ORGANIZATION AND

ENVIRONMENT

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 ORGANIZATION AND
ENVIRONMENT
ORGANISATION AND ENVIRONMENT
At the end of this module the learning outcomes
are
• Importance of the external environment
• Various elements of environment
• Various variables that constitute direct and
indirect – action environment
• How organizations manage environment

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 ORGANIZATION AND
ENVIRONMENT
SUGGESTED READINGS
• Management – A Global Perspectives by
Koontz, Weilrich, Chapter 2, 10th edition.
• Management by Stoner, Gilbert and Freeman,
Chapter 3

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 ORGANIZATION AND
ENVIRONMENT
ORGANIZATION AND ENVIRONMENT
• What is environment
• All elements outside an organization that are
relevant to its operation, includes direct-
action and indirect – action elements

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 The Manager: Omnipotent or
Symbolic?
• Omnipotent view: managers are directly responsible
for an organization’s success or failure
• Symbolic view: much of an organization’s success or
failure is due to external forces outside managers’
control
 Managerial Constraints
• In reality, managers are neither all-powerful nor
helpless. But their decisions and actions are
constrained.
• External constraints come from the organization’s
environment and internal constraints come from the
organization’s culture
 Exhibit 3-1
Constraints on Managerial Discretion

Exhibit 3-1 shows that external constraints come from the organization’s environment and
internal constraints come from the organization’s culture.
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 The External Environment
• Those factors and forces outside the organization
that affect its performance
– Economic
– Demographic
– Political/Legal
– Sociocultural
– Technological
– Global
 Exhibit 3-2
Components of External Environment

Exhibit 3-2 shows the different components that make up the external environment.
Copyright © 2019 Pearson India Education Services Pvt. Ltd. All Rights Reserved
 The Economic Environment
• Managers need to be aware of the economic context
so they can make the best decisions for their
organizations.
 The Global Economy and the
Economic Context
• The lingering global economic challenges began with
the turmoil in the U.S. housing market.
 Economic Inequality and the
Economic Context
• Polls show that in many countries, people believe
that the gap between the rich and poor is
problematic.
 The Demographic Environment
• Age is a particularly important demographic since the
workplace often has different age groups all working
together
– Baby Boomers
– Gen Y (Millennials)
– Post-Millennials
 Gen Y
Gen Y is an important demographic at Facebook, where most employees are
under 40.
 How the External Environment
Affects Managers
• Jobs and Employment: the impact of external factors
on jobs and employment is one of the most powerful
constraints mangers face
 Assessing Environmental
Uncertainty
• Environmental uncertainty: the degree of change
and complexity in an organization’s environment
– Change: stable to dynamic
– Complexity: simple to complex
 Managing Stakeholder
Relationships
• Stakeholders: any constituencies in the
organization’s environment that are affected by an
organization’s decisions and actions
 Exhibit 3-4
Organizational Stakeholders

Exhibit 3-4 identifies some of an organization’s most common stakeholders

Copyright © 2019 Pearson India Education Services Pvt. Ltd. All Rights Reserved
 Benefits of Good Stakeholder
Relationships
• Improved predictability of environmental changes
• Increased successful innovations
• Increased trust among stakeholders
• Greater organizational flexibility to reduce the impact
of change
 Organizational Culture
• Just as each individual has a unique personality, an
organization, too, has a personality.
 What is Organizational Culture?
• Organizational culture: the shared values, principles,
traditions, and ways of doing things that influence
the way organizational members act and that
distinguish the organization from other organizations
 ORGANIZATION AND
ENVIRONMENT
Elements of External environment
• Direct – action
• Indirect – action

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 ORGANIZATION AND
ENVIRONMENT
DIRECT-ACTION ELEMENTS
• Elements of the environment that directly
influence an organization’s activities
• Also called stakeholders
• Shareholders
• Unions
• Suppliers
• Directly influence an organization
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 ORGANIZATION AND
ENVIRONMENT
INDIRECT – ACTION ELEMENTS
• Elements of the external environment that affect
the climate in which an organization’s activities
take place, but do not affect the organization
directly
• Elements are
• Technology
• Economy
• Politics
• Society
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 ORGANIZATION AND
ENVIRONMENT
STAKEHOLDERS
• Those types of groups or individuals who are
directly or indirectly affected by an
organization’s pursuit of its goals
• Two types
– External stakeholders
– Internal stakeholders

