BUS603: Managing People

• Identify contemporary external forces pressuring organizations.

The two dimensions of this figure represent "environmental complexity" (i.e., the number of elements in the environment, such a competitors, suppliers, and customers), which is characterized as either simple or complex, and "environmental change," described as stable or unstable. How available monetary and financial resources are to support an organization's growth is also an important element in this framework. Certain industries - soft drink bottlers, beer distributors, food processors, and container manufacturers - would, hypothetically, fit and align more effectively in a stable (i.e., relative unchanging), simple, and low-uncertainty (i.e., has mostly similar elements) external environment - cell 1 in Exhibit 15.4. This is referred to when organizations are in a simple-stable environment. Of course unpredicted conditions, such as global and international turmoil, economic downturns, and so on, could affect these industries, but generally, these alignments have served as an ideal type and starting point for understanding the "fit" between environment and industries. In a stable but complex, low- to moderate-uncertainty environment, cell 2 in Exhibit 15.4, universities, appliance manufacturers, chemical companies, and insurances companies would generally prosper. This is referred to when organizations are in a complex-stable environment. When the external environment has simple but high to moderate uncertainty, cell 3 of Exhibit 15.4, e-commerce, music, and fashion clothing industries would operate effectively. This is referred to when organizations are in a simple-unstable environment. Whereas in cell 4 of Exhibit 15.4, an environment characterized by a high degree of uncertainty with complex and unstable elements, industries and firms such as computer, aerospace, airlines, and telecommunications firms would operate more effectively. This is referred to when organizations are in a complex-unstable environment.

Exhibit 15.4 is a starting point for diagnosing the "fit" between types of external environments and industries. As conditions change, industries and organizations must adapt or face consequences. For example, educational institutions that traditionally have been seen to operate best in low- to moderate-uncertainty environments, cell 2 of Exhibit 15.4, have during this past decade experienced more high to moderate uncertainty (cell 3) - and even high uncertainty (cell 4). For example, for-profit educational institutions such the University of Phoenix and others - as compared to not-for-profit universities and colleges, such as public state institutions, community colleges, and private nonprofit ones - have undergone more unstable and complex forces in the external environment over the past decade. Under the Obama administration, for-profit universities faced greater scrutiny regarding questionable advertising, graduation rates, and accreditation issues; lawsuits and claims against several of these institutions went forward, and a few of the colleges had to close. The Trump administration has shown signs of alleviating aggressive governmental control and monitoring in this sector. Still, higher educational institutions in general currently face increasingly complex and unstable environments given higher tuition rates, increased competition from less-expensive and online programs, fewer student enrollments, and an overabundance of such institutions. Several private, not-for-profit higher educational institutions have merged and also ceased to exist. Adapting to increasingly rapid external change has become a rallying call for most industries and organizations as the 21st century evolves.

Source: OpenStax, https://openstax.org/books/organizational-behavior/pages/15-2-external-environments-and-industries
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