Organizational Environmental Theory

Organizational Environmental Theory

This paper seeks to explain the organizational environment theory specifically elaborating on the contingency theory structures, and its application to management of organizations in respect to the environment. It also focuses on open systems view, including the aspects affecting open systems, the stages that an open system goes through in relation to the environment, in order to survive and grow.

Contingency theory is a class  of behavioral theory that claims that there is no best way to organize a corporation, to lead a company or to make decision, instead, the optimal course of action is contingent (dependent) upon the internal and external situation.

 The open systems reflected the newfound belief that all organizations are unique in part because of the unique environment in which they operate and that they should be structured to accommodate unique problems and opportunities. An open system is a system that regularly exchanges feedback with its external environment. Open systems are systems, of course, so inputs, processes, outputs, goals, assessment and evaluation, and learning are all important.

Definition of Organizational Theory

Organizational theory studies organizations to identify the patterns and structures they use to solve problems, maximize efficiency and productivity, and meet the expectations of stakeholders. Organizational theory then uses these patterns to formulatenormative theories of how organizations function best. Therefore, organizational theory can be used in order to learn the best ways to run an organization or identify organizations that are managed in such a way that they are likely to be successful.

Stakeholder theory

An organization is asocial unit of people that are structure and managed to meet a need or to pursue collective goals. Organizational environment is a set of forces that surrounding an organization that have the potential to affect the way it operates and access to scarce resources. Management is the function that coordinates the efforts of people to accomplish goals and objectives using available recourses efficiently and effectively.


Contingency theory is a class  of behavioral theory that claims that there is no best way to organize a corporation, to lead a company or to make decision, instead, the optimal course of action is contingent (dependent) upon the internal and external situation.

Contingency theory posits that there is no one best way of structure and manage organizations. Instead, structure and management are contingent on the nature of the environment in which the organization is situated. According to contingent theory, the characteristics of the environment affect an organization’s ability to obtain resourcesand to maximize the likelihood of gaining access to resources.Managers must allow an organization’s department to organize and control their activities in ways most likely to allow them to obtain resources, given the constraints of the particular environment they face.

 An important characteristic of the external environment that affects an organization’s ability to obtain resources is the degree to which the environment is changing. Changes in the organizational environment include changes in technology, which can lead to creation of new products such as compact discs, and result in the obsolescence of existing productsuch as eight track tapes, the entry of new competitive such as foreign organizations that compete for available resources and unstable economic conditions.  The more the organization is changing, the greater are the problem associated with gaining access to resources, and the greater is the managers’ need to find ways to coordinate the activities of people in different departments to respond to the environment quickly and effectively.

Burn and Stalker, Management of Innovation 1965, provided a contingency theory based on environmental stability. They described how they set out to study workers in the factory but that was never realized, because it soon become evident that the social structure of the factory interlocked with and often mirrored that of the small isolated town in which it is situated.

Burn and stalkers noticed that there were two types of management theory that the manager can use to organize and control an organization’s activities to respond to characteristics of the external environment. That is,mechanistic structure which rest on theory X and organic structure which rest on theory Y.

Mechanistic Structure

Mechanistic systems or structureswhich are appropriate for the stable environment, where there is little change or the change is predictable. They are characterized by specialization, centralization, clearly defined roles and vertical communication particularly downward communication. Tasks and roles are clearly specified, subordinates are closely supervised, and the emphasis is on strict discipline and orders. Mechanistic structure provides the most efficient ways to operate in a stable environment because it allows managers to obtain inputs at the lower cost, giving an organization the most control over its conversion processes and enabling the most efficient production of goods and services with smaller expenditure of resources.

Organic Structure

Organic systems or structures which arerequired in changing environments with unstable conditions. It is difficult to obtain access to resources and managers need to organize their activities in a way that allows them to cooperate, act quickly to acquire resources (such as new type of inputs to produce new kind of product), and to respond effectively to the unexpected.

They have several characteristics which include;

Specialized tasks that are performed in light of interdependence with other specialized tasks. Jobs and tasks are continually redefined through interaction among organization members. Communication is both horizontal and vertical and tends to be in the formof consultation rather than orders. The information is a commodity used in decision making where the limits of feasible actions are set more widely. 

Authority is decentralized to middle and first line managers to encourage them to take responsibility and act quickly to pursue scarce resources. Departments are encourage to take a cross-departmental functional perspective, and a cross-functional teams composed of people from different departments are formed. Managers in organic structure can react quickly to a changing environment than managers in a mechanistic structure. However organic structure is generally more expensive to operate because it requires a lot of managerial time, money and effort to spend on coordination.

In developing organizations; Diagnosis and action (1969) Lawrence and Lorchoffered another contingency theory similar to Burn and Stalker.  Whereas Burn and Stalker focus on the stability of the environment, Lawrence and Lorsch pointed on the environmental uncertainty as the key issues.  They began with premises where more attention had been paid to improving internal relations in organization than to exploring and improving the organization’s relationship with the environment.