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 ORGANIZATION AND
ENVIRONMENT
External stakeholders
• Groups or individuals in an organization’s external
environment’s that affect the activities of the organization
• These include
• Unions
• Suppliers
• Competitors
• Customers
• Government
• Media
• Financial institutions competitors

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 ORGANIZATION AND
ENVIRONMENT
Internal stakeholders
• Groups or individuals such as employees, that are
not strictly part of an organization’s environment
but for whom an individual manager remains
responsible
• These include
• Employees
• Shareholders
• Board of Directors

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 ORGANIZATION AND
ENVIRONMENT
Managing multiple stakeholder relationships
• Conflicts of interests
• Multiple roles
• The special role of management

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 ORGANIZATION AND
ENVIRONMENT
Conflicts of interests
Example
• Government increases price of petrol
• Who is benefited – stakeholder
– Government
• Who will oppose – stakeholder
– Customers of petrol

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 ORGANIZATION AND
ENVIRONMENT
• Conflicts of interests
• Example
• Citibank raises interest role on loans to its customer –
Nestle
• What happens
• Profits of Citibank increase
• Citibank as stakeholder of Nestle gains
• Profits of Nestle reduce
• Higher interest to be paid to Citibank
• Shareholders of Nestle as stakeholder of Nestle stand to loose
Conflicts of stakeholders interest

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 ORGANIZATION AND
ENVIRONMENT
• Any activity
– Will be supported by some stakeholders
– Will be opposed by some stakeholders
– Their is a CONFLICT of interests
Managing this is a challenge

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 ORGANIZATION AND
ENVIRONMENT
Multiple Roles
• Multiple relationship
• An employee of Nestle
• Owns Nestle shares
• He is a shareholder
• Buys Nestle chocolates
• He is a customer

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 ORGANIZATION AND
ENVIRONMENT
Multiple Roles
• Opens fixed deposit with Nestle
• He is a lender/ financial institution
• Works in Nestle
• He is an employee
• PLAYS MULTIPLE ROLES

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 ORGANIZATION AND
ENVIRONMENT
The special role of management
Management role is to
• Satisfy all stakeholders
• Manage conflicts
• Maintain delicate balance

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 ORGANIZATION AND
ENVIRONMENT
INDIRECT – ACTION ENVIRONMENT
Four factors influence organization
– Social
– Economic
– Political
– Technological
– PEST factors

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 ORGANIZATION AND
ENVIRONMENT
Social variables
• Demographic
• Age
• Gender
• Education
• Income

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 ORGANIZATION AND
ENVIRONMENT
• Social variables
• Demographics
• Since independence of India
• Average life expectancy has increased
• Literacy rates have increased
• Ratio of females to males improved
• How does this affects organizations

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 ORGANIZATION AND
ENVIRONMENT
Lifestyles
• Double income no kids (DINK)
• Single parent
• Remarriage
• Stressful life

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 ORGANIZATION AND
ENVIRONMENT
Social Values
• Ambitious
• Competition
• Tend to eat out
• Dating
• Extra – martial relationships

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 ORGANIZATION AND
ENVIRONMENT
Economic Variables
• Prices of products
• Income tax
• Interest rates
• Economic conditions
• Boom
• Recession
• Stock markets
• Monsoon performance
These all affect organization performance

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 ORGANIZATION AND
ENVIRONMENT
Political variables
• Major effect

Coca Cola
• In India since independence
• 1977 elections
• Congress lost power
• Janata party in power
• Asked COKE & IBM to leave
• Left India in 1977
• 1991 economic policies
• COKE came back to India

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 ORGANIZATION AND
ENVIRONMENT
Technological variables
• Advances in science, products, processes and
materials
• Influence kind of products
• Influence of INTERNET

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 ORGANIZATION AND
ENVIRONMENT
Technological variables
INTERNET
• Influencing our business
• Booking of air-tickets
• Earlier through agents
• Now directly on the net

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 ORGANIZATION AND
ENVIRONMENT
NATURAL ENVIRONMENT CONCERNS
• Rise of environmental movement
• Current environmental concerns
• Pollution
• Climate changes
• Ozone depletion
• Ecological issues
• Sardar Sarover dam
• Global warming

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