ORGANIZATION ENVIRONMENT

QUESTION

Group Research Report

DueDate:Week10Tobehandedinthelecture (Worth 20%)

What doestheterm organisational environment mean? Howdoyou thinkeachofthe internal andexternal environmentsaffectanorganisation? Relateyouranswertoa company in thecar manufacturing industry. (In the discussion, you need to include critical analysis skill, ie. explain the influence/impact on the organisation.)

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OVERALLCOMMENTS

SOLUTION

Executive Summary:

Industrialization introduces a large of corporate organization into the world.   These corporate organizations created a market which was similar to trading market used in the earlier times but the latter one was more sophisticated and modern. The market made the people rise in their status and this encouraged the other people to be a part of it. Today what we see is large number of corporate organizations all around us and large number of entrepreneurs. These organizations and entrepreneurs with their skills and hard work have changed the face of the market.  Again the modernity and development of technologies also made a great contribution in building the market.  Today what we see is a much different market. These markets have open tremendous opportunities for all existing as well as new organizations. As a result for a single product a large number of organizations enters into the market and compete with each other in order to gain their position in the market. Every organization is affected by its environment. Environment basically means the surroundings and the factors that determine the success and failure of the organizations. In this paper we are going to discuss about the organizational environment and the various elements of the environment that affects the functioning of the organization. In order to understand the paper properly a example of Ford Motor Company is taken which properly explains the effect of environment on the organization.

Introduction:

Steve Jobs, who was the CEO of Apple Computers once said that “A company or a business organization is one the humanities amazing inventions”. Business not only brings profit to the individual who starts it but also solves lot of issues of the government as well as the common people. Every organization is a source of income for other people. An organization is built up with lot of efforts and hard work. It may be the idea of a single person but it is built up with the coordination of lot of people (Valentin, 2001, pp; 54-68). There are lot of elements that affects the working of an organization and all these elements are described under a broad term called “Organizational Environment”. In simple definition an environment is described as a surrounding which covers a particular area and consists of elements that affect the areas and its constituents positively and negatively. Similarly the organizational environment is defined as the surrounding of the organization under the influence of which the organizations functions in the market. It is basically a force that either accelerates the organization or retards it. But it is completely that environment which holds the future of the organization (Doyle, 1998).

Literature Review:

Types of Environment:

Many studies have been done on organizational environment as it is considered to be highly important for all the success of the organizations (Dickson, 1996, pp 120). Based on the studies the researchers have formulated two types of organizational environment that have effect on the organizations and they are:

a)     Internal Environment

b)     External Environment

INTERNAL ENVIRONMENT:

The factors within the organization that have effect on the functionality of the organization are known as Internal Environment. The elements of these environments are under the control of the organization (Mc Donald, 1992, pp 4-22). Internal Environments consists of elements that exist within the organization and only by handling these elements properly an organization can work successfully. Some of the elements of the Internal Environments are:

a)     The Human Resource Management: One of the most important departments of any organization is the human resource management department and it handles the most important resources of the organization known as Employees. It is the employees who ensure proper utilizations of the other resources to bring success to the organizations. So employees are required to be efficient, skilful and managed in a proper manner. Employees come from different background but need to work as a family in the organization so the human resource management team handles all such things like employee’s salary, organizational conflicts, communications, trainings etc (Begin, 1992, pp 376-408). Problems with the employees will affect the organization in a bad manner whereas proper employees contribute lot towards organizations success. In order to make the organization grow employees need to have good communication skills, team work should be there, less organizational conflicts and so on. All these factors are sign of a successful organization. Many cases have been found where organizations have failed due to mismanagement of employees or due to lack of skills in employees.

b)     Resources: The next internal environment element is Resource. It refers to finance, accessories, machineries etc which are essential for running of an organization and gaining profits. Resources determine whether efficient tools are present to carry out a project which is the main aim of the organization (Effron & Gandossy, 2003). An organization thus need to always have enough resources before accepting or taking up a project. Inadequate resources will not help the organization in completing the projects on time and thus the organizations will face failure.

