Final answer:
Lawrence and Lorsch define "differentiation" as the degree of specialization and integration within an organization. In the R&D/Manufacturing/Sales example, differentiation manifests as each department having specialized functions that contribute to the company's success. This should not be confused with product differentiation, which is how firms distinguish their products from competitors.
Step-by-step explanation:
The correct definition of "differentiation" according to Lawrence and Lorsch is b) Differentiation is the degree of specialization and integration within an organization. In the context of the R&D/Manufacturing/Sales industry example provided, differentiation means that each department, such as Research and Development (R&D), Manufacturing, and Sales, has its own specialized functions and roles that are essential for the overall success of the company. R&D focuses on innovation and the development of new products, whereas Manufacturing oversees the production of these innovations, and Sales is responsible for marketing and selling the final product to consumers.
It is through this process of specialization and the subsequent need for coordination (integration) that organizations effectively respond to environmental demands and uncertainties. Product differentiation is a related but distinct concept where firms try to make their products unique in terms of physical aspects, location, intangible aspects, and perceptions to stand out from competitors.