Organization is not like an isolated island.

It does not exist in a void

but it is rather in a state of constant interaction with various factors
present in its environment. These factors can be internal to the
organization or can be externally related.

Organizational environment is defined as a set of characteristics

which describe the organization and distinguish it from other
organizations within a given time period affecting behaviour of the
employees therein. These characteristics affect the functional beha-
viour of the employees, their trends and motives. These
characteristics basically interconnect the internal work environment in
the organization and make it a distinct feature of the organization.
Organizational environment also differentiate the organization with
other organizations. It also provides relative stability to the
organization.

Organizational environment is not a homogenous entity, but

represents a complex combination of large number of factors, each of
which affects the organization in its unique way. The nature of the
environment determines the framework within which the organization
conducts its activities. The environment sets legal, technical-
technological, socio-cultural and other limitations to the
organizations. These jointly form the framework, i.e., the overall
conditions in which the organization conducts its operations. Thus the
environment directly or indirectly affects the ways and the dynamics
of work of the organization within it.

Organization has open systems which constantly interact with the

environment and in the process affect and are affected by the
environment. Organization does not exist in a vacuum but exist in an
environment which provides resources and limitations. If it is to
remain prosperous, the organization is to continually adapt to its
environment which is constantly changing. Normally, any negligence
to adequately adapt to the environment is a major cause of the
organizational failure.

It is not always possible to differentiate how environment influences

the processes in the organization and it is even more complicated to
bring out straight-forward lines from the organization to the
environment it exists in. One has only to assume that these are
processes which occur simultaneously and hence specifications of
those influences frequently remain theoretical and even hypothetical.

External environment can be handled from different perspectives.

Duncan (1972) has defined external environment as ‘the environment
that consists of those relevant physical and social factors outside the
boundaries of the organization or specific decision unit that are taken
directly into consideration. The external environment could be
determined through two dimensions – simple-complex and state-
dynamic’.

The external environments which the organization confronts have an

important influence upon its prospects of success. The resources
available within the environment, the multiplicity of stakeholder
demands to be addressed and the rates of change in these, each has
serious implications for the functioning of the organization. .
Nevertheless, it remains conceivable that the effects of different
dimensions of the environment are not straightforwardly positive or
negative, but can follow nonlinear patterns posing very different
challenges at different levels.

The complexity of environment can be measured in terms of the

factors which exist in environment and influence different subjects
involved. If the complexity is low (i.e. simple environment) there are
few factors, which are rather similar to one another in the decision
process. In case of complex environment factors in the decision unit’s
environment are large in number. The state-dynamic dimension
indicates the degree to which the factors of the decision unit’s
environment remain basically the same over time or are in a continual
process of change.

Uncertainty involves a perceived inability to control or accurately

predict outcomes of the interaction between an organization and its
environment. It has been generally defined as the inability to assign
probabilities to events. More recently, in the organizational context,
uncertainty has been defined as a ‘lack of information about future
events, so that alternatives and their outcomes are unpredictable’.

Since the organizations are engaged in various activities in the

environments surrounding them, it is clear that the conditions in which
they operate are also varied. Whatever be the nature of the
environment, that is, the conditions they operate in, the organizations
are to be well acquainted with them in order that they are able to
operate purposefully and develop further. Poor knowledge of the
environmental factors relevant for the organizational operations and
the failure to adapt to them are the main causes of crises in
organizations, and of their closure.

Factors affecting organizational environment

Factors which affect organizational environment falls into four

categories namely (i) organizational factors, (ii) material and moral
factors, (iii) psychological factors, and (iv) environmental factors.

Organizational factors – Organizational factors represent all forms

and types of information coming to the employees, and which
describe and clarify facts and characteristics of the organizational
positions, relationships and circumstances within the organization.
These factors also specify for employees their duties dictated by their
belonging to the organization, types of opportunities and interests
they can get against fulfillment of the said duties and requirement.
Organizational factors can be sub-divided into several groups such as
organizational structure, employee intensity, supervision scope, mode
of leadership, and style of decision making etc.

