An Integrated View Of The Relationship Between The Organization And Its Environment

The contingency theory of organizations suggests a basic task of top managers or strategists is to fit strategies and structure with the environment. The creation of this alignment or fit requires strategists to recognize the opportunities and threats from an environment which is characterized by uncertainty. To define and measure the environment, three basic perspectives have evolved since the late 1950's: The objective environment perspective, the perceived environment perspective, and the enacted environment perspective. Each of these perspectives offers value to strategists creating environment-strategy-structure fits.

Strategic management as a field of study has evolved as branch of management which started with policy as a focus; then turned to strategy formulation; and today is concerned with implementations. The trunk of the tree is management, the essence of which Koontz and O'Donnell captured in their original textbook. Further, Koontz reported his views of the management theory "Jungle" in his classic article on the subject drawn from a meeting of the leaders in the management fields at that time. [Koontz, 1961]. However, the trunk did not yet have the strategic management branch. As this branch has developed, there has been a tendency to ignore the trunk. Recently, there has been a renewed interest in the implementation of strategic management [Prahalad, 1994], although if one looks at the trunk, it was originally considered animportant component of fundamental management.

Boundary spanners are organizational members who link their organization with the external environment. Boundary spanning primarily concerns the exchange of information [Daft, 1989]. A boundary spanner is further defined as one who attempts to influence external environmental elements and processes. Thus, the fundamental task of a boundary-spanning strategist (BSS) is to make decisions concerning information gathered.

Since boundary spanners are people, their activities are influenced by individual decision processes. To ignore individuality is a dangerous assumption that would likely distort results. Further, it is clear many strategists' decisions are complex because many dynamic variables must be considered.

Due to costs in terms of time and money, an organization cannot devote unlimited resources to gathering information. Further, each BSS has limitations concerning the amount of information she or he can handle. Thus, the ability of a BSS to recognize and weight potential problems and opportunities at an early stage becomes of great importance.

Systems and contingency theories of organizations suggest an organization is an open system interacting with its environment. [Burns & Stalker 1961; Duncan 1972, 1973; Katz & Kahn 1966; Lawrence & Lorsch 1967; Thompson 1967]. Therefore, researchers focused primarily on defining and assessing the environment and selection of strategies to exploit the opportunities must consider uncertainty in the environment. Systems and contingency theory advocates would also consider much of the current literature as supporting or extensions of their perspective [Hamel 1993; Wright 1991]. Research has produced the three basic explanations of how organizations know their environment.

First, March and Simon [1958] recognized that the objective environment had an impact on organizations. This marked the beginning of a view of the external environment as a source of uncertainty because it constitutes some set of forces impinging on the organization. Later writers suggested an organization is embedded within an external environment which exists independently from the organization [Aldrich 1979; Chandler 1962; Child 1972; Emery & Trist 1965; Thompson 1967]. These researchers assume that the organization and environment are real and separate. Therefore, strategists must conduct an environmental analysis by scanning the objective, existing environment for opportunities and threats. This perspective dominates strategic management it the content of textbooks. Their authors generally suggest that external analysis is combined with the results of an internal environmental audit of the organization's strengths and weaknesses to form the base for strategic decisions.

The combination of these two analyses is generally referred to as SWOT analysis. Its results are used to define the mission, set objectives and design strategies, and is the core of the strategy formulation phase of the strategic management process. In this way, the organization would adjust/adapt to the environment by adopting appropriate courses of action. Most researchers agree that if this strategic fit is not accomplished, the organization will flounder.

The perceived environment perspective, the second explanation, also considers the environment to be external, real, and material. However, uncertainty is a product of strategists' imperfect and incomplete knowledge of the objective environment [Duncan 1972, 1973; Lawrence & Lorsch 1967; Perrow, 1970; Pfeffer & Salancik, 1978]. Organizations which perceive the objective environment incorrectly will be less effective [Galbraith 197]. Strategists must create a fit given their flawed perceptions. Thus, strategists must first minimize the gap between their flawed perceptions and the objective environment [Smircich & Stubbart 1985], and use the analysis to identify the perceived opportunities and threats. The perceived environment perspective suggests uncertainty is internal. An analyst's perception is influenced by incomplete information, cognitive process and experience, and by the organization. This view implies that each strategist is an imperfect mediator between environment and organization.

