Why Is It Necessary for an Organisation to Understand It Environment?

Why is it necessary for an organisation to understand its environment? (20 marks)

The environment is made up of all those factors which influence the operations of an organisation and can allow the organisation to make a profit or provide a service. Some of these factors which influence the organisation can be internal or external and these can be economic conditions, the political climate, customers, competitors, technology, management capabilities within the organisation and employees.

The organisation should be knowledgeable of economic conditions so that it can plan its budget efficiently in order to achieve its financial goals. If the economy is in a recession it would be difficult for the organisation to receive financial loans from lending institutions to upgrade its systems or to provide training for employees therefore they would have to find ways to cut costs in order to purchase the new equipment, reduce the number of staff they will train or pursue distance learning programmes. The government may raise taxes and levies in order to improve the economy which may cause the organisation to raise its prices to offset the cost of manufacturing which could result in the loss of customers. Potential customers may be reluctant to spend therefore decreasing sales which can lead to a fall in profits which will affect the future operations of the business.

Changes in the political climate may also affect the business. The government could decide to subsidise national industries or the provision of certain goods and services. If the organisation produces any of these goods or services or is one of these industries it stands to gain financial. The government can provide grants to organisations which are exporters and this will allow them to reduce their prices which could result in a demand for the products. Government could reduce or increase taxes which could allow or prevent the organisation from investing more of its profits into its...