Material and moral factors – Material and moral factors for

organizational environment are defined as an external force attracting
the employees thereto to get it through a certain behaviour allowing
access to the incentives to which the employees are entitled. Thus
incentive stands as the rewards which are obtained by the employees
if their behaviours are satisfactory to the organization.

Employees who perceive higher levels of control at work are more

satisfied, committed, involved, motivated, perform better, experience
fewer emotional and physical symptoms, less absenteeism, fewer
intentions to quit and experience less conflict. Further power and
effectiveness increase when superiors share power and control with
their subordinates.

Material factors mean such factors which satisfy material needs of

the employees, while moral factors means such factors which satisfy
moral needs of the employees. These factors are also sub-divided into
positive and negative where positive factors facilitate and develop
some disposal while negative factors prevent some sorts of
disposals.

Psychological factors – These factors originate from the inside of the

employees because of the perception of their attitude to the
surrounding environment. Employees do not merely need satisfaction
of their physical needs only, but there are other needs which they feel
and endeavors to satisfy. These needs are known as psychological
needs.

Psychological needs relate to the willingness of the employees in

achieving and realizing results and desire to get an important social
status. Psychological needs are characterized to a large extent by
being personal, namely they can be found in some individuals rather
than others.

The psychological factors are sub-divided into needs for commitment

and belongingness, possession, struggle, and needs for power and
influence. These factors can be further classified into the need for
security and stability, allegiance and belonging, personal factors and
the need for self realization.

Environmental factors – Environmental factors belongs to the

environment external to the organization. They are represented by the
factors which are present in the surrounding of the organization and
affecting the organization. These factors include political and
regulatory (P), economical (E), social (S), technical and technological
(T), and ecological (E). These factors are parts of macro-environment
and sometimes called PESTE (or sometimes due to the changed order
of items STEP analysis) factors. The study of environmental factors
for organizational environment makes possible the interpretation of
many phenomena as well as control over many situations within the
organization. These factors affect the organizational policies and
decision making. They also have influence on the long-run objectives
of the organization.

Theoretical aspects
Organizational adaptation to the environmental conditions is an issue
which has been studied extensively. In the contemporary environment
which is subject to frequent changes, the organization is to develop a
system of organizational response to any relevant changes in the
environment, and in real time. In other words, the organization has to
develop a set of competencies which enables it to respond to any
events in the environment relevant for its operation. These
competences develop in time, due to the organizational evolution
which is continually in progress, so that the organization is
permanently adapting to the changes of relevant conditions in the
environment.

The organization adapts to the changes in its environment in the first

place by its strategy, which reflects its operations in the environment.
The strategy is in fact a special link between the organization and its
environment. By implementing an adequate strategy, the organization
either adapts to the environment, or adapts the environment to it. The
selection of optimal strategy depends on the strategic management
of the organization, namely, on the perception of the overall conditions
in the environment, as well as the manner in which the organization is
to operate in order to be permanently adapted to the changes in the
environment in an effective and efficient manner. The implementation
of the strategy itself refers to performing the activities in accordance
with the limitations imposed by the organizational environment, by the
defined strategy, and by the resources at disposal. A study has
developed an integrated perspective which stresses action,
coordination and adaptation and sees strategic management as a
process of managing change.

On the other hand, organizations now compete in a complex and

dynamic environment transformed by the flow of, and need for, instant
information, where knowledge is increasingly becoming the most
valuable resource. Thus, there is a general agreement that knowledge
is critical to the pursuit of competitive advantage. Several studies are
there which have increasingly focused on bundles of knowledge-
based resources and their manipulation and integration with other
resources. Managing knowledge inventories is a very important issue
since, under conditions of environmental uncertainty; organizations
need to be flexible if they are to react rapidly to unknown
circumstances.

The process of forming and implementing the strategy within the

organization is to be based on the cross functional coordination,
feedback and continual learning of all the employees of the
organization and the learning of organization as well. The
management is to permanently initiate and foster controlled
experimenting of all employees, as well as to support the development
of all useful ideas, no matter where they come from. The role of the
strategy is twofold. On one hand, it is the transmitter of influence of all
relevant factors, or their changes in the environment, which it
amortizes on their entering the organization; while on the other hand,
it is a result of the impacts of all the circumstances taken into
consideration in the process of its formulation.

