How organisations depend on their environment much more than you think
Investors usually look at different aspects of corporations and companies. If they are not speculators, they usually look at growth and estimations. Essentially, they estimate the future of the corporation. Therefore, it is logical that these corporations would pay close attention to this particular data, if they want to tend to investors. Corporations would have to design the more appropriate future for themselves to be worth investing into so that they can secure their own growth, to continue getting more investors.
Another aspect the investor usually pays attention to is the environment the corporation inhabits. They look at the market, the competition, at the home country’s laws and taxations, or even the general environment of their suppliers. They pay attention to those elements in the corporation’s environment that may threaten or enhance growth.
What if environmental factors become a threat and risk causing failure to the corporation? In that case investors will catch wind of it and sell their shares, dropping the price of the corporation’s stock. If the corporation wants to avoid this then they will then have to immediately assess the situation and change their own way of operating to adapt to the new situation. Sometimes that means shifting some processes and policies and sometimes it means transforming the whole core strategy, identity and chain of production of the corporation. Those that are unable to adapt to the new situation because of lack of resources or unwillingness to do so tend to disappear.
Corporations are open systems; that means, that they interact openly with their environment and their environment influences them heavily. Corporations can also influence their environment, creating a need for the product or service that they offer, for example. But it is usually more of a feedback process where the environment provides an input that the corporation transforms into an output that may be desirable to the environment. If the output is undesirable, then the corporation risks disappearing and must act quickly to adapt to an output that is more desirable.
From the perspective of the dynamics of systems this all seems very simple and clear, however, it all becomes more complicated when we talk about market homogeneity, innovation and internal environments.
Looking at market homogeneity we see that corporations within a same market environment tend to “copy each other”, at least in terms of innovations, processes, and even strategies spanning all domains within the corporation (management, marketing, HR, or financial strategies). Therefore, it is much more difficult to deal with competition as they will be fighting for resources, clients, suppliers, and even knowledge for innovations. This results in opportunity costs for the corporation, as instead of developing their own solutions they have to spend most of their time and effort on the aforementioned elements. Until there is a disruptive corporation within the market, which shifts the way of doing things, all corporations within the same market highly depend on what the others are doing.
Let’s take the vehicle market, for example. Most car brands would increasingly implement technologies into their cars that other brands had done so before, giving the first comers some competitive advantage, which other car brands wanted too. Then comes a brand like Tesla which reimagines the entire concept of car, installing revolutionary new types of computer processing units that operate the vehicle’s internal systems, or installing a large screen in the dashboard that can do more than the dashboard computers on other types of cars.
Talking about market homogeneity we already delved into innovation and the internal environments. We talked about how innovation and new technologies within the market causes corporations within the market to shift their way of doing things to incorporate these innovations. But what happens to innovations from outside the market? Those are usually the ones that create disruptive new products and services, like when Apple introduced the iPhone with technologies that were external to the mobile phone industry.
Finally, the internal environment of the corporation also creates issues when the external environment shifts in unpredictable ways. As we said, the external environments provide inputs and corporations turn them into outputs. However, we need to consider throughput, meaning, everything that goes on while turning an input into an output.
Internal environments are usually formed by people who integrate different departments or units, which participate in different ways to the creation of the output. These people and departments/units are also influenced by their immediate environment (the one of their corporation), their extended environment (the market), and their general environment (the country and surrounding cultures). This influence generates an identity and a culture. For example, mechanical engineers in the car market will have a way of doing and seeing things that comes from their education, their experience within that market and also their experience within a particular corporation. Changing those habits comes at a high cost of time and effort for both the corporation and the mechanical engineer. So even if the corporation wishes to alter their way of doing things to adapt to the market changes, general environment changes, or innovations, they will still have to wrestle with the prevailing internal culture and habits, which usually take longer to adapt and sometimes even resist the change.
Whether you are an investor or a manager, there is much more going on behind the superficial data that we usually look at. There is an entire structure of different levels of influence that dictate a corporation’s direction. However, corporations will make everyone think that they have much freer rein than they actually have; or maybe corporations actually think they have such free reign, and they are living in an illusion of choice.
