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HCM 381 Health Care Management


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Title: HCM 381 Health Care Management

HCM 381- Health Care Management
  • Chapters 1-5
  • Information Overview

Ch. 1- Organizations and Org. Theory
  • The purpose of Chapter One is to explore the
    nature of organizations and organization theory
  • What is an organization?
  • Organizations as diverse as a church, a hospital,
    and IBM have characteristics in common.
  • Organizations are social entities that are goal
    directed, are designed as deliberately
    structured and coordinated activity systems, and
    are linked to the external environment.

  • An organization is not just a building or a set
    of policies and procedures. An organization is a
    group of people who interact with one another.
  • A manager, then, is someone who structures and
    coordinates organizational resources to achieve
    the organizations purpose.

  • Note that even though work is structured into
    separate departments or sets of activities, most
    organizations today are looking for greater
    horizontal coordination of work activities.
  • Boundaries between departments as well as those
    between organizations are becoming more flexible
    and diffuse as companies need to respond quickly
    to environmental changes.

The importance of organizations
  • Organizations as we know them are relatively
    recent - as late as the latter part of the
    1800s, there were few large organizations.
  • The industrial revolution and the development of
    large organizations transformed all of society.
  • Today, orgs. are central to peoples lives.

Their importance?
  • They bring together resources to achieve desired
    goals and outcomes.
  • They produce goods and services efficiently.
  • They facilitate innovation.
  • They use modern manufacturing and computer based
  • They adapt to and influence a changing
  • They create value for owners, customers, and
  • They accommodate ongoing challenges of diversity,
    ethics, and the motivation and coordination of

The organization as a system
  • Open vs. closed systems
  • A closed system would not depend on its
    environment it would be autonomous, enclosed,
    and sealed off from the outside world.
  • Early organizational studies focused on internal
  • Early mgt. concepts, including scientific mgt.,
    leadership style, and industrial engineering,
    were closed system approaches which took the
    external environment for granted, assuming it
    would remain stable.

An open system...
  • Must interact with the environment to survive. It
    both consumes resources and exports resources to
    the environment.
  • It must continually adapt to the environment. The
    org. must continuously find and obtain needed
    resources, interpret and act on environmental
    changes, dispose of outputs, and control and
    coordinate internal activities in the face of
    environmental disturbances and uncertainty.

  • A system is a set of interacting elements that
    acquires inputs from the environment, transforms
    them, and discharges outputs to the external
  • The need for inputs and outputs reflects
    dependency on the environment.
  • Interacting elements mean that people and depts.
    depend on one another and must work together. Can
    this be defined in terms of H.C.?

An Open System and Its Subsystems
Transformation Process
Raw Materials People Information
resources Financial resources
Products and Services
Production, Maintenance, Adaptation, Management
Boundary Spanning
Boundary Spanning
  • Note that a system is made up of subsystems, as
    reflected in Exhibit 1.2.
  • These subsystems perform various functions
    required for org. survival, i.e. production,
    boundary spanning, maintenance, adaptation, and

More on subsystems...
  • The production subsystem produces the product and
    service outputs of the organization.
  • Boundary subsystems are responsible for exchanges
    with the external environment, and include such
    activities as purchasing supplies or marketing

  • The maintenance subsystem maintains the smooth
    operation and upkeep of the orgs. physical and
    human elements.
  • The adaptive subsystems are responsible for
    organizational change and adaptation.
  • Management is responsible for coordinating and
    directing the subsystems of the organization.

Note that various parts of the org. are designed
to perform subsystem functions.
  • Mintzberg suggested that every org. has five
  • The technical core.
  • Top management
  • Middle management.
  • Technical support.
  • Administrative support.

Five Basic Parts of an Organization
Top Management
Technical Support
Administrative Support
Middle Management
Technical Core
Source Based on Henry Mintzberg, The
Structuring of Organizations (Englewood Cliffs,
N. J. Prentice-Hall, 1979) 215-297 and Henry
Mintzberg, Organization Design Fashion or
Fit? Harvard Business Review 59 (Jan. Feb.
1981) 103-116.
Regarding the technical core
  • It includes people who do the basic work of the
  • It performs the production subsystem function and
    actually produces the product and service outputs
    of the organization.
  • This is where the primary transformation from
    inputs to outputs takes place.

