Kapeel Kumar

MBA- Ms in HRM , Institute of business and

Technology.

Kapeel2008@gmail.com

CHAPTER

3
The Environment of
Organizations and
Managers

Learning Objectives
After studying this chapter, you should be able to:

Discuss the nature of the organizational environment and

identify the environments of interest to most
organizations.

Describe the components of the general and task

environments and discuss their impact on organizations.

Identify the components of the internal environment and

discuss their impact on organizations.

Identify and describe how the environment affects

organizations and how organizations adapt to their
environment.

Discuss the meaning of and approaches to organizational

effectiveness.

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33

Chapter Outline

The Organizations
Environments
The External
Environment

The General Environment

The Task Environment

The Internal
Environment

Owners

Board of Directors

Employees

Physical Work Environment

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34

The Business Environment

Environment- The forces or conditions that are in &

around organization .

External environment:

1.

everything outside an
organizations boundaries that might affect it. Its
mostly uncontrollable or may be control up to a limit.
I.

ii.

2.

General environment of organization is a set of broad

dimensions & forces in its surroundings economic,
legal, political, socio-cultural, international, and
technical forces.
Task environment is composed of specific groups and
organizations that affect the firm.

Internal environment:
within an organization.

the conditions and forces

35

The Organization and Its Environments

International
dimension

Technological
dimension
Competitors

Regulators

Politicallegal
dimension

Strategic
partners

Suppliers

Economic
dimension

Sociocultural
dimension

Internal environment
Task environment

Owners
Customers
Employees
Physical environment
Board of directors
Culture

External environment

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environment
by Houghton Mifflin Company. All rights reserved.
General

36

Figure 3.1

The External Environment

The General Environment

The set of broad dimensions and forces in an organizations

surroundings that create its overall context.

Economic dimension is the overall health and vitality of the

economic system in which the organization operates.

Technological dimension refers to the methods available for

converting resources into products or services.

Sociocultural dimension includes the customs, mores, values,

and demographic characteristics of the society in which the
organization functions.

Political-legal dimension is the extent of government

regulation of business and the general relationship between
business and government.

International dimension is the extent to which the

organization is affected by business in other countries.

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37

Economic Environment GE

The overall strength & vitality of the economic system in

which organization operates. Factors that affect buying
power and spending patterns of organization & its
customers/suppliers.

Trends of interest:

Inflation

Interest Rates

Employment ratios (estimated: 15.20 % in 2010)

Per Capital Income

Purchasing power of customers

(12.5 %)

Stage of Business/Economic Cycle

(prosperity, recession)

List of countries by GDP (PPP) per capita

International Monetary Fund Report
Qatar
2. Luxembourg
3. Norway
4. Singapore
5. Brunei
6. United States
7. Switzerland
8. Hong Kong
9. Netherlands
10. Ireland
11. Australia
38. Saudi Arabia
128. India
1.

132. Pakistan
169.

Afghanistan

US $ 83,841
78,395
52,561
50,523
49,110
46,381
43,007
42,748
39,938
39,468
38,911
23,221
2,941
2,661

935

Pci 1207

Technological Environment:
GE

The methods available for converting/processing

resources into products or services. Changes in
technology may make business obsolete

New technology creates new methods and opportunities

Replaces existing products/services & methods

Rates of obsolescence

Although technology is applied internally but it comes

from general environment.

Cultural

environment

Set of society's basic values, perceptions,

norms, regulations, preferences, traditions
etc.

Core beliefs passed on through family,

reinforced by institutions

Changing cultural standards

What is the dominant religion?

Impact of languages/tribes/ personal

freedom?
What are the roles of men and women within
society?

Political

environment

The Government regulation of business

and the relationship between business &
government.
Social legislation & regulation
Taxation policy
Employment laws
Interest rates

Laws and Regulations

for safety
for consumer protection
to protect special interests

How stable is the political environment?

What is the government's policy about
business?
What is the government's policy on the
economy?

Demographic
Environment

The study of human population in terms of size,

density, location, age, gender, race,
occupation, education etc.

