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MGT 3200
ENVIRONMENT OF MANAGEMENT (CHAPTER 3 AND 4)

Understanding the relationship between the organization and its environment is the key to
fully appreciating the challenge facing management, today. One way to understand this
relationship is through the open-systems approach.

I. The Organization as an Open System

There are many elements in the organization’s environment that affect its input-
transformation-output process. A manager’s performance is often contingent upon his
knowledge of how his organization influences and is influenced by its external
environment. Open systems must interact with the environment to survive; it both
consumes resources and exports resources to the environment. It cannot seal itself off. It
must continuously change and adapt to its environment. In contrast, a closed system does
not have to interact with its environment.

To understand the whole organization, it should be viewed as an open system. A system

is a set of interrelated elements that acquire inputs from the environment, transforms
them, and discharges them in the form of outputs to the external environment. The need
for inputs and outputs reflect the dependency on the environment. Interrelated elements
mean that people and departments must depend upon one another and must work
together.

Besides its three basic characteristics (input, transformation, and output) the open system
has six additional characteristics:

1) Cyclical nature of the transformation process. Transformation activities produce

outputs that alternatively will become new sources for inputs. This also provides
a feedback loop.
2) Negative entropy. Entropy refers to the tendency for systems to decay over time.
Negative entropy is the ability of open systems to bring in new energy to arrest or
delay this decaying process. As a result, organizations import more energy that
they export. That is, they use up energy in the transformation process and store
energy for future needs.
3) Buffering the technical core. Open systems try to maintain, or at least attempt to
maintain, their basic character by controlling or neutralizing threatening external
forces for change. They want to maintain stability in production so as to increase
efficiency. Ideally, we want long runs of products using the same machinery so
we can work out the kinks and become more proficient.
4) Role differentiation and specialization. As open systems grow and develop, there
is an increasing tendency toward the elaboration of roles and specialization of
function. Organizations develop specialized units to deal with particularly
troublesome or challenging parts of the environment.
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5) Synergy. 2+2=5. The ability of the whole to equal more than the sum of its parts.
This means that an organization ought to be able to achieve its goals more
effectively and efficiently than would be possible if the parts operated separately.
6) Equifinality. Systems can often reach the same end by different means.
Organizations facing the same environment can structure themselves differently
and still be successful. This concept emphasizes the flexibility and adaptability of
organizations.

II. The Internal Environment: Organizational Subsystems

An organization system is composed of several subsystems. The specific functions

required for organizational survival are performed by departments that act as subsystems.
Each subsystem is a system in its own right, because it has a boundary and obtains inputs
from other departments and transforms them into outputs for use by the remainder of the
organization.

Organizational subsystems perform five essential functions: production, boundary

spanning, maintenance, adaptation, and management. See Figure 1 (at the end of this
document).

A) Production Subsystem.

This subsystem produces the product and service outputs of the organization. This is
where the primary transformation process takes place. This subsystem is the production
dept. in a manufacturing firm, the teachers and classes in a university, and medical
activities in a hospital. The remaining subsystems are organized around the production
subsystem. This subsystem is totally internally oriented and is buffered by the other
primary subsystems from threatening environmental focus.

B) Boundary-Spanning Subsystem(s).

Boundary-spanning subsystems handle transactions at organizational boundaries. They

control the boundary and are responsible for exchanges with the environment. They
serve two major purposes for the organization: they detect and process information about
changes in the environment and they represent the organization’s interests to the
environment. On the input side, boundary-spanning subsystems acquired needed supplies
and materials. On the output side, they create and deliver outputs. The boundary-
spanning subsystem is the purchasing department on the input side and the marketing
department on the output side.

These boundary-spanning departments are mostly externally oriented. They must be

somewhat internally oriented as well.
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C) Adaptive Subsystem.

The adaptive subsystem is responsible for organizational change. The adaptive

subsystem scans the environment for problems, opportunities, and technological
developments. It is responsible for creating innovations and for helping the organization
change and adapt. This subsystem is represented by the engineering dept., research and
development dept., and the marketing research dept.

This department is concerned more with organizational effectiveness than with

efficiency. It is mostly externally oriented. It should be proactive in its approach to
dealing with the environment.

An activity that is a growing part of the adaptive subsystems is competitive analysis:

espying and snooping on the competition.

D) Maintenance Subsystem

The maintenance subsystem is responsible for the smooth operation and upkeep of the
organization. Maintenance includes cleaning and painting buildings and the maintenance
of machines. Maintenance activities also try to meet human needs such as morale,
compensation, and physical comfort. In this regard, its duty is to see that employees are
satisfied with their jobs, are compensated fairly, and are working under humane
conditions.

