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Understanding Internal and External Environments

This chapter explores the importance of understanding the internal and external environments of an organization. Topics include analyzing environmental conditions, managing elements of the environment, and the role of organizational culture.

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Understanding Internal and External Environments

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  1. UNDERSTANDING INTERNAL ANDEXTERNAL ENVIRONMENTS

  2. Chapter Objectives • As discussed in Chapter 1 that for a manager to perform well, there is a requirement of Knowledge base and Skills • In this chapter we will be studying that an effective manager require knowledge of both: The organization`s Internal Environment & External Environment

  3. Organizational Environments • External Environment: • Major Forces outside the organization with the potential to influence the success of the product or its failure. • Internal Environment: • Current Conditions that exist within an organization

  4. Types of External Environments • Mega Environment: Also called general environment that highlights the broad conditions and trends in societies within which an organization operates. An organization has a minute or negligible power to influence the mega environment; but an organization gets a great deal of influence from these elements

  5. THE MEGA-ENVIRONMENT Economic element Technological element Legal-political element The organisation Sociocultural element International element

  6. 2) Task Environment • Specific external elements with which an organization interfaces in the course of conducting its business • Task environment is made up of specific elements an organization faces in operating.

  7. THE TASK ENVIRONMENT Competitors Government & regulators Customers/clients The Organisation The employment market Suppliers Public pressure groups

  8. Analysing Environmental Conditions • Perspectives: • Population ecology model: Highlights the fact that organizations have little control over environmental factors influencing them and managers have little opportunity to affect their organization`s fate. • Resource dependence model: Highlights that organizations are dependent on the environment for resources, arguing that organizations manipulate their environment to reduce dependence .

  9. For Example: • General Motors: • Buys spare parts and raw material from other manufacturers. So by forming relationships with other organizations, General Motors will solve many resource problems. • BUT • This will create a dependency on other organizations and will restrict the decision making of the company (In this Case General Motors) • Therefore organizations try to be independent by controlling their critical resources or developing alternatives.

  10. Characteristics of the Environment: • Environmental uncertainty: Occurs when an organization`s future environmental circumstances can not be assessed or predicted accurately. More the uncertainty; more to do: Degree of Environmental uncertainty results from two major factors: • Environmental complexity- no of elements • Environmental dynamism- rate of predictability of change of elements

  11. Managing Elements of the Environment • Now willingly or unwillingly managers have to deal with these environmental factors, for which they have few APPROACHES such as: • Adaptation: • An approach which involves changing internal operations and activities to make the organization and its environment more compatible.

  12. Managing Elements of the Environment • Adaptation: • Buffering: Stockpiling inputs or outputs • Smoothing: taking actions to reduce the impact of uncertainties • Forecasting: predicting based on trends and habits • Rationing: providing limited access to a product or service in high demand

  13. 2nd Approach: Favourability influence • In contrast to adaptation approach, there is another approach which means to try to alter the environmental elements to make them more compatible with the organization`s needs. • Instead of accepting environmental elements as given; this approach holds that some environmental aspects can be influenced to a certain extent by the government through:

  14. 2nd Approach: Favourability influence Advertising & PR- communicating through media to gain favourable publicity for products and services Boundary spanning- agents, lawyers, specialists etc Recruiting- people with more extensive knowledge and connections Negotiating contracts- Co-opting- involving key members of the society in policy and decisions making Strategic alliances- Trade associations Political activity

  15. 3rd Approach: Domain Shift • Changes in product and service mix offered so an organization will interface with more favorable environmental elements

  16. The Internal Environment: Organisational Culture • Definition: “… a system of shared values, assumption, beliefs and norms uniting organisational members” (Smircich 1983; Kilman et al 1986) • “The way we do things around here”

  17. Organisational Culture: Manifestations/ signs/ expressions • Symbols • Stories • Rites and ceremonies

  18. Changing Organisational Culture • Organizational culture can be difficult to change. • Surfacing actual norms- discussions to list out actual norms that organizational members believe to be influenced by. • Articulating new directions- Organizational members discuss the new directions and behaviours necessary for organizational success • Establishing new norms- listing new norms which can make a positive impact on organizational effectiveness

  19. Identifying culture gaps- identifying areas where there is a major difference (culture gap) between norms and those that would positively influence organizational effectiveness • Closing culture gaps- agreeing on new norms and making plans to reinforce them positively.

  20. SUMMARY OF ‘UNDERSTANDING INTERNAL AND EXTERNAL ENVIRONMENTS’ • Types of external environment • Mega : technological, economic, legal/political/sociocultural, international elements • Task environments: Government & regulators, competitors, customers/clients, suppliers, public pressure groups, the employment market • Analysing environmental conditions • Perspectives: Population ecology, resource dependence • Characteristics: Environmental uncertainty - complexity & dynamism

  21. SUMMARY OF ‘UNDERSTANDING INTERNAL AND EXTERNAL ENVIRONMENTS’ - Cont. • Managing elements of the environment: • Adaptation - buffering, smoothing, forecasting, rationing • Favourability: Advertising & PR, boundary spanning, etc. • Domain (product/service) shift The internal environment: Organisational culture • Organisational culture - “The way we do things around here” • Organisational culture: Manifestations: Symbols, stories, rites & ceremonies • Changing organisational cultures - 5 step process

  22. Thank you for your attention

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