Organizational Theory, Design, and Change

The interaction between organization and their environment determines
the success of corporations. The present study addresses the capacity of
the environment to shape the organization and the capacity of the
organization to shape the environment. The organizational theory
enhances the understanding of the interaction between the organization
and its environment. The contingency perspective of organizational
theory helps in the understanding of the environment and organization
shape each other. The internal environment shapes the organization
through the interaction of culture, technology, and resources to the
organization. The external environment shapes the organization through
the interaction between the organization and the market trends, economic
conditions, demographic characteristics, and competitors. Organizations
also have the capacity to shape the environment, but mainly the internal
environment because organizations have some control over them and
limited control over external environment. The aspects of the internal
environment that organizations can shape include technology,
organizational culture, and resources.
Key words: organizational environment, organizational theory, internal
environment, external environment.
Organizational Theory, Design, and Change
The environment, both internal and external, plays a significant role in
the determination of the success of any organization. The change in
trends in organizations and the surrounding communities influences the
design and functions of the business in both the short-run and in the
long-run. Although the main focus of the previous studies has been the
impact of environmental changes in the organization, it is currently
argued that organizations can also shape their environment. This implies
that the organization should be sensitive to changes taking place in its
surroundings and adjust to match its functions with the prevailing
environmental conditions. However, organizations can also take proactive
measures to influence the environmental conditions and make them
consistent with their functions, which imply that organizations can
shape their environment. The influence of the organizational environment
on organization depends on its capacity for change, which is defined as
the broad organizational capabilities that permit the organization to
adapt to new opportunities and threats emerging in its surrounding and
generate new capabilities Judge and Elenkov, 2005). Environment (both
internal and external) has the capacity to shape the organization and
the organization can also shape the environment, but mainly the internal
aspects of its surroundings.
The nature of interaction between organizations and their environment as
well as the adaptation of corporations to their environment are fertile
grounds of research that attracts most of the management scholars.
However, different scholars approach this field in different
perspectives. Suarez & Oliva (2005) defined environment in the
management context as patterns of influences and external conditions
that affect the development and life of the organization. In this
regard, dimensions of environment can be classified as physical,
political, technological, or economic. Environment can also be based on
the perspective of the organizational theory where environment id
distinguished into two layers, including the task environment and the
general environment (Suarez & Oliva, (2005). The task layer comprises of
suppliers, competitors, and customers while the general layers consist
of demographic, economic, and social aspects of the environment.
Statement of the problem
The environment in which organizations operate is an important aspect of
consideration in determining the capacity of the organization to grow
and achieve its strategic objectives. This is because the relationship
between the two factors (environment and organization) interacts and
shapes each other in complex ways. The relationship between them depends
on the type of environment. The majority of scholars (including Shahzad,
Lugman, Khan, & Shabbir, 2012 and Mishra & Akman, 2010) in this field
have addressed the influence that the environment has on organization
leaving the capacity of the organization to shape its environment as an
understudied area. The present study fills this gap by analyzing the
interaction between an organization and environment and how either of
them can shape the other.
To address the purpose of the current study the research was guided by
three major research questions, including how does the internal
environment shape the organization? How does the external environment
shape the organization? How does the organization shape its environment?
Theoretical concept
The contingency perspective is one of the environmental viewpoints of
the organizational theory, which enhances the understanding of the
correlation that exist between an organization and its surroundings. The
contingency theory contributes to the field of study of organizational
interaction with its environment by explaining how the performance of
corporations is constrained or enhanced by external and internal factors
that initiate divergence from the organizational status quo (Battilan &
Casciaro, 2010). The term contingency is applied to mean that there is
no single best way to manage organizations, which forces the design of
the organization and its subsystems to match with the environment. This
implies that the environment shapes, not just the organization, but its
subsystems as well. Consequently, a proper fit of the organization in
the environment determines the effectiveness of the corporate
performance. In addition, the theory extends to the relationship between
the task dimensions and different aspects of the environment, including
competitors, sales network, state of the art technology, sources of
finance, and market structure.
The strategic relationship between organizations and their environment
Organizations consist of an adaptive learning structure, which adopt
routines that are developed through constant change and time as well as
the adaptation to the changing conditions. Organizations are shaped by
shaped by the environment when they respond to changes taking place in
their surroundings. The degree with which organizations respond to
changes in their environment depends on several factors, including
frequency, speed, amplitude, and the scope of change (Suarez & Oliva,
2005). In addition, the type of organization structure (organic or
mechanistic) determines the rate at which the changes in environment
influence function of a given firm. A stable environment is more
appropriate in a mechanistic structure while the efficiency of functions
with an organic or participatory structure is enhanced by unstable
environment. The environmental factors that shape organizations are
broadly classified into internal and external factors.