Maintenance functions include departments such as human resources, the employee

cafeteria, and the janitorial staff (physical plant-facilities services at LSU).

This organizational subsystem, like production, is totally internally oriented. Its duty is
to keep the organizational machine well oiled and operating efficiently.

E) Management Subsystem.

Management is a distinctive subsystem, responsible for directing the other subsystems of

the organization. Management provides direction, strategy, goals, and policies for the
entire organization. Management also coordinates other subsystems and resolves conflict
between departments. The management subsystem is also responsible for developing an
organizational structure and directing tasks within each subsystem. For example, this
subsystem may consist of the chairman of the board, president, vice-president, and
managers of functional areas such as marketing, production, etc….

It also must legitimize the organization to society. This is an extremely important

function. For example, when society views a business as having a legitimate right to
exist or sees the business as a benefit or being of value to society, the business can be
proactive rather than reactive in its approach to managing its environment.

It also performs boundary-spanning functions.

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The organizational subsystem diagram (see Figure 1 at the end of this document) shows
how the 5 subsystems are interconnected and indicate the extent to which an organization
is an open system.

The primary subsystems are the ones most closely associated with production. The
secondary subsystems are support subsystems for the primary subsystems.

In ongoing organizations, several depths interact with the environment. Moreover,

subsystems functions may overlap. Depts. often have multiple roles. For example,
marketing is primarily a boundary-spanner, but may also sense problems or opportunities
for innovation (adaptive function). Another example is managers. Managers coordinate
and direct the entire system, but they are also involved in maintenance, boundary
spanning, and adaptation. Therefore, people and resources in one subsystem overlap and
perform other functions in organizations.

III. External Environment.

The numerous components in the environment can be classified into 2 categories: direct-
action components and indirect-action components.

A) Direct-Action Components.

These components have a direct influence on the performance of an organization. They

can secondarily have an indirect influence on an organization. These direct-action
components include customers, suppliers, and competitors.

1) Customers.

Customers for goods and services naturally try to force down prices, obtain more or
higher-quality products (while holding prices constant), and increase competition among
sellers by playing one against the other.

For a business organization, customers are critical, and managers must constantly be
aware of the present needs and emerging needs of their clients. This may involve altering
present products or services, developing new ones, or even entering new businesses. The
typical ways of dealing with customer aspect of the environment are advertising and
market research.

So, an organization can survive only as long as it is able to exchange the goods and
services it produces for the resources necessary to obtain new inputs and maintain itself.
Without clients organizations could not exist. Thus, organizations are dependent upon
clients for their continued survival-a major dependency.

Peters and Austin in their best selling book, A Passion for Excellence, noted that one key
to success of top organizations is a true customer comes first orientation. There is a focus
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in this country on providing the customer a quality product and/or service. Quality has
become the watchword in terms of handling customers.

With the advent of the so-called Customer Service Revolution, the line between goods
and services is disappearing. More and more organizations think of every product it sells
as a service. For example, Toyota and its dealers make a profit from its extended
warranty contracts.

There is a focus on building loyal customer relationships through a joint product-service

focus. Organizations need to understand who its buyers are and what goods and services
they need. Smart organizations listen to their customers. Feedback from customers
drives their product development. For example, Apple, Microsoft and Hewlett-Packard
depend on their user groups to identify bugs in programs and equipment and to suggest
new product features.

This recent focus on customer service can be attributed, in part, to the consumer
movement. For example, groups of consumers (lead by such people as Ralph Nader)
have joined together to exert pressure on certain firms and industries to see that the public
gets a fair deal. Such pressure has resulted in tighter controls over food, drugs, and
children’s clothing and greater product safety.

Many organizations have responded in several ways to customer concerns. For example,
many organizations have created offices of customer relations equipped with toll-free
telephone numbers and various on-line presences (chat, e-mail, social media) . For
example, Burger King has toll-free numbers as well as website information posted at its
restaurants to deal with customer service and food product issues. These customer
service lines are not only helpful in spotting new fads, but also help in marketing new
products and in detecting foul-ups before they become major complaints.

Product quality is also key in customer service. The highest quality is consistently
maintained at the successful organizations. For example, Domino’s Pizza in the past has
paid 10,000 “mystery customers” $60 each to buy 12 pizzas a year at its over 5,000 units
and to evaluate quality and service. Rubbermaid did such a great job of listening to its
customer complaints that it gave refunds on competitor’s defective products. Through
such actions, Rubbermaid turned an angry customer in to a Rubbermaid customer.

