Organizations and Their Environment - Term Paper Example

Organisations and Their Environment For any organisation to work, a number of stakeholders have to pool their efforts. Terry & Franklin (1994) definemanagement as 'a distinct process consisting of activities of planning, organizing, actuating and controlling performed to determine and accomplish stated objectives with the use of human beings and other resources'. Similarly Worthington and Cumberpatch (2006) defined management as; 'The roles fulfilled by individuals who manage the organisation' and 'A process which enables an organisation to achieve its objectives'. Management therefore involves a coordinated approach taking care of all the factors affecting the business operations. Functioning of an organisation is mainly affected by two types of factors; Internal: These are the factors like the strengths of the organisation, in terms of its finances, human resources, management, strategies etc. These factors can be controlled well by the organisation. Mullins (2005) contends that organisations comprise 'people, objectives, structures' and 'management'. External: These are the factors which on which an organisation may not be able to exert much of its control. These include, the legal and political scene prevailing within the state/ country of its operations, number and types of competitors, suppliers in the market, terms and conditions from financial institutions, alternative products available in the market, newer technological innovations etc. Worthington (2006) places greater importance on political developments occurring at different levels - local, national and international. Organisations resort to strategic planning to take care of these factors and. Organisations learn a lot from there environment and prevailing circumstances. But the strategic intent alone cannot be planned all in advance. It has to be a continuous evolutionary process depending upon the experiences. Henry Ford said, "Failure is the opportunity to begin again more intelligently"1 In general, the management of an organisation prepares its strategies for its operations and growth with the help of; 1. Environment Analysis 2. Doing a SWOT Analysis 3. Preparing a Business Policy. Environment Analysis: It involves studying and analyzing the surroundings to identify the competitors, the threats and opportunities. Maslow's hierarchy of needs argued that the driving force for human actions is the urge for satisfaction of one or the other need. These needs go on changing depending upon a number of factors. In fact the needs of consumer/ customer and those of the organization are inter-linked because organization too is an active component, so needs of the organization too keep changing. Similarly changing needs of the customer must drive an urge for change in the organization for it to succeed in the long run. Environment changes with; The form of government i.e. whether democratic, parliamentary or not. The market forces depend a lot on the form of government. Frequency of elections and leaning of the political party coming to power. Existing trade facilitations/ barriers amongst the partner countries. For example EU is composed of 27 member states, which help businesses to prosper within the region. In addition regional trade associations like NAFTA, SAFTA etc also lessen the trade barriers and prove to be helpful in preparing strategies for the organisation. Government's economic policies, taxation rates, rates of interests, currency convertibility, competition policy, employment policy, environment protection policies etc. PESTEL analysis provides an important tool to take a comprehensive look at the external environment affecting an organisation. PESTEL determines the factors like Political, Economic, Social, Technological, Environmental, and Legal. Organisations are supposed to devise their strategies on the basis of this analysis. Environment analysis involves market analysis as well. In fact environment analysis tends to be unique to the strategists, because what may appear to be an opportunity to one organization may not look the same to other. In fact situation of threat for one may appear to be full of opportunity to another. For example, most of the MNCs doing business in Iraq and Afghanistan have fled the respective countries because of the uncertainties prevailing in the regions for quite a while now, yet some of the US companies are doing a roaring business in both these war zones. Well, politics apart, it is the entrepreneurial skills and confidence in one's abilities from the past experience. Companies and organizations are made for people and by the people, and obviously their effectiveness depends on the behavior and performance of the people running these companies. Human Resources Management therefore forms a crucial component for managing the organisation. The true importance of the human resource of any enterprise lies in its ability to respond favorably and willingly to performance objectives and opportunities and in these efforts gain satisfaction from both accomplishing the work and being in the work environment. Core areas of HRM include the individual, the organization and the social context of work and how all of these factors shape relations at work and result in organizational performance. To get the optimum from a satisfied and participative individual is considered to be the ultimate objective of HRM policies. The Human Resource environment as such is affected mainly by the following five factors; i. Economic: The economic environment of host country, inflation rates, growth factors and the levels of unemployment affect the HR policies. ii. Demographic: The demographic composition of the workforce like the communities involved, the caste consideration (this becomes a reasonable factor in case of some of the developing economies), the male-female composition, and the population density of the country / region also helps in devising effective HR strategies. iii. Socio-cultural: Religion and culture never tell a person to 'not to work', yet people of some socio-cultural background are found to be less workaholic than others. The effect of family systems like 'Joint family system' or 'Nuclear