An organization’s external environment is very relevant on how the organization is structured and conducts its operations, thus, it shapes the organization as a whole. An organization needs to understand that the environment is highly dynamic and ever changing; what happened yesterday in the corporate world or public sector may be completely different from what is happening now.
As the environment changes a lot of ambiguity introduces concerns for the individual working in these organizations. Organizations which do not appreciate change may end up being replaced or even being declared bankrupt and eventually closing down (Brayden, Teppo & Whetten 2010). For adaptive and versatile organizations, the environment can be an opening of opportunities and generation of new ideas.
However, for organizations which resist change the environment can bring a lot of challenges and have detrimental consequences on the organization as a whole. Furthermore, organizations which do not embrace environmental changes may most probably end up not optimally and efficiently utilizing their resources, hence performing dismally. It is against this background that we intend to conduct a research on how the environment shapes organizations.
The research seeks to inquire about the organisational environment and how it influences an organisation’s operations and what are its impacts on its structuring. In order to get a clearer perspective, the project shall look at how organisations cope with the environment and the measures taken.
The data for the research is collected from both primary and secondary sources. The primary sources include interviews from the relevant personnel and Authorities while the secondary sources include information from past documentations and works of other authors.
The aims and objectives of the research project are focused on the analysis of the research problem. In particular, these aims and objectives will be achieved by answering the major research question and the set of minor sub-questions presented in the following list:
What involves the organisational environment?
How organisations maintain to cope with environment?
Does the environment bring with opportunities or its only challenges?
Further on, the achievement of the aims and objectives of the proposed research will become possible to a great extent thanks to either confirming or rejecting the two hypotheses derived from the topic of this study. So, the first hypothesis is:
H1: the environment plays a crucial role in the way organisations operate and how they are structured. This hypothesis is developed as an assumption to that the environment influences the competitiveness of the organisation and leaves to the management to come up with survival tactics.
Needless to say, before the actual research is carried out, it is impossible to claim that this assumption is absolutely true. Therefore it is necessary to collect and analyse organisational literature and primary information in order to be able to either confirm or reject it. Accordingly, the second hypothesis can be formulated as a contradictory point to the first one:
H2: the environment does not dictate the way organisations are shaped, in terms of structures and functioning, but organisations operate according to their own doctrines and ambitions.
Based on the above considerations, the methodology for the research include a combination of the survey and a case study, while the aims of both will be to identify the role of the environment in the organisation shape. The research uses the method of longitudinal study to collect and analyse the organisational environment.
The data collection methods include a review of primary and secondary sources of information regarding the environment. To add credibility and reliability to the research findings, qualitative and quantitative methods have been be used for data collection and analysis. The research respects ethical standards of scholarly work.
Population ecology, developed by Hannan and Freeman argues that organizations which operate in a given environment must change as the environment changes. The population ecology theory is based on the following four assumptions:
a) An Organization develops structures that make certain consistency and answerability.
b) Consistency and answerability needs organizational routines, which are highly reproducible.
c) This reproduction of structures which are more or less the same is the grounds of organization inertia. Inertia is deemed a result of variety.
d) The environment will choose institutions with high inertia.
The institution theory in contrast suggests that organizations which are forced to change can do so successfully and automatically by imitating other successful organizations. This may therefore require companies to change their strategies and tactics in order to adapt to the environment, this is somehow similar to camouflage (Pettus, Yasemin & Mahoney 2009). Organizations are known to mimic each other and therefore company’s operations are characterized by high levels of competition.
For instance, a country like China where multinational corporations are competing for limited resources, market and are outsourcing their manufacturing operations to ease the production process and cut on costs. It is therefore important that organizations know that it may be necessary to approach other parties who share the same view as them in order to realize advantages.
Therefore, it can be deduced that corporations, institutions and organizations which do not change will eventually be forced either to do so or face the possibility of coming obsolete and finally closing their doors.
Campbell, Stonehouse & Huston (2002) opines that organizations are not islands and therefore cannot exist by themselves, organizations are open systems and therefore they are highly dependent on each other for survival.
Organizations need raw materials which they themselves do not produce and therefore, they may be required to enter into contractual agreements that will enable them get raw materials which will be processed into services and products (Brayden, Teppo & Whetten 2010).
Companies set strategies which control various variables within the internal environment with the aim of making a company successful and adapt to the task and societal environment and carry out its activities be it business or non business successfully.
Kourdi (2009) categorizes the organizational environment into 3 broad categories:
1 Social environment
2. Task environment
3. Internal environment
The superset of all environments, the societal environment, consists of economic forces, technological forces, sociocultural environment, political forces and legal forces.
These elements of the environment are not static, rather dynamic. The changes in the environment may occur independently or even be initiated by activities of other organizations. It may therefore be necessary to carry out a SWOT (strength, weakness, opportunity and threat) analysis to understand the full impact that the environment may have on business and the overall strategic structure.
