[Solution] Step 1: How Organizations Adapt to Their Environment
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Author: Sarah Bennett
Organizations are open systems, meaning that they interact with their environment. The environment affects the organization, and the successful organization adapts.
Change, Complexity, and Uncertainty
The figure shows four levels of uncertainty, which is a factor in many organizational decisions:
Environmental Change, Complexity, and Uncertainty
Simple & Stable
Low Uncertainty
Complex & Stable
Moderate Uncertainty
Simple & Dynamic
Moderate Uncertainty
Complex & Dynamic
High Uncertainty
- An environment is simple when it has few elements and differing parts; it is complex when it has many different elements.
- An environment is stable when it is not changing much; it is dynamic when there is a lot of change.
Porter's Five Competitive Forces
Michael Porter identified five forces that determine the competitive intensity and attractiveness of a market:
- Threat of New Entrants - How easily can new competitors enter the market?
- Competitive Rivalry - How intense is competition among existing companies?
- Threat of Substitute Products - How easily can customers switch to alternative products?
- Power of Buyers - How much leverage do customers have to drive down prices?
- Power of Suppliers - How much control do suppliers have over the terms of sale?
Select the words that best complete the sentence.
An organization faces the most uncertainty when the environment is .
View Explanation
Organizations face the most uncertainty when the environment is complex and dynamic.
For each example presented in the table, identify the corresponding competitive force from Michael Porter's model.
If the price of fresh vegetables increases, consumers will purchase more frozen vegetables instead.
Only one company produces a part needed to make a certain aircraft.
Not many people patronize the opera, so the opera director stages the patrons' favorite operas.
View Explanation
Threat of substitute products: When customers can easily switch to another product to satisfy a need, an organization faces a high threat of substitute products. If consumers will readily switch from fresh to frozen vegetables, farmers and grocery stores face this threat.
Power of suppliers: When there are very few suppliers of a product and it would be difficult for the organization to switch to another product, the power of suppliers is high. In this example, the power of the aircraft part supplier is high.
Power of buyers: When there aren't many customers for a product or customers can easily switch to another product, the power of buyers is high. In this case, the power of opera patrons is high, so the director only stages operas they are sure to like.
