ORGANIZATION AND

ENVIRONMENT

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 ORGANIZATION AND
ENVIRONMENT
ORGANISATION AND ENVIRONMENT
At the end of this module the learning outcomes
are
• Importance of the external environment
• Various elements of environment
• Various variables that constitute direct and
indirect – action environment
• How organizations manage environment

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 ORGANIZATION AND
ENVIRONMENT
SUGGESTED READINGS
• Management – A Global Perspectives by
Koontz, Weilrich, Chapter 2, 10th edition.
• Management by Robbins, Coutler, 14th Edition
Chapter 3

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 ORGANIZATION AND
ENVIRONMENT
ORGANIZATION AND ENVIRONMENT
• What is environment
• All elements outside an organization that are
relevant to its operation, includes direct-
action and indirect – action elements
 

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 The Manager: Omnipotent or
Symbolic?
• Omnipotent view: managers are directly responsible
for an organization’s success or failure
• Symbolic view: much of an organization’s success or
failure is due to external forces outside managers’
control
 Managerial Constraints
• In reality, managers are neither all-powerful nor
helpless. But their decisions and actions are
constrained.
• External constraints come from the organization’s
environment and internal constraints come from the
organization’s culture
 Constraints on Managerial Discretion

Exhibit 3-1 shows that external constraints come from the organization’s environment and
internal constraints come from the organization’s culture.
Copyright © 2019 Pearson India Education Services Pvt. Ltd. All Rights Reserved
 The External Environment
• Those factors and forces outside the organization
that affect its performance
– Economic
– Demographic
– Political/Legal
– Sociocultural
– Technological
– Global
 Components of External Environment

Exhibit 3-2 shows the different components that make up the external environment.
Copyright © 2019 Pearson India Education Services Pvt. Ltd. All Rights Reserved
 The Economic Environment
• Managers need to be aware of the economic context
so they can make the best decisions for their
organizations.
 The Global Economy and the
Economic Context
• The lingering global economic challenges began with
the turmoil in the U.S. housing market.
 Economic Inequality and the
Economic Context
• Polls show that in many countries, people believe
that the gap between the rich and poor is
problematic.
 The Demographic Environment
• Age is a particularly important demographic since
the workplace often has different age groups all
working together
– Baby Boomers
– Gen Y (Millennials)
– Post-Millennials
 The Demographic Environment
• The size and characteristics of a country’s
population can have a significant effect on
what it’s able to achieve in politics,
economics, and culture.

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 The Demographic Environment
Car sold per year
•India 30 lacs
•US 120 lacs
Population
•India 135 crores
•US 35 crores
Why figures are different

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 The Demographic Environment
Baby Boomers
•Born between 1946 and 1964, one of the largest
and most influential demographic groups in history.

Gen Y or (Millennials)
•Children of Baby Boomers, born between 1978
and 1994, making an impact on technology and the
workplace.

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 The Demographic Environment
Post-Millennials
•The youngest group identified age group–
basically teens and middle-schoolers.
•They have also been called the iGeneration
because advances in technology have
customized everything to the individual.

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 Gen Z
• Population experts say it’s too early to tell
whether elementary school-aged children and
younger are part of this demographic group or
whether the world they live in will be so
different that they’ll comprise a different
demographic cohort.
• Although this youngest group has not officially
been “named,” some are referring to them as
“Gen Z” or the “touch-screen generation.”
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 Gen Y
Gen Y is an important demographic at Facebook, where most employees are
under 40.
 The Demographic Environment
• Gen Y is an important demographic at Facebook,
where most employees are under 40.
• The company values the passion and pioneering
spirit of its young employees who embrace the
challenges of building groundbreaking technology
and of working in a fast-paced environment with
considerable change and ambiguity.

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 How the External Environment
Affects Managers
• Jobs and Employment: the impact of external factors
on jobs and employment is one of the most powerful
constraints mangers face
 Assessing Environmental
Uncertainty
• Environmental uncertainty: the degree of change
and complexity in an organization’s environment
– Change: stable to dynamic
– Complexity: simple to complex
 Managing Stakeholder
Relationships
• Stakeholders: any constituencies in the
organization’s environment that are affected by an
organization’s decisions and actions
 Organizational Stakeholders

Exhibit identifies some of an organization’s most common stakeholders

Copyright © 2019 Pearson India Education Services Pvt. Ltd. All Rights Reserved
 Benefits of Good Stakeholder Relationships

• Improved predictability of environmental changes

• Increased successful innovations
• Increased trust among stakeholders
• Greater organizational flexibility to reduce the
impact of change
 Organizational Culture
• Just as each individual has a unique personality, an
organization, too, has a personality.
 ORGANIZATION AND
ENVIRONMENT
Elements of External environment
• Direct – action
• Indirect – action

