What is the Organisational Environment or Business Environment? In my point of view, a business is an organization that provides goods and services to others who want or need them. And the Environment is defined as the surroundings of the organisation, such as Social, Legal, Economical, Political or Institutional that are beyond the control of the organization and affect the organizations’ functioning. There are two major components of business environment:
Internal Environment: Man, Material, Money, Machinery and Management. These factors are usually under are controlled and affected by the business. The business can cause changes to these factors followed by the change in function dividing in the company.
External Environment: Government, Legal, Geo-Physical, Political, Socio-Cultural, Demo-Graphical factors, â€¦ these factors are beyond the control of company.
After this subject, I hope that, I will know deeply how to analyze and evaluate the relationship between the organization and its environment, and the environment impacts on management decisions. To understand the market and competitors and the tools that manager can use to monitor the changing business environment.
And this is my brief report for 7 of 12 sessions of this Global Organization Environment course that I learnt.
Environment of organization’s form and purpose.
The purpose of an organization is to accomplish the goals and objectives as indicated within the organization’s vision statement and depends on it’s nature of the organization. If the aim of the organization is to get profit, then its main purpose is to earn money. To provide goods and services, employment, and satisfy the expectations of different cohorts of people. With organization’s responsibility is: employee welfare, working condition, job design, pollution, advertising, employment & community,… If the organization is for non-profit, then its target is to satisfy customers or to relieve the public.
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The mission will be indicated how they plan on reaching those goals and objectives. When making strategic decisions about the organization’s direction and scope, managers have to analyse the organizational purpose, vision and stakeholders’ expectation for the future. Each stakeholder group has personal and collective expectations of organization, but these expectations are likely to conflict, such as: growth versus profitability, growth versus independence, cost cutting versus jobs, â€¦ Stakeholders individually are unlikely to influence the strategy of an organization, but collectively because they share similar expectations they are likely to have a bigger effect. Stakeholders are not always equally powerful or interested in the strategy of the organization so will need to be prioritised.
There are different types of organisation: Private Limited Company (Ltd.); Public Limited Company (plc); Partnership; Sole Trader; Co-operatives; Close Corporation; Joint Venture; Franchising; Public Corporation; Municipal Enterprises; â€¦
Understanding the Managerial Environment.
Managers will need to evaluate the current context and trends of organisational strategic planning and operating, it includes the evaluation of local, regional political stability, government’ commitment to business, main economic indexes, labour force, technological development and availability, legal documents and finally environmental issues affecting business. With the results of analysis, managers are able to identify main opportunities and threats of their company. Opportunities are external factors which enable managers to enhance revenues or open markets, such as: new technologies, new markets and ideas, new technologies has helped businesses increase productivity and quality and reduce labor force through application of new technology, â€¦ Threats are those which can have bad influence on the organization such as: economic recession, oil shortages,â€¦ Managers’ responsibilities are to seek opportunities and avoid threats.
Task environment are forces from suppliers, distributors, customers, and competitors.
There are many forces that have deep influence on the company. These forces consist of wide economic, technological, demographic and similar issues which managers usually can not impact or control.
Economic forces: affect the national economy and the organization. It refers to interest rate changes, unemployment rates, economic growth. When the economy is strong, people have better consumption ability which means they spend more on goods and services Technological forces: refer to skills and equipment used in design, production and distribution. These forces may lead to opportunities and threats to managers and often make products obsolete very quickly or can change the way managers manage them.
Socio Cultural forces: Social and cultural forces are often linked together. Whilst meaningful distinctions between social and cultural factors can be made, in many ways they interact and the distinction between the various factors is not clear.
Differences in language can alter the intended meaning of a promotional campaign and differences in the way a culture organizes itself socially may affect the way a product is positioned in the market and the benefits a consumer may seek from that product
Demographic forces are changes in the nature, composition and diversity of a population and include gender, age, ethnic origin and so on. For instance, nowadays more and more women enter the workforce and even become high-ranked leaders. In many developed countries, the population is aging. Based on these demographic changes, it can be forecast that there will he high demand for health care and assistance for living.
Besides, the company will be able to avoid more threats if managers can measure the complexity of the environment and the rate of environmental change.
Environment complexity can be seen as the number and possible impacts of different forces in the environment. The more attention manager pay to forces with larger impact, the better opportunities the company may have. And it is easy to see that the bigger the organization, the greater number of forces managers must consider. This means, managers’ job will become more and more complex if there are more forces
So what is the way to reduce environmental impacts? Managers can avoid many environmental threats by reducing number of forces.
All levels of managers must have responsibility to minimize the potential impact of environmental forces. For example, line managers are responsible for reducing waste; middle managers are to oversee and evaluate competitors’ moves; top managers are responsible for the company’s new strategy.
In order to deal with changes, creating new organizational structures can be a suggestion to managers. In many companies, managers use specific departments to respond to each force. They also define specific functions of departments to create mechanistic or organic structures. Authority in mechanistic structure is centralized and roles are clearly specified. This kind of structure is better used in slowly changing environments. Authority in organic structure is decentralized and roles overlap, however, this feature helps organization have quick response to change.
Manager must gain access to information needed to forecast future issues. If in-correct view of the environment, the forecast company’s future will be wrong.
Inter-organizational relations are that companies need alliances globally to best utilize resources.
PESTLE is a framework for categorising the environment. It allows an in-depth analysis of external factors impacting on the organisation to take place. The outcome of this is twofold: Assess the Opportunities facing the company & Assess the Threats facing the company.
The main purpose of analyzing environment factors is to identify opportunities, threats. Businesses can reduce these risks and focus to exploit their business’s opportunities as well as strengths. I can determine a strategy for dealing with these anticipated changes. The result is that I become more pro-active and better prepared rather than having to react to a crisis. This process might be linked to the organization’s strategic vision and the generation of potential scenarios.
