Difference between revisions of "Organizational environment"

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There are some questions a company should consider asking themselves in a regular fashion to keep track of important pointer in the environment. Once you know what to measure and how to collect it, predicting can become more informed. <br/>
 
There are some questions a company should consider asking themselves in a regular fashion to keep track of important pointer in the environment. Once you know what to measure and how to collect it, predicting can become more informed. <br/>
* Which variables are important in our micro environment?
 
 
* Which macro environment factors are important to our business?
 
* Which macro environment factors are important to our business?
 
* Which micro environment factors are important to our business?
 
* Which micro environment factors are important to our business?

Latest revision as of 02:38, 12 June 2012

Environment

Every company exits in a certain environment. An environment is defined as

"The sum total of all surroundings of a living organism, including natural forces and other living things, which provide conditions for development and growth as well as of danger and damage" [1]

It is the world around us. For a business its the world around business. Strategic management defines the micro and the macro environment. The micro environment in the environment a company operates it. The macro environment is the whole world a company environment is situated in.

Micro environment

The micro environment is the business world is defined as

"Factors or elements in an organization's immediate area of operations that affect its performance and decision-making freedom "[2]

The micro environment can be made up of competitors, distribution channels, customers, suppliers, potential incomers, general public, substitute products and providers of complementary products. Every micro environment has the potential of being completely different then the next. Micro environments can differ in size and the factors that are of importance. One can imagine that a company that drills for gold in the russian tundra operates in a completely different environment then a sheep milker in ethiopia. Different variables are of importance, is the gold company watching the current gold levels known in the earth, and the price of gold in the market, the goat milker has different variables that are important to his business; like the amount of rain that has fallen, competition of the neighboring village, etcetera.

Macro environment

The macro environment is made up of the political, economic, ecological, societal and technological landscapes which surround the business micro environment. This is also defined as

"The major external and uncontrollable factors that influence an organization's decision making, and affect its performance and strategies. These factors include the economic factors; demographics; legal, political, and social conditions; technological changes; and natural forces" [3]

Environment dynamic

Environments not only differ in the variables that are of importance. In environments there is a certain dynamic. This dynamic is partially dependent on the level of linearity of the environment. Linearity means that events follow each other in a predictable pattern. Based on historical information it is possible to predict what will happen in the future. Environments that have a more non-linear nature are significantly harder to predict. Non-linearity in this sense means to which degree future events do not resemble past patterns and events. The level of predictability is linked to the level of uncertainty in an environment, the more uncertain, the more we dont know what will come next.

Environment factors

A definition:

"An identifiable element in the physical, cultural, demographic, economic, political, regulatory, or technological environment that affects the survival, operations, and growth of an organization" [4]

Environment factors are important to companies because they are able to affect their existence. Like in our life, were we live is a constant factor of importance to our existence. To a company, a customer base could be an important factor because it enables its existence. Change in environment factors might lead to a possible improvement or possible danger of existence. A war, though out of control of the average human being might severely affect a humans existence. Variables from the micro environment as well as factors from the macro environment can be important to a specific company or other entity living in this world.

In order to try to understand and to predict environment events a company needs to know which factors/variables are of importance in their respected micro environment and which factors from the macro environment might possibly affect their existence. Discovering environmental factors of importance however is not a one time exercise, environments change, not only on a micro level, but also on a macro level, out of control of a company. The composition of factors of importance will change depending on events and changes in the micro and macro environment. Changes in the environment can lead to completely new factors that come of importance, others might become obsolete. Depending on the dynamic of the micro/macro environment the exercise of discovering environmental factors of importance can become very hard, especially in a unstable and unpredictable environment with numerous interrelated environment factors. The more complex the environment the more difficult to discover key variables. Chaos/turbulence/complexity has a huge effect on the level of predictability in an environment and the possibility to discover key variables.

Methodologies have been defined from the field of strategic management to discover macro environment factors that might be of affect on a company's existence. Because these factors are important to a company's existence they highly influence the decision process. The discovery of succes factors in the environment on micro and macro level is a very important factor in strategic management.

"Environmental scanning, econometric models (such as the Chase Econometric Service or the Wharton models based upon key environ- mental/economic variables), socio-political consulting services, and governmental affairs departments are but a few of the diverse approaches used to monitor and assess environmental impact on the industry and the firms comprising that industry" [5]

The PEST analysis model is intended to to scan the macro environment for important factors. PEST focusses on political, economical, social and technical factors in the macro environment. Differentiation's of this model exist to further identify important macro factors. An example of an extended PEST model is the PESTEL model. The PESTEL model also takes into account the environmental and legal factors in addition to the factors defined in the PEST model.

There are some questions a company should consider asking themselves in a regular fashion to keep track of important pointer in the environment. Once you know what to measure and how to collect it, predicting can become more informed.

  • Which macro environment factors are important to our business?
  • Which micro environment factors are important to our business?
  • How are factors correlated?
  • Where and how can i best monitor these factors?
  • What procedures are needed to deal with possible risks/opportunities emerging from changing variables?

Connection to crisis

The discovery and monitoring of environment factors is related to crisis situations. Crisis situations have the power to disrupt existing business environments, introducing massive change to environment factors and their importance to a business. Knowing and acting based on the knowledge from important environment variables is acting from a point where a business claims to have control over the environment. There are researches that show that focussing on known important environment factor can have a negative impact on the future existence of a company.

"Mental models of the world, the culture and rules based on emotions helps to grow organizations in size and provide stability, but at the same time are the roots for conservatism, decay and catastrophic change"[6]

Research is being done about the role of environmental factors during a crisis situation.

""Highly attuned market orientation would cause firms to lock into a standard mode of cognition and response, thereby building inertia instead of the creative thinking needed to manage crises"" [7]

However, if during a crisis situation new important environment variables of importance can be discovered and recorded it might have a possible effect on the decision making process during a crisis.

""In the case of economic crises, the appropriate form of strategic flexibility is reactive. Because the extent, nature, and timing of a crisis are difficult to predict, proactive offensive action to manage the crisis is unlikely, but reactive strategic flexibility capability should be useful."" [8]

References

  1. Business Dictionary: http://www.businessdictionary.com/definition/environment.html
  2. The Business Dictionary: http://www.businessdictionary.com/definition/microenvironment.html
  3. Business Dictionary: http://www.businessdictionary.com/definition/macro-environment.html
  4. Business Dictionary: http://www.businessdictionary.com/definition/environmental-factors.html
  5. Identifying and using critical success factors: http://www.sciencedirect.com/science/article/pii/0024630184901638
  6. College 4: http://www.adaptivecycle.nl/images/20120227_College_4_People_and_culture.pdf
  7. Building Organizational Capabilities for Managing Economic Crisis: http://www.jstor.org/stable/10.2307/3203381
  8. Building Organizational Capabilities for Managing Economic Crisis: http://www.jstor.org/stable/10.2307/3203381

Contributors

NN, Peter Bouwdewijn