family system' become crucial factors in forming the habits of individuals and thus formulating of HR policies. iv. Technological: Rapid technological advancements have reduced the dependence on muscle power to a certain extent. Modernization and automation lead to increased accuracy and less redundancy in the output while increasing the comfort level of the workforce. v. Politico Legal: Prevailing political situation in the country, the party in power, the ideology of government functionaries affect the business environment. Whether it's a democracy, autocracy, monarchy, one party system, or a multi-party system gives enough room for strategy planners to devise HR policies accordingly. The law of the land has always to be kept in mind while doing the recruitments or managing the human resources. For example in some countries, formation of 'workers union' is not allowed while in some others it's mandatory. Those were the days when a business was supposed to run its operations till it keeps earning profits. Not any more, now for a sustainable business enterprise the business operations must be a partner in the sustainable development of society/ country. For any business to survive, Sustainable development is the development that keeps an eye on the present as well as on the future, and meets the needs of the present without compromising the ability of future generations to meet their own needs. Sustainable development is a total concept of harmonizing the use of resources, investment, developments and the changes brought about in the organization. It has to be a joint effort of Public and Private entrepreneurs with regular inputs of wealth from industry. The benefits must also percolate down to the poorest of poor, for its wider penetration and acceptance in the society. As per a study conducted by UN, every year, almost 76 million people are added2 to the world's population with 98% of this growth being in the developing World. This part of the world is not very wealthy. As part of its social responsibility a business organisation is supposed to take into account such factors as well. This helps not only the society, but the organisation as well, as it will bring the organisation closer to the people and the society. In this era of globalisation the term corporate governance takes into account all such factors. Companies with different types of businesses have to deal with dissimilar situations. Corporate governance therefore varies depending on the companies and types of business as well. Shleifer and Vishny (qtd Doidge et al, 2004) state that corporate governance has to deal with the mechanism ensuring that investors as well as corporations get good returns on their investments. Organizations with better corporate governance models facilitates in accessing the capital markets on favorable terms, which enables them to mop up funds at attractive rates (Doidge et al, 2004). Countries matter in running the business operations because the political and social situation of the country requires the company to mould its operations as per the need of local needs. For example in USA different interest groups (comprised business etc) collect funds for political parties, generally by forming of political action committees (PAC) on political, social or economic issues. Though there are couple of MNCs who prefer to give funds directly to the political party, yet taking the PAC route helps in avoiding a direct confrontation between different interest groups. But formation of such campaign finance committees is not encouraged in some other countries, particularly in the third world nations. Increasing level of awareness about the environmental issues and conformance to the relevant standards is now becoming a part of the strategy for organisations. In fact organisations have been using such conformance systems to gain an edge over their competitors and to gain access in a wider market space. Now environment watch agencies call upon the companies to make an environment audit along with their annual financial figures. A 'green business' is not only good for the environment and humanity but good for business's bottom line as well3, because it gives an opportunity to the enterprise for managing the waste, cutting costs on wasteful expenditure, conserving energy and preserving the natural balance. This results in; Saving money, Allowing the employees to breath in an environment friendly atmosphere Thus creating a consumer friendly environment Giving a fresh lease of life to the mother earth Helping in refreshing the natural resources Sustainable business This in turn makes it a profitable enterprise for the business The company is able to provide newer inputs to the business operations and the cycle repeats itself. Care of environment is therefore not a 'project' in isolation, it has to be a mission and the zeal must be seen in all parts of business right from constructing the building to the final output packaging and transportation etc. References: 1. Worthington, I. and Britton, C. (2006) The Business Environment 5th edition. Harlow, Pearson Education. (Chapters 3, 11, 15) 2. Worthington, I. and Cumberpatch, Z. (2006) 'Business organisations: the internal environment' in Worthington, I. and Britton, C. The Business Environment 5th edition. Harlow, Pearson Education, pp.18-38. 3. Mullins, L. (2005) Management and organisational behaviour 7th edition. Harlow, Pearson Education 4. Terry, George R and Franklin, Stephen G. (1994). Principles of Management. Richard D Irwin Inc. USA 5. Doidge, Craig; Karolyi, G. Andrew; Stulz, Ren M. (2004), Why do countries matter so much for corporate governance Available online at http://ssrn.com/abstract=580883 (March 28, 2006) 6. UNFPA (2007). Population Issues, meeting developmental goals. Available online at http://www.unfpa.org/pds/facts.htm (Accessed March 29, 2007) 7. 100 ventures (2007). How to deal with failures. Available online at http://www.1000ventures.com/business_guide/crosscuttings/failure_managing.html (Accessed March 30, 2007) 8. Ward, Susan. 10 Ways To Make Your Business Environmentally Friendly. Available online at http://sbinfocanada.about.com/cs/environmentbiz/a/envirfriend1.htm (March 29, 2007) Read More