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From a systems perspective, or that of a business organization, the environment is everything of significance to the business organization, the firm, which lies outside the boundaries of the organization. The boundaries are quite permeable, variable, and largely established by management decisions. The environment contains competitors, partners, suppliers, customers, markets, governments, investors, unions, banks, retailers, etc.

See business environment for a perspective on why that term came about to capture the expansive notion of what the term 'environment' should represent.

See system for a definition of a system and a concise systems science oriented definition of environment.

What is within the boundaries of a business vs. in its environment is also determined by the role played by an element of the system. For example, an employee, playing the role of an employee, is within the boundary and part of the system. That same employee, as a parent, or recreational enthusiast, is outside the boundary of the system, thus part of the environment.

Environmental change -- Environmental change comes from all of the organizations in the population of organizations making the environment. If an incumbent firm in an industry is driving this change, that is generally in their favor, enabling them to define competitively advantageous positions in the environment. This would be the case where a firm practices internal creative destruction. If the environment is change faster than the incumbent firm, the firm must find a way to more rapidly adapt or be threatened with annihilation by forces in its environment. This is external creative destruction, where change is driven by the firm's environment.

Views of environment (Smircich, 1985) --
Real, material, and external - a systems worldview --

  • Objective - an organization is ""embedded"" in an environment that has an external, independent, and tangible existence
    • The open systems analogy provides a common way of thinking about the relationship between an ""organization"" and its objective ""environment"" - organization-as-organism as one example
    • Strategists search for opportunities or threats in the ""environment"" and search for strengths and weaknesses inside an ""organization.""
    • This view emphasized recognition of what already exists.
    • Environmental analysis thus entails discovery, of finding things that are already somewhere waiting to be found.
    • Strategy is defined as the fit between ""organization"" and ""environment.""
    • A spectrum of views of the relationship between the ""organization"" and its ""environment"", at one extreme -
      • Organizations can select their environmental domains - strategic choice. At the other extreme,
      • Most organizations flounder helplessly in the grip of environmental forces - the weak-organization theory
    • In either case, the strategist must look out into the world to see what is there - accessing, organizing, and evaluating data to produce information useful to the formulation of strategy
    • Within an objective environment, a strategist faces an intellectual challenge to delineate a strategy that will meet the real demands and real constraints that exist ""out there.""
  • Perceived - strategists are permanently trapped by bounded rationality and their incomplete and imperfect perceptions of the ""environment""
    • From a practical standpoint, the challenge for strategists, who must labor within the confines of flawed perceptions, is minimizing the gap between these flawed perceptions and the reality of their environment.

    Whether objective or perceived - ""environments"" are envisioned as concrete, while material ""organizations"" are within and separate from real material ""environments""

  • Enacted -- Organization members actively form (enact) their environments through their social interactions - an interpretive world view
    • Organization and environment are created together (enacted) through social interaction processes of key organizational participants.
    • From an interpretive worldview, separate objective ""environments"" simply do not exist...
    • Instead, organizations and environments are convenient labels for patterns of activity
    • There are no threats or opportunities out there in the environment, just material and symbolic records of action
    • The strategist, determined to find meaning, makes relationships by bringing connections and patterns to action
    • Strategists create imaginary lines between events, objects, and situations so that events, objects, and situations become meaningful for the members of an organizational world
    • Enactment implies a combination of attention and action on the part of organizational members.
    • Processes of action and attention differentiate the organization from not-the-organization (the environment)
    • An enactment model implies that an environment of which strategists can make sense has been put there by strategists' patterns of action - not by a process of perceiving the environment. In other words, managers and other organization members create not only their organization but also their environment.

Enactment theory abandons the idea of concrete, material ""organizations/environments"" in favor of a largely socially-created symbolic world.

Organization and Environment from an Interpretive Perspective (Smircich, 1985, p 727) -
The metaphoric and symbolic bases of organized life that create and sustain these organizational ideas are often ignored in approaches to strategic management. An interpretive perspective places these processes and symbolic entities at the center of analysis.

