THE ORGANISATION’S

ENVIRONMENT
ESR 240
• Learning Objectives
• After studying this chapter, you should be able to:
1. Discuss the nature of the organizational environment and identify the environments of interest
to most organizations.
2. Identify the components of the internal environment and discuss their impact on organizations.
3. Describe the components of the general and task environments and discuss their impact on
organizations.
4. Identify and describe how the environment affects organizations and how organizations adapt
to their environment.
5. Identify and summarize key emerging ethical issues in organizations today.
6. Discuss the concept of social responsibility, specify to whom or what an organization might be
considered responsible, and describe types of organizational approaches to social
responsibility.
Organisations and Its Environment
• Organizations do not exist in a vacuum. They are constantly being
affected by external forces which determine an organization’s
effectiveness and performance. Therefore, it is imperative for the
management of any organization to examine components of their
firm’s external and internal environments to understand the dynamic
and far-reaching changes that are occurring.
• Organizations have both an external and an internal environment. The
external environment consists of two layers: the general environment
and the task environment.
Organisations and Its Environment
• 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
effective management.
THE ORGANISATION’S ENVIRONMENT
Internal environment
• An organization’s internal environment consists of conditions and
forces within the organization such as; owners, board of directors,
employees, physical environment and culture . Of course, not all parts
of these environments are equally important for all organizations.
• 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, shareholders, etc. control
the internal environment.
The External Environment
• An organization’s external environment consists of two parts. The
general environment refers to the non-specific elements of an
organization’s surrounding that might affect the organization
indirectly.
• These dimensions and forces are not necessarily associated with
other specific organizations. The general environment of most
organizations has economic, technological, sociocultural, political-
legal, and international dimensions. The other significant external
environment for an organization is its task environment. The task
environment consists of specific external organizations or groups that
influence an organization.
Elements of the General Environment
• Political environment -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 - 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 and services.
Elements of the General Environment
• Technological Environment - Technological environment refers to the
changes in technology that affect the way that organizations operate
and the services they provide.
• Socio-cultural environment - 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 are: Age, population density,
education levels, geographical distribution, culture and lifestyle.
Task Environment
• The task environment is inclusive of those outside sectors that have a direct working
relationship with an organization. The main variables in the task environment are:
Owners, customers, suppliers, labor, competition and pressure groups
• Owners expect managers to watch over their interests and provide a return on
investments.
• Customers are the final purchasers of a good or service, or absorbs the organizational
output. Studies or analyses of the expectations of the targeted customer base helps
organizations deliver.
• Suppliers are the people or organizations who provide the raw material that a particular
organization use to produce their output. 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 great extent.
Task Environment
• 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.
• Pressure groups - 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 economic factors.
The Ethical and Social Environment
• We define ethics as an individual’s personal beliefs about whether a behavior, action,
or decision is right or wrong.
• Note that we define ethics in the context of the individual, people have ethics;
organizations do not. Likewise, what constitutes ethical behavior varies from one
person to another. Further, although ethical behavior is in the eye of the beholder, it
usually refers to behavior that conforms to generally accepted social norms. Unethical
behavior, then, is behavior that does not conform to generally accepted social norms.
• A society generally adopts formal laws that reflect the prevailing ethical standards,
and the social norms of its citizens.
• Managerial ethics are the standards of behavior that guide individual managers in
their work. Although ethics can affect managerial work in any number of ways, we
have three areas of special concern for managers.
Ethical Concerns
• The three basic areas of concern for managerial ethics are the relationships of the firm to
the employee, the employee to the firm, and the firm to other economic agents. Managers
need to approach each set of relationships from an ethical and moral perspective.
• How an Organization Treats Its Employees - One important area of managerial ethics is the
treatment of employees by the organization. This area includes policies such as hiring and
firing, wages and working conditions, and employee privacy and respect.
• For example, both ethical and legal guidelines suggest that hiring and firing decisions
should be based solely on an individual’s ability to perform the job. A manager who
discriminates against candidates because of their race, gender in hiring is exhibiting both
unethical and illegal behavior.
• Wages and working conditions, although tightly regulated, are also areas for potential
controversy. For example, a manager paying an employee less than he deserves, simply
because the manager knows the employee cannot afford to quit or risk losing his job by
complaining, might be considered unethical.
