What is an organizational environment?
• The organization works within the framework provided by various
elements of society. All such elements which lie outside the organization
are called external environment or simply as environment. Also, the
organization may create an environment internal to it which affects the
various subsystems of the organization
• The organization needs to properly understand the environment for
Factors Controlling organizational
Factors that control an organizational environment are classified into internal &
• The internal environment is composed of the elements within the
organization, including current employees, management - and especially
corporate culture, which defines employee behavior.
• Trade unions, management, current employees, share holders, etc. control the
• The external environment of an
organization refers to the forces
and institutions outside the
organization that potentially affect
• External environment has two
• general environment
• task environment
• The general environment refers to the non-specific elements of an
organization’s surrounding that might affect the organization indirectly.
• These external forces are:
The political or legal environment refers to the government laws, regulations,
policies and activities which are designed to influence organizations indirectly
and set boundaries on what they can or cannot do.
• Economic environment includes the impact of economic factors like interest
rates, inflation, monetary & fiscal policy, taxes, wage rates, GDP, etc.
• These forces are most likely to affect an organization’s production of goods
• Technological environment refers to the changes in technology that affect
the way that organizations operate and the services they provide.
• There are some important socio-cultural factors that organizations
must analyze. These factors play an important role because they
determine the kind of goods, services and standards that society
values. The socio-cultural force includes the demographics and values
of the particular customer base.
• The demographics and values considered
• Population density
• Education levels
• Geographical distribution
• The task environment is inclusive of
those outside sectors that have a
direct working relationship with an
• The main variables in the task
• Pressure groups
Owners expect managers to watch over
their interests and provide a return on
Customers are the final purchasers of a good
or service, or absorbs the organizational
Studies or analyses of the expectations of the
targeted customer base helps organizations
Suppliers are the people or organizations
who provide the raw material that a
particular organization use to produce
A supplier’s pricing strategy affects the
revenue the organization earns.
Labor market includes the people
available for hire.
Qualities, skills and knowledge
possessed by the employees affect the
performance of an organization to a
Competitors present challenges as they vie for customers in a marketplace
with similar products or services. The management of an organization should
be prepared to respond to the competitor policies.
It is also necessary for organizations to identify special interest groups that
attempt to influence it.
• An organisation interacts with the external
environment, exchanges resources with
it, influences it, and in turn is influenced by the
various variables therein.
• The interface highlights the effect of the business
environment in an organization beyond its
PRODUCTS AND SERVICES
RAW MATERIAL, LABOUR,
• Different elements of the environment interact with the various
subsystems of the organisation in different ways and to different
• The different ways and degrees the environment interact with the
1. Exchange of information
2. Exchange of resources
3. Exchange of influence
Since an organisation is a part of its environment, it
must exchange information with the environment.
The organisation as a system, with information
processing sub-systems, operates in such a manner
as to keep itself fully informed of its environment.
It scans the environmental forces and their
behaviour and collects important information to be
used for decision-making and control purposes.
An organisation in an open system who gets inputs from the environment
and in turn supplies its output to the environment.
The organisation receives inputs in the form of
finance, materials, labour, equipment and so on from the external
environment through contractual and other arrangements.
The organisation is dependent on the external environment for the disposal
of its output. This is also an interaction process—perceiving the needs of the
external environment and catering to them, that is, satisfying the needs and
expectations of the customers.
Besides customers, the management has to meet the demands of other
groups such as shareholders, creditors, workers, suppliers of
materials, general public and so on.
• The external environment holds considerable power over the organisation-
by virtue of its being more global and also by virtue of its command over
• The influence of environment on the organisation is universal as it depends
on the environment for procurement of inputs, as well as for sale of its
• Sometimes, the organisation may also be in a position to wield considerable
power over some of the elements of the external environment by virtue of
its command over resources and information.
• The dependence and influence between the organisation and the external
environment is reciprocal to a large extent. Organisational dependence on
the environment means environmental power and control over the
EXCHANGE OF INFLUENCE