  • An interpretive definition of organization -
    • Organization is defined as the degree to which a set of people share beliefs, values, and assumptions that encourage them to make mutually-reinforcing interpretations of their own acts and the acts of others.
    • Organization exists in this pattern of on-going action-reaction among social actors
    • From an interpretive perspective, such organization is different form the everyday conceptualization of legally constituted ""organization,"" and refers instead to a quality of interaction.
      • Organization can extend across ""organizations.""
      • Some ""organizations"" are disorganized.

  • An interpretive definition of environment --
    • The term ""environment"" refers only to a specific set of events and relationships noticed and made meaningful by a specific set of strategists.
    • An interpretive perspective does not treat environment as separate objective forces that impinge on an organization. Instead, environment refers to the ecological context of thought and action, which is not independent of the observer-actor's theories, experiences, and tastes.
    • Multiple groups of people enact the ecological context; neither historical necessity nor the operation of inexorable social laws imposes it on them.
    • From the standpoint of strategic management, strategists' social knowledge constitutes their environment.

Implications of an interpretive perspective (Smircich, 1985, p 727-731) -
""Organization"" and ""environment"" are key concepts in the vocabulary of strategic management. The reconceptualization of these building block concepts that flows from an interpretive changes perspectives as well as words.

From an interpretive perspective the interesting questions concern how patterns of organization are achieved, sustained, and changed. An interpretive perspective on strategic management and the environment asks questions about the processes of knowing - those social processes that produce the rules by which an ""organization"" is managed and judged. The interpretive perspective highlights personal involvement with knowledge; it emphasizes that knowledge is standpoint dependent.

Strategic management implications -

1. Abandoning the prescription that organizations should adapt to their environments
The conventional wisdom of strategic management that urges organizations to adapt to their environments is more problematic than it appears. It obscures a good deal of complexity, ambiguity, and abstractness in the strategic management process.

When one theorizes from the present into the past as strategic analysts often do, one find what seems to be a powerful argument about adaption to an objective ""environment."" But the power of this explanation ends in the present. Although the argument about environmental adaptation may initially seem appealing, it does not provide much help for strategists in the here and now. The advice from much strategic management literature that stresses fit, congruence, and alignment is not sufficient for dealing with issues in day-to-day management. The executive in an industry cannot simply stand outside the action and adjust themselves to trends; their actions make the trends. Trends are complex functions of multilateral behavior, making future outcomes problematic. The nature of what constitutes adaptation can only be stated retrospectively, never prospectively. The admonition to adapt to trends and forces is not very helpful.

An interpretive perspective argues that strategic managers can manage their organizations only on the basis of their knowledge of events and situations. But events and situations are always open to multiple interpretations.

The facts never speak for themselves. If facts seem to ""go without saying,"" it is only because observers happen to be saying very similar things.

Each view of the environment flows from applying certain preconceived, limited frameworks to available contexts. An unlimited number of guiding images or views are possible. It is in terms of these multiple views that expectations and strategic action will congeal and shape the future. Whatever is possible depends on which visions people believe in and act on - not on environmental fiat.

Analysis of a firm's environment cannot aspire to the status of a science, because there are no independent authoritative observers. Instead, the choice of frameworks and interpretations becomes a creative and political art.

Strategists need to concentrate on their choices vis-à-vis frameworks and interpretations. Novel and interesting frameworks may stimulate novel and interesting environments that could in turn preface novel and interesting strategic initiatives.

2. Rethinking constraints, threats, opportunities --
Managers face a tidal wave of situations, events, pressures, and uncertainties, and they naturally resort to collective discussion (in the broadest sense) to negotiate an acceptable set of relationships that provide satisfactory explanations of their social worlds. The scope and meaning of events are funneled down to manageable dimensions by formal and informal processes leading to industry wisdom. This collective discussion by strategic managers leads to a corresponding problem. The strategic managers end up holding untested assumptions, unwittingly colluding to restrict their knowledge and thus can suffer from ""collective ignorance.""