Ethical Concerns
• Finally, most observers would also agree that an organization is
obligated to protect the privacy of its employees. A manager’s
divulging to employees that one of their coworkers has AIDS or is
having an affair is generally seen as an unethical breach of privacy.
• Likewise, the manner in which an organization addresses issues
associated with sexual harassment involves employee privacy and
related rights.
Ethical Concerns
• How Employees Treat the Organization - Numerous ethical issues stem
from how employees treat the organization, especially in regard to
conflicts of interest, secrecy and confidentiality, and honesty.
• A conflict of interest occurs when a decision potentially benefits the
individual to the possible detriment of the organization. To guard
against such practices, most companies have policies that forbid their
buyers to accept gifts from suppliers.
• Disclosing company secrets is also clearly unethical. Employees who
work for businesses in highly competitive industries electronics,
software, and fashion apparel, for example might be tempted to sell
information about company plans to competitors.
Ethical Concerns
• A third area of concern is honesty in general. Relatively common
problems in this area include such activities as using a business
telephone to make personal long-distance calls, stealing supplies, and
padding expense accounts.
• In recent years, new issues regarding such behaviors as personal
Internet use at work have also become more pervasive. Another
disturbing trend is that more workers are calling in sick to get extra
time off.
Ethical Concerns
• How Employees and the Organization Treat Other Economic Agents-
Managerial ethics also come into play in the relationship between the
firm and its employees with other economic agents.
• The primary agents of interest include customers, competitors,
stockholders, suppliers, dealers, and unions.
• The interactions between the organization and these agents that may
be subject to ethical ambiguity include advertising and promotions,
financial disclosures, ordering and purchasing, shipping and
solicitations, bargaining and negotiation, and other business
relationships.
Ethical Concerns
• Effort to enhance ethical behavior must begin with top management.
It is top managers, for example, who establish the organization’s
culture and define what will and will not be acceptable behavior.
Some companies also offer employees training in how to cope with
ethical dilemmas. One way of ensuring that managers and employees
conduct themselves in an ethical way include;
• Creating Ethics Codes- A formal, written statement of the values and
ethical standards that guide a firm’s actions. Of course, firms must
adhere to such codes if they are to be of value.
Social Environment
• As mentioned earlier organisations do not have ethics but they have
obligations on how to relate with their environment. This is through
social responsibility. Organisations are obligated to protect and
enhance the society in which they operate.
• Organizations may exercise social responsibility toward their
stakeholders, toward the natural environment, and toward general
social welfare. Some organizations acknowledge their responsibilities
in all three areas and strive diligently to meet each of them, whereas
others emphasize only one or two areas of social responsibility. And a
few acknowledge no social responsibility at all. Moreover, views of
social responsibility vary among different countries
Areas of Social Responsibility
• Organizational Stakeholders- these are people who are directly affected by
the practices of an organization and have a stake in its performance e.g.
investors, customers, employees , suppliers etc.
• Most companies that strive to be responsible to their stakeholders
concentrate first and foremost on three main groups: customers, employees,
and investors. Organizations that are responsible to their customers strive to
treat them fairly and honestly. They also seek to charge fair prices, to honor
warranties, to meet delivery commitments, and to stand behind the quality of
the products they sell.
• Natural environment- organisations must dispose off waste sustainably and
clean up in cases of spills and pollution. They can also conduct environment
protection programs.
Areas of Social Responsibility
• General Social Welfare- Some people believe that, in addition to treating
constituents and the environment responsibly, business organizations also
should promote the general welfare of society. Examples include
contributing financially to charities, philanthropic organizations, and not-
for-profit foundations and associations; providing other support (such as
buying advertising space in programs) to museums, symphonies, and public
radio and television; and taking a role in improving public health and
education.
• Some people also believe that organizations should act even more broadly
to correct the political inequities that exist in the world. For example, these
observers would argue that businesses should not conduct operations in
countries with a record of human rights violations.
Interaction of the Organisation and its
Environment
• Different elements of the environment interact with the various
subsystems of the organisation in different ways and to different
degrees. • The different ways and degrees the environment interact
with the organisation are:
1. Exchange of information 2. Exchange of resources 3. Exchange of
influence
Interaction of the Organisation and its
Environment
• Exchange of information- 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.
• Exchange of resources- 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
Interaction of the Organisation and its
Environment
• Exchange of influence- The external environment holds considerable power
over the organisation- by virtue of its being more global and also by virtue
of its command over information.
• 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
output. 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 organisation.
END