How internal environment shape the organization
Organizational culture
The culture adopted by a given organization shapes it by influencing how
the stakeholders of a given organization make decisions. According to
Shahzad et al., (2012) organizational culture refers to a set of
beliefs, assumptions, and values that are shared by members a group,
which distinguishes organizations from other organizations. The
organizational culture has multiple elements, which include technical
orientation, creativity, enjoyable environment, high work ethics, and
acceptance of diversity. Study has shown that organizational culture
gives shape to the processes of a given organization (Shahzad et al.,
2012). This is because organizational culture shapes the acceptance of
certain behavior, governs behavior when people are not under
supervision, and established the desired relationship between the
corporation and its stakeholders. A strong organizational culture
improves employees’ performance by enhancing their commitment,
confidence, ethical behavior, and reducing job stress. However, the
capacity of the organizational culture to shape employees’ performance
depends on how it fits with the organizational goals and its strength as
determined by the level of acceptance.
Technology is one of the critical aspects of internal environment, which
shapes organization’s performance by determining its responses to
members as well as its effectiveness. According to Mishra & Akman (2010)
technology and organizations have significant influence on each where
the technology adopted by the organizations facilitates the process of
reengineering or the organizational functions, work design, and
influence the managerial climate for knowledge base and innovation. The
high demand for application of technology in modern firms is being
driven by the perception that it enhances organizational effectiveness,
speed, and containment of costs. This means that technology shapes the
way an organization operates and meets its objectives of becoming
flexible, more strategic, customer oriented, and cost efficient. Most
importantly, technology has the capacity to transform the conventional
workplace into an IT-based or digital workplace, which holds the promise
of overcoming the challenges emerging in the modern business
environment, thus increasing the organizational competence and
productivity. Technology has the capacity to change all spheres of the
organizational structure and its strategy.
Resources have a broad scope, which include social, individual, and
organizational phenomena, and act as the firm’s source of
capabilities. Resource refer to different inputs of the production
process and include the skills of employees, capital equipment, brand
name, talented managers, and financial resources (Nath, 2004).
Availability or lack of availability of resources determines
organizational capabilities. The firm capabilities emerge after a period
of a complex interaction of tangible and intangible resources, which
helps the organization in achieving some preferred end state. In
addition, availability of resources gives the organization a unique
competitive advantage and core competencies, which distinguishes the
firm from other players in the industry by reflecting its personality.
According to Aldrich (2008) environment influences organization either
by withholding or making resources available. The nature of the
resources available to the firm determines the extent to which these
resources shape the organization. For example, the availability of
stable or non-liquid resources cushion the organization against
fluctuations taking place in the environment, thus enhancing the
organization’s stability over time.
How external environment shape organization
Market trends
The market is one of the key elements of the external environment that
is organizations have limited control over, but it shapes organizations
in many respects. The uncertainty of the market conditions is the key
aspect of the market trends as an element of external environment, which
affects the strategy formulation systems of all organizations. Tariq
(2013) defined market uncertainty as irregularity or a function of
change that is closely related to organizational decision making. This
includes the failure of the organizational stakeholders to predict the
market trends with certainty because of lack of sufficient information
that can help in discriminating between data that is related or
unrelated data. This subjects the decision making of the organization to
market forces, including the marketing to consumers, supply, and demand.
This means that organizations are forced to produce and supply the
quantity that is demanded in the market, which is achieved by finding
the equilibrium for supply and demand of various commodities that a
given organization produces. This means that the organizational
productivity is shaped or constrained by the market forces, and not by
the deliberate actions and decision of the stakeholders.
Economic conditions
Local, national as well as the global economic conditions have both
direct and indirect effects on organizations. Organizations are forced
by economic conditions, especially those that are beyond their control
to reform their structures and functions in order to protect their going
concern in the long-run and in the short-run. Economic conditions can
shape organization either by limiting its productivity by creating new
opportunities for organizational growth. For example, the global
economic crisis of that began in 2008, was a global condition that
limited the productivity of many organizations. Research shows that the
global crisis limited the productivity of the motor vehicle industry
where all organizations operating in the industry were forced to cut
down their production capacity because the market could not absorb the
usual numbers of motor vehicles that these companies produced in the
past (Wad, 2010). This phenomenon was produced by the interplay of
different facts such as the decline in the lending activities, loss of
employment opportunities and consumer confidence. Consequently,
organizations had to reorganize their production to fit the prevailing
economic conditions.