A newer perspective surfaced in the 1980's. Smircich and Stubbart [1985] clarified the environment perspective implied or suggested by many writers including Anderson [1975], Bourgeois [1980, 1984], Davis [1982), Miles & Snow [1978, 1984)] Pfeffer & Salancik [1978], and Weick [1977, 1979]. Their view that managers can influence their external environment is not really that new. Chamberlin [1968] originally described how organizations adapt to and manipulate their environments.

The enacted environment perspective suggests separate objective environments do not exist. Rather, the organization and its environment are enacted (created) concurrently through interaction of principal participants [Burrell & Morgan, 1979; Smircich & Stubbart, 1985]. Smircich and Stubbart's [1985] "interpretive perspective" suggests the terms organization and environment are convenient, arbitrary labels that provide meaning to patterns of activity in a socially created symbolic world.

They define organization as:

     "... the degree to which a set of people share many beliefs,
     values, and assumptions that encourage them to make
     mutually-reinforcing interpretations of their own acts and
     the acts of others." [Smircich, Stubbart 727]

     "...a specific set of events and relationships noticed and
     made meaningful by a specific set of strategists...refers to
     the ecological context of thought and action, which is not
     independent of the observer-actor's theories, experiences,
     and tastes.  Multiple groups of people enact the ecological
     context....  From the standpoint of strategic management,
     strategists' social knowledge constitutes their environment." 
     [Smircich, Stubbart 727]

     "These perceptual and cognitive processes of understanding
     and sense making do affect strategic decisions and, hence,
     performance.  But that part of the environment which is not
     perceived or enacted may also influence performance....Indeed,
     the collective actions of others [emphasis added] is the social
     ecological context which constitutes an influence on the 
     objective environment and that counter pressures from reality 
     impose on an organization." [Smirchch, Stubbart, 781]

Thus, while the external environment may be primarily enacted by social actors, it is enacted by all social actors, many of whom are beyond the control of a strategist's organization. In addition, some elements of the environment, such as earthquakes, are beyond the control of all social actors and entities.

Pfeffer and Salancik [1978] suggest that the objective environment plays a significant role affecting organizational performance. Jauch and Kraft [781] add that "through proactive attempts to influence the environment, the objective environment can be changed." Filley, House, and Kerr [1976] suggest organizations seek to increase their power to control some segments of the environment. Thus, the enacted environment perspective suggests organizational strategists create theirorganization and substantially contribute to creation (enactment) of their environment.

The external environment is filled with real elements whether or not they were enacted by any organization. For instance, government regulations are real, and have real effects on real organizations' performance. Once a boundary-spanning strategist becomes aware of a regulation's existence and estimates its consequences, the task becomes one of deciding courses of action. Perceived uncertainty is in the mind of the strategist.

Uncertainty concerns whether or not s/he has accurate information; is aware of the future effect of the element on long-term objectives; and knows which is the appropriate strategy to achieve desired results and how to implement it. Thus, the existence of an objective environmental element offers a perceived opportunity or threat to the organization, and creates uncertainty for the strategist.

If the BSS decides to investigate ways of changing the environment, she or he should consider perceived interactions between the elements within its own subjective environmental niche (SEN). SEN is defined as that group of objective environmental elements subjectively associated with each other on a specific issue. It is composed of the issue-involved objective elements and their subjective (and dynamic) interactions with respect to the opportunity or threat. It is subjective since interactions are not concrete nor likely to be perceived equally by different strategists.

