Environmental influences on Organization

Abstract on environmental influences on Organization

           

           The term Environmental analysis is defined as “the process by which strategists monitor the economic, governmental, legal, market, competitive, supplier, technological, geographic, and social cultural settings to determine opportunities and threats to their firms/company/organization”.

           According to Barry M. Richman and Melvyn Copen “Environment factors of constraints are largely if not totally external and beyond the control of individual industrial enterprises and their arrangements. These are essentially the ‘givers’ within which firms and their managements must operate in a specific country and they vary, often greatly from country to country.”

           According to Glueck and Jauch “The environment includes outside the firm which can lead to opportunities for or threats to the firm. Although, there are many factors, the most important of the sectors are socio–economic, technical, supplier, competitors, and government.”

           These definitions clearly reveal the following important factors:

• Strategist looks on the environment changes while to analyze the threats of the business along with searching and offering immense opportunities to business enterprises in the market.

• A successful business enterprise has to identify, appraise and respond to the new dimensions of various opportunities and threats in its internal and external environment.

• Successful business not only recognizes business activities even recognize the different elements in the environment.

• These factors are recognized and adapts to their business

• It continuously monitors and adapts to the new environment

• Environment analysis helpful to survival and prosper the business activities.     

            Environment diagnosis principally consists of managerial decisions which made by strategist for analyzing the significance of the data like strengths, weakness, opportunities and threats of the organization in thin way to design their own strategy for formulation, implementation and controlling the internal environmental factors to firm.

            Environmental analysis helps to strategic executive and manager to diagnosis of strategic competitive force and components of strategic management. However, internal environment of the organization is a quite essential and important from the point of view of the environment analysis. It is the cornerstone of the new and existing business opportunity analysis too.      

Internal and external environment

        If there is anything that is steadfast and unchanging, it is change itself. Change is inevitable, and organizations that don't accept change and that make adjustments to their business model based on changes are doomed to fail. There are events or situations that occur that affect the way a business operates, in a positive or negative way. These events or situations can have either a positive or a negative impact on a business and are called 'environmental factors.'

        There are two types of environmental factors: internal environmental factors and external environmental factors.

    Internal environmental factors are events that occur within an organization. Generally speaking, internal environmental factors are easier to control than external environmental factors. Some examples of internal environmental factors are as follows:

Ø Management changes

Ø Employee morale

Ø Culture changes

Ø Financial changes and/or issues

        External environmental factors are events that take place outside of the organization and are harder to predict and control. External environmental factors can be more dangerous for an organization given the fact they are unpredictable, hard to prepare for, and often bewildering. Some examples of external environmental factors are noted below:

Ø Changes to the economy

Ø Threats from competition

Ø Political factors

Ø Government regulations

Ø The industry itself

Framework to Understand the Environmental Influences

        While understanding of the problems in business environment, strategic managers cannot be ignored the real problems of the business. It will be on opportunity to identify a framework for understanding the business environment of the organizations. Environmental factors influence to identify key issues, find the ways for coping with complex and rigid issues and consider as challenging managerial thinking by mangers.

        • First stage is strategic managers is to know the initial structure and nature of the business organizations in terms of uncertainty. This is relatively either static or shows sign of change. Strategic managers should aware of the simple and complex problems and also know the decision skills for focus the rest of the analysis will be taken in the business environment.

        • Second stage is the auditing of the environmental that influence to business. During this stage, strategic managers aim to identify different environmental influences are likely to affect the organization’s development or performance. It is done through assessment of external environmental factors like political, economic, social and technological influences. These are factors bearing at the time of audit of the business. It helpful to strategic managers to develop overall pictures or scenario of possible futures and extent to ascertain to change in the business.

        • Strategic managers is to move to focus more towards an explicit considerations of the immediate environment of the organizations, it is the last stage of assessment of the strategic managers. It involves competitive environment and its five forces analysis of competitive environment and identifies the key forces at work environment. It is also required to analyze the organization competitive position in form of resources and customers.

Relationship between environment and organization:

        Relation of business organization and its environment is obvious from the point of analysis of strengths, weakness, opportunity and threats of business. Organization environment consists of internal environment and external environment. Internal environment factors are easily controllable and manage in the organization. External environment factors are uncontrollable factors due to changes in the legal, social, economic, and technical in business enterprise.

        External environment offers wide range of opportunities, problems, threats and pressures and thereby influence the structure of the business enterprise and its functions. Business enterprise can be treated as subsystem for drawing certain inputs of resource, information and values extracting from the external environmental system. These things transform into outputs in the form of products and services, goals and satisfactions and exchange of proper ideas and it transmits to business enterprise.

Aftermath effects of environment on organizational structure

        A business does not operate in a vacuum. It has to act and react to what happens outside the factory and office walls. These factors that happen outside the business are known as external factors or influences. These will affect the main internal functions of the business and possibly the objectives of the business and its strategies.

Main Factors

        The main factor that affects most business is the degree of competition – how fiercely other businesses compete with the products that another business makes.

The other factors that can affect the business are:

Ø Social – how consumers, households and communities behave and their beliefs. For instance, changes in attitude towards health, or a greater number of pensioners in a population.

Ø Legal – the way in which legislation in society affects the business. E.g. changes in employment laws on working hours.