Demographic characteristics
The demographic characteristic of the place where a given organization
is located shapes it in different ways. Demography is dynamic and shapes
organizations by forcing it to adapt to the new patterns by fitting
their practices with prevailing demographic structure. Demographic
changes mainly affect the market and the proportion of the working
population (Winkelmann-Greed, 2009). The current changes in the family
structure, which include the increase in the number of one-parent one
family, and parents juggling with childcare, work, and household roles
affect organizations. For example, the demographic changes affect the
labor force by reforming the gender, religious, and ethnic diversities
and participation in active productive labor. The baby boom generation
is an example of how the high rate of increase in the ageing population,
compared to the younger generation can affect the organizations
(Winkelmann-Greed, 2009). The increase in life expectancy has resulted
in an ageing workforce, which management is currently an issue of
concern for organizations. In addition, organizations produce products
that are acceptable to the majority of the composition of a given
Competition in the market may produce positive or negative effects on
organizations. A study focusing on the relationship between competition
and innovation indicated that the aspect has a u-shaped relationship,
which implies that they relate positively, but their relationship
diminishes with the increase in size (Aghion, Bloom, Blundell, Griffith
& Howitt, 2005). This is because, at a low level of competition, a
larger equilibrium of innovation involves competing incumbents while the
larger proportion of sectors have innovation being accomplished by
laggard organizations, which have relatively low profits. This means
that a reasonable level of competition enhances the organizational
efficiency in innovation, which results in the production of quality
products that address the needs of consumers. Stiff competition, on the
other hand, hinders innovation and may result in the closure or reduced
profitability of organizations that lack the capacity to compete with
established firms. This implies that competition, which is an aspect of
external environment, can benefit organizations or affect them in a
negative way.
How organization shapes its environment
The type of technology adopted by the organization is shaped by the
desire of the organizations to offer their environment with services or
products in exchange of fuel, capital, and all resources used to
facilitate production. According to Mishra & Akman (2010) the decision
of the organizational management to adopt a specific type of technology
is mainly driven by demand for enhancement in effectiveness, cost
containment, and effectiveness in organizational functions. This implies
that the needs of the organization determine the appropriate technology,
which part of the internal environment. Currently, there is a high
demand for the establishment of digitized or technology-based workplaces
in almost all organizations. However, the technology is adopted and
installed to suit the level of strategic competence that the
organization targets. For example, an organization that aims at meeting
the human resources challenges (such as motivation of employees and
management of human aspects of technological changes) implements
technology that addresses these organizational needs (Mishra & Akman,
Organizational culture
Organizational culture is widely understood as an element of internal
environment that creates an organizational climate that is experienced
by all the stakeholders affect their behavior, and shape their
characteristics, including their morale, credibility, and trust.
However, the organization has the capacity to shape its culture in order
to enhance its strength or ensure that it fits with the organizational
goals. Shahzad et al., (2010) identified that the norms and values
integrated into the organizational culture are determined by the
management and they in turn influence the behavior of all the
stakeholders, especially the employees. This suggests that culture is
first shaped by the organization, which selects the most appropriate
beliefs and values, before it shapes the organization. The beliefs and
values integrated into the corporate culture may be determined by the
need for the organization to enhance the style of workers’ performance
as well as ensuring a continuous progress in the quality of employee
All organizations have the capacity to shape the resources that they use
in operations and functions. The type of capital equipment and the
amount of financial resources that the organization selects to use may
be determined by different factors, including the type of products or
services that the organization wants to offer in the target market and
the level of production capacity that the organizations wants to
achieve. In addition, the level of skills and technical expertise
possessed by employees can be influenced by the organization through
training (Nath, 2004). Training sessions can add knowledge and skills to
what the employees already know or give them new type of skills that can
help them in performing different functions altogether.
Environment (both internal and external) has the capacity to shape the
organization and the organization can also shape the environment, but
mainly the internal environment. The organizational theory enhances the
understanding of the relationship that exists between the organization
and its environment. Different components of the internal environment
(such as the organizational culture, technology, and resources) shape
the organization in different ways. In most cases the organization can
also shape these components of the internal environment. Although the
elements of external environment have the capacity to shape the
organization, organizations have limited capacity to shape them in turn.
This is because corporations have very limited influence over external
environment, which is determined by forces that beyond the control of
the organization’s management. Some of the elements that are beyond
the control of the organization include the market trends, economic
conditions, and demographic characteristics. The basic needs of the
organizations determine the extent to which it can influence or shape
the elements of its internal environment.
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