A good example, is a natural disaster like a tsunami or frequent earthquakes which may influence how organizations carry out business from time to time on the other hand an organization like the government or even regulation agencies such as the central bank or the federal bank who set monetary and fiscal policies may also initiate or trigger change within the environment.
Furthermore, the political legal environment is also always changing with continuous law reforms that take place and therefore this may demand that companies reformulate their strategies and tactics so that they can prosper in the environment which they exist in. Not forgetting the economic environment which consists of variables such as interest rates and forex rates that are always changing and have a big impact on the overall financial performance of organizations.
The second environment, the task environment, consists of all stakeholders such as shareholders, suppliers, employees, competitors, trade associations, regulatory bodies, activists, creditors, special interest groups, the government, and the media among others. Shareholders have different demands and therefore the organization must carry out their operations with an aim of creating equilibrium between all interested parties.
As the economic environment changes, so does the living standards therefore life may become extremely expensive and therefore the demands of the employees, creditors and shareholders may also change and hence, it is the responsibility of managers and organizational leaders to manipulate strategy so that the organization can achieve its goals and satisfy the need of all publics.
The internal environment which exists within organization and also plays a vital role in ensuring the organization is highly dynamic and in line with the outside environment consists of various elements such as the organization structure, the organizational culture and furthermore organizational structure (Kourdi 2009).
Socio-cultural parameters such as age, regional shifts in population and other parameters are always changing and never static and therefore organizations may need to rigorously re-define consumer needs and wants as time passes by. Therefore it is important to have a good organization structure and a healthy organization structure (Brayden, Teppo & Whetten 2010).
Organizations also influence the way that the environment behaves, for instance when the overall industry participants become highly competitive then the overall environment changes and other organizations which do not become competitive may close doors unless they also mimic these other organizations.
A good and relevant organization that has reshaped the environment and industry within which it exists is Apple. When Apple decided to concentrate on research and design and furthermore became a technological leader in the Electrical appliances industry other companies were left with no option but to also play along or either face extinction (Teece 2008).
When Apple introduced the iPod, iPod and the iPhone that were highly differentiated and furthermore highly advanced in technology and therefore other companies within the same industry were left behind. Other companies such as Samsung, Nokia, and Microsoft had no other option to follow the same path that Apple had initiated, because consumers were now aware of the overall technological advancements and demanded for highly convenient and technologically advanced products.
By taking a look at the Porter’s Five Forces model and match them with the particular environments within which organizations operate in can be useful in strategic decision making within organizations.
Theoretically, the model highlights five very important aspects like, the threat of new entry in the market especially in this globalised business era, there are many new brands coming into the market, and therefore an organization or institution especially if they are business oriented has to improvise new techniques to lure new customers and retain the old customers.
The threat of substitute products cannot be forgotten because consumers can migrate from one brand and move to the next best available substitute. The bargaining power of the Customers can also make it difficult for existing business organizations set the floor and ceiling prices therefore affecting the overall revenues that the company will achieve within given business cycles (Campbell, Stonehouse & Huston 2002).
The bargaining power of the suppliers on the other hand may make it hard for companies to get raw materials at the lowest possible costs within the industry and therefore also affecting the level of profits and revenues received by industry participants. The intensity of corporate rivalry amongst all industry participants which can lead to increased price wars and more frequent product innovation can also affect the overall business structure of companies.
As environments change either autonomously or due to the influence of other organizations within the environment, such as government legislation, companies are usually forced to realign their corporate strategies which are overall organizational strategies that may usually involve stabilizing business, growth and expansion and finally retrenchment or strategy ( Kourdi 23-66).
The second kind of strategies that may be forced to change as the environment changes are business strategies which often have to do with formulation of either cooperative or competitive strategies that a company may pursue in order to realize its overall corporate objectives.
Finally, a changing environment may demand that organizations adjust their functional strategies which are responsible for nurturing a distinctive competence for the organization therefore differentiating it from other organizations by maximizing their resource production.
The dynamic environment may force organizations which are normally rivals to come together to pursue common goals when the economy changes and capital becomes difficult to raise organizations may enter into strategic agreements that will allow them efficiently utilize resources and at the same time see that they achieve their mission and vision (Porter 1990).
An example of an inter-organizational rivalry is that of Porsche and Volkswagen the two companies later pursued a joint venture and together made the now very successful Tuareg high end SUV vehicle model. Many companies all around the world especially those operating in multinational environments are when faced by an extra ordinary event they may be forced to enter into agreements with local existing companies so that they can conduct business smoothly.
Coca-cola for example withdrew from the Indian market for almost 19 years because of resistance and anti-Americanism and this is why American companies which are looking into expanding their business operations to Asia are often forced to enter into Strategic alliances and either acquire existing companies so that they can be accepted by the local communities and thus therefore conduct business more smoothly and efficiently.
Companies do not enter into any type of alliances just blindly (Campbell, Stonehouse & Huston 2002). An extra ordinary event is a triggering event that initiates the change of strategy or business perspective that may lead organizations, companies or even institutions to form strategic alliances that will enable this organizations achieve their goals and objectives both in the short-run and long-run. Most extra-ordinary effects arise from changes in the environment that the company operates in.
