External Organizational Environment - Example

Running Head: ENVIRONMENT AND SOCIETY  External Organizational Environment Name Course Tutor Date PART A Introduction In the contemporary organizational environment, a lot of dynamics apply, both internally and externally. Organizational performance is highly dependent on the interaction between the internal and external environments. Through appropriate management practices, a balance between the two aspects is significant in ensuring effective management. The internal environment relates to aspects within the organization itself and how they are coordinated towards achieving overall success. No business can operate without the external environment too. The relationship with the outside world is crucial and forms a fundamental part of organizational objectives and strategies. Management should therefore, engage in management practices that recognize and appreciate the roles of the two environments in ensuring environmental growth and sustainability. In the modern organizational settings, the dynamics are flexible compared to the past. In this view, organizations are always alert and devising ways to respond to the ever-changing environment. The changing environment is mostly driven by significant innovations in technology and communication. The issue of globalization and liberalization of markets and free market operations have accelerated the changes (Daft, 2009). As a result, businesses are every day becoming more creative and innovative to keep competitors ant bay and meet the ever-rising standards in requirements from all stakeholders. Managers can control internal organizational environments with ease. This is highly dependent on organizational culture and the style of leadership applied in the organization. Leadership plays a key role in shaping the kind of management an organization follows. This is management gets its directions and roles straight from leaders in the organization. Specific leaders have different leadership styles and hence organizations have different management styles. The extent to which management can control the internal organizational environment is significantly lower than that of an external environment. This is because an organization has very little control over the external environment. Some of these factors that an organization may find it hard to control include economic, political, environmental, governmental and human factors. Organizations can only react to the effects of external factors (Voiculet, Belu, Elena, & Rizea, 2010). In doing so, somber approaches are relevant in ensuring that the external environment only affects the organistion positively and, do not stall objectivity in the organizations. Due to the unpredictability of external organizational environments rigid approaches to management and leadership are always bound to fail. This is the reason why organizations are finding it critical in altering their cultures and ways of addressing issues in order to accommodate the new changes. In this essay, the way organizations respond to external environment changes will be discussed in depth. The reasons why organizations respond to external organizational environments will also be evaluated. External organizational environment As mentioned earlier, external factors in an organization are beyond the control of the organization. The only appropriate response is acting in manners that will take advantage of external factor to grow the organization. For instance, innovators come up with new technological advancements every day. It is up to management to decide whether it is best to replace the existing technology or maintain the existing ones. This will be based on the prospects of the new technology among other factors. Effective management should have the ability t recognize such niches in the market and take advantage of them to edge out competition from rivals. As organizations grow, average operating costs should reduce as much as possible. Sometimes it is necessary to incur one off expenses to safeguard future costs. New technology may be more effective than the existing one. However, it may call for huge financial investments to enable implementations. Managers always have to take risks as they may not know when the adopted technology may be replaced by other superior ones. Companies respond to technological changes by acquiring better technology that will aid them meet consumer demands better. This way, competitiveness is enhanced and growth is sustained having technological advantage over rivals may lead to domination in the industry. It may also discourage new entrants in the market. For instance, the Microsoft Corporation has extended its multi billion empire throughout the world due to their superior and unique technological advantage that many rivals cannot keep up with. Studies in markets and organizations have shown that markets move where technology moves (Laegaard, 2006). Micro and micro environments in the external scope define the scope in which external factors affect organizations. The micro environment is composed f people that are within the immediate organization. They comprise of consumers, suppliers, immediate community, a, suppliers and competitors. An organization may have some level of control in the microenvironments. Players in this environment interact on normal day to day operations. The macro environment, on the oher hand, has broader copes that organizations have very little control over. It is in this environment that competitor strategies are evaluated, an analysis of for interest expectations and development of a general outlook or strategy to handle external factors. Major external factors Organizations must consider external opportunities, threats that are there now and prospect about the future. There are many external factors but they can be grouped in clusters which are related. Political and legislation factors revolve around the legal formational frameworks under which an organization exists. The legal side consists of all laws and regulations that govern the conduct of business in an organization. In this scope, matters such as registration, licensing, tax regimes, environmental regulations and labor laws are examples. Organizations should always operate with the provided legal framework or risk legal action against them. The political environment determines the legislative route that authorities follow and hence organizations comply accordingly. For instance, a certain political regime may adjust the tax rates to raise more revenue in such a case, organizations are expected to comply stable political atmospheres are necessary for organizational prosperity (Crossan, Vera, & Nanjad, 2008). Another crucial external factor is the economic aspect. Many profit-making organizations are in business due to the economic part of it. Their goals are to maximize profits given the limited resources under their control. Economic factors range from interest rates, fiscal and monetary policies. Inflation, price patterns, demand and supply among other factors. In the modern business environment, the economic aspect is very crucial. Economic operating dynamics determine whether organizations will make profits or not. This calls for comprehensive economic studies of trends and make informed decisions economic factors determine revenue and expenditure levels. For instance, in 2007 and 2008, the world was hit by a major global economic crisis. Many firms that did not have strong economic foundations and frameworks tumbled. Those that remained had superior strategies which