Regarding technical support
  • The technical support function helps the org.
    adapt to the environment.
  • Technical support is responsible for creating
    innovations in the technical core, helping the
    organization to change and adapt.

Regarding administrative support
  • The admin. support function is responsible for
    the smooth operation and upkeep of the
    organization, including its physical and human
  • Includes such activities as recruiting and
    hiring, establishing compensation and benefits,
    and employee training and development, as well as
    maintenance activities.

Regarding management
  • Management is responsible for the directing and
    coordinating of other parts of the org.
  • Top mgt. provides direction, strategy, goals, and
    policies for the entire org.
  • Middle mgt. is responsible for implementation and
    coordination at the departmental level.
  • Note that skills, roles, and managerial functions
    will vary by level.

  • An organization can be viewed structurally or
  • Structural dimensions provide labels to describe
    the internal characteristics of an organization.
  • Structural dimensions include the following
  • formalization
  • specialization
  • hierarchy of authority
  • centralization
  • professionalism
  • personnel ratios

Regarding structural dimensions..
  • Formalization pertains to the amount of written
    documentation in the org.
  • Specialization is the degree to which org. tasks
    are subdivided into separate jobs.
  • Hierarchy of authority describes who reports to
    whom and the span of control for each manager.

  • Centralization refers to the hierarchical level
    that has authority to make a decision.
  • Professionalism is the level of formal education
    and training of employees.
  • Personnel ratios refer to the deployment of
    people to various functions and departments.

Contextual Dimensions
  • Size (number of people in the organization)
  • Organizational technology (the tools, techniques,
    and actions used to transform inputs into
  • Environment (all elements outside the boundary of
    the organization)
  • Goals and Strategy (the purpose and competitive
    techniques that set the org. apart)
  • Culture (underlying set of key values, beliefs,
    understandings, and norms shared by employees)

  • The eleven contextual and structural dimensions
    are interdependent.
  • They provide a basis for the measurement and
    analysis of characteristics that cannot be seen
    by the casual observer, and they reveal
    significant information about an organization.

Performance and Effectiveness Outcomes
  • The point of understanding an organization better
    is so that you can design an org. in such a way
    as to achieve high performance and effectiveness.
  • Efficiency refers to the amount of resources used
    to achieve the organizations goals.
  • Effectiveness is a broader term, meaning the
    degree to which an organization achieves its

The evolution of org. theory and design
  • Org. theory is not a collection of facts it is a
    way of thinking about organizations.
  • The modern era of mgt. theory began with the
    classical mgt. perspective in the late 19th and
    early 20th century.
  • The classical system sought to make organizations
    run like efficient and well-oiled machines.

The classical perspective...
  • Scientific management theory, ala Frederick
    Winslow Taylor
  • postulated that decisions about organizations and
    job design should be based on precise, scientific
    study of individual situations.

The Hawthorne Studies...
  • The hierarchical system and bureaucratic
    approaches that developed during the industrial
    revolution remained the primary approach to
    organization design and functioning well into the
    1970s and 1980s.
  • The Hawthorne Studies demonstrated that positive
    treatment of employees improved their motivation
    and productivity.
  • Led to a host of human relations and behavioral

By the 1980s...
  • New corporate cultures that valued lean staff,
    flexibility, rapid response to the customer,
    motivated employees, caring for customers, and
    quality products.
  • Old mgt. forms and mgt. methods are inadequate to
    cope with new problems in the emerging postmodern
  • Contingency theory is the name of the game now.

Contingency theory...
  • Not all organizations are alike.
  • The structures and systems that work in one
    setting may not work in another.
  • Contingency means that one thing depends on other
    things, and for organizations to be effective,
    there must be a goodness of fit between their
    structure and the conditions in the external

  • The correct management approach is contingent on
    the organizations situation.
  • Todays organizations must shift from a paradigm
    based on mechanical systems to one based on
    natural, biological systems.
  • A paradigm is a shared mindset that represents a
    fundamental way of perceiving, conceptualizing,
    and understanding the world.

