How does the environment influence an organization?
As we have seen from our open systems model, organizations need resources from the environment, their products or services have to be desired by the environment, and they need information from the environment to monitor these other two needs. As long as an organization can foresee its needs being fulfilled by the environment, and predict the demands from the environment for its goods or services, it can continue to function in the way that it always has.
However, as any part of the environment becomes more uncertain, the organization will have to adapt to the new demands or contingencies. Environmental uncertainty, as defined by Pfeffer and Salancik (1978), refers to “the degree to which future states of the world cannot be anticipated and accurately predicted.” Environmental uncertainty is problematic to an organization only when it involves an element critical to the organization.
Environmental uncertainty increases or decreases as environments vary along five basic dimensions:
1. Homogeneity – heterogeneity: the number and diversity of constituencies that influence the organization.
2. Concentration – dispersion: the degree of interconnection among components of the environment
3. Stability – turbulence: the rate and magnitude of change in the environment
4. Resource scarcity – resource munificence: abundance and availability of resources
5. Hostility-supportiveness: extent of competition and level of acceptance of the organization
Robert Duncan proposed a two dimensional model of uncertainty in which he identified environmental changeability and environmental complexity as the determinants of uncertainty. Environmental changeability refers to whether elements in the environment are stable or unstable. An environmental domain is stable if it remains the same over a period of months and years. Under unstable conditions environmental elements shift often and abruptly. Public utilities operate in stable environments, whereas the garment and airline industries have been unstable in past years.
Environmental complexity refers to the heterogeneity of elements in the environment, ie the number of dissimilar elements and organization has to deal with. The combination of these 2 dimensions can help ascertain the level of environment uncertainty. Uncertainty is highest when the environment is both unstable and complex
