Environmental Factors Affecting an Organization - Report Example

Environmental Factors Affecting the Organization and Its Function Activities Organizations do not operate in vacuums rather they operate within the setting of a larger system which constitutes the environment. Environment generally refers to the surrounding circumstances and influences on individuals, organizations and other human resource activities. The effects of the environment can either be positive or negative. The environment has also been defined as the aggregate of social, cultural, economic and physical conditions that influence the life of an individual, organization or community. 1 No organization of any kind can operate in the absence of environmental constraints or restrictions imposed by the organizational surrounding while managers exercise power; their authority is always limited by the environment. Of necessity then, all organizations must be adjusted to the environment in which they exist. Every organization has two types of environment i.e. (i) Internal environment (ii) External environment EXTERNAL ENVIRONMENT The external environment of an organization are those factors that are outside the control of the manager but which nevertheless affect managerial decision - making. They generally affect all organizations within that society and thus they are not specific to any one firm. These environmental forces include: - Political -legal forces, economic forces, social and cultural forces. The two most important environmental are the technological forces and the internal environment. 2 a) Political - Legal forces These are forces that are associated with the government and the legal system within which a firm operates. The government can regulate the minimum wages that workers ought to receive, safety in the work place and insurance. Political stability is another factor i.e. organizations will change their mode of trade depending on how stable the political climate is. Presidential decrees also affects business decision - making. Business managers face a multitude of loss that limits their powers with regard to legal- political constrains. In the final analysis an organization usually cannot control what a government does. Sometimes these laws also create new opportunities for the firm. An example is compulsory recycling laws which have led to the mushrooming of the recycling industry. However, it is important for the organization to understand that the main purpose of business legislation is to give companies protection against unfair competition, protect the society's interests from being infringed by unscrupulous firms and also give consumers protection against business malpractices. (Dale, 2001) b) Economic forces Important aspects of the economy that affect the organization and human resource activities include inflation, economic growth, interest rates and employment. During periods of inflation, firms must pay more for raw materials Economic growth rate influences the demand for products while interest rate determines how much it will cost the organization to borrow money. Unemployment will influence the supply labour. Other economic factors affecting the organization are prices, savings and the availability of credit c) Social/cultural forces This environment consists of the value systems, social demographic characteristics and other basic characteristics of persons comprising the society. Such characteristics include desires, attitude, expectations, aspirations, believes, traditions, levels of educations, religions and customs of people in a given society. Religion might for instance influence people's tastes and preferences to products. Education may also influence tastes and preferences. People may have a negative attitude towards the products / services that the organization offers. The level of education would also affect the human resource function of selection and training because the low the level of education of its work forces, the more the training. The converse is true. People's lifestyles will influence the demand of various products. The firm must therefore identify the strengths it has which it can manipulate to produce such products or what may hinder it from doing so. Population is another social - environmental factor that greatly affects the organization. The size of the population is important since it can affect the firm's sales' volume for its products services. The distribution structure (age, sex) also influence demand for goods. Some social/ cultural factors may impact negatively on the organization like negative attitudes, negative believes that the firm produces injurious products and high or low lifestyles of the people. Other factors can be impact positively like expectations acceptable and a good population structure. The following SWOT matrix can be used in solving such problems. 3 Opportunities Acceptable customs Educated population Strengths Use of advertising in the media, journals and news papers Weakness Train staff to handle an educated population. Research on products Threats Negative attitudes and believes Religion Existence of raw materials that can produce products acceptable by a certain religion. A MORE DETAILED FOCUS UPON THE TWO FACTORS I have chosen these two factors i.e. the internal environment and the technological environment because of their great impact on the organisation. d) Technological environment Technology is a very pervasive term which refers to the sum total of the knowledge we have ways of doing things, inventions and techniques in areas of processes, machines and tools. Technology usually comes into being through the innovations process. Innovation is the introduction of something new or new methods as part of an organization's normal practice or way of doing things. Technology enhances efficiency i.e. it lowers the cost of production and selling costs. This might lead to a reduction in prices and an increase in demand and competitiveness. It also leads to better products and services being produced. The organization can use PESTLE framework which is a SWOT tool to analyse its strengths towards technology in the market. It may also be having weaknesses which it should overcome to access technology like low education levels and lack of experts in its workforce. The technology has negative effects like unemployment as people are replaced by machines. Further it can lead to product obsolescence. Technology may make products become obsolete quickly leading to loss of business like computers. The human resources function of recruitment, selection and training is also affected by technology as management must for instance select computer literate recruits. They are also compelled to train others on the field in order to adapt to the world of technology. 4 Internal environment This consists of factors internal to the organization and which are within the control of managers. The factors in question include organizational assets, resources, systems and capabilities. If favourable, the factors influence the organizations favourably otherwise they constitute constraints or impediments which hinder the organization from achieving its objectives. Favourable factors may be a source of strength while unfavourable ones will be a source of weaknesses for the organization. I. Articles & memorandum of association This indicates what the company may legally do or not do. They may tie the hands of managers. II. Organization policies, rules & procedures These guide thinking in decision - making or actions. They may indicate what may or may not be done and how to do it. III. Human resources Consider qualifications, skill and compliance of workers which are likely to influence performance. Also consider the level of motivation and commitments which influence effort levels. "Loyalty of the workers: Whether or not they unionized. IV. Higher level managers Including the Board of directors: consider the above (under human resources) i.e. skill compliance etc also consider the following: - Managerial values Management and leadership: - whether the manager adopts autocratic or democratic style of management. V. Material resources Including capital facilities, equipment, working capital, money raw materials and other supplies. VI. The product being produced -Consider the quality of the products perception by consumers and their attitudes towards the product. Also consider product acceptance by consumers. VII. Organizational image -The reputation that an organization has influences its ability to get customers, finance, employees and suppliers. VIII. Organizational structure -This should not be a bottleneck to performance or decision - making. IX. Systems -Management Information Systems, Quality Control Distribution, Research & Development, Budget Systems etc 5 CONCLUSION It can be concluded that an organization operates in an environment. These environmental factors affect the firm in different ways either positively or negatively. It is upon management to identify these factors and use tools like pestle framework of SWOT analysis to analyse such factors. References Bratton, J. and Gold, J. (1999): Human Resource Management: Theory and Practice. Houndmills: Macmillan Dale, M. (2001): The Art of HRD: Developing Management Skills , Vol. 3, New Delhi, Crest Publishing House Harrison, R. (1993): Human Resource Management Issues and Strategies. Wokingham: Addison-Wesley McGoldrick, E.A. (1996): Cases in Human Resource Management, London, Pitman Sparrow, P. and Hilltop, J. (1994): European Human Resource Management in Transition: New York: Prentice Hall Read More