Environmental Complexity

Environmental, complexity is referred to the heterogeneity and range of activities which are relevant to an organization’s operations. Thus, more diverse the relevant environmental activities and more these are, the higher is the complexity. The heterogeneity relates to the variety of activities in the environment affecting the organization. Complexity or non-complexity of environment is a matter of perception. Starbuck states that ‘the same environment one organization perceives as unpredictable, complex, and evanescent, another organization might see as static and easily understood’

Organizations dealing with non-complex environment have one advantage in the sense that there are fewer critically important information categories necessary for decision-making. When the environmental sectors are same and limited, the organizations are not required to process complex information for their actions. Moreover, the volume of information processed is low though there might be large sector of environment. As against this, organizations working in complex environment have to process a large variety of information.

Environmental Variability: The degree of environmental variability is an important determinant of organizational functioning. In fact, the environment, being dynamic, changes over the period of time, but it is the rate of change which is a matter of concern. There can be low or high change rate, though again it is matter of perception. Both low and high change rates can be dichotomized further into stable and unstable rates. Stable rates occur in a situation where most of the important factors influencing a situation are changing predictably in value and where set of critical factors remains constant. Unstable rates take place when a situation is loose and erratic. Here, both the value of important variables independent and intervening and the kinds of relevant variables in the set are changing unpredictably. Child refers to environmental variability as “the degree of change that may be seen as a function of three variables: (i) the frequency of change in relevant activities; (ii) the degree of difference involved at each, and (iii) the degree of irregularity in the overall patters of change. There are four types of environmental movement: low- stable change, high-stable change, low-unstable change, and high-unstable change-all having different effects on an organization.

The degree of variability in the environment affects the organisational functioning by affecting the task performance. More is the variability in the environment; more will be the uncertainty in the task performance. Galbraith, observes that ‘greater the task uncertainty, the greater the amount of information that must be processed among decision-makers during task execution in order to achieve a given level of performance’.  He has defined uncertainty as ‘the difference between the amount of information required to perform the task and the amount of information already possessed by the organisation’. The basic effect of uncertainty is to limit the ability of the organisation to preplan or to make decisions about activities in advance of their execution.

Taking both dimensions of the nature of environment- complexity and variability, environment may be seen in terms of a continuum ranging from turbulent to simple with varying degree of complexity and variability as shown in the figure.

Figure: Continuum of environmental complexity and variability

A turbulent environment has following characteristics:

• Growth does not extrapolate.
• Historical strategies are suspect.
• Profitability does not follow growth.
• The future is highly uncertain.
• The environment is full of surprises.

The above characteristics of environment may be because of high rate of change which may not be predictable, e.g. sudden change in Government policies, technological breakthroughs, threats for, or actual, war, change in prices of any product at international level (like the substantial increase in crude oil prices by OPEC in 1973), etc.

A simple environment has the following characteristics:

• The rate of change is quite slow and, therefore, predictable.
• Historical strategies work though some minor modification may be required.
• The rate of growth for the industry may be extrapolated.
• Profitability is linked with growth