2) Suppliers.

Every organization requires inputs from the environment in the form of raw materials,
services, energy, equipment, labor and funds. They use these inputs to produce outputs.
Thus, organizations are dependent upon those who supply resources.

Depending on the type of organization, some suppliers will be more critical than others.
Public colleges, for example, need alumni backing, faculty, and backing of state
legislators who influence budget allocations. A hospital needs funds and qualified staff.
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A business organization needs money, labor, and equipment. The suppliers of all these
resources have a direct impact on the organization.

Favorable supplier relations can lead to better shipping arrangements, early warnings of
major price changes, and advance information about technological or market changes.

More and more these days the relationship between the organization and its suppliers is
becoming less and less adversarial. Rather than trying to negotiate the dickens out of
their suppliers (as it was in the old days), organizations nowadays are turning to
relationships that are of mutual benefit. Organizations and suppliers are now working
together to lower costs and upgrade product quality.

There are a number of different ways to influence your supplier:

a) Vertical integration: buy your supplier. If you can’t maintain favorable relations with
yourself, then who can you maintain them with?
b) Long term contracts in which you lock in the supply at a lower price. Of course, here
you are banking upon the fact that prices in the future will be much higher than they
are currently. Hopefully, your forecast will prove accurate.
c) Reducing the number of suppliers. This allows you to give larger contracts to
suppliers. These larger volume contracts allow the suppliers to achieve economies of
scale and the opportunity to automate which makes them more efficient and allows
them to reduce costs. Through cost reduction, these suppliers can reduce their prices
for their suppliers. This, in turn, allows the organization to be more profitable.

3) Competitors.

The action of competitors has a direct impact on organizations. Other organizations

compete for both customers and suppliers. To gain a competitive advantage, an
organization must either have an equal product value that it can offer at a lower price
(through greater operating efficiency) or it has a unique product with greater value that
can command a premium price. Organizations that are unable to do either will sooner or
later be confronted with the law of the marketplace. The law of the marketplace dictates
that companies that cannot compete will be faced with either changing their product line
or being eliminated.

There are five forces that influence the degree of competition operating in an
organization’s chosen market.

The first force is rivalry among organizations. Jockeying for position in a market (such
as the use of price competition, comparative advertising and increased customer service
or warranties) is most intense when there are many direct competitors and when industry
growth is slow. New, high-growth industries have enormous opportunities for profits.
When an industry matures and growth slows, profits drop. Then, intense competition
causes industry shakeout-weaker companies are eliminated and the stronger companies
survive.
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The second force is threat of new entrants. New entrants into an industry compete with
established companies. New entrants generally increase product supply, seek to gain
market share, and often possess substantial resources. The effects of these factors are
prices will be forced down and resource costs will be inflated. This will reduce
profitability and increase competition. If many factors prevent new companies from
entering the industry, the threat of new entrants is less serious. If there are few such
barriers to entry, the threat to established companies is more serious. Some of the major
barriers to entry are government policy, capital requirements, brand identification, cost
disadvantages, and distribution channels.

The government can limit or prevent entry, as when the FDA forbids a new drug entrant.
Some industries are regulated such as trucking and liquor retailing. Patents are also
barriers to entry. When a patent expires, other companies can enter the market.

Capital requirements may be so high that companies won’t risk or try to raise such large
amounts of money to get into the market. Brand identification forces new entrants to
spend heavily to overcome loyalty. The cost advantages held by established companies-
due to large size, favorable locations, existing assets and so forth-can be formidable entry
barriers.

Finally, distribution channels may be so tied up by existing competitors that new entrants
may have difficulty getting their products or services to customers. For example,
established food products already have supermarket shelf space. New entrants must
displace existing food products with promotions, price breaks, intensive selling, and other
tactics.

The third force is threat of substitutes. Technological advances lead to the development
of substitutes for existing products. Sugar producers must cope, for example, with
NutraSweet, Splenda, Equal, saccharine, and high fructose corn syrup, to name a few of
the substitutes. Fiberglass insulation faces competition from cellulose, Styrofoam, and
rock wool. Substitute products or services limit an industry’s growth potential. The
industry could suffer in earnings and growth unless it improves the quality of its products
or launches an effective, aggressive marketing campaign. Furthermore, the substitute
could make the existing product obsolete (i.e., CDs made vinyl records a thing of the
past, MP3 players made CDs a thing of the past and on-line streaming has made MP3
players a thing of the past).