More on contemporary organizational design
  • Todays organizations and managers are shifting
    from a mindset based on mechanical systems to one
    based on natural and biological systems.
  • Many managers are redesigning their companies
    toward something called the learning
  • The learning organization promotes communication
    and collaboration so that everyone is engaged in
    identifying and solving problems, enabling the
    organization to continuously experiment, improve,
    and increase its capability.

  • The trade off is between efficient performance
    versus a learning environment.
  • Put another way, from vertical to horizontal
  • From routine tasks to empowered roles
  • From formal control systems to shared information
  • From competitive to collaborative strategy
  • From rigid to adaptive cultures

Ch. 2- Strategy, Org. Design and Effectiveness
  • This chapter will look at strategies top managers
    use to help their organizations achieve
    organizational goals. The chapter will also look
    at the impact of strategy on organization design,
    and how designing the organization to fit
    strategy and other contingencies can lead to
    organizational effectiveness.

Top Management Role in Organization Direction,
Design, and Effectiveness
External Environment
Organization Design
Opportunities Threats Uncertainty Resource
Effectiveness Outcomes
Structural Form learning vs.
efficiency Information and control
systems Production technology Human resource
policies, incentives Organizational
culture Interorganizational linkages
Strategic Management
Resources Efficiency Goal attainment Stakeholders
Competing values
Define mission, official goals
Select operational goals, collaborative strategies
CEO, Top Management Team
Internal Environment
Strengths Weaknesses Distinctive
competence Leadership Style Past Performance
Source Adapted from Arie Y. Lewin and Carroll
U. Stephens, Individual Properties of the CEO as
Determinants of Organization Design, unpublished
manuscript, Duke University, 1990 and Arie Y.
Lewin and Carroll U. Stephens, CEO Attributes as
Determinants of Organization Design An
integrated Model, Organization Studies 15, no. 2
(1994) 183-212
  • An organization is created and designed to
    achieve some end which is decided by the top
    executive and upper management.
  • The primary responsibility of top mgt. is to
    determine an organizations goals, strategy, and
    design, thereby adapting the organization to a
    changing environment.
  • Middle mgrs. do the same thing for major depts.

  • The direction-setting process begins with an
    assessment of the opportunities and threats in
    the external environment, as well as an
    assessment of internal strengths and weaknesses.
  • This is referred to as a S.W.O.T. assessment.

Following the S.W.O.T. eval.
  • Define overall mission and official goals based
    on the correct fit between external opportunities
    and internal strengths.
  • Specific operational goals or strategies can then
    be formulated to define how the organization is
    to accomplish its overall mission.
  • Note that organizational design reflects the way
    goals and strategies are implemented.
  • Organizational design is the administration and
    execution of the strategic plan.

Put another way...
  • New goals and strategies are selected based on
    environmental needs, and then top management
    attempts to redesign the organization to achieve
    those ends.
  • Note that managers can interpret the environment
    differently and develop different goals. The
    choices that top managers make about goals,
    strategies, and organizational design can have a
    tremendous impact on organizational effectiveness.

More on goals and strategy...
  • The overall goal for an organization is called
    the mission, which is the organizations reason
    for existing.
  • The mission describes the organizations vision,
    its shared values and beliefs, and its reason for
  • The mission is sometimes called the official
    goals of the organization.

Operative goals...
  • Operative goals designate the ends sought through
    the actual operating procedures of the
    organization and explain what the organization is
    actually trying to do.
  • Operative goals describe specific measurable
    outcomes and are often concerned with the short
  • Operative vs. official goals represent actual vs.
    stated goals.

More on operative goals...
  • These goals concern overall performance, boundary
    spanning, maintenance, adaptation, and production
  • Goals are important. While official goals
    (through the mission statement) serve to provide
    legitimacy, operative goals provide employee
    direction, decision guidelines, and criteria for

Examples of operative goals
  • Overall performance (i.e. profitability, volume,
    etc.) Also known as operative goals.
  • Resource allocation goals (pertain to the
    acquisition of needed material and financial
    resources from the environment)
  • Market share goals (relate to market share, and
    are the responsibility of marketing, sales, or
    advertising department)

More goals
  • Goals for employees (training, promotion, safety,
    and growth)
  • Innovation and change goals (pertain to internal
    flexibility and readiness to adapt to unexpected
    changes in the environment, and may include
    development of new services and products)
  • Productivity goals (P I/O, which describes the
    amount of resources needed to reach desired
    outputs- use standardized cost accounting to
    track productivity goals)

In addition to setting goals, an organization
needs to develop a strategy...
  • Michael Porter introduced the concept of two
    basic competitive strategies
  • low-cost leadership , or
  • differentiation
  • Note that focus can be broad or narrow, within
    the context of each of the above strategies.

