The Organizational Environment

Fundamentals of management

Overview

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.

Objectives

At the end of the lesson students should be able to:1. Understand the importance of the influencing

forces with in an organization’s environment .2. Describe the general and task environments.

The external environment(Macro environment)

Internal Environme

nt

Task Environment

General Environment

•Political / legal•Economic•Socio-cultural•Technological

•Customers•Labour•Competition•Suppliers

•Employees•Management•Culture

Organizational environment

We can conceptualize the organization as having two layers:1. The general

environment2. The task environment

The general environment

The general environment or macro-environment is all those forces affecting the organization indirectly. These external forces are:

▪Political / legal▪Economic▪Technological▪Socio-cultural

Political / legal environment

The general environment is inclusive of government regulations, laws, policies and activities designed to influence organizational performance in an indirect way.

Technological forces

Technological environment includes changes in technology that affect the way organizations operate and service they provide.

Economic dimensions:

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:

▪ Interest rates and inflation▪ Consumer price index▪ Monetary and fiscal policy▪ taxes▪ Unemployment rates▪ Wage rates▪ GDP

Socio cultural

The importance socio cultural factors that companies should analyze are: Age Population density Educational levels Geographical distribution Culture Lifestyles

Task environment

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

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

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

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.

Competition

Competitors are other organizations in the same industry or type of business providing goods and services to the same set of customers.

Internal environment

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.

Importance of the organizational environment

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.

What forces in an organizational environment do you see influencing the hotel industry in your country?