Practitioner Essay of Environment

STRATEGIES FOR YOUR BUSINESS TO COPE UP WITH ENVIRONMENTAL UNCERTAINTY

Have you ever even considered environmental uncertainty while moving your business into a different level? If the answer is no, this article will give you a broad remark of the effects of uncertainty on your moving business. If the answer is yes, you can still enhance creative solutions for your business to handle the rapidly changing environment. 

Strategic planning and uncertainty should be thought as two inseparable pieces of the same front because companies and organizations are bounded to develop and compete in a world dominated by complexity, ambiguity, and uncertainty. Since they are strongly related with each other, environmental scanning is crucial to be able to survive in the market: Environmental scanning, which can be done with varying degrees of formality [Aguilar, 1967] and which results in some assessment of risk and perception of uncertainty. (Bourgeois, 1980) First, let’s take a look at different point of views to this phenomenon from beginning and take it to modern-days, where the competition is fiercest.

EVOLUTION OF STRATEGIC MANAGEMENT OF UNCERTAINTY

The Jauch’s and Kraft’s article about strategic management of uncertainty touches upon the major different standpoints about strategies of uncertainty. The first views-called as classical views- is about the source of the decisions, structure and performance and objective uncertainty but these views lack the perceptions of the managers through the decision making processes. The next views were transition views, which include internal and external uncertainty and the sources of uncertainty. The subsequent views were ‘process views’, they rely on perception of the environment and uncertainty. All of these views were useful for understanding the uncertainty of environment but they also lack a lot of factors that influence decision making processes. Miles and Snows brought the term of ‘prospectors’ as top managers who actively search for change and uncertainty. The base of this new view was that the managers choose their environments and they not only adapt to them but also change them by the decisions and actions they make. Clearly, these proactive actions assume more risk. The further standpoint was realizing the fact that both environmental conditions and strategy have a direct impact on performance and they have impact on different dimensions of performance and they also categorized to different types internally. The further step was realizing that objective reality is also shaped by the subjective factors meaning that through proactive attempts to influence the environment, the objective environment can be changed. After, that was time to bring all of those assumptions and point of views to the world of capitalism. In order to survive in the world of capitalism, managers seek to accumulate valued resources-financial, material, human, or informational- to gain power. To accumulate power, they create uncertainty to be able to survive in the capitalistic markets. To do these, it can be realized that organic structures is much more profitable for the uncertainty because of their information processing capabalities. Finally, the revisionist model was created which brings all of the past views into one model. It explains that performance outcomes are affected by the strategy and structure decisions and the collective actions of others which is created by decisions and performance outcomes affects the objective environment. The objective environment also affects performance outcomes and perceptions of environmental uncertainty which affects the strategy and structure decisions. To sum up, talking about the environmental uncertainty, it is impossible to isolate one factor from another. They all have impacts on one another and that creates the overall uncertainty.

ORGANIZATIONAL STRUCTURE, PERCEIVED ENVIRONMENTAL UNCERTAINTY AND BOUNDARY SPANNING

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“WHERE DO YOUR BUSINESS FITS THE BEST?”

Before moving further, let’s define the terms that is mentioned in the heading in order to make everything clear in your mind. The most basic one, organizational structure is a system that outlines how certain activities are conducted in the aim of achieving the goals of an organization and it also determines how information flows from level to level within the company. Since organizations are in continuous interaction with their environment, detailed information about that environment is required for making conformable decisions. But that information is never complete, there is always uncertainty. Perceived Environmental Uncertainty (PEU) quantifies the lack of information about the world around a firm as perceived by its decision-makers. As the last term, boundary spanning is a possible solution for reducing perceived environmental uncertainty. It is an effort within an organization that involves activity aimed at bridging one or more recognized organizational boundaries to facilitate the flow of information across such boundaries. Now, we can move on and see the different execution of these terms in different type of organizational structures.

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Since boundary-spanning is designed as a variable between organization structure and perceived environmental uncertainty, boundary-spanners exhibit operations at the skin of the organization. Their functions are to interpret and evaluate environmental conditions and so make the information available for organization’s decision makers. Briefly, organization boundaries are important because their functions limit organizations. Oppositely, they can also act as regulators of the flow of information among organization and its environment.

Perceived environmental uncertainty does not influence directly boundary-spanning and structure. However, structure reduces the relationship of perceived environmental uncertainty. Also, boundary-spanning reduces the relationship between perceived environmental uncertainty and structure up to zero.

There are so many researches done in this area in order to clarify the relationships between the terms that have mentioned above. Miles, Snow and Pfeffer has conducted a research and found that within the same objective environment, there are both organizations whose top managers perceive little or no change and organization and whose top managers perceive constant change and uncertainty in the environment. These two types of perception and organization structure are associated with their ability to survive together. Therefore, these are related with their ‘contingency’ and ‘linkages’ among organization structure, boundary-spanning and ‘perceived environmental uncertainty’. Although contingency theory focuses on the concept strongly and considers a variable which deals with the intensity of information gathering from activity, it is insufficient because it does not include boundary-spanning activity which behave as interface.

