Macro Environment: “Ɵ = ƒ (P x Ec x S x T x E x L x n)”
Systems Perspective
From the physical point of view, the characteristic state of the living organism is that of an open system. A system is closed if no material enters or leaves it; it is open if there is import and export and, therefore, change of the components. Living systems are open systems, maintaining themselves in exchange of materials with the environment, and in continuous building up and breaking down of their components (von Bertalanffy, 1950).
Based on this natural system perspective, it can be asserted that; “In the most abstract sense, a system is a set of objects together with relationships among the objects. Such a definition implies that a system has properties, functions, and dynamics distinct from its constituent objects and relationships” (Burns, 2007).
At an organizational level, we can take this assertion one step further and think of organizations as interacting relatively freely with their ‘environment’ much in the same way we think commonsensically of biological species adapting and interacting with their surroundings in an effort to survive. Each has the capacity to influence and be influenced by the external world. Organizations are widely conceived as open but bounded systems interacting with their environments (Chia, 2005).
Communication and Self-Reference Process
These notions adapted from biology and systems theories have a subtle yet powerful implication. For example, driven by the same logic Luhmann’s “Autopoietic Social Systems Theory” also sees the social systems as living systems that are capable of self-production, self-organization and self-referencing. This viewpoint signifies that systems produce their own basic elements, create their own boundaries, internal structures and they are “closed” (i.e. they do not deal directly with their environments, but rather with representations of their environments) (Arnoldi, 2001). Thus a social system is a communicative process that makes sense of its surroundings (i.e. macro environment ) in a way rather similar to the way the world is made sense of in a conscious process (Luhmann, 1995).
In fact in this context, Luhmann considers modern society as a primarily functionally differentiated society; where law, politics, economics, technology, religion, family and so forth constitute functional domains that crystallize into autonomous subsystems (function systems) (Braeckman, 2006).
In summary;
§ We “human beings” constitute part of the micro environment of the organizations.
§ Yet, the proper unit or component of an autopoietic social system is not the individuals, their thoughts, acts, or roles but rather it is the communication (utterance) process.
§ Such communication in the form of an utterance is central to the existence of organizations and is indispensable (i.e. communication is not simply an exchange of messages; it is the very act of existing and living of organizations).
§ When organizations are confronted with environments rich with opportunities and threats, to avoid being overwhelmed by complexity, organizations borders remain open to exchange energy and information.
§ This is accomplished through the creation of subsystems consisting of political, economic, social, technologic, environmental and legal considerations.
§ Each subsystem can make different connections with other subsystems, allowing for more variation within the system in order to respond to variation in the environment.
§ This increased variation facilitated by differentiation not only allows for better responses to the environment, but also allows for faster evolution, which is defined sociologically as a process of selection from variation; the more differentiation (and thus variation) that is available, the better the selection (Ritzer, 2007).
The hypothesis of Ɵ = ƒ(P x Ec x S x T x E x L x n) provides some of the key factors in the macro-environment that will affect any organization; new laws, trade barriers, taxation changes, demographic changes, government policy changes and technological innovations are all examples of macro change.
As an analytical framework, this hypothetical equation can help to analyze the macro changes to identify different environmental dynamics that may affect business strategies to assess how they may influence organization’s performance now and in the future.
However, we cannot assume that all organizations are the same and can be managed with the same set of processes and techniques. In reality, one of the important consequences of the self-reference of meaning is that any organization can only observe, decrypt and react to environmental input according to its own code. With the functional differentiation of organizations, the existence of a central position from which universal observations can be made is impossible (Arnoldi, 2001). Even then, organization’s interpretation of the meaning not only renders things contingent but also changes through time (i.e. industrial, organizational, product life cycle).
Micro Environment: “μ = (Fμ + Cμ,) x ƒ (t), Where; Fμ = ƒ (D x Pr x Ef x C x I) + Cμ”
Life Cycle Metaphor
The influence of history on an organization is a powerful but often overlooked force. In haste, companies are built. Yet, often organizations fail to ask: Where it has been? Where it is now and what the answers to these questions mean for where it is going? Instead, the attention is fixated on the environment and forecasting the future, as if more meticulous projections will provide the organization with a new identity.