Ø Economic – how the economy affects a business in terms of taxation, government spending, general demand, interest rates, exchange rates and European and global economic factors.

Ø Political – how changes in government policy might affect the business e.g. a decision to subsidise building new houses in an area could be good for a local brick works.

Ø Technological – how the rapid pace of change in production processes and product innovation affect a business.

Ø Ethical – what is regarded as morally right or wrong for a business to do. For instance should it trade with countries which have a poor record on human rights.

Changing External Environment

        Markets are changing all the time. It does depend on the type of product the business produces, however a business needs to react or lose customers.

Some of the main reasons why markets change rapidly:

Ø Customers develop new needs and wants.

Ø New competitors enter a market.

Ø New technologies mean that new products can be made.

Ø A world or countrywide event happens

Ø Government introduces new legislation e.g. increases minimum wage.

Business and Competition

        Though a business does not want competition from other businesses, inevitably most will face a degree of competition. The amount and type of competition depends on the market the business operates in:

·     Many small rival businesses – e.g. a shopping mall or city centre arcade – close rivalry.

·     A few large rival firms – e.g. washing powder or Coke and Pepsi.

·     A rapidly changing market – e.g. where the technology is being developed    very quickly – the mobile phone market.

·     A business could react to an increase in competition (e.g. a launch of rival  product) in the following ways:

·     Cut prices (but can reduce profits)

·      Improve quality (but increases costs)

·      Spend more on promotion (e.g. do more advertising, increase brand loyalty;            but costs money)

·      Cut costs, e.g. use cheaper materials, make some workers redundant

·      Social Environment and Responsibility

        Social change is when the people in the community adjust their attitudes to way they live. Businesses will need to adjust their products to meet these changes, e.g. taking sugar out of children’s drinks, because parents feel their children are having too much sugar in their diets.

        The business also needs to be aware of their social responsibilities. These are the way they act towards the different parts of society that they come into contact with.

Legislation covers a number of the areas of responsibility that a business has with its customers, employees and other businesses. It is also important to consider the effects a business can have on the local community. These are known as the social benefits and social costs. A social benefit is where a business action leads to benefits above and beyond the direct benefits to the business and/or customer. For example, the building of an attractive new factory provides employment opportunities to the local community. A social cost is where the action has the reverse effect – there are costs imposed on the rest of society, for instance pollution.

        These extra benefits and costs are distinguished from the private benefits and costs directly attributable to the business. These extra cost and benefits are known as externalities – external costs and benefits. Governments encourage social benefits through the use of subsidies and grants (e.g. regional assistance for undeveloped areas). They also discourage social costs with fines, taxes and legislation. Pressure groups will also discourage social costs.

Exchange of Information

        It refers to data or information is exchanged with business enterprise and its internal and external environment. Exchange of information occurs in the following ways are listed below:

 • Business organization scans the external environment and internal environment components and their behavior, changes and thereby generates important information and valuable uses for business and make proper planning, decision making and control of environment variables in the organization.

 • Business organization structure and functions are adjusted towards the external environment information.

 • Generation of external environment information is complex and it is one of the major problems and it involves uncertainty to business organization.

 • A business project look for current information and future information which are relating to demography, competition, technical, legal, political and government policies and procedures.

        Apart from the collecting information, a business organization itself transfers information in the following ways:

• Organization transfer its own information to several external agencies either voluntarily, inadvertently or legally.

• Other organizations and interest individuals are also approached to business organization to obtain valuable information which relating with functions, products and services and social responsibility towards stakeholders of the company.

• An organization collects its own information in form of annual reports, occasional advertisements and media reports etc.

• An business organization is legally or otherwise binds to supply valuable information to government, society, financial institution, shareholders, creditors, debtors, investors, employees, trade unions, business bodies and the like.

Exchange of Resource

        Exchange resource is the second and dominate relationship with the business enterprise and its environment, exchange of resources involves in the following ways in the business:

 • Business enterprise receives inputs like finance, materials, manpower, equipment and labor force from the external and internal environment via contractual and other arrangements.

• Organization employees is very important due to conversion of these inputs (raw materials) into outputs like products and services

 • Organization interacts with supplier for purposefully of getting of inputs. For this purpose, an organization does not depend on single supplier and collaborates sometimes with other organization in the process of ensuring a consistent supply of quality inputs.

 • An organization is also dependent on the external environment factors for disposal of its products and services to wide range of clients and customers.

• Disposal of products and services are involved to interaction process to external environment for perceiving the needs of the external environment and catering to them, in this way satisfying the expectations and demands of clients, customers, employees, shareholders, creditors, suppliers, local community, general public and so on.

 • These above mentioned groups are tended to press on the organization due to be meeting their expectations, needs and demands and for upholding their value and interests in organization resources.

Conclusion

        This confirms that all internal factors (business entity size, life cycle stages, technology and product innovation, organizational features of autonomy, centralization and formalization, market roles, and type/importance of goals) and most external (general state of the economy, sector, and customer type), depending on the period (life cycle stage and general state of the economy), exercise a more or less significant impact on the SMBs’ performance/ effectiveness (sales growth and goals achievement). These results are the guidelines for both the scientists and entrepreneurs to pay a proper attention to internal and external factors, keeping in mind their dynamism and variability, and to adjust the theory and the practice accordingly.