What everyone knows about an industry translates into an opportunity for those who do not know. Many, if not most, really novel and exciting new strategies that invade an industry, are perpetrated by outsiders who do not know the rules. The way social reality if formed in organizational settings suggest a powerful prescription for strategic managers -
They must first look to themselves and their actions and inactions, and not to ""the environment"" for explanations of their situations. Recognize that in many cases top managers' thinking patterns can cause crises, not the external environment. If people want to change their environment, they need to change themselves and their actions - not someone else... Problems that never get solved, never get solved because managers keep tinkering with everything but what they do (Weick, 1979, pp 152).

Help managers reflect on the ways in which managers' actions create and sustain their particular organizational realities. With greater capacity for self-reflection, all organization members can examine and critique their own enactment process.

By maintaining a dual focus of attention - 1) an ability to transcend the momentary situation in which they are entangled and 2) to see and understand their actions within a system of meanings that is continually open to reflection and reassessment - strategic managers can challenge the apparent limits and test the possibilities for organizational existence.

3. Thinking differently about the role of strategic managers --
The enactment model places strategy makers in an entirely different role from that envisaged by the objective or perceived models. Environmental scanning in those models send managers ""out"" to collect facts and to amass an inventory of information. A strategic manager is portrayed as a decision-formulator, an implementer of structure, and a controller of events who derives ideas from information.

The interpretive perspective, on the other hand, defines a strategist's task as an imaginative one, a creative one, an art. In the chaotic world, a continuous stream of ecological changes and discontinuities must be sifted through and interpreted. Relevant and irrelevant categories of experience must be defined. People make sense of their situation by engaging in an interpretive process that forms the basis for their organized behavior. This interpretive process spans both intellectual and emotional realms. Managers can strategically influence this process. They can provide a vision to account for the streams of events and actions that occur - a universe within which organizational events and experiences take on meaning. The best work of strategic managers inspires splendid meanings.

The juxtaposition of events and context, figure and ground, is one mechanism for the management of meaning. Through this process, strategists work in the background to construct the basis on which other people will interpret their own specific experiences. The interpretive background makes a difference because people use it to decide what is happening and to judge whether they are engaged in worthwhile activities or nonsense. How can strategic mangers generate the context for meaning in organizational life? Through values and their symbolic expression, dramas, and language. Strategic managers can sharpen their strategic impact by gaining awareness of the less than obvious values/symbols that pervade their organizations.

Dramas include the standard ceremonies and rituals of an organization (meetings, socialization, training, parties, etc.) as well as unique happenings (""campaigns,"" ""challenges,"" ""struggles to the top,"" ""takeovers,"" new image or brand, etc.). The standard ceremonies provide continuity and reaffirmation of values, status, individual and collective achievements. The ""big meetings"" are occasions for heightened awareness, reawakening, and sometimes exciting change. Strategic managers should be aware of the impact of these dramas can have and realize that they (the managers) exercise wide discretion in defining what dramas are and when and how they will occur.

Powerful language metaphors set a tone, provide direction, and gain commitment. Wise strategic managers take advantage of language, metaphors, and stories to convey their messages. They also pay attention to language, metaphors, and stories that originate elsewhere.

Values, dramas, and language comprise the symbolic foundations that support the everyday prosaic realities of management information systems, hierarchy, incentive systems, and so on - the surface architecture of organizations.

Traditionally organizational design problems have been addressed exclusively in terms of surface architecture. These conventional approaches to designing organized activity have been further restricted by focusing nearly all attention on intellectual (rather than emotional) issues and on massive, unremitting control (rather than imagination). An interpretive approach, probing the subjective process of reality-building, redirects the strategic manager's attention toward deep images of organizational life. Strategic managers can improve their efforts - make them more strategic - by recognizing the powerful nature of those deep images and by consciously approaching this deeper level.

Summary of the interpretive orientation world view on strategic managers' thinking and behavior -

  • Rather than concentrating on issues of product-market strategies, for example, a strategic manager would concentrate on process issues.
  • Rather than concentrating on decisions or design of decision making structures, a strategic manager would concentrate on the values, symbols, language, and dramas that form the backdrop for decision making structures.
  • Rather than confining themselves to the technical/intellectual aspects of organizational structures, many strategic managers would learn to express and to elaborate on the social/emotional basis for organizational life.

