ORGANIZATIONAL ENVIRONMENT

What is an organizational environment?

• The organization works within the framework provided by various elements of society. All such elements which lie outside the organization are called external environment or simply as environment. Also, the organization may create an environment internal to it which affects the various subsystems of the organization

• The organization needs to properly understand the environment for effective management.

Factors Controlling organizational environment

Factors that control an organizational environment are classified into internal & external factors.

Internal environment

• The internal environment is composed of the elements within the organization, including current employees, management - and especially corporate culture, which defines employee behavior.

• Trade unions, management, current employees, share holders, etc. control the internal environment.

External environment

• The external environment of an organization refers to the forces and institutions outside the organization that potentially affect its performance.

• External environment has two layers –

• general environment• task environment

General environment

• The general environment refers to the non-specific elements of an organization’s surrounding that might affect the organization indirectly.

• These external forces are:• Political• Economic• Technological• Socio-cultural

Political environment

The political or legal environment refers to the government laws, regulations, policies and activities which are designed to influence organizations indirectly and set boundaries on what they can or cannot do.

Economic environment

• Economic environment includes the impact of economic factors like interest rates, inflation, monetary & fiscal policy, taxes, wage rates, GDP, etc.

• These forces are most likely to affect an organization’s production of goods and services.

TECHNOLOGICAL ENVIRONMENT

• Technological environment refers to the changes in technology that affect the way that organizations operate and the services they provide.

Socio-cultural environment

• There are some important socio-cultural factors that organizations must analyze. These factors play an important role because they determine the kind of goods, services and standards that society values. The socio-cultural force includes the demographics and values of the particular customer base.

• The demographics and values considered are:

• Age• Population density• Education levels• Geographical distribution• Culture• Lifestyle

Task environment

• The task environment is inclusive of those outside sectors that have a direct working relationship with an organization.

• The main variables in the task environment are:• Owners• Customers• Suppliers• Labor• Competition• Pressure groups

Owners

CUSTOMERS

Owners expect managers to watch over their interests and provide a return on investments.

Customers are the final purchasers of a good or service, or absorbs the organizational output.

Studies or analyses of the expectations of the targeted customer base helps organizations deliver.

SUPPLIERS

Suppliers are the people or organizations who provide the raw material that a particular organization use to produce their output.

A supplier’s pricing strategy affects the revenue the organization earns.

LABOR

Labor market includes the people available for hire.

Qualities, skills and knowledge possessed by the employees affect the performance of an organization to a great extent.

Competition

PRESSURE GROUPS

Competitors present challenges as they vie for customers in a marketplace with similar products or services. The management of an organization should be prepared to respond to the competitor policies.

It is also necessary for organizations to identify special interest groups that attempt to influence it.

• An organisation interacts with the external environment, exchanges resources with it, influences it, and in turn is influenced by the various variables therein.

• The interface highlights the effect of the business environment in an organization beyond its economic factors.

ORGANISATION

ENVIRONMENT

OUTPUT:PRODUCTS AND SERVICES

INPUT:RAW MATERIAL, LABOUR, etc.

• Different elements of the environment interact with the various subsystems of the organisation in different ways and to different degrees.

• The different ways and degrees the environment interact with the organisation are:

1. Exchange of information2. Exchange of resources3. Exchange of influence

EXCHANGE OF INFORMATION

Since an organisation is a part of its environment, it must exchange information with the environment.

The organisation as a system, with information processing sub-systems, operates in such a manner as to keep itself fully informed of its environment.

It scans the environmental forces and their behaviour and collects important information to be used for decision-making and control purposes.

EXCHANGE OF RESOURCES

An organisation in an open system who gets inputs from the environment and in turn supplies its output to the environment.

The organisation receives inputs in the form of finance, materials, labour, equipment and so on from the external environment through contractual and other arrangements.

The organisation is dependent on the external environment for the disposal of its output. This is also an interaction process—perceiving the needs of the external environment and catering to them, that is, satisfying the needs and expectations of the customers.

Besides customers, the management has to meet the demands of other groups such as shareholders, creditors, workers, suppliers of materials,

general public and so on.

• The external environment holds considerable power over the organisation- by virtue of its being more global and also by virtue of its command over information.

• The influence of environment on the organisation is universal as it depends on the environment for procurement of inputs, as well as for sale of its output.

• Sometimes, the organisation may also be in a position to wield considerable power over some of the elements of the external environment by virtue of its command over resources and information.

• The dependence and influence between the organisation and the external environment is reciprocal to a large extent. Organisational dependence on the environment means environmental power and control over the organisation.

EXCHANGE OF INFLUENCE

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