Organizations & Their Environment

Organizations & Their Environment must be carefully studied in order to understand the nature of organizations, their operating environment and how they affect each other. In fact, such issues are not only important for business managers, but also for public administrations, officials and the public in general. For example, the wide spread of the disastrous pandemic (Corona Virus COVID19) has demonstrated how the global environment affects the whole globe, as well as how these effects impose drastic changes in countries and nations structures and cultures. These issues are highlighted here in your channel “Management with Merits – Manage to Prosper”, where we initiate in this post our discussion of the 3rd book in the channel “Organizational Theory, Design & Change 2013”. Starting this book, by discussing part 1 of it in this post, comes after successfully completing discussing the 2nd previous book in the channel “Entrepreneurship 2016”. We would like to remind you that this book (Organizational Theory) has been introduced before in a previous post. In addition, we have created a dedicated category for this book in our English website, which includes all its sessions (please click here). Also, you can access all the videos of this book by directly going to its dedicated playlist at our YouTube Channel. To download the associated presentation (PDF) with this session, kindly go to the video at our YouTube Channel and click on the appropriate link in the description section below the video.

Part 1 of Organizational Theory Book discusses organizations and the books' elements of design & change
Organizational Theory, Design & Change Book – Part 1

Organizations & Their Environment : Organizational Theory

The book defines organizational theory as the way organizations work and their two-way-effect on their environment. Thus, this includes how organizations adapt themselves to their environments to reach organizational effectiveness. Besides, the book states that this theory involves the design of organizations, which is their structure and culture. Structure, which was discussed in our organizing managerial function session within our 1st book (Management 2015) is the managerial and organizational distribution of tasks, roles, duties, communication channels, authorities etc, and it is usually expressed in the form of organizational structure chart. Culture, the 2nd part of design, is the values, norms and beliefs of the individuals and organizations in general, which guide and control their behavior, reactions and operations. Finally, the author argues that organizations must utilize organizational change in order to manipulate the aspects of their design (structure and culture) as per their conditions to align themselves to their environments and reach organizational effectiveness.

Organizational Theory Book 2013 argues that the theory involves the design (structure & culture) as well as the change(s) to this design when establishing and running organizations.
The Relationships Between the Books’ Elements “Organizational Theory, Design, Change”

  Organizations & Their Environment : The Stakeholders

In organizations, stakeholders are all persons/groups who have stake in the organization; they affect and get affected by it. Each of these groups contribute to the organization’s success in favor of getting specific inducements. The book divides stakeholders to two groups, outside and inside. Outside stakeholders are the individuals or groups that are not directly involved in the organization and its operations, such as customers & suppliers. On the other hand, inside stakeholders are the ones who are in direct charge and control of the organization & its operations, such as managers & employees. The below shape explains these two types, their members, along with their contribution and expected inducement. Clearly, organizations can’t satisfy all the needs & interests of all stakeholders. Thus, they have to strive, especially their chief executive officers (CEOs), to satisfy the minimum needs and interests of their stakeholders and take decisions that favor the widest possible range of them.

Stakeholders (outside and inside) are individuals and groups who have stake or interest in the organization.
Organizations’ Stakeholders

Agency Theory & Governance :

In modern organizations, owners “share holders” delegate management to the managers because the latter are more knowledgeable and capable of this task (below shape). Despite that, managers might not work for the favor of shareholders, but for their own favor. Thus, governance concept has been imposed, which is the legal, ethical and managerial controls, rules, regulations, guidance, protocols etc. that ensure the alignment of the efforts of managers and owners, as well as the avoidance of fraud & corruption, so that shareholders’ and managers’ interests get aligned, which leads to effective collaboration for mutual gain. The below design shows how management is separated from ownership.

Agency Theory – Separating Management from Ownership
Source: Jones, G. R. (2013). Organizational Theory, Design & Change. (7th edn). U.S.A: Pearson. Chapter 2. Pp. 38

Organizations & Their Environment : What is this Environment?

The environment denotes all the forces that affect the environment and get affected by it. The book divides organizational environment to two types, general & specific (1st below picture). First is the general environment, which affects all the organizations, such as political and demographic forces. The second is the specific environment, which consists of groups of outside stakeholders because they have direct mutual and two-side effect on the organization. Finally, the book states the global environment, which affects all organizations, regardless of their international operations’ status. For your information, all aspects of international and global environments are included in international management, which will be discussed in details when we take one the channel’s future books “International Management 2017 – 2nd below picture”.

Organizations' Environment includes the general (affects all organizations) and specific (strongly engaged with organizations)
Organizational Environment (General & Specific)
Issues of global environment will be discussed in details in one of the channel's future books (International Management 2017)
International Management 2017 Book – One of the channel’s Future Books

Ping-back: Corona Virus (COVID-19) – Five Managerial & Organizational Proofs:

As stated in the introduction of this post, the issues of organizations and their environments are not crucial only to business organizations, but also to public administration and the public in general. The currently-contagious and widely-spreadable Corona Virus proves that. The above stated concepts of organizational theory, design, change, globalization, environment, agency theory and stake holders are also applicable to public administration and the public in general, which can be demonstrated via our case example of Corona Virus in the five below issues or proofs.

  1. Globalization & Global Environment: The wide spread of Corona Virus, despite its start several months ago in Wuhan (China), proves the importance of globalization and its effects. Likewise, global environment has extreme effect on organizations. Also, the virus proves that globalization is not always favorable. It can be disastrous & catastrophic.
  2. Organizational Theory, Design & Change: The virus wide spread has caused transformational changes for all nations in both their structure, such as assigning full managerial duties to health ministers, and culture, such as the prohibition of group work and socialization. This reflects what happens in organizations, given that organizational theory (how organizations work and affect/get affected by the environment) focuses on the design (structure & culture) and its changes for environmental adaptation and effectiveness achievement.
  3. Agency Theory: As explained before, countries have handed over the control to their health ministers because of their medical knowledge and experience. Similarly, organizations’ owners (shareholders) handover management to the managers due to their higher capability.
  4. Stakeholders: The virus has affected all people, groups and institutions in each country, who actually contribute to their countries’ success and want inducements in favor of that. However, they have conflicting interests. Thus, the countries’ authorities must take decisions that benefit the max groups of these stakeholders and satisfy their min interests. For example, the procedures of lock down & borders’ closure have caused huge losses to transportation companies. However, they were necessary because they satisfy stakeholders’ min interests (their life and safety). Similarly, organizations have stakeholders who want to be satisfied, which is decided primarily by the chief executive officers of organizations.
  5. The Summary of All Points: Public VS Business Administration: All of the above points prove there is almost no difference in the theories & practices of both public administration (managing public agencies/entities) and business administration. We have seen how the previously discussed concepts are applicable to both organizations and countries.

That was our session for today. Thank you so much for being with us. We would like to remind you that starting from the last Arabic session, which discussed this topic and started the Arabic discussion of this book, we initiated a new production procedure. Because of time restrictions, in most of the weeks we will produce only 1 session, starting with the Arabic one “like last session – the Arabic version of this lesson” and then the English one “like this session – the English version of the previous Arabic one”. Watch and follow us each Thursday on your channel Management with Merits – Manage to Prosper. Please support your channel strongly so that it can continue its glorious mission and services. Subscribe to the channel in YouTube and activate the notifications bell there. Follow us, participate with us and share the channel and all its electronic contact platforms.

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