Besides, the strategy is of utmost importance for any other elements

in the organization which are designed and adjusted to one another in
order that the defined strategies are to be smoothly fulfilled and the
strategic goals are to be achieved. The role of the strategy is to define
the criteria and limitations to be observed in the organizational
structure designing, reward system creation, and the nature of
organizational culture definition, etc.

Environmental impact upon organizational operations is an important

and complex issue, not paid due attention to in many organizations.
The considerations concerning the relationship between the
organization and its environment are an important aspect. Many of the
organizations are normally burdened with chronic problems, mainly
the consequence of poor financial standing and large debts, poor
prospects of efficient operations, inappropriate qualification structure
of the employees, obsolete technology, inadequate organizational
structure and excess number of employees, all these further
aggravated by inadequate organizational operations. Such a situation
needs that the method of the organizational operations and its
structure is to be redefined, so that the organization can improve the
competitiveness.

One of the starting steps in this complex endeavour is actually to

define the factors which affect the organizational operations to a
great extent. If the nature of the environment is understood and the
factors affecting organizational operations are determined, then the
management is able to define effective and efficient strategies to
improve the level of competitiveness of the organization.

Organizational environment and employees

It is normally seen that a particular environment, as described by its

climate, is capable of benefiting the well‐being of the people exposed
to it. Organizational environment characterized as supportive and
employee‐focused are associated with affective outcomes such as
organizational commitment. There is a link exists between the
organizational environment and the burnout of employees. The
organizational environment can also have a powerful influence on
employee perceptions of empowerment. A participative environment,
for example, one which ‘recognizes the critical value of human capital
to the success of an organization’ by respecting employees, and
acknowledging their contribution, facilitates perceptions of
empowerment.

Employee empowerment, in turn, is normally advocated as especially

important to the delivery of the services and is associated with
positive affective, behavioural, and organizational work outcomes. It is
found, for example, that as a result of feeling empowered, and
employees tend to feel less anxious, and cope better with adverse
events, thus reducing the risk of burnout. Further, it is often
emphasized that the aspects of environment which promote the well-
being of the employees by helping them to feel valued and respected,
for example, are important to service delivery.

Employees need to feel that their own needs have been met within the
organization before they can become enthusiastic about meeting the
needs of the customers. When employees encounter organizational
practices which help them to feel respected and appreciated by their
organization, they create, because of their more positive attitudes and
behaviours, a more positive experience for the customers.

Management emphasis on ensuring that the work attitudes and

behaviours of employees are conducive to the delivery of high quality
service is therefore vital to the effectiveness of the organization. It is
normally stressed that management practices need to include the
foundations for employees to enable them to deliver quality services
to the customers. This means that behind service environment, it is
important to develop another environment where the conditions which
promote a service environment can exist.

It is often proposed that management, in its pursuit of service quality,

needs to create two related, but different environments namely (i) an
environment for service, and (ii) a foundation climate for the well‐
being of the employees. The foundation issues for the health and well‐
being of employees refer to contextual factors which sustain the
behaviour of the employees. An environment for service thus rests on
the provision of fundamental organizational support for employees in
the way of resources, managerial practices, and supportive
supervision which assist them to perform their duties effectively.

There are a number of resources which the organization can provide

to promote an environment for employee welfare that fosters both
employee empowerment and commitment and minimizes the process
of burnout. Social support, for example, is a key organizational
resource which serves as a source of respect and appreciation for
employees, and focuses on the quality of interpersonal relationships
an employee has with co‐workers, supervisors and the organization. In
fact, the social support is defined as resources (actual or perceived by
an employee) which are available from one or more others. These
resources include relational provisions of attachment, social
integration, opportunity for nurturance, reassurance of worth, and
guidance in problem solving.

As an aspect of communication, social support serves a number of

beneficial functions. Theoretically, social support benefits employees
by helping the employees to cope with the negative effects of
stressors. Findings of a study show that those employees reporting
high levels of social support perceived less stress in their
organizational roles, and an improved level of well‐being and work
attitudes than their counterparts, who report lower levels of social
support.

