Organization

Environment
Chapter 4
Environmental Trends that challenge
Organizations
• 1. Digital technologies and Artificial Intelligence
• 2. Blockchain Technologies
• 3. Sharing-economy culture and value-added business
models
• 4. Shifts in learning and learning credentials
• 5. Ethics, Corporate Social Responsibility and
Sustainability
 Organization Environment
• Organizational environments are composed of forces or
institutions surrounding an organization that affect
performance, operations, and resources.
• It includes all of the elements that exist outside of the
organization's boundaries and have the potential to
affect a portion or all of the organization
 Organization Environment
1. External environment – everything outside an organization’s
boundaries that might affect it. It consists of
◦ General environment
◦ Task environment

2. Internal environment – the conditions and forces within an

organization.
An organization's internal environment is composed of the
elements within the organization, including current employees,
management, and especially corporate culture, which defines
employee behavior.
 External Environment

i. General environment: or macro-environment,

is the variety of factors beyond an organization's control
that affect their operation and performance.
These external influencers can determine whether a
business experiences opportunities or setbacks in the
marketplace.
It is the set of broad dimensions and forces in an
organization’s surroundings that create its overall
context.
Factors of General Environment
 External Environment
ii. Task environment: consists of specific organizations
or groups that influence an organization.
Any business or consumer with direct involvement with
an organization may be considered as part of the task
environment.
1. Competitors
2. Customers
3. Suppliers
4. Strategic partners
5. Regulators
 Factors of General Environment
Economic Dimension:
 The economic factors that can affect management
practices and operations of a business make up the
economic dimension of the business environment.
 Usually influenced by economic growth, inflation or
interest rates and unemployment, income of the people
and value of the currency.
Factors of General Environment
Technological Dimension:
 The technology dimension focuses on identifying the
ways in which technology is incorporated in the current
organization.
 Methods available for converting resources into
products or services.
• Examples include:
• CAD (computer-assisted design) techniques
• Assembly-line techniques for car manufacturing
• Use of internet in all areas of business
• Integrated business software systems
 Factors of General
Environment
Socio-cultural Dimension:
 Socio-cultural factors include consumers' lifestyles, buying
habits, education, religion, beliefs, values, demographics, social classes,
and attitudes towards work. These factors determine the suitability of an
organization's products and services for its customers' needs.
 Customs, values and demographic characteristics of the society in which
the organization functions.
• Socio-cultural processes determine the products, services and standards of
conduct that society is likely to value.
• Consumer tastes change over time – preferences for color, style, taste, etc
change from season to season.
• [McDonald’s response to healthier food selections]
 Socio-cultural factors influence how workers feel about their jobs and
organizations.
• Appropriate business conduct varies from culture to culture.
 Factors of General Environment
Political-Legal Dimension:
 The political environment is related to the business environment
including all the rules and regulations, laws and the role of
government in the day-to-day operations of organizations.
 The business political environment refers to the political or
governmental actions that affect business operations.

 The legal system partially defines what an organization can and

cannot do.
 Pro-business or anti business sentiment of government influences business
activity.

 Political stability has ramifications for planning. No business wants

to set up shop in another country unless trade relationship with
Factors of General Environment
International Dimension:
 Refers to factors in other countries that affect
organizations
 The extent to which an organizations is involved in or
affected by business in other countries.
 Advances in transportation and information technology
have linked all parts of the world, no matter how remote.
 The international environment provides new competitors,
customers, and suppliers and shapes social,
technological, and economic trends as well.
 Task Environment
 Task environment is the external environment of an
organization which effects its ability to reach business
goals.

