One of the biggest environmental factors affecting organizational structure is whether the
Organizational environment denotes internal and external environmental factors influencing organizational activates and decision making. Show
Every organization, whether business or non-business, has its environment. The organizational environment is always dynamic and ever-changing. Changes today are so frequent and every change brings so many challenges that managers and leaders of the organization need to be vigilant about the environmental changes. The environment of an organization consists of its surroundings – anything that affects its operations, favorably or unfavorably. Environment embraces such abstract things as an organization’s image and such remote visible issues as economic conditions of the country and political situations. The environmental forces abstracts and visible need careful analysis. The systematic and adequate analysis produces the information necessary for making judgments about what strategy to pursue. Managers cannot make appropriate and sound strategy simply based on their guesses and instincts. They must use relevant information that directly flows from the analysis of their organization’s environment. Types of Organizational EnvironmentBy the word “environment” we understand the surroundings or conditions in which a particular activity is carried on. And we know that organization is a social entity that has a hierarchical structure where all necessary items are put together and they act within it to reach the collective goal. Organizations or more specific business organizations, and their activates are always being affected by the environment. In an organization, every action of the management body is influenced by the environment. Organizations have an external and internal environment;
An organization’s operations are affected by both types of environments. Therefore, the managers need to make an in-depth analysis of the elements of the environments so that they can develop in themselves an understanding of the internal and external situations of the organization. Based on their understanding, they will be better able to establish the required objectives for their organization and formulate appropriate strategies to achieve those objectives. In this post, we will look at the elements of the organizations’ environment. Internal Environment of OrganizationForces or conditions or surroundings within the boundary of the organization are the elements of the internal environment of the organization. The internal environment generally consists of those elements that exist within or inside the organization such as physical resources, financial resources, human resources, information resources, technological resources, organization’s goodwill, corporate culture and the like. The internal environment includes everything within the boundaries of the organization. Some of these are tangible, such as the physical facilities, the plant capacity technology, proprietary technology or know-how; some are intangible, such as information processing and communication capabilities, reward and task structure, performance expectations, power structure management capability and dynamics of the organization’s culture. Based on those resources, the organization can create and deliver value to the customer. This value is fundamental to defining the organization’s purpose, and the premise on which it seeks to be profitable. Are we adding value by research and development or by customer service, or by prompt delivery or by cutting any intermediary which reduces the customers’ costs? Organizations build capabilities over a long time. They consistently invest in some areas so that they can build strong competitive businesses based on the uniqueness they have created. The manager’s response to the external environment would depend upon the availability and the configuration of resource deployment within the organization. The deployment of resources is a key managerial responsibility. Top management is vested with the responsibility of allocating resources between the ongoing operations/activities and also with future operations which are of strategic nature, that is they might yield returns in some future time which require resources now to be nurtured and have some associated risks. The top management has to balance the conflicting demands of both as resources are always finite. For example, General Electric is an aggressive innovator and marketer who has been ruthless in its approach to changing proactively as well as reactively to sustain its competitive positions in the respective industries. This implies that over the years General Electric has invested in developing those capabilities, systems, and processes that enable it to respond. Elements of internal environment are;
The internal environment consists mainly of the organization’s owners, the board of directors, employees and culture.
The internal environment of an organization consists of the conditions and forces that exist within the organization. Internal environment {sometimes called micro-environment) portrays an organization’s ‘in-house’ situations. An organization has full control over these situations. Unlike the external environment, firms can directly control the internal environment. Internal environment includes various internal factors of the organization such as resources, owners/shareholders, a board of directors, employees and trade union, goodwill, and corporate culture. These factors are detailed out below. External Environment of Organization – Factors Outside of Organization’s ScopeFactors outside or organization are the elements of the external environment. The organization has no control over how the external environment elements will shape up. The external environment embraces all general environmental factors and an organization’s specific industry-related factors. The general environmental factors include those factors that are common ir\ nature and generally affect all organizations. Because of their general nature, an individual organization alone may not be able to substantially control their influence on its business operations. Managers have to continuously read signals from the external environment to spot emerging opportunities and threats. The external environment presents opportunities for growth leadership, and market dominance, it also poses the threat of obsolescence for products, technology, and markets. While one section of an organization faces opportunities, another faces threats from a similar environment, perhaps because there is differentiation in their respective resources, capabilities and entrenched positions within the industry. For example, the burgeoning mobile telephone market in India provides enormous opportunities for different types of organizations from handset manufacturers, content developers, application developers, mobile signal tower manufacturers, to service providers. At the same time, it poses a threat to the fixed-line telephone business which for a long time, has been the monopoly of public sector enterprises. The increasing demand for telecommunication services in India post-deregulation was an enormous opportunity for early entrants to enter the telecom services business and compete for revenue with state-owned organizations. At the same time, the growing demand for mobile services led to an expansion of industrial capacity, price wars, lowering of call tariffs, acquisitions, and declining industry profits. India has one of the lowest call rates in the world. As the industry matured and consolidation took place, the old players had to alter their business models and strategies. The external environment can be subdivided into 2 layers;