Substitutes can affect an organization’s profitability. In effect, this threat places a ceiling
on an organization’s prices for its products. If the customer finds the substitute a more
attractive price-performance alternative, the organization will feel pressure to reduce its
prices to entice the customer back. The lower prices can translate into lower profitability.
It can be devastating to an organization when there is an attractive substitute available at
a lower price.
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The fourth force is power of the suppliers. Suppliers are important to an organization for
reasons beyond the resources they provide. They can raise prices or reduce the quality of
their goods and services. Powerful suppliers can reduce an organization’s profits,
particularly if the organization cannot pass on price increases to its customers. For
example, soft-drink producers have raised their prices and hurt the profitability of
bottling companies. Bottlers have limited ability to raise their prices because they face
intense competition from companies that produce fruit drinks, powdered mixes, and other
soft drinks.

The organization has a disadvantage if it’s too dependent on a powerful supplier. A

supplier is powerful if the buyer has few other resources of supply or if the supplier has
many other buyers. A powerful supplier can raise prices, reduce quality, and not deliver
on time. This can make you less competitive and result in lost market share and reduced
profitability.

The fifth force is power of the customer. Just like suppliers, customers are important to
an organization for more reasons than just the money they provide for goods and
services. Customers can demand higher quality, lower prices, or more services. They
can also play competitors off one another.

The organization has a disadvantage if it’s too dependent on powerful customers.

Customers are powerful if they make large purchases or if they can easily find alternative
places to buy. For example, if you are a suppliers’ biggest customer and there are other
suppliers from whom you can buy, you have power over that supplier and you are likely
to negotiate successfully with it. Powerful customers can drive the price down, force you
to increase quality and service. This all can cut into the bottom line, profitability.

These five competitive forces can be used in making acquisition and divestment
decisions. These forces are useful for evaluating the potential of different businesses by
assessing their competitive environments. See Table 1 on the next page. This table
describes two extreme environments: first, a good environment, which gives the
organization a competitive advantage; and second, a “bad” or difficult environment,
which puts the firm at a competitive disadvantage. Based upon this table, companies
should acquire companies in industries with good competitive environments and on the
other hand, they should get rid of companies in bad competitive environments.
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TABLE 1
COMPETITIVE ENVIRONMENTS

FORCE “BAD” “GOOD”

RIVALRY Many; low industry growth Few; high industry growth

THREAT OF
NEW ENTRANTS High threat; few barriers Low threat; many barriers

SUBSTITUTES Many Few

SUPPLIERS Few; high power Many; low power

CUSTOMERS Few; high power Many; low power

An organization must be proactive with respect to competitors. An organization should

engage in competitor analysis. Often times it can yield useful information for predicting
competitor behavior. Competitor intelligence systems actively and systematically collect,
compile, and analyze data on competitors. It relies on several different sources, including
past or present employees, people who do business with competitors, published materials
and documents, and direct observation of competitor activities. Information about
competitors can be obtained from trade association meetings, market research firms, and
financial analysts. Technical information about a competitor’s product is available
through reverse engineering-taking a product apart and reconstructing it.

There is nothing inherently illegal or unethical about competitor intelligence activities.

However, certain activities can be illegal and/or unethical. For example, it’s deceptive to
conduct phony job interviews hoping to get information from applicants who work for a
competitor. It is illegal to hire a competitor’s employee intentionally to get specific trade
secrets.

A competitor analysis will give you information about the competitor’s current strategy,
future strategy, and strengths and weaknesses. It is somewhat like a football team
knowing its opponent’s plays before they are executed. Scouting opponent teams
provides some information so the plays can be anticipated and prepared/planned for.
Sometimes this scouting helps and other times it does not.
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B) Indirect-Action Components.

Indirect-action components influence the climate in which the organization operates and
may, under some conditions, become direct-action components. There are five indirect
action components: 1) technology, 2) economy, 3) government, 4) society, and 5)
international.

1) Technology.

Changes in technology can influence the destiny of an organization. Technology may be

a constraint when opportunities exist but the necessary equipment is not present.
However, technological innovations can create opportunities for entirely new industries
or vastly altering existing industries (e.g., ride sharing services and the taxi market;
automated tellers and on-line banking in the banking industry).

The general effects of technology on an industry are product obsolescence and increased
competition.