Low cost leadership...
  • Tries to increase market share by emphasizing low
  • With this strategy the organization is very
    concerned about efficiency, cost reductions, and
    will use tight controls to produce products more
    efficiently than its competitors.
  • Concerned with stability vs. taking risks or

Differentiation strategy...
  • In a differentiation strategy, orgs. will try to
    distinguish their products or services from
    others in the same industry.
  • May use advertising, distinctive product
    features, exceptional service, or new technology
    to achieve a product uniqueness.
  • Maytag
  • Tommy Hilfiger
  • Intel Pentium chips- note no price sensitivity.

Or, another approach is the Miles and Snow
Strategy Typology
  • Speculated that managers will seek to formulate
    strategies that will be congruent with the
    external environment. Thus,
  • the Prospector strategy will innovate, take
    risks, seek new opportunities, and grow
  • the Defender strategy is one of retrenchment and
  • the Analyzer tries to maintain a stable business
    while innovating on the periphery
  • the Reactor is not really a strategy at all.

Strategy affects Org. Design
  • Choice of strategy affects internal org.
    characteristics which in turn need to support the
    firms competitive approach.
  • Example with a low-cost leadership strategy,
    mgrs. take an efficiency approach to
  • The prospector strategy requires characteristics
    similar to a differentiation strategy, and the
    defender strategy takes an efficiency approach
    similar to the low-cost leadership.

So, strategy is one factor that affects
organizational design.
  • Other factors might include environment, size,
    life cycle, technology, and organizational
  • For example, in a stable environment, the org.
    can have a traditional structure that emphasizes
    vertical control, efficiency, specialization,
    etc.Likewise, with mass production technology
    (think of the auto assembly line), efficiency,
    formalization, specialization, tight control, and
    centralized decision making are appropriate.

How do we know if were being effective?
  • By reaching goals (see next slide for various
    reported goals)
  • By being able to obtain needed resources (by
    getting inputs) See Slide 53
  • By looking at internal indicators of
    effectiveness or health (how strong is the org.
    culture, team spirit, group loyalty, trust
    between workers, etc.) See Slide 54

Reported Goalsof U.S. Corporations (Ex. 2.8)
Goal Corporations
Profitability 89 Growth 82 Market
Share 66 Social Responsibility 65 Employee
welfare 62 Product quality and
service 60 Research and development 54 Diversifica
tion 51 Efficiency 50 Financial
stability 49 Resource conservation 39 Management
development 35
Source Adapted from Y. K. Shetty, New Look at
Corporate Goals, California Management Review
22, no. 2 (1979), pp. 71-19.
  • Another approach to evaluating effectiveness is
    to consider whether the organization is
    successful in obtaining and managing valued
    resources in order to be effective.
  • From this perspective you would look at whether
    you are able to obtain scarce and valued
    resources and successfully integrate and manage

Internal indicators of effectiveness
  • There are seven indicators of an effective
    organization as seen from an internal process
  • 1. strong corporate culture and positive work
  • 2. team sprit, group loyalty, and teamwork
  • 3. confidence, trust, and communication between
    workers and management
  • 4. decision making near sources of information
  • 5. undistorted horizontal and vertical
    communication and the sharing of relevant facts
    and feelings
  • 6. rewards to managers for performance, growth,
    and development of subordinates and for creating
    an effective work group
  • 7. interaction between the organization and its

Yet another approach, the stakeholder approach...
  • The satisfaction of the various groups can be
    assessed as an indicator of the orgs.
    performance. Constituents can include
  • owners (financial return)
  • employees (pay, work satisfaction)
  • customers (quality of goods and services)
  • creditors (creditworthiness)
  • community (contribution to community affairs)
  • suppliers (satisfactory transactions)
  • government (obedience to laws and regulations)

Ch.3- Fund. Of Org. Structure
  • This chapter introduces basic concepts of
    organizational structure, and defines structure.
  • There are three key components to organizational

The 3 components of org. structure
  • Org. structure designates formal reporting
    relationships, including the number of levels in
    the hierarchy and span of control of managers and
  • This is depicted in the organizational chart.
  • It identifies the grouping together of
    individuals into departments and departments into
    the organization.
  • It includes the design of systems to ensure
    coordination and effective communication.