 Task environment comprises the Consumers,

Government regulations, competitors, and suppliers
with direct involvement with the organization.
• Such external forces affect the production, marketing,
availability, distribution and consumption of the
company`s products or services.
 Factors of Task Environment
• Customers:
 Whoever pays money to acquire an organization’s products or
services.
• The customer is the most important component of the task
environment. All business activities are directed toward satisfying
customer needs and retaining them.
 Customers may be an individual, families, or businesses.
• Besides purchasing goods and services, they are also the source
of information and ideas for the business. An organization should
focus on addressing the changing needs and demands of
customers and build a long-term relationship with them.
 Factors of Task Environment
• Competitors:
 Organizations in the same industry or type of business
that provide goods or services to the same set of
customers are referred to as Competitors.
 Other organizations that compete with our organization
for resources.
 Most obvious resource is customer dollars.
 Organizations compete for bank loans, property, quality
labor, technological breakthroughs, scarce raw
materials.
 Factors of Task Environment
• Suppliers:
• Suppliers provide raw materials for organizations to produce
goods or services.
• Organizations that provide resources for other organizations.
• Suppliers have high bargaining power if the raw materials
being supplied are rare or if there are less number of
suppliers in the market. So it’s important to hold on the
suppliers and maintain good relationship with them.
• Acting intelligently, companies often maintain more number
of suppliers to reduce risk of deserting by anyone.
 Factors of Task Environment
• Strategic Partners (Allies):
• Two or more companies that work together in joint
ventures or similar arrangement.
• McDonald’s with Wal-Mart and Disney.
• Strategic partnerships allow companies to share
expertise they lack, spread risk and open new market
opportunities.
• Usually occurs with international firms. [Ford shares a
distribution and service center in South America with
Volkswagen and builds minivans in the US with Nissan]
 Factors of Task Environment
• Regulators:
 A unit that has the potential to control, legislate or otherwise influence the
organization's policies and practices.
• Regulatory agencies – created by the government to protect the public from
certain business practices or to protect organizations from one another.
• Government regulates the business system. It further formulates different
policies for the development of businesses in the country. It attempts to protect
the interest of the consumer as well as the general public. Hence, the regulations
and policies of the government exert a considerable impact on the operation of a
business
• Eg:
• State Bank of Pakistan
• Drug Regulatory Authority
Food Regulatory Authority
Pakistan Electronic Media Regulatory Authority
 Case Study
Consider the following scenario and answer the questions below.
You are thinking about opening up a cafe, and you are currently
considering all of the outside factors that would affect your future
business (known as the task environment).
 Who will be your target customers? Do you expect a steady flow of these
customers throughout the year, or do you expect there to be ebbs and flows
based on the season?
 You will need supplies to run your business. What supplies will you need and from
whom do you expect to order these supplies?
 Think about where you will be opening. Will you have any direct competitors
(cafes)? Do you expect to have any indirect competitors (i.e. other types of coffee
shops)? Why do you believe you will be competing with these other businesses?
 You will need to hire employees. Do you expect a lot of employees or just a few?
What types of employees do you plan to target during your hiring process and
why?
 What threats do you foresee that could cause your business to be unsuccessful?
 What opportunities do you believe can be attainable if your business is
successful?
 Internal Environment
• Internal Environment consists of:
• Owners
• Board of Directors
• Employees
• Physical Work Environment
• Organizational Culture
Factors of Internal Environment
• Owners:
• People who can claim property rights to an organization.
• Single individual who establishes and runs a small
business.
• Partners who jointly own a business.
• Shareholders who own shares of stock in a corporation
or other organization.
Factors of Internal Environment
• Board of Directors:
• Governing body elected by a corporation's stockholders
and charged with overseeing the general management
of the firm to ensure that it is being run in a way that
best serves the stockholders’ interests.
Factors of Internal Environment
• Employees:
• The nature of the workforce is changing in terms of gender,
ethnicity, age, etc.
• Workers are also demanding more job ownership – partial
ownership in the company or more say in how they perform
their jobs.
• Companies are relying on ‘temps’ more – less salary and
benefits cost – but no company loyalty.
• Labor unions are presenting management with another layer
with which to deal – some companies deal with more than
one union.
Factors of Internal Environment
• Physical Work Environment:
• Physical working environment affect how employees in an
organization interact, perform tasks, and are led.
• A good work environment contributes to efficiency and
competitiveness.
• An important consideration for many businesses.
• Construction supervisors may rely on wireless communication equipment to
keep in touch with various work crews.
• Facilities may be spread out among various buildings in the city, in rural or
suburban areas, or in campus-like facilities.
• Some facilities have traditional offices on each side of a hall, some modular
cubicles with partial walls, or an even more open arrangement.
Factors of Internal Environment
• Organizational Culture:
• A set of values, beliefs, behaviors, customs and
attitudes that helps the members of the organization to
understand what it stands for, how it does things and
what it considers important.
 vision statements, policies, benefits, incentive, office
design, wages, management style, and the treatment of
staff.
 Plays an important part in shaping management
behavior.
What is the importance of
culture to your company?
• Improve recruitment efforts – 77% of workers consider a
company’s culture before applying
• Improve employee retention – culture is one of the main
reasons that 65% of employees stay in their job
• Improve brand identity – 38% of employees report wanting to
change their job due to poor company culture
• Improve engagement – companies with a positive culture have
up to 72% higher employee engagement rate
• Organizational culture affects all aspects of your business, from
punctuality to contract terms and employee benefits. When
workplace culture aligns with your employees, they’re more likely
to feel more comfortable, supported, and valued.