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Organizational Environmental Uncertainties
Written by: Dr. Fathi El-NadiArticle Overview: From the genesis of management studies it has been recognized that organizations do not operate in a vacuum. In the seminal work, The Functions of the Executive, Chester Barnard (1938) theorized that an organization’s survival was dependent on its ability to sustain a balance with its external environment by readjusting its internal processes to match the various elements in the environment (Barnard, 1938, p. 6). In recognition of Barnard’s observation that firms must maintain equilibrium in an ever-changing environment, a considerable body of literature has developed that is devoted to conceptualizing and comprehending the external environment and its role in management theory.
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Organizational Environmental Uncertainties
Numerous conceptualizations of environmental uncertainty have been explored in the literature (e.g. Barnard, 1938; Thompson, 1967; Lawrence and Lorsch, 1967; Duncan, 1972; Pfeffer and Salancik, 1978; Milliken, 1987; Tan and Litschert, 1994). The majority of these have rested on one of two dominant perspectives: information uncertainty or resource dependence theory (Tan and Litschert, 1994). The information uncertainty perspective is derived directly from Barnard (1938) and is built on the assumption that uncertainty arises from a lack of perfect information about the environment. Researchers adopting this perspective in their theory building include Lawrence and Lorsch (1967), Thompson (1967), Duncan (1972), Milliken (1987), and Dickson and Weaver (1997).
Barnard’s conceptualization of environmental uncertainty dominated discourse in this area of management theory until the early 1970s, when another school of thought began to develop with Child (1972). Child attributed environmental uncertainty primarily to organizational dependence on resources and argued that uncertainty arises as firms attempt to manage critical resource flows from partners who have varying degrees of power (Pfeffer and Salancik, 1978). Researchers whose work has primarily focused on this aspect of environmental uncertainty include Child (1972), Pfeffer and Salancik (1978), Dess and Beard (1984), and Finkelstein (1997).
Throughout the last three decades both schools of thought have made significant contributions to the field of management studies. However, scholars employing either theoretical lens have encountered a significant challenge in the operationalization of the environmental uncertainty construct (Milliken, 1987; Gerloff et al., 1991). Early efforts to capture environmental uncertainty tended to employ relatively simple, unidimensional measures. Over time, measures of environmental uncertainty have tended to become increasingly complex with numerous contemporary researchers (e.g. Steensma et al., 2000) utilizing multidimensional tools. Unfortunately, as the various conceptualizations and operationalizations of uncertainty have evolved, the true meaning of the construct has become muddled (Milliken, 1987; Koberg and Ungson, 1987; Tan and Litschert, 1994). The fundamental concern raised by these developments is that the environmental uncertainty construct may soon be stretched beyond usefulness, as it becomes so broad as to be fundamentally meaningless.
The first step in rectifying this disturbing trend is to return to the nascent stages of environmental uncertainty research and to examine the historical evolution of this concept and its operationalizations. Analyzing the historical development of environmental uncertainty is an essential undertaking, as the “study of evolving management thought can provide the origins of ideas and approaches, trace their development … and thus provide a conceptual framework which will enhance the process of integration. A study of the past contributes to a more logical, coherent picture of the present” (Wren, 1979, p. 4).
Management history also plays an important role in determining the true meanings of key management concepts (McMahon and Carr, 1999; Rutgers, 1999). Koontz (1996) claimed that imprecise terminology is one of the most significant problems currently inhibiting organizational research. He argued “as is so often true when intelligent men argue about basic problems, some of the trouble lies in the meaning of key words. The semantics problem is particularly severe in the field of management” (Koontz, 1996, p. 27). This semantics problem poses a significant threat to research on the environmental uncertainty construct. If the study of environmental uncertainty is to continue making a significant contribution to the field of management studies, then it is imperative that researchers be made aware of the fundamental elements of the uncertainty construct present in these various conceptualizations.
This paper presents a systematic analysis of the historical development of the uncertainty construct and evaluates its current state. Utilizing the early environmental literature, the authors trace the development of environmental uncertainty over the last 60 years. The rise of the information uncertainty and resource dependence schools are explored, as is the evolution of the construct’s operationalizations from simple to complex measures. The insights provided by this analysis form the basis of a categorization scheme for conceptualizations and operationalizations of the uncertainty construct. This categorization scheme provides insight into the fundamental elements of the environmental uncertainty construct and enables future researchers with a tool to ensure greater precision and consistency in the use of this construct.
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