When companies are faced by these ambiguities in the environment they therefore decide to adopt other techniques and strategies either cooperative or competitive so that they can achieve their set goal’s and targets. Many companies have multiple business units which strategically operate in order to achieve their strategic objectives (Teece 2008).
Strategic business units always use various business techniques in order to survive. Among them may include joint ventures, acquisitions, product sharing, turnkey operations, and franchising, licensing and management contracts. Using the General Electric business screen that was developed by General electric to measure and evaluate performance of strategic business units within the organizations and consequently make appropriate decisions.
The G.E. business screen includes 9 cells which are used by organizations especially corporations to mane conclusions concerning Industry attractiveness and business strength. A strategic business unit which for example has low market attractiveness and also a poor competitive position normally require be divesting or liquidating by selling out but another option may be simply entering into strategic agreements such as mergers or joint ventures to boost the company’s competitive position (Jones 2010).
While on the other hand business units which enjoy an extremely strong competitive position and also strong market attractiveness may often require more investment and growth in order to take advantage of the brand superiority a good example is a product Smirnoff vodka which expands its product portfolio by increasing the range of flavors under its brand. Lastly companies which somehow have an average market attractiveness and competitive position may be required to trade carefully (Campbell, Stonehouse & Huston 2002).
Once a corporation has a crystal clear picture and can with certainty conclude the likelihood of a business unit perform either good or dismally then the corporation can decide to either divest or enter into a relationship with other corporations so that the overall business objectives are achieved.
SiemensBenq, Sony-Erickson, Volkswagen and Shanghai motors joint ventures are good examples of successful joint ventures that have recently taken place. Volkswagen realized that it was almost impossible for it to pursue the Chinese market without partnering with a local company that had a better understanding of the Chinese market needs.
Therefore, Shanghai motors was the best partner for Volkswagen, the joint venture went ahead to sell over 1 million units of Volkswagens in China. It is therefore quite clear that organizations that exist in an environment are not closed systems and therefore the happenings of the outside environment have a huge effect on hoe the organization functions( Kourdi 155).
The recent economic meltdown of 2007-10 is a good example of how the environment shapes organizations. Many organizations were forced to restructure and adopt new models of doing business.
Experts from the corporate world were forced to use more creative strategic techniques to cushion the rapid effects that arose from the economic meltdown. Using superior research techniques companies were able to formulate strategies that would aim at stabilizing their business models and furthermore assure them of constant and consistent revenue streams.
Therefore, massive corporate restructuring and chances in the overall organization structure followed with an aim of reducing the amount of expenses within these companies while some companies were forced to enter into cooperative agreements with other companies or even governments (Jacob Weisberg). Lehman brother is an American bank which was taken over by Barclays bank in order to continue operating or else it might have been forced to close down for good even.
From the information obtained it can be held that the environment is a vital part of any organization and significantly impacts on the organization’s competitive attractiveness. The environment influences both the social, cultural and economic aspects of the organization, which are key pillars in stabilizing the organization. Dynamic and versatile organizations transit swiftly through changing times and as seen they survive even harder times, while static organizations are more vulnerable to the environment.
The environment influences the organization’s value, stability, structure and the strategies adopted. It is therefore unrealistic, to argue that organizations do not need to change their way of doing business and overall governance simply because of environmental change.
Therefore, organizational leaders and managers should become more versatile and flexible in formulating and implementing strategies and tactics that will enable their organizations adapt to changing times towards achieving their objectives and mission. This can be done via continuous research and environmental scanning, which can give a clear picture of various complexities and ambiguities existing in the organizational environment.
Brayden, K. G., Teppo, F. & Whetten D. A. (2010). Perspective—Finding the Organization in Organizational Theory: A Meta-Theory of the Organization as a Social Actor. Journal of organization science volume 21 issue 1, p. 1-20.
Campbell, D., Stonehouse, G. & Huston, B. (2002). Business Strategy an Introduction, 2 edn. Linacre House, Banbury Rd: Butterworth-Heinemann.
Jones, G. (2010). Organizational theory, design, and change. Upper Saddle River, NJ : Prentice Hall.
Kourdi, J. (2009). Business Strategy: A Guide to Effective Decision Making, 2 edn. New York: Economist books.
Pettus, M. L., Yasemin K. Y. & Mahoney, J. T. (2009). A theory of change in turbulent environments: the sequencing of dynamic capabilities following industry deregulation. International Journal of Strategic Management, Volume 1, Number 3, p. 186-211.
Porter, M. (1990). The Competitive advantage of nations, illustrated edn. Northampton, MA: Free Press.
Teece, D. J. (2008). Technological know-how, organizational capabilities, and strategic. Kuala Lumpur: World Scientific Publishing Co. Pte. Ltd.
Weisberg, J. (2010). What Caused the Economic Crisis? The 15 best explanations for the Great Recession. slate.com. Retrieved from http://www.slate.com/id/2240858/