4.

0 Environment of Organizations

Lecture Objectives
 To appreciate the concept of the environment of
organizations
 To learn about the relationship that an organization
has with its stakeholders
 To provide the kind of attention expected of by the
different stakeholders from the organization

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 Defining Environment

• The environment comprises of all elements of that a

business operation interacts with when producing goods
and services to make a profit
• The natural environment is an important element that a
firm’s activities can cause imbalance in the nature that
can affect the quality of life
• The man made environment are those elements that
human beings develop for meaningful interactions to take
place
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 Organization’s Environment

 The environment of an organization consists of all

the factors that have a bearing on the organization.
 It implies those factors, forces and institutions that are
beyond the scope of the organization and its
management and affects the organization

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Feature of Organization’s Environment

 Totality of external forces: Organization’s environment is the

sum total of all the things external to it
 Specific and general forces: specific forces affecting the day
to day activities of the organization while general forces
impact all organizations
 Dynamic nature: environment keeps on changing
 Uncertainty: large uncertain and difficult to predict

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 The Unpredictable Environment

 Organizations are today operating in an environment that

continuously undergoes rapid changes
 Managers are under increasing pressure to think globally and to
anticipate and respond appropriately to this host of external
forces
 Stakeholders are groups or individuals that have a direct or an
indirect interest in the activities of an organization

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 Internal Environment

 The internal environment directly impacts the organization

 Internal factors are generally controllable as the organization
has some sense of control over them
 It can alter some of these factors to meet its requirements or
expectations

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Components of External Environment

 External environment consists of elements outside an

organization that are relevant to its operations
 Organizations are neither self sufficient or self contained
 The external environment consists of both direct and indirect
action elements
 Direct Action Elements: elements of the environment that
directly influences an organization’s activities
 Indirect action Elements: elements of the external environment
that affect the climate in which an organizations activities take
place but do not affect the organization directly
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 Organizational Relationship

External External
Environment Environment

Inputs Organization Outputs

The practical impact of each variables of the environment

determines whether it is a stakeholder in an organization and
part of its direct action environment

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 Environmental Evolution

There are four types of environments in which an organization

operates:
1. Placid Randomized Environment: stable and unchanging
2. Placid Cluster Environment: Stable but resources are
concentrated in certain locations
3. Disturbed Reactive Environment: unstable with concentration
of resources- ability to meet competitive change
4. Turbulent Environment: Change is more rapid and the number
of organizations and the linkages between them is growing.
Competition depends greatly on research and development
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 Stakeholder Interactions
Direct and Indirect Relationships

Firm

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 Direct Action Elements

 Employees
 Suppliers
 Competitors
 Consumers
 Natural disasters

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 Indirect Action Elements
 Political Variables
 Economic Variables
 Social Variables
 Technological Variables

Often beyond the scope of businesses to manipulate

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 Stakeholders

 An organization has both internal and external

stakeholders
 External stakeholders: groups or individuals that
affect an organization’s activities from its external
environment
 Internal stakeholders: groups or individuals that
affect an organization’s activities from its internal
environment

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 External Stakeholders

1. Customers
2. Suppliers
3. Government
4. Special Interest Groups
5. Media
6. Labor Unions
7. Financial Institutions
8. Competitors

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 Internal Stakeholders

1. Employees
2. Shareholders
3. Board of Directors

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Guide to Meeting Internal Challenges

a) Value system: The value system of the founders and those

at the helm of affairs has important bearing on choice of
business, mission, goals, objectives, policies and practices
b) Mission, Vision and Goals: thinking of future and act
accordingly to achieve the goal set
c) Management Structure and Nature: structure of
organization affects decisions

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 Entrepreneurship

 Entrepreneurship is the act of being an entrepreneur

 Entrepreneur is someone who organizes, manages and
assumes the risks on organizing and operating a business
or an enterprise
 Entrepreneurs discover new ways of combining resources

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 Special Nature of Entrepreneurs

Entrepreneurs:
 Risk takers
 Agents of change
 Activities results in new organization or revitalizing
matured organizations in response to a perceived
opportunity
 Expand the size of the economic pie for everyone

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Characteristics of Entrepreneurship
1. Highly disciplined
2. Control their destiny
3. Listen to their senses
4. Relate well to others
5. Eager to learn necessary skills
6. Learn from mistakes
7. Stay abreast with market changes
8. Willing to exploit new opportunities
9. Driven by ambition
10. Think positively
11. Prefer excitement and potential rewards of taking risks over
security 19
 Purpose of God’s Creation

 God created male and female capable of transmitting the

nature that they had received, said to them: “Be fruitful
and multiply and replenish the earth
 Human beings are therefore charged with three things:
(1) Identifying your potential to do what is right
(2) Work to increase the output
(3) Manage the resources within our custody

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 The Role of Management
 Management must maintain relationships among key
stakeholders for the good of the organization
 Using statistical forecasting techniques, managers can
anticipate changes in political, economic, social and
technological variables so as to prepare alternative plans for
the future
 Managers must network and share research costs in new
technologies, knowledge or support government rallies to
ensure their survival
 https://www.youtube.com/watch?v=cu0hIQfBM-w
 https://www.youtube.com/watch?v=r211u89eUaY
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 Tutorial Exercises

Q1. Discuss the term external environment

Q2. Discuss the term internal environment
Q3. Distinguish between direct action environment and
indirect action environment
Q4. Explain what is input, conversion and output concepts
in the organizational environment?
Q5. Identify and discuss one each of the direct and indirect
action environmental variables.

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 Case Study

Aetna, Inc
Founded in 1853, Aetna, Inc. is an American diversified health insurance company, providing a range of traditional and consumer‐directed health care
insurance products and related services, including medical, pharmaceutical, dental, behavioural health, group life, long‐term care, and disability
plans, and medical management capabilities. With revenues of $30.950 billion (2008) and a workforce totalling 35,258 (2008), Aetna is a member of
the Fortune 100. Aetna moved up on the Fortune 500 list in 2009. The company’s strong gains in revenues in 2008 were largely the result of Aetna’s
integration and segmentation strategies, which led to strong membership gains. The Aetna Mission: Aetna is dedicated to helping people achieve
health and financial security by providing easy access to safe, cost‐effective, high‐quality health care and protecting their finances against health‐
related risks. Building on a 156‐year heritage, Aetna will be a leader in cooperating with doctors and hospitals, employers, patients, public officials
and others to build a stronger, more effective health care system. Vision: To earn the distinction, financially and by reputation, of being the preferred
benefits company in all aspects of our business. We strive to be the industry leader by including the best ideas and perspectives available. This in turn
enables Aetna to develop the most relevant solutions for each of our markets. Strategy: Aetna will be the industry leader in the diverse marketplace.
We will deliver best‐in‐class service to our customers because we want them to be comfortable when doing business with us. To achieve this mission,
we will: Create innovative and tailored product and service solutions that will meet the unique needs of our customers. Develop a diverse supplier
base, reflecting our multicultural environment that supports innovative ways to deliver best‐in‐class services to them. Build a workforce that fully
understands the diverse communities where we do business. Foster a culture of inclusion that grows a diverse talent pool and recognizes and
rewards the contributions of every employee whilst allowing employees to do their best work.
Guiding Questions.
Q1. Was Integration and segmentation strategies the solution behind business success in 2008? If so, how does that came into effect?
Q2. Does prices, quality of products and service and accessibility affect demand and supply of products?
Q3. Does innovation in ideas, operation and systems have direct impacts to the success and failure of any product?
Q4. Being the integral part of business operation and success/failure, do employees in the business need recognition and reward? If
yes, why?

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