies, and magazine publishers.
• Examples might include differential costs of long
distance telephone calls that are lower during nonpeak times, discount airline fares for off-time flights.
Internal Strategies (cont.)
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Rationing
When uncertainty is created by way of excess
demand, management may consider rationing
products or services—that is, allocating output
according to some priority system. Examples of
rationing can be found in
• hospitals- rationing beds for non-emergency
admissions
• universities- rationing to allocate students to popular
programs.
• post offices- priority-paid mail takes precedence
• restaurants- requiring reservations
Internal Strategies (cont.)
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Improving information processing
One of the main causes of uncertainty is lack
of information.
If it is possible to improve the flow of
information, uncertainty will decrease.
Modern information technologies allow us
• to gather large amounts of data and, using
appropriate software,
• process it into a format that can assist managers to
respond to environmental changes.
• Airlines- constantly monitoring forward bookings
Internal Strategies (cont.)
Geographic dispersion
 Environmental uncertainty sometimes varies
with location.
 To lessen location-induced uncertainty,
organizations can move to a different
geographic location or lessen risk by
operating in multiple locations.
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• Mining companies
External Strategies
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Bridging refers to the process by which managers
endeavor to regulate their environments through
negotiation, cooperation, exchange of information
and other forms of mutual benefit.
Bridging may include such actions as
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building personal relationships with managers in
supplying or distributing companies,
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sharing information,
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attendance at industry and chambers of commerce
meetings, and
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being a member of golf or social clubs patronized by
the well-connected.
External Strategies (cont.)
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Advertizing
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Through extensive advertising, management seeks
• to reduce competitive pressures,
• stabilize demand, and allow itself the opportunity to set
prices with less concern for the response of its
competitors.
• Unilever spends tens of millions of dollars each year to promote
Streets ice cream, Rexona products, Flora margarine…
• The organization that can build brand
loyalty creates a more loyal customer base.
External Strategies (cont.)
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Contracting protects the organization
from changes in quantity or price on either
the input or the output side.
• For instance, management may agree to a longterm fixed contract to buy materials and
supplies or to sell a certain part of the
organization's output.
• Brick manufacturers sign long-term contracts with gas
suppliers in order to secure supplies of gas at
specified prices.
External Strategies (cont.)
• Co-opting
• Organizations may resort to co-opting their
•
uncertainties—that is, absorbing those
individuals or organizations in the environment
that threaten their stability.
This is most often done in business firms
through selective appointments to the
organization's board of directors.
• For example, it is common for firms with a need for
finance to appoint a finance expert to the board.
External Strategies (cont.)
Coalescing is combining of an organization with
one or more organizations for the purpose of
joint action.
 Mergers and takeovers are an example, and so,
too, are strategic alliances and joint ventures.
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• The motor vehicle industry provides a good example.
Most of the world trade in cars is dominated by a few
manufacturing groups. In many cases, various brands are
wholly owned subsidiaries, for instance, General Motors
ownership of Saab.
External Strategies (cont.)
External Strategies (cont.)
Mergers and strategic alliances are a legal
means by which an organization can manage
its environment, provided that they do not
act as a restraint on trade.
 Most countries have anti-monopoly laws.
 Agreements to fix prices, share markets,
restrict market entry or actively seek to
reduce competition are not permitted
under the Trade Practices Act.
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External Strategies (cont.)
 Lobbying —using influence to obtain a
favorable outcome— is widely practized by
organizations to manage their environment.
• Farmers and agricultural producers have long
been effective in lobbying for their interests and,
• the green movement has had some successes as
well.
• Some organizations even use the power of
government to stabilize relationships in an
industry.
External Strategies (cont.)
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Insuring
Organizations face many risks which are
unlikely to eventuate, but which may be
catastrophic if they do.
• Such risks may arise from a building catching fire,
accidents, acts of nature such as lightning strikes,
hailstorms and cyclones, riots or insurgency in
overseas countries, and oil or chemical spills.
• Most of these events, apart from floods, can be
insured against.
External Strategies (cont.)
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Hedging and future markets
With the deregulation of industries and
commodity markets and the free floating of
currencies, the level of uncertainty of many
businesses has risen.
New markets have consequently been
developed in order to permit companies to
manage their risk.
• Futures exchanges allow miners and commodity
producers to lock in a price in advance of
production and consumption.
External Strategies (cont.)
External Strategies (cont.)