General Environment of Organization – Common Factors that All company in the Economy FacesThe general environment usually includes political, economic, sociocultural, technological, legal, environmental (natural) and demographic factors in a particular country or region. The general environment consists of factors that may have an immediate direct effect on operations but influences the activities of the firm. The factors of the general environment are broad and non-specific whereas the dimensions of the task environment are composed of the specific organization. The external environment consists of an organization’s external factors that affect its businesses indirectly. The organization has no or little control over these factors; that means, the external environment is generally non-controllable. However, there may be exceptions. The external environmental factors reside outside the organization, which can lead to opportunities or threats. For the convenience of analysis, we can divide the external environment into two groups: (a) general environment (or remote environment), and (b) industry environment (some call it ‘immediate operating environment’, ‘task environment or‘specific environment’). The general environment consists of those factors in the external environment that indirectly affect the business operations of firms. The major factors that constitute the general environment include political situations, economic conditions, social and cultural factors, technological advancements, legal/regulatory factors, natural environment, and demographics in a particular country or region. The industry environment consists of those factors in the external environment that exist in the industry in which the organizations operate their business. The industry environmental factors are generally more controllable by a firm than the general environmental factors. Industry environment comprises those factors in the external environment that exists in tie concerned industry of a firm in which it is operating its business. For example, US Pharma is operating its business in the pharmaceutical industry. Therefore, all factors that are likely to affect the business operations of Incepta Pharmaceuticals Limited would be included in the ‘industry environment’ of the company. There are mainly 6 factors in the industry environment such as suppliers, buyers & customers, competitors & new entrants, substitute products, regulators, and strategic partners. It may be noted that some industry environmental factors such as competitors and substitute products may-exist even outside the concerned industry. For example, a leasing company may emerge as a competitor of the companies in the banking industry in terms of attracting deposits and providing loans to business houses. Regarding the industry environment, the important issue to appreciate is that they reside in the immediate competitive situations of a firm. Also, they are very specific in the sense that they can be easily identified. For these reasons, they are often regarded as ‘specific environment’ or ‘task environment’. The strategy-makers must understand the challenges and complexities of both the general environmental factors and the industry environmental factors. They need to appreciate that the general environmental factors are largely non-controllable because of their distantly located external nature. When strategists take into cognizance of both the general (remote) and industry (operating) environments, they are likely to become more proactive in strategic planning. In the following discussions, you will find a broad description of the general environment. Elements of the General External EnvironmentThe general environment includes the; distant factors in-the external environment that is general or common in nature. Its impact on the operations of the firm, its competitors and customers make its analysis imperative. We can use the PESTLE model for the identification and analysis of the factors in the general environment. PESTLE Model covers political, economic, sociocultural, technological, legal, and environmental (natural).
Along with these, we can add additional factors that suit the current modern business atmosphere.
Let’s see the elements or factors of the general environment.
General external environmental factors are interrelated with organizational success. Therefore, strategy-makers need to analyze all of them in an interrelated fashion to understand and visualize the ‘whole of the environment. Industry/Task Environment of Organization – Industry Factors that are Vital for Business FunctionsA business firm’s strategy is affected by the structural characteristics of the industry, it is thus considered essential for a firm to make an elaborate analysis of the industry in which the firm operates its business. Based on Michael Porter’s research results, Van industry structure consists of suppliers, buyers, direct competitors, new entrants, and substitutes. The strategy-makers of a firm need to be concerned with the impact of the industry structure on the firm’s strategy. Once the external environmental analysis has been completed, they should embark upon industry analysis. Industry analysis helps them have clear information about what is happening in the industry in which their companies are operating their businesses. Since the industry contains competition, its analysis brings to light the complexities of the competition and the consequent challenges facing the industry. The industry environmental factors, on the other hand, are those factors in the external environment that specifically reside in a particular industry and affect competition such as suppliers, customers, competitors, and substitute products The task environment consists of factors that directly affect and are affected by the organization’s operations. These factors include suppliers, customers, competitors, regulators and so on. A manager can identify environmental factors of specific interest rather than having to deal with a more abstract dimension of the general environment. Elements of the industry or task environmentAs a manager or entrepreneur, you should be able to identify the various elements of the industry environment so that you can take appropriate steps to respond to them effectively in order to survive in the industry.
The different elements of the task environment may be discussed as under:
The industry environment is the competitive environment of a business organization. Industry environment substantially affects a firm’s business operations, because it is the ‘immediate’ external environment of the firm, which is also known as ‘immediate operating environment.’ Every firm operates its business in an industry and therefore its activities are directly affected by any change in the industry and therefore its activities are directly affected by any changes in the industry environment. Changes in the genera! the environment can have a direct impact on any of the factors in the industry environment. An organization has greater control over the industry’s environmental factors than the general environmental factors. One point is to be noted that although the industry environment affects all the firms in the industry, in reality, all firms are not affected equally. Influence of Internal and Environment on BusinessBusiness managers must understand the various facets of the impacts of the external environment. They need to recognize that the external environment has many aspects that can have a significant impact on the operations of a firm. They need to undertake an analysis of the environment regularly. This is particularly important for the reason that developments/changes in the remote environment influence the business organizations. They also need to understand the influences of changes in the industry environment. Managers are benefited in several ways when they have a deep understanding and appreciation of the impact of environmental factors on business:
ConclusionThe environment irrespective of its external or internal nature, a manager must have a clear understanding of them. Normally, you would not go for a walk in the rain without an umbrella, because you understand the environment and you know when it rains you can get wet. Similarly, if a manager does not know and understand the environment of the organization, he or she will definitively get wet or dry and the organization also in today’s fast and hyper-moving organizational environment. What are the factors affecting an organizational structure?Although many things can affect the choice of an appropriate structure for an organization, the following five factors are the most common: size, life cycle, strategy, environment, and technology. The larger an organization becomes, the more complicated its structure.
How does the environment affect organizational structure?The environment is the source of resources that the organizations needs. It provides opportunities and threats, and it influences the various strategic decisions that executives must make.
What are environmental factors that affect organizational culture?Customers, competition, economy, technology, political and social conditions, and resources are common external factors that influence the organization. Even if the external environment occurs outside an organization, it can have a significant influence on its current operations, growth and long-term sustainability.
What are the two most important factors that affect the organizational structure?What are the factors that influence organizational structure?. Business strategy. The way you position your company should also inform your organizational design. ... . Location. We live in a global, digital age. ... . Culture. ... . Technology.. |