  • When designing the organizational structure, it
    should be designed to provide both vertical and
    horizontal information flow.
  • Note that there is a tension between vertical and
    horizontal mechanisms in the organization.
  • Vertical linkages are designed for control, while
    horizontal linkages are designed for coordination
    and collaboration.

When designing the organization
  • One must choose whether to orient toward a
    traditional organization designed for efficiency
    which emphasizes vertical communication and
    control, or toward a contemporary learning
    organization which emphasizes horizontal
    communication and coordination.
  • See exhibit 3.2 on page 93

What is linkage?
  • Linkage is the extent of communication and
    coordination among organizational elements.
  • Vertical linkages connect the top of the
    organization with the bottom.
  • Organizations use various devices to connect the
    top with the bottom hierarchical referral,
    rules, plans, and vertical information systems.

Horizontal linkage?
  • Horizontal linkage refers to the amount of
    communication and coordination horizontally
    across organizational departments.
  • You can improve horizontal linkage through
    information systems, direct contact using liaison
    persons, task forces, the hiring of a full time
    integrator (may be called a product manager,
    program manager, etc.), and the use of project

Various ways to group activities are detailed in
the text
  • The functional grouping (similar functions or
    work processes).
  • The divisional grouping (by product or strategic
  • The geographic structure (best meets the needs of
    users and customers).
  • The multi-focused grouping (e.g. matrix or
    hybrid- a combination of functional and
    divisional grouping).
  • The geographic grouping

A recent development- the horizontal structure...
  • Organizes employees around core processes (not
    tasks, functions, or geography).
  • Eliminates the vertical hierarchy and old
    departmental boundaries. Teams, not individuals,
    are the basis of organization.
  • People on the team are given the skills, tools,
    motivation, and authority to make decisions.

More on horizontal structure...
  • Strengths and weaknesses are listed in exhibit
    3.12 on page 111.
  • Strengths include flexibility and rapid response
    as well as promoting a focus on teamwork and
    collaboration. It also improves quality of work
  • Weaknesses include the fact that it is hard to
    determine, sometimes, core processes and managers
    may have to give up power.

In reality...
  • Many structures in the real world do not exist in
    the pure forms outlined in this chapter, and thus
    a hybrid structure may evolve to meet individual
    organizational needs.
  • Most companies combine characteristics of
    functional, divisional, geographical, or
    horizontal structures to take advantage of the
    strengths and weaknesses of the various

How do you know if you have structural problems?
  • When organization structure is out of alignment
    with organization needs, one or more of the
    following symptoms will appear
  • delayed decision making or lack of quality in
    making decisions.
  • The organization does not respond innovatively to
    a changing environment.
  • Too much conflict is evident.

Ch.4 -The External Environment
  • The external environment includes that
    environment to which the org. is sensitive and
    must respond to survive.
  • This relates to domain, or the chosen
    environmental field of action. It is the
    territory an org. stakes out for itself with
    respect to products, services, and markets served.

An Organizations Environment
  • (a) Competitors, industry size and
  • competitiveness, related issues
  • (b) Suppliers,
  • manufacturers, real
  • estate, services
  • (c) Labor market,
  • employment agencies,
  • universities, training
  • schools, employees
  • in other companies,
  • unions
  • (d) Stock markets,
  • banks, savings and
  • loans, private
  • investors
  • (e) Customers, clients,
  • potential users of products
  • and services
  • (f) Techniques of production, science,

