ORGANIZATIONAL

ENVIRONMENT
 What is an organizational environment?

• The organization works within the framework provided by various

elements of society. All such elements which lie outside the organization
are called external environment or simply as environment. Also, the
organization may create an environment internal to it which affects the
various subsystems of the organization

• The organization needs to properly understand the environment for

effective management.
 Factors Controlling organizational
environment
Factors that control an organizational environment are classified into internal &
external factors.
 Internal environment

• The internal environment is composed of the elements within the

organization, including current employees, management - and especially
corporate culture, which defines employee behavior.

• Trade unions, management, current employees, share holders, etc. control the
internal environment.
 External environment

• The external environment of an

organization refers to the forces
and institutions outside the
organization that potentially affect
its performance.

• External environment has two

layers –

• general environment
• task environment
 General environment
• The general environment refers to the non-specific elements of an
organization’s surrounding that might affect the organization indirectly.

• These external forces are:

• Political
• Economic
• Technological
• Socio-cultural
 Political environment

The political or legal environment refers to the government laws, regulations,

policies and activities which are designed to influence organizations indirectly
and set boundaries on what they can or cannot do.
 Economic environment

• Economic environment includes the impact of economic factors like interest

rates, inflation, monetary & fiscal policy, taxes, wage rates, GDP, etc.

• These forces are most likely to affect an organization’s production of goods

and services.

TECHNOLOGICAL ENVIRONMENT

• Technological environment refers to the changes in technology that affect

the way that organizations operate and the services they provide.
 Socio-cultural
environment

• There are some important socio-cultural factors that organizations

must analyze. These factors play an important role because they
determine the kind of goods, services and standards that society
values. The socio-cultural force includes the demographics and values
of the particular customer base.

• The demographics and values considered

are:
• Age
• Population density
• Education levels
• Geographical distribution
• Culture
• Lifestyle
 Task environment

• The task environment is inclusive of

those outside sectors that have a
direct working relationship with an
organization.

• The main variables in the task

environment are:
• Owners
• Customers
• Suppliers
• Labor
• Competition
• Pressure groups
 Owners SUPPLIERS

Owners expect managers to watch over Suppliers are the people or organizations
their interests and provide a return on who provide the raw material that a
investments. particular organization use to produce
their output.

A supplier’s pricing strategy affects the

CUSTOMERS revenue the organization earns.

LABOR
Customers are the final purchasers of a good
or service, or absorbs the organizational Labor market includes the people
output. available for hire.

Studies or analyses of the expectations of the Qualities, skills and knowledge

targeted customer base helps organizations possessed by the employees affect the
deliver. performance of an organization to a
great extent.
 Competition

Competitors present challenges as they vie for customers in a marketplace

with similar products or services. The management of an organization should
be prepared to respond to the competitor policies.

PRESSURE GROUPS

It is also necessary for organizations to identify special interest groups that

attempt to influence it.
• An organisation interacts with the external
environment, exchanges resources with
it, influences it, and in turn is influenced by the
various variables therein.

• The interface highlights the effect of the business

environment in an organization beyond its
economic factors.
 ORGANISATI
ON

OUTPUT: INPUT:
PRODUCTS AND SERVICES RAW MATERIAL, LABOUR,

ENVIRONM
E NT
• Different elements of the environment interact with the various
subsystems of the organisation in different ways and to different
degrees.

• The different ways and degrees the environment interact with the
organisation are:

1. Exchange of information
2. Exchange of resources
3. Exchange of influence
 Since an organisation is a part of its environment, it
must exchange information with the environment.
 The organisation as a system, with information
processing sub-systems, operates in such a manner
as to keep itself fully informed of its environment.

 It scans the environmental forces and their

behaviour and collects important information to be
used for decision-making and control purposes.
 An organisation in an open system who gets inputs from the environment
and in turn supplies its output to the environment.

 The organisation receives inputs in the form of

finance, materials, labour, equipment and so on from the external
environment through contractual and other arrangements.

 The organisation is dependent on the external environment for the disposal

of its output. This is also an interaction process—perceiving the needs of the
external environment and catering to them, that is, satisfying the needs and
expectations of the customers.

 Besides customers, the management has to meet the demands of other

groups such as shareholders, creditors, workers, suppliers of
materials, general public and so on.
 EXCHANGE OF INFLUENCE

• The external environment holds considerable power over the

organisation- by virtue of its being more global and also by virtue of its
command over information.
• The influence of environment on the organisation is universal as it
depends on the environment for procurement of inputs, as well as for sale
of its output.
• Sometimes, the organisation may also be in a position to wield
considerable power over some of the elements of the external environment
by virtue of its command over resources and information.
• The dependence and influence between the organisation and the
external environment is reciprocal to a large extent. Organisational
dependence on the environment means environmental power and control
over the organisation.
Thank U
 Human

Financial NETFLI
X
Technological

Physical