Managing in an enacted world (Smircich, 1985, p 731-733) -

  • Managerial analysis - The idea of enactment underscores a view that one's own actions and the actions of others make an -organization"" and its ""environment."" Because of this sequence, environmental analysis is much less critical than managerial analysis.
    Managerial analysis means challenging the assumptions on which managers act and improving managers' capacity for self-reflection-seeing themselves as enactors of their world (Litterer & Young, 1981; Mason & Mitroff, 1981). This dual (active-reflective) posture toward action is difficult for managers to maintain, In fact, consultants often are called in to help organization members get a different perspective on what members are doing. Consultants state the obvious, ask foolish questions, and doubt - all of which helps organization members get outside of themselves. Management groups can institutionalize the role of ""wise fool"" (Kegan, 1981) in order to provoke the capacity for critical self-examination.

  • Creation of context - The answers to such questions as ""Who are we? What is important to us? What do we do? and What don't we do?"" set the stage for strategy formulation- These questions elicit the values framework within which activity becomes meaningful. Current literature (Peters & Waterman. 1982) suggests that excellent companies have top management groups who can articulate clear value positions.
    The creation of context is different from setting objectives, Setting objectives implies that an organization falls short in some way, needing to move from point A to point B. This sort of striving characterizes many strategic management models, suggesting that organizations have a place at which to arrive- Objectives present a management orientation of going-to-be instead of already-is (Davis. 1982). An interpretive perspective promotes managerial deliberations about the present---especially about management values and actions.

  • Encouraging multiple realities - An interpretive perspective urges the consideration of multiple interpretations. But, in strategic management. multiple interpretations often are viewed as communication problems to be overcome by more information, rather than as a natural state of affairs. Successful strategists have often contemplated the same facts that everyone knew, and they have invented startling insights (e.g., Ray Kroc and the hamburger restaurant chain, or Gene Amdahl'snsight into the strategic inflexibility of IBM's pricing). Interesting enactments blossom when strategists draw out novel interpretations from prosaic facts. Quite often, novel interpretations occur when companies enter an industry for which they have no specific experience. They try out novel strategies that run counter to conventional assumptions (e-g., Philip Morris in the beer i»dustry. Honda in motorcycles, Wendy's in hamburgers).
    Companies might be able to enlarge their capacities for novel interpretations by systematically varying metaphors, by hiring in-house experts from distant industries, and by encouraging novel and conflicting viewpoints (e.g. a coal company hires an environmentalist; Caterpillar hires a top executive from Komatsu, who remains outside the Caterpillar culture; or a company hires a philosopher). These efforts legitimate and expand the managerial capacity for tolerance of differences.

  • Testing and experimenting - Every industry is saddled with a long list of do's and don'ts. These stipulated limits should be tested periodically, Enactment means action as well as thinking. Exxon followed such a strategy with the Reliance Electric deal and other active attempts to discover whether it could push its technical skills in certain directions (Kaufman, 1982). Proctor and Gamble seems to be experimenting within the soft drink industry (Smith, 1980). Assumptions about what is related to what, what works (or doesn't), what we can do (or can't), should be tested periodically by acting as if counter assumptions are viable (Wick, 1979). Strategists should learn to act ambivalently about what, they know, so that they do not become straitjacketed by what they know. Learning compels forgetting. In fact, organizational wisdom may require continuous unlearning (Nystrom & Starbuck, 1984).
    Managerial analysis, creation of context, encouraging multiple realities, and testing and experimenting are managerial principles derived from an interpretive world view, recognizing that people enact their symbolic world. These principles of variety are largely ignored by approaches to strategic management that stress scanning of an objective/perceived environment, setting objectives, and manipulating managerial controls.