Receiving social support also tends to enhance employee perceptions

of empowerment by facilitating their appraisal of situational control
and sense of meaningfulness. Support also fosters employees’ belief
in their ability to perform their duties effectively, thus facilitating a
sense of feeling enabled. It has been shown that the employees who
experience job competence, who regard their duties as meaningful,
and are actively involved in implementing a variety of strategies in
their duties, are likely to experience reduced negative burnout
symptoms, especially when accompanied by high levels of support.

The type of support (affective, instrumental, informational and

appraisal) has been consistently identified as an important dimension
of social support. Affective support consists of intangible forms of
support, such as social recognition, and the expression of emotional
concern, which offers caring, listening or advice. Instrumental support
refers to tangible forms of support, such as the provision of practical
help in solving problems. Informational support includes directives or
suggestions, while appraisal support includes affirmation or
evaluative feedback. Many supportive interactions, however, tend to
fulfill more than one function, for example, it has been found that
higher levels of informational support leads to stronger perceptions of
emotional support, while higher levels of emotional support leads to
stronger perceptions of informational support. The overlap between
these two forms of support suggests that the two constructs are
closely related in practice. Although they may not be interchangeable,
it does mean that comparisons between them are difficult.

The source of workplace support has been identified as another

important dimension of social support. The empowerment and work
attitudes of the employees, can, hence, be enhanced, and burnout
reduced, when employees develop supportive relationships with such
sources of workplace support as the organization, line managers, and
peers. Employees’ perception of support by the organization, for
example, can help them develop global beliefs concerning the extent
to which the organization, its management value their contributions,
and care about their well‐being. An organization which is perceived as
supportive, respectful and trusting of employees, and values their
contributions, is a viable mechanism for enhancing employee work
outcomes, such as commitment, and burnout.

It is seen that having a high quality relationship with the line manager
positively affects the entire work experience and influences affective
work outcomes such as commitment, and decreases the level of
distress suffered by employees. When employees perceive that their
line managers are supportive, their perceptions of control also
increase. It has been seen that when employees perceive they are
trusted to control how their duties are performed, they feel committed
and become attached to their organization, and reciprocate by
performing in accordance with supervisory and organizational
preferences. Employees who perceive they have more control over
how their work duties are performed have reduced burnout symptoms.
In view of these, it is seen that the organization environment has
certain impact on the employees’ psychological environment.

Different studies have shown that the organizational environmental

perceptions are related to individual attitudes and behaviours. There
are certain view that it is important to understand the shared meaning
which the employees ascribe to organizational characteristics since it
is this subjective understanding which determines the feelings and
behaviours of the employees. Keeping this in view, it is expected
perceptions of empowerment environment to be positively related to
individual‐level perceptions of psychological empowerment. This
practice is to help individuals to better understand the meaning of
their work and develop a sense of competence in performing their
tasks, and it makes them feel better which has a positive impact on
the organization. The organizational environment is required to
enhance employees’ feelings of competence and impact in the
organization. Hence organizational environment and psychological
empowerment are positively correlated.

Types of the organizational environment

The word ‘environment’ means the surroundings or conditions in

which a particular activity is carried on. The organization being a
social entity has a hierarchical structure where all necessary items are
put together and they act within it to reach the collective goal. The
activities of the organization are always affected by the environment. 
The elements of the organizational environment namely (i) general
environment, (ii) task environment, and (iii) internaenvironment are
shown in Fig 1.
 Fig 1 Elements of the organizational environment

Every organization works under either an external environment or an

internal environment. Both the environments affect the operation of
the organization. Hence, the management is to make in-depth analysis
of the elements of the environments so that it can develop a thorough
understanding of the impacts these environments are making on the
operation of the organization so that appropriate strategies can be
developed for the achievement of the organizational objectives.

Internal environment
The internal environment of the organization comprises
organizational-related factors which influence its capacity to achieve
set objectives, develop and implement a viable plan, which
consequently contributes to its performance. Internal environment is
key internal aspects which need to be aligned within the organization
for improved performance or effective change implementation.
Internal environment can also be described as those internal
controllable forces operating within the organization itself which have
a direct impact on an organizational performance.