c)     Share Holders: The share holders are the financer of the organizations and finance is the main resource next to employees even in order to have good employees finance is essential. Thus the share holders are also considered one important elements of the internal environment. It is the proper investments and trust of these share holders that can allow the organization to take up various new projects and thus gain more profits (Valentin, 2001, pp; 54-68). The major share holders are the founders or the owner of the organizations so along with making investments it is also their duties to ensure that the finance resource is being utilized properly for the growth and development of the organization.

d)     Leaders and Managers: Although this element can be included under human resource management but still it is essential to explain this element. Every organization needs some leaders or managers who can manage the other employees and thus make them work towards organization success. The entire responsibility of an organization is placed on the shoulders of these leaders or managers (Begin, 1992, pp 376-408). So the managers need to be highly good with making the employees functions. Wrong managers or leaders can make the organization move in the wrong path and thus bring disasters to the organizations. So, highly qualified managers are a must for every organization.

Thus based on these internal environment the organization functions and gain growth and profits.

External Environment:

The environment outside of the organization basically the global markets act as External Environments. These environments are not in the control of the organizations. A large number of elements of the external environments are there which affect the progress of the organizations in the positive and negative manner. Some of the elements of the external environments are:

a)     Market Conditions: The market is quite fluctuating. The fluctuation of market is based on the success and failure of organizations. The market condition may be good or bad and based on these market conditions the success of an organization is determined. Even market condition also refers to the facts that how much the customers are interested towards a particular product and service (Kotter & Schlesinger, 1991, p 24-29). In order to be successful organizations it is essential that the organization grow in a positive market condition. When the market faced global recession in 2007 many organizations got bankrupt due this factor.

b)     Policies of a Country: One more factor of external environments is various policies of a country like fiscal policy, tax policy, interest policy etc. All these required by any organization from time to time. Every organization need to follow these rules very strictly failure of which can have legal actions on the organizations. So, the change in these rules and conditions can also affect the organizations (Porter, 2004). Like if interest rates rise then many organization will face problem in paying back the loans or taking new loans for investments and as a result the organizations will suffer. So, the policies and government rules in any countries influence the organizations in many manners. So this is one of the essential external factors and organizations always remains and functions according to it.

c)     Competition: Everyday hundreds of new organizations enter into the market with the aim of profits. The number of organizations are more that the number of services and products required by the people. So more than one organization are involved in selling similar products or services. Thing creates a competition amongst the organizations and all tries to make their position strong in the market (Porter, 2004). The more the competition the more is the threat for an organization. Thus this external environment also leads to shut down of organizations due to lack on profit which is caused by rise in the competition level.

Along with these there are many other external environment elements that have great influence of the functioning of organizations. Thus our discussion made it clear that both external and internal environment need for the success and failure of the organizations.

Tools Used For Analysis of External and Internal Environments:

It is not always the case that all the elements of the external and internal environment affect all the organizations in the same manner. But in order to begin any project or start an organization it is also essential to determine these factors and their effects. Thus researchers put forward some models based on which the organizations can make the analysis and thus take the decisions. Some of the analysis models are:

SWOT Analysis:

In order to carry out analysis of the market SWOT analysis has to be used. This is a model which is based on four factors which are Strength, Weakness, Opportunities and Threats. In this the Strength and Weakness basically determines the internal factors that will affect the product where as the Opportunities and Weakness determines the external factor that affects the organization. The Strength defines the positive factors of the organizations like its intellectual staffs, strong market position, efficient teams and past success. The Weakness refers to the negative points of the organizations like lack of resources, improper human resource, area of company etc (Panagiotou, 2003, pp 8-10). The opportunities defines the points that will benefit the organization with the launch of a project like future success, strong market position etc. At the same time threats defines the external factors that can affect the organization like competition, market crash, higher interest rates and so on. Based on all these factors SWOT analysis is carried out so that the product that is to be marketed can be analyzed from every aspect and then launched to avoid any kind of losses (Freeman, 1984).