  • Can any reality be enacted? - This argument may seem to imply that people can enact any symbolic reality that they choose. In a limited sense the present authors are saying precisely that. Individual people occupy personal. subjective space--space in which intentions. meaning, and sensibility often are quite idiosyncratic-what the world means to them. And even those isolated lifeworlds can sometimes be transformed into social worlds (e.g., Hitler, Gandhi, Marx. Darwin). But in this paper the special concern is with enactments in which. numerous people collectively participate, in which people experience limits to what they can enact.
    First, organized people often struggle within the confines of their own prior enactments. Patterns of enactment rooted in prior personal, organizational, and cultural experiences powerfully shape ongoing organizational and cultural options. Starbuck (1983) calls these patterns ""behavior programs"" and emphasizes how past thinking gets concretized into standard operating procedures, job specifications, buildings, contracts, and so on that take on the aura of objective necessity. Behavior programs-institutionalized as unwritten rules and taken for granted assumptions-seem to dictate how things are and must be done (Zucker, 1977}. Changing these patterns requires people to intentionally forget some of what they know and to disbelieve some of what they believe_ Depending on the weight of prior commitments, changing may seem risky, foolish, or taxing.
    Second, enactment means thinking and acting. Enactments test one's physical, informational, imaginative, and emotional resource. Without sufficient resources (or without the ability to think imaginatively about what might constitute resources), one simply cannot support many conceivable enactments.
    Finally, enactments may compete with each other. In an election, for example, the candidates struggle mightily to discredit an opposition candidacy. In a corporate context, various strategic initiatives compete in a similar fashion. For sizable organizational enactments to succeed, a critical mass of belief and acceptance must be reached. But reaching the critical mass depends on persuasion rather than objective factors.
    For these reasons-prior enactments, problems with resources, and competing enactments- organizational enactment processes can be distinguished from fond hopes and castles in the air.

Conclusion - Strategic Management in an Enacted World (Smircich, 1985, p 734-735) -
The implications of the enactment perspective for strategic managers give here are extensive and provocative -

  1. The eclipse of the ""organization/environment"" dichotomy
  2. A different mode of strategic analysis
  3. An entirely different role for the strategist from the role presently envisaged by most analysts
  4. A different research focus

The general acceptance of a deceptively persuasive ""organization-environment"" metaphor blinds one to the largely symbolic, social nature of organized life. This draws attention away from a perspective of an undisciplined environment enacted by multiple interest groups. Strategic managers might begin to --

  • think of themselves as playwrights more than heroes.
  • As creators rather than coaligners
  • To think more about how they get to know what they know and think less about what they know.
  • The strategic managers' most enduring contributions may rest with their unique roles as background-generators and context-composers, not on their direct roles as decision makers and commanders. The strategic analyst should guide the strategic practitioner toward critical self-examination.

Strategic Management in an enacted world --

  • From an interpretive perspective, strategic management consists of those processes through which patterns of ""organization"" and ""environment"" are created, sustained, and changed.
  • Cause-effect logic is eschewed in favor of examination of the rules that people follow, people's reasons for their acts, and the meanings people assign to events.
  • The interpretive perspective offers a realistic alternative to the positivist rationalistic model of the strategic planning process, the conventional model, that cannot account for the way that strategies get formulated.
  • Key characteristics of an enacted approach to strategic management -
    • Rather than taking a detached Olympian perspective on an industry or firm, the interpretive view takes a participant view.
    • Rather than trying to merge the incompatible views of multiple actors into a single objective explanation, the interpretive view recognizes that differences are essential for understanding strategic action and strategic change - studying the complex shifting patterns and configuration of organizations making up an industry.
    • Focus management not on adaption to apparent current trends but on becoming aware of the ways that their ability to think critically about events and relationships has become strait-jacketed.
    • Work with managers to understand where options have been traded for assumptions, inadvertently and unconsciously, in order to invent new ways to understand present events and to envision viable futures for their companies. In the process, de-emphasize the current tendency to react to the take-for-granted ""environment"" and to highlight the role of autonomous action in creating environments.
    • Avoid case studies which are typically less ambiguous than reality, typically wrapped around an explicit or implicit acceptance of a normative, rational model of organizational decision making, and typically ignoring the affective, symbolic, and linguistic aspects of organizational processes.