In many organizations, managers will be forced to be alert and to plan to react to

technological change. In other organizations, a prime managerial responsibility will be to
instigate such changes. The adaptive subsystem of the organization is primarily
responsible for creating such innovations.

There are two general types of technological innovations:

A) product innovation is an innovation made in the basic good or service an organization

provides.

B) process innovation is an innovation made in the technology used in transforming

inputs into goods and services.

2) Economy.

Economic changes pose both opportunities and problems for managers. An expanding
economy has an effect on the demand for a company’s product or service. It also
facilitates the establishment of new enterprises. A major slowdown in economic growth
can bring failure to some organizations, as was common in the early 80’s.

The impact of the economic environment on management practices is almost certain to be

unpredictable. There will be many shifts and changes in inflation rates, productivity,
unemployment, energy use, etc… Managers must continually monitor changes in
economic factors in order to minimize threats and capitalize on opportunities.

Managers prefer stable economic conditions with moderate, steady growth. Violent
changes in economic conditions can restrict business investment and growth.
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3) Government.

Numerous laws and a multitude of authorities characterize the political, legal, and
regulatory environment faced by most managers. This indirect-action component may
also act as a constraint as well as an opportunity. For example, when government action
to combat inflation constrains builders of single-unit houses, it provides opportunities for
apartment builders. Another example is equal employment opportunity legislation (EEO
laws). It constrains the employment practices of organizations, but it also offers
opportunities to consulting firms that help these organizations conform to EEO rules.

Governmental influences organizations in four distinct ways:

A) government regulations

The purpose of regulations is to improve the quality of life.

Regulations affect almost every aspect of management. Nearly every department within
an organization has a counterpart in one or more federal agencies. This is known as the
“shadow bureaucracy.” These federal agencies are there to make sure that the
organization (i.e., specific departments of the organization) is complying with laws and
regulations governing the department’s activities. It costs time, money, and effort to
meet these regulations. For example, U.S. manufacturers spent $2.2 million per firm to
meet federal government regulations. Overall, the cost of government regulation
(excluding state and local regulations) exceeds $843 billion annually.

While it may look like government regulations only provide constraints on organizational
activities, they also create numerous opportunities such as consulting firms are called in
to help the organization deal with equal employment opportunity regulations, DuPont
sells air pollution control equipment so that organizations can comply with EPA
standards, and Exxon sells products to clean up oil spills.

B) subsidization and taxation

Government subsidizes certain businesses to help them survive and prosper.

Government taxation can also be used to encourage or discourage business (i.e., import
tariffs, quotas, excise taxes).

C) government competition

State and national parks compete with private enterprises such as Disney World for
vacation dollars. Amtrak (government sponsored enterprise) competes with private
enterprises in the airline and bus travel industries for travel dollars. The U.S. Postal
Service competes with Federal Express and UPS for mail delivery dollars.
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D) government economic policies

Government economic policies affect organization’s ability to thrive and prosper.

An example of an economic policy is supply-side economics which is based upon Say’s

law which says that supply creates its own demand. As a result, supply-side economics
advocates a free market place without artificial obstacles to trade.

Management can influence government through different means:

A) lobbying. For example, organizations can hire lobbyists to represent their interest to
congress, in the hopes that congress will enact legislation favorable to their industry.

B) direct political action

Voting is a direct political action. Organizations can use grass roots programs to help
elect candidates. Organizations can also form political action committees (PACs). It is
generally illegal for organizations to directly contribute to political campaigns. However,
they may form PACs to solicit voluntary contributions from employees and stockholders.
PACs are restricted to giving $5,000 to a candidate for each election race. Yet, there are
no restrictions on how much a PAC can spend independently to help elect or defeat a
candidate.

E) illegal action

Management can influence government through illegal bribes, kickbacks, and blackmail.

4) Society.

Change is an ever-present part of our social system. All of us are part of a cultural and
social fabric that affects our behavior. Traditions, customs, and beliefs influence all
people and all organizations. We all contribute to it, influence it, and in turn, are affected
by it.

