BCom Notes Part II Management Environment
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Environment
What is environment? What is environment analysis and diagnosis? Explain the importance of environment analysis and diagnosis. OR
Explain the term “environment” and discuss why environment analysis and diagnosis is necessary in strategic management.
Environment
Organizations are not island in themselves they function neither in isolation nor in vacuum. They are part of a society and exist in association with their environment, i.e., certain facts surrounding various situations. Organization’s profitability is not determined by what the products look like, nor whether it embodies high or low technology; it is rather determined by the environment within which it operates. Thus, organizations are affected by environment. If an organization is to remain successful and prosperous, it must regularly adapt to its environment, which is uncertain and changing. Failure adequately adapt to the environment may be a major cause of organization’s failure. However, organizations also affect the environment.
Although William Starbuck has identified some 20 different uses of the work environment in order to perform an efficient and effective environmental analysis the environment of an organization is generally divided into two distinct levels; external or general and internal or specific environment.
External or general environment is a set of those factor that affect and organization from outside is boundaries. The external environment contains elements that have broad and long-term implications for managing the organization. Such environment has both direct action and indirect action elements. Direct action element of external environment include various stakeholders lie shareholders, customer, suppliers, competitors, employees, community (or society), special interest groups, government and international issues. They are also designated as economic environment or task environment. Indirect action elements of external environment include political-legal socio-cultural and technological components.
Internal or specific or organizational environment is a set of those factors that affect an organization from inside its boundaries. It contains elements that exist within the organization and normally have immediate and specific implications for managing organization. Broadly speaking, internal environment includes organizational objectives, organizational resources, organizational structures, processes and techniques. Organizational resources include, financial and physical or material resources and human technological capabilities. Organization structures, processes and techniques include; marketing, production, finance and accounting. From a more specifically management viewpoint, internal environment includes planning, organizing, staffing, directing and controlling.
Environment Analysis
Organizations are open system of management that constantly interacts with their environment. Environmental analysis is the study of organizational environment to identify and indicate those environmental factors that can significantly influence organizational operations and managers strategic decision making. It is thinking about the unthinkable, and it is seeing new insights rather than extrapolation. Environmental analysis is the discerning (seeing and understanding well) of those aspects of the environment, which shall have the greatest influence on the organization’s ability to achieve its objectives. Such a discerning is made within and with the help of a framework provided by the knowledge of the organization’s goals and the existing strategy of the organization.
Environment Diagnosis
Environment diagnosis is an exercise attempted to identify the factors of causes in the environment that affect the function of an organization and use such identification as a base for developing plans or strategic to improve or maximize the dynamism and effectiveness of the organization. Environment analysis is a tool of environmental diagnosis.
Environmental Diagnosis Analysis and Diagnosis
The purpose of environment analysis and diagnosis is to identify the ways in which changes in various organizational factors may directly and indirectly influence the organization and management. Managers commonly perform environment analysis in order to understand different activities and happenings inside and outside their organization and thereby increase the chances of framing sound and effective organizations and managerial strategies by coping with the probable demands of the environment.
Environmental analysis is required due to its needs and importance for the following reasons:
1. Environmental factors are primary impact makers on corporate strategy of organizations.
2. Such analysis helps in anticipating opportunities and to plan alternative responses to those opportunities.
3. It helps in determining threats and developing an early warning system to prevent threats to the organization or to determine the risks that may be faced by organization in its future operations.
4. It helps to identify those adjustments or adaptations, which are required for greater accomplishment of organizational objectives.
5. It is sort of SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis which helps in deciding about the rights course of action for managerial to successfully negotiate with the prevalent circumstances around the organization in order to ensure its survival, growth and development.
6. Environmental information strengthens the planning process and strategy formulation.
Environmental analysis is well accepted and recognized as an essential ingredients of strategic management. It may, however be noted that the behavior of the environment may be predictable, partially predictable or unpredictable. Further, the predictable or partially predictable behavior may be controllable, partially controllable or uncontrollable. Moreover the environment may be homogeneous or diversified and stable or changing.
Environmental Influences on Organization and Management
Environmental factors affect an organization in two ways
(i) they set the limits or constraints over its functioning,
(ii) they provide opportunity and challenges.
The factors themselves act as limits, which are sometimes visible and at other moments, invisible. The environment provides opportunities by way of markets for new products, etc and challenges in the form of competitors etc. We daily find in newspaper headlines about government’s new regulations, competitors, new schemes, consumer revolts, anti pollution activities of the community, trade union, strikes and so on. To deal with these groups is an integral part of all manager’s job. Such a job becomes more important the higher a manager rises in managerial hierarchy.
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