Lawrence and Lorsch theorized that the organization would have to match certain characteristics with demand and nature of the environment. Environments that were fairly stable or certain would require less and less complex information for the organization than would environment that was more uncertain that is, changing.

The organization that have stable environment can operate more easily from predetermined rules and any change in the environment can be handled through the hierarchy because time is not a critical factor.  Organization in a more uncertain, changing environment must have more complex systems for adapting to the information gathered from that environment. To increase the contact with the environment, they should use a decentralized structure. Rules would be too constricting, so free flow of communication is necessary. Contingencytheory posit a direct relationship between the internal structure of the organization and the type of environment in which it is situated.

Implications of contingency theory

Contingency theory rejects the idea that there is one way to manage a company. It suggests managers must evaluate each situation and make decisions unique to those situations. This approach requires managers to stay alert and avoid relying on rules, policies and tradition as their only guides for their choices. All their faculties.

Managers using contingency theory respond to the causes of individual problems, rather than to the problem itself. Such a manager seeks to understand all of the influences that lead to the difficulty. For example, decreasing production might seem at first glance to be the result of negligent employees. A deeper look could reveal that poor lighting and insufficient cooling are causing sleepiness among employees. Had the manager simply relied on motivational theories as an automatic response to productivity problems, he might have missed the true cause of the drop in production.

Contingency theory encourages managers to think about the consequences of a decision as it relates to the whole company. A manager’s actions must reflect the culture, commitment to employee safety and well-being, profit orientation, branding positioning and customer service attitudes of the entire organization. At the same time, the manager must respond to the problem at hand, according to the immediate causes of the issue. This double focus on the overall organization and the specifics of a problem requires a manager to see the big and small pictures at the same time.

Managers operating under the principles of contingency theory have to do more than just identify the one or two influences on an issue. They have to be prepared to evaluate multiple inputs that may all be contributing to a problem. Using the example of a drop in productivity, the manager may discover that not only lighting and air conditioning contribute to the problem, but the company’s revised production bonus program, the move from individual recognition to team recognition, a loss of some benefits and outdated equipment all contribute to the single problem. Contingency managers have to learn to integrate all of the threads that intertwine to make for effective decisions and problem-solving.

Companies issue policies to reduce the amount of time spent making routine decisions. However, a company that embraces contingency theory requires managers who can bend policy or even override it if circumstances demand a new type of decision. This puts a burden on managers to interpret policies loosely, yet maintain the company’s values and vision in all decisions. Contingencies arise that may be unforeseen, and managers need the flexibility to adjust to new circumstances.

Definition of Environment:

An organization’s environment is defined as all the elements existing outside the boundary of the organization that have the potential to affect all or part of the organization (Daft, 1997).

  • Organizational domain:

This is the range of goods and services that the organization produces, and the customers and other stakeholders whom it serves.

  • Contingency theorists argue that organizations are organized in ways that best fit the environment in which they are embedded.
  • Institutional theorists see organizations as a means by which the societal values and beliefs are embedded in organizational structure and expressed in organizational change.
  • Resource dependency theorists

see the organization as adapting to the environment as dictated by its resource providers. Although there is a great variety in the perspectives provided by open systems theories, they share the perspective that an organization’s survival is dependent upon its relationship with the environment.


The open systems reflected the newfound belief that all organizations are unique in part because of the unique environment in which they operate and that they should be structured to accommodate unique problems and opportunities. An open system is a system that regularly exchangesfeedback with its external environment. Open systems are systems, of course, so inputs, processes, outputs, goals, assessment and evaluation, and learning are all important.

In open systems, it follows that any change to one part of the system will have an impact to one another,and in return on itsover performance. The open systems school approach to change is based on these sub systems,inorder to determine how they can change to improve the overall functioning of organization.

These does not just see organizations as systems in isolation, however they are seen as open in two aspects. Firstly they are open to interactwith, their external environment. And vice versa (Buckley, 1968).

These theorists viewed the organization as an open system, a system that take in resources from its external environment and converts or transfer them into goods and services that are sent back to the environment where they are bought by customers. The system is said to be open because the organization draws from and interact with external environment in order to survive and the organization is open to its environment. A closed system in contrast, is a self-contained system that is not affected by changes in its external environment. Entropy is the tendency of a closed system to lose to its ability to control itself and thus to dissolve and disintegrate.

Open system representation:

Open system representation:

Input stage where an organization acquires resources such as raw materials, money, and skilled workers to product goods and services.

Conversion stage where the organization’s workforce using appropriate tools, technique and machinery transforms the inputs into outputs of finished goods and services such as cars, hamburgers, or flights.

Output stage where the organization releases finished goods and services to its external environment, where customers purchase and use them to satisfy their needs. The money the organization obtains from its sales output allows the organization to acquire more resources so the cycle can begin again.

