The Environment: The environment of any organization is “the aggregate of all conditions, events and influences that surround and affect it”. It “includes factors outside the firm which can lead to opportunities for or threats to the firm”. More specifically,” an organization’s external environment consists of those things outside an organization such as customers, competitors, government units, suppliers, financial firms, and labor pools that are relevant to an organization’s operations”. Since the environment affects an organization in several ways, it is of crucial significance to understand it.
The environment has also been described by dividing the environmental forces and events into direct-action environment and indirect-action environment. “Direct-action environment consists of those factors that directly affect and are affected by the organization’s operations including suppliers, labor unions, laws and governmental regulatory agencies, customers and competitors”. These specific forces exert direct influence on the organization’s decision-making. The indirect-action environment comprises those factors that do not exert an immediate, direct effect on an organization’s operations nevertheless influence them. General economic conditions, technological, social, cultural and political developments, inter groups and events in foreign countries are such indirect-action factors. These general factors provide a broad frame-work for different organizations and influence all the organizations in the same manner.
However, this kind of classification may be theoretically very useful but is blurred in real life because what are general environmental factors for one organization may be specific for another. Authors have classified environment into general environment, the operating or task environment and organizational environment. The general environment of an organization refers to general economic conditions, technology, social, cultural and political development, and the events in foreign countries that are broad in scope and have long term implications for organizations, provide a broad parameter for different organizations. The operating or task or competitive or industry environment has relatively specific and immediate implications for an organization, and consists of customers, competitors, labor, suppliers and laws.
External environment of an organization comprises of all such forces and events that are external to and beyond the control of individual business enterprises and their management. These forces and events are given within which the firms and their management have to operate, adapt and adjust. The regulatory framework, the monetary policies of the central bank, the value systems of the society, the institutional structure of the country, the ideological philosophies of the political parties and their attitudes towards foreign capital and enterprises comprise the environmental system within which a business enterprise has to operate. The environmental forces usually vary from country to country. The pattern of environment that exists in India is not likely to be the same as in the U.K., Japan, USSR and the USA. Nevertheless, some may be alike throughout the globe. Despite the differences, the business environment exhibits some general characteristics that are described below:
1. Complexity: The business environment is complex due to a variety of external forces, events, conditions and influences to which the organization must respond. These forces, conditions, events and influences arise from different sources. All these do not exist in isolation but interact with each other to create entirely new set of influences. It is not easy to comprehend all the factors that constitute a given environment.
2. Dynamism: Dynamism is to do with the rate and frequency of change. The business environment is dynamic in the sense that certain environmental forces are ever changing, and in particular some forces such as technological and competitive environments are changing faster than the other components of environment. For example, the rate of change in the technology and competition has been faster in the drugs, chemical and electronics and computer industries than in auto parts, machinery and other industries. “In dynamic conditions, managers sensibly address themselves to considering the environment of the future, not just of the past. They may do this by intuitive means, or may employ more structured ways of making sense of the future.
3. Environment is multifaceted: The shape and character of an environment depends upon the perception of the observer. Different observers may view a particular change or a new development in the environment differently. One company sees a particular development in the environment as an opportunity while another company perceives it as a threat.
4. Far-reaching impact: The environment lays a far- reaching impact on organizations. The growth and profitability of an organization depends critically on the environment in which it operates. Any environment development influences an organization in a variety of ways.
Thus environment is complex, dynamic, multi- faceted and has a far- reaching impact on the organizations.
The environment has also been described by dividing the environmental forces and events into direct-action environment and indirect-action environment. “Direct-action environment consists of those factors that directly affect and are affected by the organization’s operations including suppliers, labor unions, laws and governmental regulatory agencies, customers and competitors”. These specific forces exert direct influence on the organization’s decision-making. The indirect-action environment comprises those factors that do not exert an immediate, direct effect on an organization’s operations nevertheless influence them. General economic conditions, technological, social, cultural and political developments, inter groups and events in foreign countries are such indirect-action factors. These general factors provide a broad frame-work for different organizations and influence all the organizations in the same manner.
However, this kind of classification may be theoretically very useful but is blurred in real life because what are general environmental factors for one organization may be specific for another. Authors have classified environment into general environment, the operating or task environment and organizational environment. The general environment of an organization refers to general economic conditions, technology, social, cultural and political development, and the events in foreign countries that are broad in scope and have long term implications for organizations, provide a broad parameter for different organizations. The operating or task or competitive or industry environment has relatively specific and immediate implications for an organization, and consists of customers, competitors, labor, suppliers and laws.
External environment of an organization comprises of all such forces and events that are external to and beyond the control of individual business enterprises and their management. These forces and events are given within which the firms and their management have to operate, adapt and adjust. The regulatory framework, the monetary policies of the central bank, the value systems of the society, the institutional structure of the country, the ideological philosophies of the political parties and their attitudes towards foreign capital and enterprises comprise the environmental system within which a business enterprise has to operate. The environmental forces usually vary from country to country. The pattern of environment that exists in India is not likely to be the same as in the U.K., Japan, USSR and the USA. Nevertheless, some may be alike throughout the globe. Despite the differences, the business environment exhibits some general characteristics that are described below:
1. Complexity: The business environment is complex due to a variety of external forces, events, conditions and influences to which the organization must respond. These forces, conditions, events and influences arise from different sources. All these do not exist in isolation but interact with each other to create entirely new set of influences. It is not easy to comprehend all the factors that constitute a given environment.
2. Dynamism: Dynamism is to do with the rate and frequency of change. The business environment is dynamic in the sense that certain environmental forces are ever changing, and in particular some forces such as technological and competitive environments are changing faster than the other components of environment. For example, the rate of change in the technology and competition has been faster in the drugs, chemical and electronics and computer industries than in auto parts, machinery and other industries. “In dynamic conditions, managers sensibly address themselves to considering the environment of the future, not just of the past. They may do this by intuitive means, or may employ more structured ways of making sense of the future.
3. Environment is multifaceted: The shape and character of an environment depends upon the perception of the observer. Different observers may view a particular change or a new development in the environment differently. One company sees a particular development in the environment as an opportunity while another company perceives it as a threat.
4. Far-reaching impact: The environment lays a far- reaching impact on organizations. The growth and profitability of an organization depends critically on the environment in which it operates. Any environment development influences an organization in a variety of ways.
Thus environment is complex, dynamic, multi- faceted and has a far- reaching impact on the organizations.
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