Another research has performed by Brown.  He suggested that the technical level arising from mechanism provides information by interacting with the environment at the level of suppliers, competitors and customers. This information has an effect on the decision makers’ perceived environmental uncertainty and decision making process. Therefore, boundary-spanning at the lowest level organizational levels is essential in order to understand organizational information processing. In the light of these results, three hypothesis is established by  Duncan, Khandwalla, Burns and Stalker, and Haber, O’Connell and Cummings.

First hypothesis concerns relationship between perceived environmental uncertainty and the nature of the organic structure (The type of structure that is identified as having little job specialization, few layers of management, decentralized decision-making, and not much direct supervision). The more turbulent the environment, the more flexibility needed: ‘Rapid change requires strategies that are flexible and creative.’ (Grant, 2003) According to arguments in this hypothesis, more perceived environmental uncertainty provides more flexibility or ‘organicness’ in the organization structure because as the quantity of the lacking information increase it becomes more crucial to be able to process the narrow-scoped information that is available. Because of the characteristics of the organic structure (having little job specialization, decentralized decision making etc.) it is the best choice where the perceived environmental uncertainty is higher.  This shows that high perceived uncertainty is correlated with less mechanistic structure. Also, it realized that in highly inorganic groups, there are huge job specialization and communication restriction because of lack of high perceived uncertainty.

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Second hypothesis concerns the relationship between frequency of the boundary-spanning activity and nature of the organizational structure. Openness is associated with connections among system and non-system connections. Duncan referred that an organization relies more on established rules and procedures (formalization) because in more certain environment, information processing requirement is minimal. Because of same reason, organization requires less boundary-spanning. Therefore, it is reached that organicness and frequency of boundary-spanning activity are related with each other positively.

Lastly, third hypothesis concerns the relationship between perceived environmental uncertainty and boundary-spanning activity. If members of organization tries to decrease perceived environmental uncertainty, this leads to less boundary-spanning because high perceived environmental uncertainty engages in more boundary-spanning activity for bringing uncertainty down to same manageable level. This refers to perceived environmental uncertainty and boundary-spanning activity are associated with positively.

Methodology was maded by conducting information about family problems, adoption, social work in a health and welfare organization. This methodology gives similar conclusions of these three hypothesis. Consequently, it is realized that relationship between perceived environmental uncertainty and organicness disappears  if the frequency of boundary-spanning is withdrawn. Similarly, relationship between perceived environmental uncertainty and boundary-spanning activity disappears when organicness is turn away. This means that these three variables are connected with each other.

INFERENCES

The most important step in the aim of surviving in a turbulent environment like all of the businesses are experiencing today is to be aware of the environment that your business exists: ‘One of the shortcomings of much of the theoretical and empirical research on organizational environments has been the failure clearly to conceptualize organization environment or the elements comprising it.’(Duncan,1972) On the other hand, the organization’s structure should also be analyzed and learned. Even though this step seems so basic, most of the managers are mistaken because they undervalue this very basic step as they try to struggle with the uncertainty. After analyzing the two agents of this whole concept, the next step should be associate them with each other and know where your bussiness fits the best and so, take actions accordingly. After all, you can be sure that your business is now ready to move into another level!

REFERENCES

  • Leifer, Richard, and George P. Huber. “Relations Among Perceived Environmental Uncertainty, Organization Structure, and Boundary-Spanning Behavior.” Administrative Science Quarterly22, no. 2 (1977): 235. doi:10.2307/2391958.

Available at:

https://www.jstor.org/stable/pdf/2391958.pdf

  • Jauch, Lawrence R., and Kenneth L. Kraft. “Strategic Management of Uncertainty.” Academy of Management Review, vol. 11, no. 4, 1986, pp. 777–790., doi:10.5465/amr.1986.4283934.

Available at:

https://www.jstor.org/stable/258396?seq=14#metadata_info_tab_contents

  • Bourgeois, L. J. “Strategy and Environment: A Conceptual Integration.” The Academy of Management Review, vol. 5, no. 1, 1980, p. 25., doi:10.2307/257802.

Available at:

https://www.jstor.org/stable/257802?seq=1#metadata_info_tab_contents

  • Grant, Robert M. “Strategic Planning in a Turbulent Environment: Evidence from the Oil Majors.” Strategic Management Journal, vol. 24, no. 6, 2003, pp. 491–517., doi:10.1002/smj.314.

Available at:

https://onlinelibrary.wiley.com/doi/epdf/10.1002/smj.314

  • Duncan, Robert B. “Characteristics of Organizational Environments and Perceived Environmental Uncertainty.” Administrative Science Quarterly, vol. 17, no. 3, 1972, p. 313., doi:10.2307/2392145.

Available at:

https://www.jstor.org/stable/pdf/2392145.pdf

Bhasin, Hitesh. “Boundary Spanning and Its Uses to an Organization.” Marketing91, 30 Dec. 2017, http://www.marketing91.com/boundary-spanning/.