(g) Recession, unemployment rate, inflation rate,
rate of investment, economics, growth (h) City,
state, federal laws and regulations,
taxes, services, court system, political
processes (i) Age, values, beliefs, education,
religion, work ethic, consumer and
green movements (j) Competition from and
acquisition by foreign firms, entry into
overseas markets, foreign customs,
regulations, exchange rates
International Context
(j) International Sector
(a) Industry Sector
(b) Raw Materials Sector
(i) Socio-cultural Sector
(h) Government Sector
(c) Human Resources Sector
(d) Financial Resources Sector
(g) Economic Conditions Sector
(e) Market Sector
(f) Technology Sector
  • The domain can be further subdivided into
    sectors, or subdivisions, of the external
    environment. In turn, ten sectors can be analyzed
    for each organization
  • industry, raw materials, human resources,
    financial resources, market, technology, economic
    conditions, government, socio-cultural, and

  • The organizations environment can be categorized
    as a task environment (includes sectors with
    which the organization interacts directly and
    that have a direct impact on the organizations
    ability to achieve its goals), and the general
    environment (those sectors that may not have a
    direct impact on the daily operations of a firm
    but will indirectly influence it.

Regarding the international sector
  • Can directly affect many organizations.
  • All domestic sectors can be affected by
    international events.
  • Recent economic turmoil in Asia and Eastern
    Europe has impacted the American economy.
  • The impact of the international sector has grown
    rapidly with advances in technology and

How does the environment affect the organization?
  • Complexity and change in the environment create a
    need for information about the environment.
  • The organization also needs materials from the
  • There is uncertainty regarding both of these

The environment can be viewed, then, as either
simple or complex...
  • The simple-complex dimension concerns
    environmental complexity, which refers to
    heterogeneity, or the number and dissimilarity of
    external elements relevant to an organization's
  • In a complex environment, many diverse external
    elements interact with and influence the

Or as stable or unstable...
  • Refers to whether elements in the environment are
    dynamic. If the environment remains the same over
    a period of months or years, it is stable. Under
    unstable conditions, environmental elements shift
  • Instability may occur when a competitor reacts
    with aggressive moves.

Put the simple-complex and stable-unstable
dimensions together, and you will have 4 possible
environments facing you...
  • The four environments
  • The simple-stable environment (low uncertainty).
  • The complex-stable environment (greater
    uncertainty). Universitys and Appliance Manfs.
  • The simple-unstable environment (rapid change
    creates uncertainty). Soft drink retailers and
    beer distributors.
  • The complex-unstable environment (the greatest
    uncertainty). Computers and the airline industry.

Contingency Framework for Environmental
Uncertainty and Organizational Responses
Adapting to environmental uncertainty...
  • As the complexity in the external environment
    increases, so does the number of positions and
    departments within the org., which in turn
    increases internal complexity.
  • For example, each sector in the external
    environment requires an employee or department to
    deal with it.

  • The organization might take a traditional
    approach to coping with environmental uncertainty
    by establishing a buffer department.
  • The buffering departments role is to absorb
    uncertainty from the environment it surrounds
    the technical core of an organization and
    protects it.
  • A newer approach sees the org. dropping the
    buffers and exposing the tech. core to

  • The organization may establish boundary-spanning
  • Boundary spanning is primarily concerned with the
    exchange of information to (1) detect and bring
    into the organization information about changes
    in the environment and (2) send information into
    the environment that presents the organization in
    a favorable light.

Another response to environmental uncertainty...
  • Differentiation in the cognitive and emotional
    orientations among personnel when the external
    environment is complex and rapidly changing,
    departments become highly specialized, and
    success requires special expertise and behavior-
    unique attitudes, values, goals, and education
    may distinguish these folks from others.

  • And, integration, or the quality of collaboration
    among departments. When the environment is highly
    uncertain, frequent changes require more
    information processing to achieve horizontal
    coordination so integrators become a necessary
    addition to the organizational structure.

  • Indeed, Lawrence and Lorschs research found that
    organizations perform better when the levels of
    differentiation and integration match the level
    of uncertainty in the environment.
  • Organizations that performed well in uncertain
    environments had high levels of both
    differentiation and integration.

Management processes...
  • Another response to environmental uncertainty is
    the amount of formal structure and control
    imposed on employees.
  • When the external environment is stable, the
    internal organization is characterized by rules,
    procedures, and a clear hierarchy of authority.
    This is known as a mechanistic org. system.
  • In rapidly changing environments, the internal
    org. has to be much looser, free-flowing, and
    adaptive. Decision-making authority is
    de-centralized. This is an organic type of
    management structure.

