The Environment of an Organization

THE ENVIRONMENTS OF THE ORGANIZATION

Organizations do not exist in a vacuum, they are embedded in an environment

and the work of managers are affected by the environment that surrounds the

organization. The term environment refers not only to the physical surroundings

of the organization but also to the market in which the organization operates and

the nature of the competitive forces that confronts the organization.

Nature of Environments:

It is clear that environmental factors – internal, market and external – may have

a significant impact on the organisation. Environmental analysis is concerned

with identifying how the various factors interact with an organisation. Johnson

and Scholes suggest that there are two key characteristics of the environment

which need to be assessed.

(a) Its dynamics: in other words, how rapidly the environment is changing.

Where changes are predictable or relatively slow, the environment is said to be

stable, whilst uncertainty or rapid change would suggest that the environment is

unstable or dynamic.

(b) Its complexity. Complexity arises from three factors:

The amount of knowledge necessary for the business to operate. For example,

all businesses would have to know about the regulatory environment relating to

the employment of people, whereas only a business in chemical manufacturing

would require specialist knowledge relating to the control, storage and safety

matters of the chemicals it manufactures.

The way in which environmental factors interrelate. For example, a holiday

company will be affected by the price of aviation fuel, which itself will be

affected by exchange rates, which are affected by interest rates. Computer

modeling techniques which try to predict changes in one or more of these factors

have greatly improved the ability to forecast such complex situations.

The variety of influences faced by an organisation. The greater the number of

influences, the more complex the environment.

THE...