Managers must identify the changing cultural and social conditions that will influence
their organizations. However, many organizations have not considered the impact of
such changes or have minimized their effects. The importance of cultural and social
changes can be seen from the impact of the environmental movement on numerous
industries and the general societal demand for more social responsibility on the part of
both the public and private organizations. These changes along with the push for equal
rights for women and minority groups make social/cultural changes an indirect-action
component, which cannot be ignored. Among other current changes affecting Americans
are the delay of marriage until a later age, the emergence of the single head household as
a growing consumer element, the aging of the baby boomer group, elder care and the
growing shortage of workers in the 18-24 year-old age group.
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An organization influences society through a number of different means such as

philanthropy, support of charity drives and fund-raising, community service work,
advisory service, ads, and funding of community programs. These activities help
legitimize the organization to its society. Organizations also use image advertising to
legitimize the organization. In image advertising, an organization sells its ideas on
societal issues directly related to its business. Image advertisements show society how
organizations are helping with major societal concerns such as pollution, product safety,
unemployment, etc…

5) International.

This indirect-action provides quite a challenge for managers today. It provides managers
with both opportunities and threats (e.g., selling products in new markets such as China
[opportunity], foreign competition such as the Japanese automobiles in the American
marketplace [threat], and dependence on foreign resources such as oil [threat]).

When conducting business in a foreign country, an organization must be aware of all

aspects of the environment (customers, suppliers, competitors, technology, economy,
government, and culture). The foreign culture can at times present problems for an
organization. These problems can be prevented if an organization has a thorough
knowledge of the culture (its language, its customs, its norms, and its values).

Cultural differences between countries can have a very direct impact on business
practices. For example, the religion of Islam teaches that people should not make a living
by exploiting the misfortune of others and that making interest payments is immoral.
This means that in Saudi Arabia there are no businesses that provide auto-wrecking
services (because that would be capitalizing on someone’s misfortunes) and in the Sudan
banks cannot pay or charge interest. Given these cultural restraints, those two businesses
don’t seem to be very promising for international managers.

Other cultural differences can be subtler and yet still have a major impact on business
practices. For example, in the US time is money. Most managers in the US schedule
their activities very tightly and adhere to these schedules. Other cultures don’t place such
a premium on time. In the Middle East, managers don’t like to set appointments and they
rarely keep appointments set too far into the future. US managers may interpret the late
arrival of a Middle East manager as a negotiation ploy or an insult, when it’s a rather
simple reflection of different views of time and its value.

Let’s look at some problems that can occur in foreign countries:

Language problems:

Chevy’s Nova was spoken as “no va” in Italian which means “no go.”
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Coca-Cola in Chinese became “Bite the head of the dead tadpole.” Given that the Coca-
Cola slogan of “life tastes good” I bet there are a lot of Chinese who would argue Coke’s
point. Ha, I kill me!

Nonverbal signs problems:

Shaking your head up and down in Greece indicates “No”; swinging it from side to side
means “Yes.”

In most European countries, it is considered impolite not to have both hands on the table.

The American sign for “OK” is an obscenity in Spain.

Colors problems:

Green: popular in Moslem countries

Disease in jungle-covered countries
Cosmetics in France, Sweden, and Netherlands

Red: blasphemous in African countries

Wealthy and masculinity in Great Britain

Product problems:

Campbell soup was unsuccessful in Britain until the firm added water to its condensed
soup so it would appear to be the same amount of canned soup the British were used to
purchasing.

Long-life packaging, which is commonly used for milk in Europe, allows milk to be
stored for months at room temperature if it’s unopened. Americans are still wary of it.

Coke had to alter the taste of its soft drink in China when the Chinese described it as
“tasting like medicine.”

In Japan, the pronunciation of the word “four” sounds like the word for “death”. When an
American golf-ball manufacturer attempted to sell golf balls in packages of four in Japan,
sales were terrible.

F) Summary.

This conceptualization of the environment surrounding the organization illustrates the

many forces that influence organizational performance. The importance of these forces
will vary in their importance for different organizations. A major challenge to
management is to anticipate and adapt to changes that is beyond their control of the
organization and to initiate change that’s within their control. A major way to help
accomplish these ends is environmental scanning.
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IV. Environmental Scanning.

This is especially important in an open system. It is the process of monitoring and

evaluating changes and trends in the environment. Environmental scanning lies at the
heart of successfully coping with environmental exigencies.

A) Importance Environmental Scanning.

1) Relation between scanning and organizational performance.

Studies have shown a close relation between scanning and organizational performance.
In general, organizations that gather a great deal of environmental information tend to
perform better than organizations who gather comparatively little environmental
information.

B) Three Types of Scanning.

1) Organizational Unit
2) Commercial Firms
3) Pooling of Environmental Information

Formal scanning is related to long-range planning. The evaluation of changes and trends
in the environment can be quite helpful in determining goods or services to emphasize,
new markets to explore, opportunities to develop and technology to exploit.
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