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The Economy and the Role of Government.
Any economy can be understood at the simple level as the interaction of two participants, consumers and producers. The Circular Flow of Income describes the operations of an economy; the consumers provide resources to firms for income, firms produce goods and services to consumers for margin. Income and margin are used to pay living and operating costs, taxes for government spending, investments for productive capacity, technological development and savings.
Government plays the role of policy maker and referee, ensuring the achievement of economic and social goals of a society, including high rate of decent employment, stable economic growth, low rate of inflation, trade surplus. Government use fiscal policy (taxes and public spending) and monetary policy (money supply and interest rates) as major tools of macro-economic management. Fiscal policy is a tool for managing demand and is used in order to increase or decrease demand, if government wants to increase the demand, it may reduce taxes and/or increase spending, if it wants to reduce the demand, it will do the opposite. Government has lot challenges in achieving simultaneously all the economic goals, an increase in demand may create high inflation. Government also use monetary policy for macro-economic management, an increase in interest rates will increase saving, reduce consumption and reduce investment spending, and thus reduce inflation. The interest rates affect exchange rates and banks or investors will spend their energy and efforts just to trade the money and not the production.
The European Environment.
The rationale of reduction in trade barriers and mobility restrictions is for costumers’ rights protection, competitive and technological enhancement. The main benefits for countries in joining EU include access to a largest and fairly competitive market, with a safer and predictable environment for the business. Social protection for consumers, employees, producers, and the economy as a whole, supported by a powerful economy and sustainable resources, education, research and development,â€¦
The main challenges for EU enlargement includes different educational, technological, cultural, infrastructural and competitive level between countries, politics, human rights issues, especially the legacy of the Soviet economy. United Kingdom, Switzerland are considering their EMU member due to negative factors such as economic cycle, sovereignty issues, unique values, transition and employment costs.
Understanding the Global Environment.
Globalization has invoked extensive debate over its impact and credibility , giving rise to a number of perspectives . The area that permits people and different industries to focus on what they do best is competition , and global markets encourage efficiency on this area . It offers greater opportunity for industries to tap into more and larger markets around the world . Industries could now have access to more capital flows , technology , cheaper imports , and larger export markets .Industries are compelled to vie globally due to the competitive environment .
The key globalisation’ drivers include politics, economics, market, costs and competition. Globalisation is bringing both opportunities and challenges to peoples. For competitive advantages in the global market, countries have to increase their political and social connections between peoples and states; firms need a good assessment of global costs. Globalisation allows firms not only to profit of better production factors, but also to gain market share or to access to growing market. Managers need to have strategic decisions on whether outsourcings, off-shoring or in-sourcing for cost’s advantages. Government’s policy makers have to ensure the reasonable inequalities between rich and poor, the control of dominance and monopoly of biggest global firms, cultural degradation, global dependence and global crime.
Market Structures and Industry Analysis.
Monopolists are able to control both production and purchase rights. In a high competitive market, specialism and location allow operators control over price. In the oligopoly’ market, competition of non-price methods such as advertising and sales promotion is appropriate. But the greater competition makes companies more efficient and the consumer has a bigger choice of good and services, policy makers have to build rules for fair competitiveness and anti-monopolistic competition. I am able to interpret the Porter’s Five Forces (current competitors, new entrants, buyer’s power, substitutes, and supplier’s power) to market and competitive analysis of my business. The results will be used to defining and positioning my business, including the development and implementation of key success factors.
Delivering Customer Value and Managing Marketing Performance.
Firms need an appropriate targeting strategy due to different needs of customers. Customer’ segmentation allows firms to critically analyse characteristics of customer’ groups for the provision of relevant services and goods. Appropriate promotions with segmentation’ approach help firms not only to save costs, but also to provide desirable products and enjoyable prices. A good understanding of existing and potential markets through assessing current and potential market attractiveness, evaluating company and competitors’ current and potential strengths and weaknesses in serving a particular market, allow firm to take competitive advantages. Company’ brands are built from knowledge, esteem, relevance and differentiation. I am using the gained knowledge from these sessions to develop my business strategy with demand-driven and non-price competitive approaches such as owner’ branding, expertise enhancing, attitude improving for differentiation and success.
Difficult concepts and Improvement plans:
Scenarios and scenario building are difficult concepts with me, the growing importance of scenarios is related to the increasing problems with forecasting, forecasting works well in times of stability, however, extrapolation of past trends and forecasting into the future becomes highly problematic in times of uncertainty, such as: with exchange rate we can not know exactly it tomorrow. And the session 12th is difficult as well, as it requires a manager how to monitor the changing of their business environment and how to deal more successfully with their operating conditions.
“Studying the future is not the ability to see the future, it’s the ability to walk away from part of the past.” – Gary Hamel, Harvard Business School. Scenario planning can be a powerful means for enhancing strategic planning within organizations. Scenario planning helps people articulate their mental models – their perceptual limits – to discover what opportunities and threats exist that they are currently failing to perceive
And I agree with this, “Experience has taught us that the scenario planning technique is much more conductive to forcing people to think about the future the forecasting techniques we formerly used.” – Andre Bernard, Managing Director, Royal Dutch/Shell.
With my daily work, I will try my best to improve, from:
Learning from doing my works. I am working with position is Head of Finance Planning Report and Budget Control in my company, I am building scenarios with my boss and colleague to my company and will learn from both success and failure.
More exchanges with friends and experts: Informal discussions, exchanges through emails, chats with them will enable me to gain more knowledge.
Participation in short course with Viet-sourcing to improve my knowledge.
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