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)
 •Political / legal
•Economic
•Socio-cultural
General Environment
•Technological

Task Environment
•Customers
•Labour
•Competition
Internal •Suppliers
Environment

•Employees
•Management
•Culture
Organizational environment

 We can conceptualize the

organization as having two
layers:
1. The general
environment
2. 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

 Thetask 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?