PESTEL Analysis:

Another analysis method is known as PESTEL analysis and according to researcher when any organization is planning a marketing strategy it is very much necessary for them to carry out PESTEL analysis along with SWOT analysis. Earlier it was known as PEST and PEST stands for Political Economical Social and Traditional Analysis (Kotter & Schlesinger, 1991, p 24-29). This basically deals with the factors related to the external environment. Later on many other researchers included two more criteria to it which were legal and Environmental and thus made it PESTEL. The analysis framework basically deals with the macro environment.

These are the two important tools and also there are many other analysis tools that determine the external and internal environment affecting an organization or its projects.

Effect of External and Internal Environment Elements on a Car Company:

The card company discussed in this paper is the Ford Motor Company. It is an American company that was established in the year 1903 and is one of the most popular automobile maker industries. The organization was founded by Henry Ford and it is the fifth largest automobile maker in the entire world. The company in its life term have faced lot of success and failures at various phases of its time and it was all due to the various effects of the external and internal environments. Some of the elements that affected Ford in a positive and negative manner are:

a)     Management: The internal environment element, the management of Ford is quite good and so the company has been able to gain popularity and remain at top from such a long period. The management team consists of people who have efficient leadership skills and strong analysis power.

b)     Country Policies: Being an automobile organization the main aim is to make the automobile reach all over the world and so Ford has to follow the government policies of export import, fiscal policies and all the other legal policies of different countries. In many countries Ford has failed due to the fact that the government does not allow trading at their countries.

c)     Resources: This is another internal element and in case of Ford the resources implies the financial and the machineries things. Ford has quite good number of investors and it also earns good profits and this also helps in making the resources more improved.

So, these entire internal and external environments help the Ford Company to survive the various ups and downs and accordingly make the strategic planning.

Conclusion:

Organizational Environment is one of the most important topic and researchers are taking all the efforts to find out more elements which can affect the organizations and are placing them under internal and external environments. The tools are also being designed to analyze the environments so that it becomes easier for the organization to analyze and make planning. Overall it is essential for all the organizations to follow its environment strictly (Panagiotou, 2003, pp 8-10). Like our physical environment the organizational environment is also changing at a rapid rate and hence the organizations need to make the analysis and changes in the planning at regular intervals. The above discussions focused on lot of elements of the environments and also the analysis tools and hence made it very much clear that only a strong positive external and internal environment can ensure strong success of an organization.

References:

1. Begin, J.P. “Comparative HRM: A System Perspective”, International Journal of Human Resource Management, Vol 3, 3 (1992): 376-408.
2. Dickson, P.R. “The static and dynamic mechanics of competition: a comment on Hunt and Morgan’s comparative advantage theory”. Journal of Marketing | October 1, (1996): 120
3. Doyle, P. “Marketing Management and Strategy”, (2^nd Edition)(Hemel Hempstead, Prentice Hall: 1998).
4. Effron, M., Gandossy, R. P., & Goldsmith, M.. “Human resources in the 21st century”. Hoboken, NJ: J. Wiley & Sons, (2003).
5. Freeman, R. “Strategic Management: a stakeholder approach”, Boston, (1984).
6. Kotter, J. and Schlesinger, L. “Choosing strategies for change”, Harvard Business Review, (1991): 24-29.
7. McDonald, M. H. B. “Strategic Marketing Planning: A State-of-the-Art Review”, Marketing Intelligence and Planning, Vol.10 No. 4, (1992): 4-22
8. Panagiotou G. “Bringing SWOT into focus”. Business Strategy Review, Vol 14, 2, (2003): 8-10.
9. Porter. M.E. “Competitive Advantage: Creating and Sustaining Superior Performance” , (2004): p-38, (Revised edition), The Free Press.
10. Valentin, E.K. “SWOT analysis from a resource-based view”. Journal of marketing theory and practice, Vol 9, 2, (2001): 54-68

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