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Name:- Ashish Paudel Sub: Business Environment



“To survive a firm must strive to achieve a fit of its environment, its strategy and its
organizational architecture.” Elucidate.

Environment impact is essential ingredients for strategist to study changes and take
appropriate decisions at appropriate time. If strategist neglect to take appropriate decisions at the
right time it creates impact to organization. Survival, growth, profitability and development of
organization depend critically in terms of micro and macro factors of the business environment.
Environment impact has to be bringing new dimensions to business. So the following quotations
are proved to be very useful:
Finally, according to Clifton Garvin, Kenneth R. Andrews - “Awareness of the environment is
not special project to be undertaken only when warning of change becomes deafening”.
Business environment of the firms/company or organization can be classified into two broad
categories - Internal Environment and External Environment. Relation of business organization
and its environment is obvious from the point of analysis of strengths, weakness, opportunity and
threats of business. 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. Mainly the following relationship is clearly seen:

i) Exchange of Information
ii) Exchange of Resource
iii) Exchange of Influence and Power

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iv) Exchange of Information
It refers to data or information is exchanged with business enterprise and its internal and external
environment. 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 makes 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 looks for current information and future information which are relating to
demography, competition, technical, legal, political and government policies and procedures.
Organization transfers its own information to several external agencies either voluntarily,
inadvertently or legally. 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.

Necessity of Fitness to its Strategy

Strategic Management is important because a firm's present situation and condition may preclude
certain strategies and may even dictate a particular course of action. Every organization has a
vision, mission, objectives, and strategy, even if these elements are not consciously designed,
written, or communicated. The answer to where an organization is going can be determined
largely by where the organization has been.

Application of the strategic-management process is typically more formal in larger and well
established organizations. Formality refers to the extent that participants, responsibilities,
authority, duties, and approach are specified. Smaller businesses tend to be less formal. Firms
that compete in complex, rapidly changing environments such as technology companies tend to

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be more formal in strategic planning. Firms that have many divisions, products, markets, and
technologies also tend to be more formal in applying strategic-management concepts. Greater
formality in applying the strategic-management process is usually positively associated with the
cost, comprehensiveness, accuracy, and success of planning across all types and sizes of
Following are the major benefits of Strategic management:
i) Proactive in shaping firm’s future
ii) Initiate and influence actions
iii) Formulate better strategies

Research indicates that organizations using strategic-management concepts are more profitable
and successful than those that do not. Businesses using strategic-management concepts show
significant improvement in sales, profitability, and productivity compared to firms without
systematic planning activities. High-performing firms tend to do systematic planning to prepare
for future fluctuations in their external and internal environments. Firms with planning systems
more closely resembling strategic management theory generally exhibit superior long-term
financial performance relative to their industry. High-performing firms seem to make more
informed decisions with good anticipation of both short and long-term consequences.
On the other hand, firms that perform poorly often engage in activities that are short sighted and
do not reflect good forecasting of future conditions. Strategists of low-performing organizations
are often preoccupied with solving internal problems and meeting paperwork deadlines. They
typically underestimate their competitors' strengths and overestimate their own firm's strengths.
They often attribute weak performance to uncontrollable factors such as poor economy,
technological change, or foreign competition. Besides helping firms avoid financial demise,
strategic management offers other tangible benefits, such as an enhanced awareness of external
threats, an improved understanding of competitors' strategies, increased employee productivity,
reduced resistance to change, and a clearer understanding of performance-reward relationships.
Strategic management enhances the problem prevention capabilities of organizations because it
promotes interaction among managers at all divisional and functional levels.

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Necessity of Fitness to its Architecture

Organizational structure depends on the product to be developed. Wheelwright and Clark define
a range of organizational structures between two extremes, functional organizations and project
organizations. Functional organizations are organized according to technological disciplines.
Senior functional managers are responsible for allocating resources. The responsibility for the
total product is not allocated to a single person. Coordination occurs through rules and
procedures, detailed specifications, shared traditions among engineers and ad hoc and structured
meetings. Products that need a high level of specialized knowledge require a functionally
organized structure. A light-weighted matrix organization remains functional and the level of
specialization is comparable to that found in the functional mode.
What is different is the addition of a product manager who coordinates the product creation
activities through liaison representatives from each function. Their main tasks are: to collect
information, to solve conflicts and to facilitate achievement of overall project objectives. Their
status and influence are less as compared to functional managers, because they have no direct
access to working-level people. A heavy-weighted matrix organization exists of a matrix with
dominant the project structure and underlying the functional departments.

Companies can be classified to their organizational structures. Other variable companies can be
classified to the nature of the projects undertaken. We characterize projects by the number of
employees needed to perform the tasks, or workload, and the number of tasks that are
fundamentally different in nature. Another way to classify organization structure is by one of the
following four categories:

i) The product to be developed is comprehensible for one person. One person is likely to
have all the knowledge needed to develop Manufacturing and Assembly. The
development departments in companies that undertake these kinds of projects are
usually very small. If a company consists of more than one department, it is usually
structured as a functional organization.
ii) The product to be developed has a fairly low complexity, but total work is high. These
kinds of products are likely to be developed within one functional department. A

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research department may also be an example of a department in which type II projects
are undertaken. Are more departments involved, and then the light weighted matrix
structure is preferable. Employees are involved on a full-time basis.
iii) The product is complex. Total work is high. Employees can thus participate on a full-time
basis. A project organization is the most appropriate organizational structure for these
kinds of products.

In this way, a firm must be adaptive to its environment for which it needs to analyze internal as
well as external environments. A firm must be governed by its corporate strategy and the
implementation body must match its activities to its vision, mission, goals and objectives. A firm
should always strive to fit with its environment within which it needs to operate its overall
functions and achieve all the predetermined objectives and goals with survival, growth and
expansion in parallel. No organization can be run without a proper strategy which directs to
move toward its goals and objectives. A firm must set up its architecture as per its strategy and
environmental aspects.

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