Changing age structures

Changing households

Literacy Rate

Geographic shifts/Immigrants

Male/female/infants

Increased diversity

Natural Environment

Natural resources that are needed as inputs.

It encompasses all living and non-living things

occurring naturally on Earth or some region
thereof.

Growing shortages of raw materials

Increased energy costs

Changing role of governments

Anti-pollution pressures

International Dimension/ Globalization

The extent to which an organization is involved in or affected by business with

other countries.

The internationalization of products and services of a firm.

McDonalds General
Environment
International Dimension
Restaurants in 115
countries
About two-thirds of
sales from outside
the United
States
Political-Legal
Dimension
Government
food standards
Local zoning
climate
General posture
toward business
regulation

Internal environment
Task environment

External environment

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environment
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General

Technological
Dimension
Improved information
technology
More efficient
operating systems

McDonalds

Economic
Dimension
Strong economic
growth
Low unemployment
Low inflation

Sociocultural Dimension
Demographic shifts in
number of single adults
and dual-income families
Growing concerns about
health and nutrition
316

Figure 3.2

The External Environment

(contd)

Dimensions of the Task Environment

Specific groups affecting the organization

Competitors seeking the same resources as the organization.

Customers who acquire an organizations products or

resources.

Suppliers that provide resources for the organization.

Regulators that control, legislate, or influence the

organizations policies or practices:

regulatory agencies.

interest groups.

Strategic partners (allies) who are in a joint venture or

partnership with the organization.

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317

Task Environment
Is composed of specific groups and organizations that affect
the firm.
The main actors are competitors, customers, suppliers,
strategic partners & regulators.

1.

Competitors- An organization(s) that

competes with other organizations for
resources.

Usually four levels of competition exists

a)

Brand Competition- Competition between companies, offering a similar

product and services to same customers at similar prices.

Pepsi Cola & Coca cola etc.

b)

Industry Competition-Competition between all companies making the

same product or class of products

Toyota would see itself as competing against all automobile

manufacturers.

Cont
c)

Form Competition- Competition between companies manufacturing

products that supply the same service.

Toyotas competitors would not only be automobile manufacturers but

also against manufacturers of motorcycles, bicycles, and trucks etc.

d)

Generic Competition- Competition between all companies that compete

for the money (Rs.,$ etc) of costumers.

Toyota competing with banks, hotels, real estates etc.

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320

2. Suppliers
Firms and individuals that provide the resources needed by the company
and its competitors to produce goods and services. 3M must watch supply
availability, shortage or delays, labor strikes, price trends etc.

3. Marketing Intermediaries
Firms that help the company to promote, sell
and distribute its goods to final buyer; they

include

Resellers,

Physical distribution firms,

Marketing-service agencies

Financial intermediaries.

4. Regulator
A unit that has the potential
to control, legislate, or
influence an organizations
policies and practices.
5. Strategic partner
Two or more separate
companies combine efforts
together to develop and
operate a specific business.

McDonalds Task Environment

Regulators
Food and Drug
Administration
Securities and
Exchange
Commission
Environmental
Protection
Agency

Competitors
Burger King
Wendys
Subway
Dairy Queen

McDonalds

Strategic Partners
Wal-Mart
Disney
Foreign partners

Customers
Individual
consumers
Institutional
customers

Suppliers
Coca-Cola
Wholesale food
processors
Packaging
manufacturers

Internal environment
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Task environment

323

Figure 3.3

The Internal Environment

Conditions and stakeholder forces within an

organization

Owners are persons with legal property rights to a

business.

Board of directors are elected by the stockholders and are

charged with overseeing the general management of the
firm to ensure that it is run in a way that best serves the
stockholders interest.

Employees are persons who work for the firm and have a
vested interest in its continued operation and existence.

Physical work environment is the actual physical

environment of the organization and the work that people
do.

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324

The Internal Environment

In performing managerial tasks, a
manager must take other company groups,
such as top management, finance, research
and development (R&D), purchasing,
manufacturing and accounting, into
consideration.

1.

The Company:

2.

Employees & their unions: those employed by the organization.

3.

Resources: the firms facilities.