Organizational Environment

WHAT IS THE ORGANIZATIONAL

ENVIRONMENT?

The organizational environment is a

set of forces and conditions outside
the organization’s boundaries that
have the potential to affect the way
the organization operates.
Features of business environment
• Business environment is the sum totals of all factors external to the
business firm and that greatly influence their functioning.
• It covers factors and forces like customers, competitors, suppliers,
government, and the social, cultural, political, technological and legal
conditions.
• The business environment is dynamic in nature that means, it keeps on
changing.
• The changes in business environment are unpredictable. It is very difficult
to predict the exact nature of future happenings and the changes in
economic and social environment.
• Business Environment differs from place to place, region to region and
country to country.
• Forces can change over time and are made up of Opportunities and
Threats.
• Opportunities: openings for managers to enhance revenues or open
markets.
• New technologies, new markets and ideas.
• Threats: issues that can harm an organization.
• economic recessions, oil shortages.
• Managers must seek opportunities and avoid threats.
 Organizational Environment

Internal Environment External Environment

Internal Environment
• Internal environment includes the elements within the organization’s boundaries.
• The internal environment of an organization consists of the conditions and forces
that exist within the organization.
• Directly affect on organization’s operations
• An organization has full control over this.
• The internal environmental factors are also divided into several types. It
comprises many internal factors of the organization. Such as:-
• Resources of the Organization
• Employees
• Owners of Shareholders or Stockholders
• Board of Directors
• The culture of Organization
• Image or Goodwill of Organization
External Environment
• The external environment include all elements existing outside the
boundary of the organization that have potential to affect the
organization
• Can be divide in to two sectors
• Micro environment ( task environment)
• Macro environment (General environment)
Micro Environment
• The micro environment is closer to the organization and includes
individual, groups and institutions (outside the organization) and
directly influence on organization’s operation

• It is called as Task environment

• Task Environment: forces from suppliers, distributors, customers, and

competitors, etc.
Macro environment
• The macro environment is the outer layer that is widely dispersed and
affects organizations indirectly.
• It includes economical, social, technological, political, legal and
environmental forces
• P - political
• E - Economical
• S - Social
• T - Technological
• E - Environmental
• L - Legal
Political Environment
• Political environment includes political conditions such as general
stability and peace in the country and specific attitudes that elected
government representatives hold towards business.
• The significance of political conditions in business success lies in the
predictability of business activities under stable political conditions.
• On the other hand, there may be uncertainty of business activities
due to political unrest and threats to law and order.
• Political stability, thus, builds up confidence among the long term
projects for the growth of the economy.
Economic Environment
• Interest rates, inflation rates, changes in disposable income of people,
stock market indices and the value of rupee are some of the
economic factors that can affect management practices in a business
enterprise.
• A rise in the disposable income of people due to increase in the gross
domestic product of a country creates increasing demand for
products.
• High inflation rates generally result in constraints on business
enterprises as they increase the various costs of business such as the
purchase of raw materials or machinery and payment of wages and
salaries to employees.
Social Environment
• The social environment of business include the social forces like
customs and traditions, values, social trends, society’s expectations
from business, etc. Traditions define social practices that have lasted
for decades or even centuries.
• For example, the health-and-fitness trend has become popular
among large number of urban dwellers. This has created a demand
for products like organic food, gyms, bottled (mineral) water.
Technological Environment
• Technological environment includes forces relating to scientific
improvements and innovations which provide new ways of producing
goods and services and new methods and techniques of operating a
business.
• For example, recent technological, advances in computers and
electronics have modified the ways in which companies advertise
their products.
Environmental Factors
• Environmental factors concern the ecological impacts on business.
• As weather extremes become more common, businesses need to
plan how to adapt to these changes.
• Key environmental factors include the following:
• Weather Conditions
• Temperature
• Climate Change
• Pollution
• Natural disasters (tsunami, tornadoes, etc.)
Legal Environment
• Legal environment includes various legislations passed by the
Government administrative orders issued by government authorities,
court judgments as well as the decisions rendered by various
commissions and agencies at every level of the government centre,
state or local.
• It is imperative for the management of every enterprise to obey the
law.
• An adequate knowledge of rules and regulations framed by the
Government is a pre-requisite for better business performance.
• Managers must constantly analyse forces in the
general environment because these forces affect
long-term decision-making and consequently, the
internal task environment.
Environmental Analysis
SWOT Analysis
• SWOT analysis is a framework used to evaluate a company's competitive
position and to develop strategic planning.
• SWOT stands for strengths, weaknesses, opportunities and threats.
• It provide clear understanding about organization’s internal and external
factors that impact on achieving its goals

• Strength – Favourable , Internal

• Weaknesses – Unfavourable , internal
• Opportunities – Favourable , external
• Threats – Unfavourable , external
Environmental Change
• Environmental change: refers to the degree to which forms in the task
and general environments change over time
• Change rates are hard to predict.
• The outcomes of changes are even harder to identify.
• Managers thus cannot be sure that actions taken today will be
appropriate in the future given new changes.
Change as a Two Way Process
• All levels of managers should work to minimize the potential impact
of environmental forces.
• Eg:
• Reduction of waste - first line managers
• Determining competitor’s moves - middle managers
• Creation of a new strategy - top managers
THANK YOU