Organisation Interacts With Its Organisational Environment Business Essay


The interaction between organisation and organisational environment is important because the growth of organisation is influent by the change of organisational environment. Therefore, most of the organisations strategy is to meet the long term outlook of the change of organisational environment. The assessment of external environment and internal environment are the input data of how organisation interacts with organisational environment. And disruptive and sustainable innovation, technology strategy and continuous improvement are the action of organisation to interact with its organisation environment.

External environment assessment

It is the collection of market data, it included analysis of competitive profiles, the study of macro and micro economic information, identifying the industry opportunities and threats, and understanding the need to be successful in the market. There are two frameworks which can assess the external environment of organisation, they are PESTEL Analysis and Porter's Five Forces.

PESTEL Analysis included six factors, they are Political, Economic, Sociocultural, Technological, Environmental and Legal.

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Political factor: It is refer to the government policy, the level of intervention to the economy.

Economic factor: It is included the interest rates, exchange rate, growth of economic, the change of taxation, inflation.

Social factor: It is the change of social trends that have influence to the demand of products, like aging population.

Technological factor: It is the new products and new processes created by new technology to improve quality and to lead the innovation.

Environmental factor: It is the awareness of protecting environment. Demand on environmental friendly products is an opportunity.

Legal factor: It is the legal environment change, it can affect the organisation behaviour and operation cost.

Porter's Five Forces

Porter's Five Forces included five factors, they are threat of substitutes, buyer power, supplier power and barriers to entry.

Threat of substitutes: The products from other industries, it affects the demand and price change of product in existing market.

Buyer power: The bargaining power of buyer can affect the cost of products. For monopsony market, buyer bargaining power is higher to get lower price of raw materials.

Supplier power: The bargaining power of supplier can affect the cost of products. For monopolistic market, supplier bargaining power is higher to raise the price of raw materials.

Barriers to entry: The new organisations enter the same industry can affect the competition. The profits can be minimized.

Internal environment assessment

It is the reflection of organisation's ability to show its strengths and weaknesses. The organisational management process is evaluated and improved the value chain in the organisation in order to interact with its organisational environment. There are some models and factors which can assess the internal environment of an organisation. They are the product life cycle model, value chain analysis, core competences and organisational culture.

Product Life cycle model

The product life cycle stage is from introduction to growth, maturity and decline. It shows the changes in marketing situation. The product revenue and profits is affected in different stage of product life. Organisation can make decision on product life in order to meet the organisational environment.

Figure 3.2.1: Product life cycle Diagram

Value Chain Analysis (porter, 1985)

It is a chain of activities that organisation operates in an industry. New product passes through all the activities in the chain to add more values in each activity. This process can improve the product design and management internally.

Figure 3.2.2: Value Chain Analysis

Core competence

It is the most significant value creating skills in the organisation, these skills can be use to diversify to new products and technologies which can fulfil organisational environment. And it is critical in long term growth in the organisation. It can provide consumer benefits, leveraged widely to products and markets.

Disruptive and Sustainable innovation

how to achieve mission and wealth

innovation -> high margin, old product -> low margin but easy

Disruptive and sustainable innovation is business and technology strategy of organisation on product development. Different innovation can fulfil the needs of different kind of customers in order to interact with organisation environment.

Disruptive Innovation

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Disruptive innovation is the breakthrough of product design to market. Traditional customers may not accept this kind of products. This innovation is lower cost, simpler and maybe lower quality compared with existing products, but it can diversify into new market which has great margin. Especially for low end product, the cost is lower with very high margin, but the product life cycle is short and less market share for disruptive innovation product.

Sustainable innovation

Sustainable innovation is to improve the performance of existing products to maintain the mainstream of customers' value. This kind of product has less market growth and profit margin compared with disruptive innovation product, but the market share is higher.

Figure 3.3: Disruptive and sustainable innovation occur over time.

Technology Strategy

The technology strategy is helped to deliver the organisation strategy. The key deliverables and principles control the flow of organisational environment information within the organisation, so that the information like market data is share into different departments.

Figure 3.4: Technology Strategy Framework

Continuous Improvement

Continuous improvement is the key to build a strong relationship between organisation and organisational environment. The improvement is included products, service and processes to fulfil customer satisfaction.

Innovation and IT aspects of Procter & Gamble

Household care products are top selling items in P&G products, there are some innovation on product package which can improve the supply chain flow.

Most of the household care products have different packages like bottle, box or stand-up pouches. Different kind of packages can affect the packing size, for bottle and box packing, more space is required, for stand-up pouches packing, less space is required because it can be folded to maximize the storage space. Also, smaller packing size can increase the quantity of shipment which can speed up the flow of products, help to reduce out of stock situations.

(a) stand-up pouches (b) bottle (c) box

Figure 1: Different packing in Household care products

Besides the product packing innovation of household care products in P&G, the IT innovation in P&G also helps to improve the supply chain flow. In the past, household care products were always out of stock on the store shelves in supermarkets, convenience stores and other retailers, especially when they executed price cuts or promotion. But sometimes, one large lots was delivered to retailers, it would be several weeks earlier and kept in warehouse. The unit cost of goods was raised if making products that consumers not buy. This problem happened because P&G used a forecast "push" system of moving products out the store door. In order to solve this problem, P&G made an innovation of supply chain by SAP system, it implemented a demand "pull" system and VMI (vendor managed inventory) to make efficient and accurate distribution of household care products to retails.