Download The Organizational Environment


Organizations do not exist in a vacuum. They
are constantly being affected by external
forces which determine an organization’s
effectiveness and performance. Therefore, it
is imperative for the management of any
organization to examine components of their
firm’s external and internal environments to
understand the dynamic and far-reaching
changes that are occurring. This presentation
focuses on the environmental factors that
companies need to analyze for developing
strategic options.
(Macro environment)
General Environment
•Political / legal
•Economic
•Socio-cultural
•Technological
Task Environment
Internal
Environment
•Customers
•Labour
•Competition
•Suppliers
•Employees
•Management
•Culture

We can conceptualize the
organization as having two
layers:
1. The general
environment
2. The task environment
 The
general environment or macroenvironment is all those forces affecting
the organization indirectly. These
external forces are:
 Political / legal
 Economic
 Technological
 Socio-cultural
 The
general environment is inclusive
of government regulations, laws,
policies and activities designed to
influence organizational performance in
an indirect way.
 Technological
environment includes
changes in technology
that affect the way
organizations operate
and service they
provide.

These forces are most likely to
affect an organization’s
production of goods and
services and results in the
general state of both domestic
and world economy. The
components are:

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


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Interest rates and inflation
Consumer price index
Monetary and fiscal policy
taxes
Unemployment rates
Wage rates
GDP
 The
importance socio cultural factors
that companies should analyze are:
• Age
• Population density
• Educational levels
• Geographical distribution
• Culture
• Lifestyles
 The
task environment is inclusive of
those sectors that have a direct
working relationship with the
organization. Critical variables in the
tasks environment are:
• Customers
• Suppliers
• Labour
• competition
 Labour
markets include the people
available for hire.
 Every organization needs well-trained
and qualified workers.
 Research shows the workers with high
level of competencies, knowledge, and
training increases the overall
performance of the organization.
Customers are the final
purchasers of a good or
service.
 A study of customers will help
managers determine what are
the customers’ needs and
wants to be satisfied.
 Analysis of customer profiles
allows the organization to
develop it organizational
strategy and structure in
order to deliver a particular
good or service that best suits
the needs of the customer.

 Suppliers
are peoples and
organizations who provide raw
materials the organization uses to
produce its output.
 A supplier’s pricing strategy does
affect the organization’s level of
revenue earned.
 Competitors
are other organizations in
the same industry or type of business
providing goods and services to the
same set of customers.
 The
internal environment consists of
employees, management and the shared
organizational culture.
 Analysis of the internal environment
allows top management to assess the
strengths and weakness of the
organization.
 This assessment has implications for
human resource management policy,
procedure, employee training and
development.
 The
unpredictability of the external
environment can render an organization
ineffective and consequent demise.
Careful environmental scanning by
management is significant and has
implications for planning. It is at this point
that managers are able to set goals and
design strategy and justify their decisions
for taking what ever they see necessary.
Not one can be certain; but it is better to
be safe than sorry.
 Boundary
Spanning Roles. Roles
assumed by people and/or departments
that link and coordinate the organization
with key elements in the external world.
 Forecasting & Planning.
Organic Structure
Mechanistic Structure
1. Free Flowing; has fewer rules and
regulations.
2. Encourages team work
3. Decentralizes decision making to
employees dong the work.
1. Rigidly defined tasks; many rules
and regulations.
2. Little team work.
3. Centralized decision making.
 Merger
& Joint Venture
• Merger. A combination of two or more
organizations into one.
• Joint Venture. A strategic alliance or program
by two or more organizations.
 Advertising
and Public Relations
 Political Activity
 Trade Association
 Domestic
Stage
 International Stage
 Multinational Stage
 The Global Stage
 International
Financial Crisis
 Chinese century
 Rise of BRICS
 Consumption Patterns
 Exchange Rates
 Global Warming Loses
 Political
Risks
 Clash of the Civilizations
 GATT – WTO
 New Economic Blocks
• EU
• BRICS
• Shanghai Five
• ASEAN
 Hofstede’s
Research
• Power Distance
• Uncertainty avoidance
• Individualism and Collectivism
• Masculinity/femininity
• Future orientation
 Outsourcing
 Exporting
 Licensing
• Franchising
 Direct
Investment
 Advantages
• Can sell more globally
• Can avoid transport costs
• Can take advantage of different wage levels
• Can achieve great economies of scale
• Have less chance of going bankrupt
• Can carry out a lot of R & D
 Disadvantages
• MNCs move their factories to wherever it is
•
•
•
•
profitable
MNCs may switch their profits between countries
They may force competing firms out of business
Some MNCs may exploit workers
Some MNCs may interfere in the government of a
country