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 ORGANIZATION AND
ENVIRONMENT
DIRECT-ACTION ELEMENTS
• Elements of the environment that directly
influence an organization’s activities
• Also called stakeholders
• Shareholders
• Unions
• Suppliers
• Directly influence an organization
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 ORGANIZATION AND
ENVIRONMENT
INDIRECT – ACTION ELEMENTS
• Elements of the external environment that affect
the climate in which an organization’s activities
take place, but do not affect the organization
directly
• Elements are
• Technology
• Economy
• Politics
• Society
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 ORGANIZATION AND
ENVIRONMENT
STAKEHOLDERS
• Those types of groups or individuals who are
directly or indirectly affected by an
organization’s pursuit of its goals
• Two types
– External stakeholders
– Internal stakeholders

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 ORGANIZATION AND
ENVIRONMENT
External stakeholders
• Groups or individuals in an organization’s external
environment’s that affect the activities of the organization
• These include
• Unions
• Suppliers
• Competitors
• Customers
• Government
• Media
• Financial institutions competitors
 

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 ORGANIZATION AND
ENVIRONMENT
Internal stakeholders
• Groups or individuals such as employees, that are
not strictly part of an organization’s environment
but for whom an individual manager remains
responsible
• These include
• Employees
• Shareholders
• Board of Directors
 

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 ORGANIZATION AND
ENVIRONMENT
Managing multiple stakeholder relationships
• Conflicts of interests
• Multiple roles
• The special role of management

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 ORGANIZATION AND
ENVIRONMENT
Conflicts of interests
Example
• Government increases price of petrol
• Who is benefited – stakeholder
– Government
• Who will oppose – stakeholder
– Customers of petrol
 

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 ORGANIZATION AND
ENVIRONMENT
• Conflicts of interests
• Example
• Citibank raises interest role on loans to its customer –
Nestle
• What happens
• Profits of Citibank increase
• Citibank as stakeholder of Nestle gains
• Profits of Nestle reduce
• Higher interest to be paid to Citibank
• Shareholders of Nestle as stakeholder of Nestle stand to loose
Conflicts of stakeholders interest

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 ORGANIZATION AND
ENVIRONMENT
• Any activity
– Will be supported by some stakeholders
– Will be opposed by some stakeholders
– Their is a CONFLICT of interests
Managing this is a challenge

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 ORGANIZATION AND
ENVIRONMENT
Multiple Roles
• Multiple relationship
• An employee of Nestle
• Owns Nestle shares
• He is a shareholder
• Buys Nestle chocolates
• He is a customer

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 ORGANIZATION AND
ENVIRONMENT
Multiple Roles
• Opens fixed deposit with Nestle
• He is a lender/ financial institution
• Works in Nestle
• He is an employee
• PLAYS MULTIPLE ROLES

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 ORGANIZATION AND
ENVIRONMENT
The special role of management
Management role is to
• Satisfy all stakeholders
• Manage conflicts
• Maintain delicate balance

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 ORGANIZATION AND
ENVIRONMENT
INDIRECT – ACTION ENVIRONMENT
Four factors influence organization
– Social
– Economic
– Political
– Technological
– PEST factors

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 ORGANIZATION AND
ENVIRONMENT
Social variables
• Demographic
• Age
• Gender
• Education
• Income

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 ORGANIZATION AND ENVIRONMENT

• Social variables
• Demographics
• Since independence of India
• Average life expectancy has increased
• Literacy rates have increased
• Ratio of females to males improved
• How does this affects organizations

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ORGANIZATION AND ENVIRONMENT
Lijjat Papad
https://www.youtube.com/watch?v=PCDqFafx9
o4

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ORGANIZATION AND ENVIRONMENT
Lifestyles
• Double income no kids (DINK)
• Single parent
• Remarriage
• Stressful life

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ORGANIZATION AND ENVIRONMENT
NIIT
•Average age 28
•Paternity leave
•Dating allowance
•Marriage allowance
•Children allowance
•Creches

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ORGANIZATION AND ENVIRONMENT
Social Values
• Ambitious
• Competition
• Tend to eat out
• Dating
• Extra – martial relationships
 

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ORGANIZATION AND ENVIRONMENT
Social Values
•Lifestyle
•Max Pension Plan
•https://www.youtube.com/watch?v=3CuWQQ
5sS4o

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ORGANIZATION AND ENVIRONMENT
Economic Variables
• Prices of products
• Income tax
• Interest rates
• Economic conditions
• Boom
• Recession
• Stock markets
• Monsoon performance
These all affect organization performance

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ORGANIZATION AND ENVIRONMENT
Political variables
• Major effect

Huawei
• Leader in 5G
• Chinese
• Western countries sceptical
• China may spy.
• Banned in US

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ORGANIZATION AND ENVIRONMENT
Technological variables
• Advances in science, products, processes and
materials
• Influence kind of products
• Influence of INTERNET

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ORGANIZATION AND ENVIRONMENT
Technological variables
INTERNET
• Influencing our business
• Booking of air-tickets
• Earlier through agents
• Now directly on the net

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ORGANIZATION AND ENVIRONMENT
NATURAL ENVIRONMENT CONCERNS
• Rise of environmental movement
• Current environmental concerns
• Pollution
• Climate changes
• Ozone depletion
• Ecological issues
• Sardar Sarover dam
• Global warming

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