Notes

ENVIRONMENTAL UNCERTAINTY

The concept of uncertainty has been a central construct in many research initiatives that focused on the features of the association between a firm and its surroundings (for example, Smircich and Stubbard 1985). With the continuing rise in environmental dynamism and complexity, the environment in which businesses operate will also become increasingly uncertain. The management of uncertainty, therefore, will continue to be the main task of management involving the development of mechanisms to reduce, absorb, counter, or avoid it completely (Jauch and Kraft 1986).

Definition of Uncertainty

A review of the uncertainty literature reveals a variety of definitions of the concept. Uncertainty is seen as lack of information for, and knowledge in decision making (Duncan 1972; Lawrence and Lorsch 1967). It is also postulated as resulting from the indistinct and convoluted causal configuration underlying the internal operations of the firm, its environment, and the complex relationship between the firm and the environment (Collis 1992). Uncertainty is equally viewed as a product of unpredictability (Cyert and March 1963), environmental turbulence (Emery and Trist 1965), and the complexity of influential variables (Galbraith 1973). Further, uncertainty is also perceived as a tangible facet of the external environment, and as an illumination of the perceptual method through which managers interpret their decision situation (Milliken 1987).

The complexity, interrelatedness, and interconnectedness of influential variables in the environment call for segmenting the environment for the purpose of analysis (Fahey and Narayanan 1986). The dimensions of uncertainty include the following:

Macro-environmental uncertainty: This is uncertainty in the organization’s general environment, including political, regulatory, statutory, and economic conditions. This uncertainty has the capacity to reduce an organization’s capability for mapping out and pursuing strategic choices (Miller and Friesen 1984).
Competitive uncertainty: This is the inability to establish the intensity of competition in the industry in the future, the relative powers of competitors, their future courses of action, and strategies.
Market (and demand) uncertainty: This uncertainty stems from lack of clarity in the dynamics of the market and their effects on the organization’s operations, and demand and supply conditions in the industry.
Technology uncertainty: This is uncertainty pertaining to change in the industry’s technological resources and capabilities. Technological uncertainty has the potential to undermine an organization’s competitive base (Anderson and Tushman 1990).