In recent years, another new protodiscipline Industrial Ecology (or Industrial Metabolism) has emerged. This new discipline has been built, to a large extent, based on perceived analogies between economic and ecological systems. One perceived analogy is the ‘life cycle’: “All higher organisms exhibit a life cycle, beginning with conception, birth, adolescence, maturity, senescence and finally death. Interestingly enough, similar cycles have been observed for products, firms and even industries” (Ayres, 2004).
For instance, in his HBR Classic “Evolution and Revolutions as Organizations Grow[1]” (Greiner, 1998), Larry Greiner identifies a series of developmental phases that organizations tend to pass through as they grow. He distinguishes the phases by their dominant themes: creativity, direction, delegation, coordination, and collaboration. Each phase begins with a period of evolution, steady growth, and stability, and ends with a revolutionary period of organizational turmoil and change (figure 1).
For Greiner the critical task for an organization in each revolutionary period is to find a new set of organizational practices that will become the basis for managing the next period of evolutionary growth. Those new practices eventually outlast their usefulness and lead to another period of revolution. Organization therefore experience the irony of seeing a major solution in one period become a major problem in a later period (Greiner, 1998).
Organizational Forms and Forces
Theories of the stages of organizational development go beyond these ideas. For example, based on his model of “Pentagon of Forces and Forms” (i.e. configuration theory), some years ago Henry Mintzberg argued that effective organizations "got it all together" (Figure 2).
Mintzberg’s configuration theory describes seven basic forces which act on an organization;
1. Direction
2. Proficiency
3. Efficiency
4. Innovation
5. Concentration
6. Cooperation
7. Competition
When any one of these forces dominates an organization, it drives it towards the corresponding form, entrepreneurial; professional; machine; adhocracy; diversified; ideological; and political (Table 1).
By choosing "configuration", organizations bring their various characteristics of structure, strategy, and context into natural co-alignment with their environment (Mintzberg, Quinn, & Ghoshal, 1998).
Based on this assumption, Mintzberg thought he had the answer to “how some organizations are able to sustain viability and excellence in the face of change?” He argued that some organizations achieve integration as efficient machines, while others coalesce around product innovation. In a sense, these organizations play a jigsaw puzzle, fitting all the pieces of their operations into one neat image (Mintzberg, 1991).
However, Mintzberg too begun to wonder about this hypothesis of “configurations”, since some rather effective organizations of today[1] do not, and even those that do sometimes confound things (e.g. how does that big blue machine come up with critical adaptations when it has to, and why does 3M have those tight financial controls?). Thus Mintzberg had to consider another view of organizational effectiveness, in which organizations do not slot themselves into established images so much as build their own unique solutions to problems, i.e. LEGO metaphor; “The effective organizations play LEGO as well as a jigsaw puzzle. The pieces of the game are the forces that organizations experience; the integrating images are the forms that organizations take. Together, they constitute a powerful framework by which to diagnose and deal with the problems organizations face”. Mintzberg also adds that, “much of this process is driven by the interplay of seven basic forces (Mintzberg, 1991).
Therefore, the hypothesis of μ = (Fμ + Cμ,) x ƒ(t) suggests that as organizations survive, adopt and develop over time in their environment, their forms, forces, structures and configurations also tend to change. An awareness of this effect should help organizations to evaluate their problems (i.e. intrinsic strengths and weaknesses to manage extrinsic opportunities and threats) with a historical understanding instead of pinning the blame on a current development. Better yet, it should place organizations in a position to predict problems and thereby to prepare solutions and develop strategies before a revolution gets out of hand.
On the other hand, these models (e.g. hypothesis of μ = (Fμ + Cμ,) x ƒ (t) ) are only presented to suggest leading tendencies in some organizations, not definite occurrences in all of them. Reality is always more complex than its description on paper. Such description, labels, and thereby oversimplifies and distorts, but that should not detract from the help it offers in comprehending reality (Mintzberg, 1984).
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