they used to respond to the crisis. The scope of response was a determining factor in the survival of many organizations. Technological endowment will determine the levels of capacity in operations and productivity. With fast growing technological advancements organizations respond by keeping up with the latest and most effective. The choice of technology to apply is constrained by factors such as cost, purpose and usability. Sometimes, mangers overlook external matters and concentrate only on internal affairs. This is a risky approach as it may lead to inadequacy on operations and organizational structures. When handling the external environment in an organization, there are several variables that should be considered. First is maintaining stability. External pressures are always posing callings that threaten to destabilize organizations. The dynamics of stability can be measured in terms of consumer demands and preferences, technical advancements, economic pressures, and political atmosphere. The issue of complexity is measured by their resource requirement that an organization may need to respond appropriately to external influences. Heterogeneous among organizations in the same industry makes it difficult to control a specific market share Jacobs (Arjen &Christe-Zeyse, 2013). To counter competitiveness, product differentiation is necessary to give a unique edge. This is coupled with aspects of quality, pricing and service. External environments are known to be at times hostile to organizations. For instance, governments may impose levies that may hurt profitability levels. A friendly environment provides a route for growth unlike a hostile one In organizational settings, the environment that affects it, either directly or indirectly can be referred to as the domain or field of action. The domain is further divided into sectors that have similar characteristics. In the environmental scope, there are general categories that determine how organizations respond to changes. For instance, the task environment relates to factors involve competitors, magnitude of industry, service providers and suppliers, and the general market which comprises of consumers. The task external environment is close to the microenvironment and it determines the immediate ability to achieve goals. The task environment also includes foreign aspects that directly affect the organization, for instance, foreign acquisition and prevailing exchange rates. The general environment is not directly involved in the operations of the organization. Examples are economic and political factor. The international aspect is also an external environment issue. This is especially for organizations that are involved in cross border transactions. The environment in the other country will affect operations of the organization in questions (Mensah, 2001). Often organizations operating internationally will chose countries that have stable external environments that create conducive environments for conducting businesses. External environment and uncertainty One of the most significant factors of the external environment is its unpredictability and uncertain characteristic. Uncertainties lie in complexity, stability, and homogeneity. This crucial aspect for managers to be fully informed and updated at all times. Misinformation or lack of it puts organizations at risk of lagging behind and making losses. Apart from information, organizations require adequate resources to deal with the consequences of uncertainties. For instance, when a new product is launched in the market, support resources such as market research promotion are required to contribute to the success of the product. Complexity and uncertainty in the external environment varies with different industries. Some are higher then the other, hence different operating dynamics. Low uncertainty is characterized by simplicity and stability while complexity and instability is accompanied by high uncertainty. The level of uncertainty affects the internal environment. This is because more personnel are required to gather, process and present information that is necessary to keep the organization running. Organizations have also introduced boundary spanning which entails opening the organization to consumers and connecting well with them to lean the markets and promote efficacy (Ben-Ner, Kong, & Lluis, 2012). Another strategy that management applies in combating uncertainty is the use of differentiation and integration strategies. Internal departmental approach to external factors where high specialization is developed to handle eternal shocks is also applied. The disadvantage of this approach is that departmental coordination becomes difficult as complexities are spread to the internal environment. Management styles are also a significant way that organizations use to handle external affairs. In stable external environments the hierarchical authorities are concise and procedures are clear (Moss, 2003). If the external environment is dynamic, the management style is organic where decisions are made depending on the situation at hand. PART B Many organizations owe their existence to an adamant culture that has been applied since their inception. The leadership and management styles have been following a certain specific sequence over the years. However, in the recent years such organizations are losing to competitors due to their inflexible approaches. The main cause of these challenges is aggravated by the fact that the external environment under which organizations operate is changing at fast rates. Organizations that cannot keep up with this are forced to shut down in the long run. This was very evident in the global recession in 2008 where many companies went under and only those that had superior strategies survived. A good example is the banking and insurance companies in the U.S. external factors, specifically the financial global crisis caught them unaware when most of their assets had been advanced to people in form of loans during the crisis, most loans were not performing and huge losses were experienced. Full recovery has not been made up to date. Banks which embraced mechanistic other than organic approaches survived the crisis. From this example, it is clear that external environments can have adverse effects on organization if management approaches are not dynamic. References Ben-Ner, A., Kong, F., & Lluis, S. (2012). Uncertainty, task environment, and organization design: An empirical investigation. Journal of Economic Behavior & Organization , 82 (1), 281-313. Crossan, M., Vera, D., & Nanjad, L. (2008). Transcendent leadership: Strategic leadership in dynamic environments. The Leadership Quarterly , 19 (5), 569-581. Daft, R. L. (2009). Summary Organization Theory and Design. 1-38. Jacobs, G., Arjen, v. W., & Christe-Zeyse, J. (2013). A theoretical framework of organizational change. Journal of Organizational Change Management, 26(5), 772-792. doi:http://dx.doi.org/10.1108/JOCM-09-2012-0137 Laegaard, J. (2006). Organisational Theory. Munich: Mille Bindslev and Ventus Publishing Aps. Mensah, K. E. (2001). The external organizational environment and its impact on management information systems. Accounting, Organizations and Society , 6 (4), 301-316. Moss, N. (2003). An organization-environment framework for assessing program implementation. Evaluation and Program Planning , 6 (2), 153-164. Voiculet, A., Belu, N., Elena, D., & Rizea, I. C. (2010). The impact of external environment on organizational development strategy. 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