Whereas the operationalization of the internal environment of the

organization remains varied, it is generally accepted that internal
environment is a key determinant of the organizational performance.
Internal environmental forces provide strengths and weaknesses to
the organization. The aspects forming the internal environment of the
organization provide an enabling environment for the organization to
achieve its objectives.

The internal environment of an organization is dissimilar to the

external environment since it can be internally managed. It consists of
the conditions and forces which exist within the organization. Internal
environment portrays the ‘in-house’ situation of the organization. The
management is to have full control over the internal environment.

Elements of the internal environment of the organization exist and

operate within the boundary of the organization. These elements
include physical and material resources, financial resources, human
resources, information and knowledge, technological resources,
organizational procedures and processes, capabilities of the
organization, incentives, organizational objectives, goals and
employees’ skills, organizational demographics such as size, inter-
departmental linkages, and organizational culture etc. Some of these
are tangible, such as the physical facilities, the plant technology, or
know-how etc. while some others are intangible, such as information
processing and communication capabilities, reward and task
structure, performance expectations, power structure, employees’
capabilities, and organizational culture etc.

Within the internal organizational environment, capabilities are created

in the organization for delivering value to the customer. This value is
fundamental to defining the organizational purpose. The building of
the organizational capabilities is carried out in a planned manner over
a period of time. The deployment of resources for the capability build
up is a key responsibility of the management. The elements of the
internal environment include (i) owners and shareholders, (ii) board
directors, (iii) employees, (iv) organizational culture, (v) organizational
resources, and (vi) organizational image / goodwill. The internal
environment consists mainly of the organization’s management, the
board of directors, employees and culture.

Both the management and the employees are important elements of

the internal environment and the organizational success largely
depends on the capabilities of these elements. Organizational culture
is the collective behaviour of the management and the employees of
the organization and constitutes the values, visions, beliefs, habits of
the employees and the management. The organizational culture plays
a major role in shaping the organizational success. As the foundation
of the internal environment of the organization, it plays a major role in
shaping the behaviour the management and the employees. A strong
culture helps the organization to achieve its goals easily.

Organizational resources are also important for the organizational

success.  They mainly constitute (i) physical resources, (ii) human
resources, (iii) financial resources, (iv) informational resources, and (v)
technological resources. Physical resources include land and
buildings, stores, all kinds of materials, equipment and machinery.
Human resources include management and the employees. Financial
resources include capital used for financing the operations of the
organization including working capital.  Informational resources
encompass the records and data needed to make effective decisions.

Organizational image and goodwill determines the reputation of the

organization which is a very valuable intangible asset. High
reputation / goodwill develop a favourable image of the organization
while a negative image destroys the organizational efforts to attract
customers and talented employees.

External environment

Elements existing outside the organizational control define the

external environment. The organization does not know how the
external environment elements shape up. The external environment
elements constitute both the general environmental factors and the
organizational specific factors. Management is required 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. The interaction of the external organizational factors is given
in Fig 2
 Fig 2 Interaction of external environmental factors

The general environment factors are those factors which do not have
a direct effect on the operations of the organization but influences the
activities of the organization. These factors normally include political,
economic, socio-cultural, technological, regulatory, environmental
(natural) and demographic factors. The factors of the general
environment are broad and non-specific.

The organizational specific factors have direct impact on the

operations of the organization. The organization has no control over
these factors. However, it is possible to manage to a certain extent,
the organizational specific factors. The important organizational
specific factors (Fig 3) are suppliers, customers, designers and
consumers, competitors and new entrants, substitute products, and
strategic partners. Further, regulatory bodies have also an influence on
the organization specific factors.
Fig 3 Important organization specific factors

The management is to makes the strategy for the organization is to

understand the challenges and complexities of both the general
environmental factors as well as the organization specific
environmental factors. The management is required to appreciate that
the general environmental factors are largely non-controllable
because of their distantly located external nature. When the
management take into cognizance of both the general (remote) and
organization specific (operating) environments, it is likely to become
more proactive in strategic planning.