  • Change and complexity dimensions can be combined
    and represent 4 levels of uncertainty.
  • (1) The low uncertainty environment is simple and
  • Organizations in this environment will have few
    departments and a mechanistic structure.

  • (2) In the low-moderate uncertainty environment,
    more departments are needed along with more
    integrating roles to coordinate the departments.
  • (3) In the high-moderate uncertainty environment,
    things are unstable but simple. Organizational
    structure is organic and decentralized. Planning
    is emphasized.

  • The high uncertainty environment is both complex
    and unstable and it is the most difficult to deal
    with. Organizations are large and have many
    departments, but they are also organic. A large
    number of management personnel are assigned to
    coordination and integration, and the
    organization uses boundary spanning, planning,
    and forecasting.

Thus far we have been discussing ways in which
org. adapt to the lack of information and to
  • What about the need for material and financial
  • Resource dependence means that organizations
    depend on the environment but strive to acquire
    control over resources to minimize their
  • When material costs and risks are high, companies
    may team up with other companies, but this
    creates risk in itself, because dependence on
    shared resources gives power to other

To meet the need for resources...
  • Organizations will maintain a balance between
    linkages with other organizations and their own
    independence. They will maintain this balance
    through attempts to modify, manipulate, or
    control other organizations.
  • They will use ownership, establish formal
    strategic alliances, use co-optation and/or
    interlocking directorates, share or transfer
    executives, and/or use advertising and PR.

Further, the org. may try to change the
environment itself...
  • The domain can be changed, where it seeks new
    environmental relationships and drops old ones.
  • Refers to the line of business, the market to
    enter, and the suppliers, banks, and employees it
  • It can try to influence government legislation
    and regulation.
  • It can work jointly with similar organizations,
    through trade organization, to change the

Ch. 5- Inter-organizational Relationships
  • This refers to the flow and linkages that occur
    among two or more organizations.
  • Traditionally these transactions and
    relationships have been seen as a necessary evil
    to obtain what an organizations needs.
  • The presumption has been that the world is
    composed of distinct businesses that thrive on
    autonomy and compete for supremacy.

  • A recent trend is to reduce boundaries and
    increase collaboration between companies, to
    include competitors, in order to survive in
    todays chaotic environment.
  • In this regard, organizations can choose to build
    relationships in many ways, such as appointing
    preferred suppliers, establishing agreements,
    business partnering, joint ventures, or even
    mergers and acquisitions.

Again, the term inter-organizational
  • Refers to the resource transactions, flows, and
    linkages that occur among two or more
  • A new view espoused by James Moore is that
    organizations are now evolving into business
  • An organizational ecosystem is a system formed by
    the interaction of a community of organizations
    and their environment.

An ecosystem can cut across industry lines and a
company can create its own ecosystem.
  • Consider Microsoft- it travels in 4 major
    industries consumer electronics, information,
    communications, and personal computers. Its
    ecosystem also includes hundreds of suppliers,
    including HP and Intel, and millions of customers
    across many markets.

Is competition dead?
  • If by competition you mean a distinct company
    competing for survival and supremacy with other
    stand-alone businesses, it may be dead.
  • In today's world, a new form of competition is
    intensifying. Companies now need to co-evolve
    with others in the ecosystem so that everyone
    gets stronger.
  • Consider the wolf and the caribou.

Ecosystem management requires a new role for the
  • Top management can no longer look down to enforce
    order and uniformity.
  • In this new world managers think about horizontal
    processes rather than vertical structures.
  • Important initiatives are not just top down, they
    cut across the boundaries separating
    organizational units. This is a much broader
    leadership role.

Within the context of a larger organizational
ecosystem, then...
  • Managers must evaluate external relationships to
    determine whether they are competitive or
    cooperative, and are the other organizations
    dissimilar or similar. A framework for analyzing
    the different views of inter-organizational
    relationships is in Exhibit 5.2 on Page 176.
  • By understanding these perspectives, managers can
    assess their environment and adopt strategies to
    suit their needs.

