Lawrence and Lorsch Theory on Environmental Fit

The independent variable, environment Opens in new window, was conceptualized from the perspective of the organization members as they looked outward. Lawrence and Lorsch identified three main sub-environments:

  1. The market sub-environments correspond to sales.
  2. The technical sub-environments correspond to production.
  3. The scientific sub-enironments correspond to research and development.

The figure underneath depicts the Lawrence and Lorsch model— it identifies organizational parts or subsystems as marketing, production and research.

Figure 1.1 Conceptualization of the Lawrence and Lorsch Model Source: Rikard Larsson and David E Bowen, “Organization and Customer: Managing Design and Coordination of Services”, Academy of Management Review, April, 1989. Retrieved via Slideshare Opens in new window.

Paul Lawrence and Jay Lorsch investigated how companies in different industries differentiated and integrated their structures to fit the characteristics of the industry in which they compete.

They found that when the environment was perceived by each of the three departments as very complex and unstable, the attitudes and orientation of each department diverged significantly.

Each department developed a different set of values, and perspectives in doing things that suited their part of the specific environment they were dealing with. In other words, the extent of differentiation between departments was greater in an uncertain environment than when they were in stable environment. Their study further found that when the environment was perceived as unstable and uncertain, organizations are more effective if they are less formalized and more decentralized.

The findings of the Lawrence and Lorsch’s study were that organizations must adapt their structures to match the environment in which they operate if they are to be effective.

The conclusions made by Lawrence and Lorsch were reinforced by Burns and Stalker when they concluded that organizations need different kinds of structure to control activities when they need to adapt and respond to change in the environment.

Studies by Lawrence and Lorsch and by Burns and Stalker indicate that organizations should adapt their structure to reflect the degree of uncertainty in their environment. Companies with a mechanistic structure Opens in new window tend to fare best in a stable environment. Those with an organic structure Opens in new window tend to fare best in an unstable, changing environment.