Systems theorists argue that the whole is greater than the sum of its parts; this mean that organizations performs at higher level when its department works together rather than separately. Synergy the performance gains that result from combined actions of individuals and department, is possible only in an organized system.

Aspects that are critically important to open systems include the boundaries, external environment and equifinality.

External Environment:

The external environment includes a wide variety of needs and influences that can affect the organization, but which the organization cannot directly control. Influences can be political, economic, ecological, societal and technological in nature.

A highly effective organization is regularly exchanging feedback with its external environment – it is an open system. Healthy organizations regularly try to understand their environments through use of environmental scanning, market research and evaluations.

These organizations often try to influence their external environment, as well, for example, through use of public relations, advertising and promotions, lobbying and advocacy, and educating industry and local leaders.Environmental influences that affect open systems can be described as either specific or general. The specific environment refers to the network of suppliers, distributors, government agencies, and competitors with which organization interacts. The general environment encompasses four influences that emanate from the geographic area in which the organization operates. These are;Cultural values, which shape views about ethics and determine the relative importance of various issues.

Economic conditions, which include economic upswings, recessions, regional unemployment, and many other regional factors that affect anorganization’s ability to grow and prosper. Economic influences may also partially dictate an organization’s role in the economy.

Legal and political environment, which effectively helps to allocate power within a society and to enforce laws. The legal and political systems in which an open system operates can play a key role in determining the long-term stability and security of the organization’s future. These systems are responsible for creating a fertile environment for the business community, but they are also responsible for ensuring regulations pertaining to operation and taxationneeds of the larger community are addressed.

Quality of education, which is an important factor in high technology and other industries that require an educated work force. Businesses will be better able to fill such positions if they operate in geographic regions that feature a strong education system.


All systems have boundaries, although the boundaries can be difficult to identify because systems can be very dynamic. Open systems have porous boundaries through which useful feedback can readily be exchanged and understood. Closed systems, unlike open systems, have hard boundaries through which little information is exchanged. Organizations that have closed boundaries often are unhealthy. Examples include bureaucracies,monopolies and stagnating systems.

Outcomes (Results Among Customers):

Outcomes are critically important to the success of an organization. Outcomes are in regard to the changes, or benefits, that customers accomplish as a result of using a particular product or service.Outcomes are usually specified in terms of changed:Knowledge (usually short-term outcomes).Behaviors, notably those that comprise useful skills (often intermediate outcomes).Attitudes, values and conditions, such as increased security, stability or pride (usually long-term outcomes).


The contingency approach is an effort to determine through research which management practices and techniques are appropriate in specific situations. It is a situational appropriateness management; this is because different situations require different managerial responses. Managers need contingency plans, plans that are flexible and that can adapt quickly to changes in today’s unstable environment. The contingency approach has grown in popularity because it recognizes that there is no magical formula for managerial effectiveness. As far as the organization need stable environment to operate effectively, the circumstances of the surrounding are still unpredictable if there comes an open system view which are not favorable to the organization operations. Open systems thinking does not permit the manager to become pre-occupied with one aspect or organizational management while ignoring other internal and external factors. These factors include resources availability, technological developments, market trends and service provision. Companies providing services to the public will normally consider the environment they are operating in.

The objective of the open systems approach is to structure the functions of a business in such a manner that, throughclearly defined lines of coordination and interdependence. The emphasis is on achieving overall synergy, rather than on optimizing the performance of any one individual part (Mullins, 1989).

The implication to communication of open system theory

Is that it recognize and Change Patterns of Communication for Effective Relational Maintenance.

Become Aware of Patterns of Communication That Contribute to Stability and Well-Being

Maintaining the stability and well-being of a relationship requires that you develop a kind of mindfulness. With that, you gain an awareness of how you communicate with a partner and what impact each of your behavior has on the overall climate of communication. Sometimes, having that mindfulness is a matter of stepping back from the relationship to see the patterns and how they recur. But keep in mind that patterns of communication are not actions performed unilaterally by one of the people in a relationship. Patterns of communication are created and performed in tandem by both partners in a relationship. Over time, the patterns are repeated with great frequency. The Human Behavior School

The Human Behavior School shifts the emphasis from the structure of organizations, work design, and measurement to the interactions of individuals, their motivations, and their influence on organizational events.

The Human Behavior Perspective assumes that work is accomplished through people and emphasizes cooperation, participation, satisfaction, and interpersonal skills.


Buckley, W.A.(1968).Modern systems Research for behavioural scientists. Chigago:Aldine

Burns, T& Stalker, G.M (1965) The management of Innovation.London:Tavistock

Field Guide to Consulting and Organizational Development. (2006). Retrieved February 19th, 2015 from

Mullins ,L. (1989). Management and OrganisationalBehaviour . London: Pitman.

Modaff, D. P., DeWine, S., & Butler, J. A. (2008). Organizational communication: Foundations, challenges, and misunderstandings. Pearson/Allyn& Bacon.

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