This view corresponds with the "subjectivists' paradigm of substantial variation among individuals in organizations" [McKelvey & Aldrich 117]. This suggestion highlights the organization's need for experienced systems thinkers. In addition, organizational researchers must pay attention both to people and environments as casual agents of environmental effects, as well as organizational strategy and structure.

As shown in the model above, a SEN also is composed of other players in the environment which also interact with the subject legislation. If an organization cannot directly affect the offending environmental element, it may be able to change the effect of the threat through a strategy designed to influence other objective environmental elements within the same SEN.

The organization's task environment [Smith, Arnold, & Bizzell, 1988] or ecological community [Pianka, 1978] is conceptualized as the sum of its SEN's. Each SEN concerns only the external players and their interactions with respect to a single, related set. While the OEPE Model shows only three SENs, the organization's total task environment may consist of many SENs.

Some strategic management writers consider the basic elements of the task environment to be competitors, customers, suppliers, potential entrants, and substitutes noted in Porter's Five Forces Model. We suggest that the task environment is more complex, as it also consists of the subjective and processes among relevant objective environmental factors conceptualized as SENs.

Some elements traditionally listed as components of the macro environment, such as government and technology, may be relevant objective elements within the SENs. As such, they can directly impinge upon the organization and can also be influenced either directly or indirectly. Of course, there still exist factors which may be uncontrollable. These factors might include economic, political, and natural elements. Thus, the organization and its ecological community (i.e., its set of SENs) exist within and are impinged upon by a macro environment that is largely uncontrollable. The macro environment is objective, perceived objectively and subjectively by individuals, and has objective effects on an organization.

More than one BSS may exist within a single organization. Each BSS is conceptualized as responsible for one or more SENs. The perceptions of all boundary-spanning strategists sum to the collective environmental perception of the boundary spanners; not of the organization as a whole. Their individual perceptions are influenced by informational and perceptual constraints, and by the communicated perceptions of other BSSs as well as organizational constraints. Informational and perceptual constraints impose limitations on the perceptions of each BSS. Perceptual constraints include the ability of a BSS to process the information acquired and the extensiveness and complexity of experience and training. This filter is similar to Downey and Slocum's [1975] concepts of an individual's perceptual mapping process and of his or her response repertoire. If these abilities exist and are finely tuned, the BSS may be a systems thinker.

A system thinker should experience less perceptual constraints since s/he can think withthe high degree of abstraction required to contend with a dynamic and complex environment. Also, their tolerance for ambiguity is high to produce a lower uncertainty level [Duncan, 1972], [Downey & Slocum, 1975], if s/he has confidence in the accuracy of obtained information. Such a highly skilled BSS should be more likely to recognize opportunities and threats because s/he reduces the gap between the objective and subjective environment (SEN) and their perception of that environment. Thus, the chosen strategies should be superior to those of less skilled BSSs.

Effective organizations will likely have several BSSs with different perceptual and informational constraints, and their respective SEN's may overlap. Thus, BSSs must share their findings and perceptions to facilitate synchronization of information and action.

Each BSS is affected by internal organizational constraints, including the current vision, mission, structure, processes, and culture. That is, the organization's internal strengths and weaknesses act as positive and negative constraints.

All constraints underscore McKelvey and Aldrich's [116] suggestion that, "Since organizations are composed of people limited by bounded rationality, suffering from limited or biased information and poor communication, and subject to processes of social influence and reconstructions of reality, we also think it improbable that a person with the 'correct' variation will be in a position to implement it." Thus, BSSs also must be high enough in the hierarchy to act upon their perceptions, intuitions, and decisions without having to convince those with less information, situational knowledge, and systems-thinking ability, that the recommended strategy is the proper choice. A BSS must also possess leadership qualities to implement the strategy. Otherwise, the systems thinking BSS may become constrained by the frustration felt as a consequence of the inability to convincingly explain his or her intuition [Senge, 1990].