With regard to resources...
  • Resource dependence theory argues that
    organizations try to minimize their dependence on
    other organizations for the supply of important
    resources and try to influence the environment to
    make resources available.
  • How dependent you are depends on the importance
    of the resource to the firm, and how much
    discretion or monopoly those who control a
    resource have over its allocation and use.

Orgs. that are aware of resource dependence
develop strategies...
  • They can adapt to or alter the interdependent
    relationships (purchase ownership, develop
    long-term contracts or joint ventures, etc.)
  • Join trade associations,sign trade agreements, or
    merge with another firm.
  • Political action, etc.
  • Use power strategies (large independent companies
    have power over small suppliers).

  • Also, instead of being resource dependent, the
    development of collaborative networks can be
  • Companies join together to become more
    competitive and to share scarce resources.
  • Why this interest in inter-organizational
  • Major reasons are sharing risks when entering new
    markets, mounting expensive new programs and
    reducing costs.

  • North Americans have learned from their
    international experience how effective
    inter-organizational relationships can be.
  • Consider Japan, and the traditions of corporate
    clans or industrial groups that collaborate and
    assist each other. This grouping is called
  • We have traditionally considered interdependence
    a bad thing, believing it would reduce

  • We are seeing the development of new
    organizational structures and forms to meet the
    demands of an ever changing environment.
  • The author also discusses the fact that not all
    new organizational forms or organizations, for
    that matter, will survive (see next slide).

New organization development
  • New organizational forms continually appear, and
    this is referred to as variation. As these
    variations evolve, some will suit the marketplace
    better than others, and orgs. will move through a
    process of selection, leading to retention, which
    is the preservation and institutionalization of
    selected organizational forms.

  • From the population ecology perspective, the
    environment becomes an important determinant of
    organizational success or failure. The org. must
    meet an environmental need, or it will be
    selected out. The process of variation,
    selection, and retention leads to the
    establishment of new org. forms in a population
    of organizations.

Another view of this process
  • Each organization struggles for survival, for its
    very existence.
  • Organizations and populations of organizations
    are engaged in a competitive struggle over
    resources, and each organizational form is
    fighting to survive.
  • As a result, generalist or specialist strategies
    might be brought to bear as a means to surviving.

  • In this view, organizations with a wide niche or
    domain, that is, those that offer a broad range
    of products or services or that serve a broad
    market, are generalists. Organizations that
    provide a narrower range of goods or services or
    that serve a narrower market are specialists.

  • Organizations are highly interconnected. Just as
    companies need efficient production to survive,
    the institutional view argues that they also
    need legitimacy from their stakeholders.
  • Legitimacy is defined as the general perspective
    that an organizations actions are desirable,
    proper and appropriate within the environments
    system of norms, values, and beliefs.

  • So, organizations have a strong need to appear
    legitimate. Their structure and behavior will be
    geared toward environmental acceptance rather
    than toward internal technical efficiency.
  • This will cause organizations in a similar
    population to look like one another.
  • Put another way, this is why organizations in the
    same field may develop similar structures and
    approaches and appear similar. This is called
    Institutional Similarity.

Other forces may lead to organizations looking
  • Some organizations face great uncertainty. It is
    not clear what products, services, or
    technologies will achieve desired goals, and
    sometimes those goals themselves are not clear.
    In the face of this uncertainty, mimetic forces,
    or the pressure to copy or model other
    organizations, occur.
  • Benchmarking is an example of this process. Its
    really just official copying of what works for

  • The mimetic process leads to banks, or high
    schools, or manufacturing firms looking and
    acting like one another.

  • All organizations are subject to pressure, both
    formal and informal, from Government. Coercive
    forces (e.g. regulation) may exist, and these
    forces exert pressure on an organization to adopt
    structures, techniques, or behaviors similar to
    other organizations.

  • Lastly, normative forces, or those forces or
    pressures to change and to achieve certain
    standards of professionalism by adopting
    techniques that are considered by the
    professional community to be up to date and
    effective, may lead to organizational change.

Put another way, to achieve legitimacy...
  • The organization may be pressured to copy or
    model other organizations (mimetic forces).
  • It may be coerced into doing so (coercive forces
    are the external pressures exerted on
    organizations to adopt structures, techniques, or
    behaviors similar to other organizations).
  • They may change because they are expected to do
    so (normative forces).
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