How Environment Affects Organization:

Three basic perspective can be used to describe how environments affect organization.

I. Environmental change and complexity

II. Competitive forces
III. Environmental turbulence

1.Environmental change and complexity:

The environment can described in two dimension, one is its degree of change and
another is its degree of homogeneity. The degree of change is the extent to which the
environment is relatively stable or dynamic. The degree of homogeneity is the extent to
which the environment is relatively simple or relatively complex. These two dimension
interact to determine the level of uncertainty faced by the organization.

The least environmental uncertainty is faced by organizations with stable and simple
environments. Although no environment is totally without uncertainty, some
entrenched franchised operations and many container manufacturers have relatively
low levels of uncertainty to contend with.

Moderate degree of uncertainty is Organizations with dynamic but simple environment

Examples of organizations functioning in such environments include clothing
manufacturer and music producers.
2.Competitive Forces:
Porter's Five Forces Analysis is an important tool for understanding the forces that shape
competition within an industry. It is also useful for helping to adjust the strategy to suit one’s
competitive environment, and to improve your potential profit.

Threat of
new
entrants

Threat of
Competiti
substituti
ve rivalry
on
Five
competiti
ve forces

Buyer Supplier
power power

1. Threat of new entrants : Profitable markets attract new entrants, which erodes profitability.
Unless incumbents have strong and durable barriers to entry, for example, patents,
economies of scale, capital requirements or government policies, then profitability will
decline to a competitive rate.

2. Competitive rivalry : The main driver is the number and capability of competitors in the market.
Many competitors, offering undifferentiated products and services, will reduce market
attractiveness.
Where rivalry is intense, companies can attract customers with aggressive price cuts and high-
impact marketing campaigns. Also, in markets with lots of rivals, your suppliers and buyers can go
elsewhere if they feel that they're not getting a good deal from you.
On the other hand, where competitive rivalry is minimal, and no one else is doing what you do, then
you'll likely have tremendous strength and healthy profits .
3. Supplier power: An assessment of how easy it is for suppliers to drive up prices. This is driven by
the: number of suppliers of each essential input; uniqueness of their product or service; relative size
and strength of the supplier; and cost of switching from one supplier to another.

4. Buyer power: An assessment of how easy it is for buyers to drive prices down. This is driven by
the: number of buyers in the market; importance of each individual buyer to the organisation; and
cost to the buyer of switching from one supplier to another. If a business has just a few powerful
buyers, they are often able to dictate terms .

5. Threat of substitution: Where close substitute products exist in a market, it increases the
likelihood of customers switching to alternatives in response to price increases. This reduces both
the power of suppliers and the attractiveness of the market. For example, if you supply a unique
software product that automates an important process, people may substitute it by doing the
process manually or by outsourcing it. A substitution that is easy and cheap to make can weaken
your position and threaten your profitability.

3.Environmental turbulence: The unexpected changes and upheavals, five competitive

forces can be studied assessed systematically, and plasn can be developed for dealing with
them. An organization can face the environmr=ental changes or turbulences. The common
form of organizational turbulences are-

-Terrorist attacks: Terrorist attack is an obious illustration of environmental turbulences.

Organization need to consider the safety of their employees as they go about their day-to-day
business. They also need to consider their response if indirectly affected .

-Workplace violence: Workplace violence is violence or the threat of violence against workers.
It can occur at or outside the workplace and can range from threats and verbal abuse to
physical assaults and homicide, one of the leading causes of job-related deaths. 4 types of
workplace valances are Criminal intent, customer or client Worker-on-worker Personal
relationship.

- Political violence the political environment can impact business organizations in many ways. It
could add a risk factor and lead to a major loss. You should understand that the political factors
have the power to change results.

-Computer viruse: Computer viruses can hamper the entire information system of the
organization. This can result losses of information ,leaks data, misuse of confidential data of the
company.