Downey and Slocum [1975] sugges thatt an organization's perceptions are a summative concept. That is, the organization's views concerning opportunities and threats, and strategies, are the sum of those of all involved organizational participants. Since some participants are not BSSs, the OEPE Model separates the collective perceptions of BSSs from that of the organization as a whole, and shows intervening organizational constraints.

Organizational constraints influence the sharing of information and notions among individual BSSs, and between the BSS collective and the other organizational members involved in determining the generally adopted version of environmental organizational perception. The arrows-of-affect point in both directions because the perceptions of the BSS collective and of the individual BSSs are also affected by the remainder of the involved organizational participants [Downey & Slocum 1975].

The typical textbook strategy formulation stage of the strategic management process begins with analyses of both the perceived opportunities and threats and the perceived strengths and weaknesses of the organization. These analyses generally consist of some list of relevant factors which are then merged into a guide for strategy formation. However, most texts first pay lip service to the SWOT analysis and then ignore most of the constraints and human elements noted in this paper. The assumption that the corporate "machine" can simply sort through a list of elements and pick strategies to maximize performance is a naive conception.

In contrast, we contend that the selection of specific strategies is often somewhat anti-climatic and often reflects politics more than the environment. Each BSS and the collective BSSs having already determined several appropriate strategies based upon their analyses, they must contend with organizational constraints and other decision makers. They must use politics to lead the decision group toward the BSSs' collective perceptions of the environment in order to select the strategies. This process leads to different perceptions and strategies due to the bargaining process involved. This political process is not inherently negative. In fact, it can be quite constructive, since other players may often have a more informed view of some important aspect of the situation.

The OEPE Model also reveals that participants' decisions are affected by their perceptions of the organization's strengths and weaknesses. Perceived strengths and weaknesses function as positive or negative constraints upon the organization. A positive constraint may guide participants toward full utilization of an organization's strengths. A negative constraint may compel members to attempt to achieve in spite of weaknesses or prevent them from utilizing strengths. If the organization does not have the strength to react to a SEN, strategists either must acquire it or attempt to influence elements or interactions of a SEN.

The mission statement provides an example of a positive or negative organizational constraint on decision making. The organization's mission, or the unknown sum of many individuals' perceptions of that mission, must be either adhered to or changed in order to establish a strategic fit between the organization and its environment. As Miles, et. al. [59] suggests,

          "An organization is both an articulated purpose [a
     mission] and an established mechanism for achieving it. 
     Most organizations engage in an ongoing process of
     evaluating their purposes -- questioning, verifying and
     redefining the manner of interaction with their
     environments."

A poorly written mission statement functions as a "negative constraint," while a well written, up-to-date mission statement functions as a "positive constraint" since it compels organizational members to establish unified and focused objectives and strategies.

The above quote of Miles, et.al., also showcases the necessity of using information about the environment to develop meaningful goals, objectives and strategies, and processes to implement the strategies. This structural-contingency theory view (that structure follows strategy) is represented in the model by the down arrows between organizational perception,

In the 1980's, the structural options have been extended to include "Loosely Coupled Systems" [Orton & Weick, 199]) to network organizations [Snow, Miles & Coleman, 1992]. This extension addresses challenges related to the subjective evaluations of the environment [Miles & Snow, 1992]. The increasing need for the BSS to interact with evolving SENs will increase the need to improve and seek new organizational forms.

However, current structure also affects strategy formation by acting as a constraint [Litschert & Bonham, 1978]. It is unrealistic, simply to assume that management can always quickly change structure to match any strategy. Rather, the organization often must temper its choice of strategy to correspond to its current structure. The OEPE Model shows the influence of extant structure on strategy formation by the up arrow.

This same reasoning holds for the effect of extant strategy on the organization's and its individual members. Since the strategists/top decision-makers coalition has knowledge of the organization's current strategies, it is unreasonable to assume that their information search and decisions are not biased by that knowledge. Therefore, it is posited that extant strategies and structure influence the organization's decisions concerning strategies and structure. The model shows this influence by the up arrows from structure and strategy to individual BSSs.