The External Environmental Factors

Published Date: 02 Nov 2017

Introduction

Technology is another name for human knowledge. There is a dire need to deepen the scientific knowledge, broaden repertory of alternatives, and reinforce the technology of decision processes. Primarily, there is a need of a more thoughtful understanding of Man himself because all human problems have their roots in our own nature as stated by (Simon, 1973). The answer to today's major social problems will come from more and better technology and not from less technology. The technology-organization environment framework was developed which acknowledged three features of a firm’s context that influence the procedure by which it takes on and implements technology related innovations.

Organizational context, technological context, and environmental context are the three aspects as researched by (Zhu, Kraemer and Xu, 2002).Organizational context is in general defined in terms of several measures, the size of the firm, will it be centralized or decentralized, the level of formalization and complexity of its managerial structure, the quality of its human resource and the amount of untouched resources available internally. Both the internal and external technologies relevant to the firm are described by the Technological context. The internal and external technologies include existing technologies that are inside the firm as well as the pool of available technologies in available in the market. Lastly the Environment context is the arena in which a firm carries out its business. It includes its industry, competitors, access to resources supplied by others, and dealings with government.

Organizations today

Organizations in the modern era have various forms. These include formal organizations and informal organizations each having different goals, structures, influences and ways of communication. These features are affected by the external environment as outputs from other systems are inputs for the organization which molds the way an organization operates and conducts. It also affects the technology it uses. Fast changes that have been taking place in all aspects of human life including the business environment. This is the result of technological advancements. Every organization in today’s business world, whether it’s government, industry or other human endeavors, all require facts and accurate information for quick decision-making which results from the right use of technology.

Based on the findings of (Akpomi and Ordu, 2009) the study, it was concluded thatmany private business organizations have modern equipment’s and other modern office technological gadgets. However, some do not have such up to date technologies and this has affected the productivity in such business organizations. The use of the technological gadgets have basically portrayed in almost all aspects of the working environment in a modern business organization. The findings of (Chidi, Babatunde and Titus, 2011) have shown that both, the external and the internal environmental factors put forth influence on and shape the life, maturity and development of the business. It has also shown that external environment and its factors have a major impact on the business strategic management. Particularly, the analysis has also shown that businesses have no direct control or power over their external environment. The businesses can fine-tune their internal environment in order to lessen the affect of their external environment as it has full command and control over its internal environment. Thus, the strategic management skills and expertise are next to inappropriate and not rewarded by the analysis of external environment so a business must successfully explore opportunities provided by the environment to achieve its mission goal in the face of threats inherent in the environment.

Environmental factors

The environmental factors and their influences are economic, political legal, socio cultural and technological. Businesses formulate their strategies that incorporate the needs of the future in terms of business environment. The business executives who simulate the process of strategy development must be familiar with such factors in the environment, particularly the external environment, which can potentially and considerably put forth effects on their business and its future. These external factors in the environment consist of a set of conditions and influences that shape the life and persistent existence of a business. Even though these conditions and influences are outside the firm, their effect brings changes in the organization and thus the business entity cannot control but only regulate to them. The components of the business external environment constitute the external environmental factors. And because strategy is formulated on future perspective, it is significant for strategic managers to keep alongside each other with the external environmental factors and bring into line their strategic processes with the vitality of such external factors.

PESTLE Analysis

The external environmental factors can be confined with the short form PESTLE which describes the framework of the macro environmental factors. The full form of PESTLE is, Political Factors, Economic Factors, Social Factors, Technological Factors, Legal Factors and Ecological Factors. According to (Chidi, Babatunde and Titus, 2011) the impact of PESTLE on the procedures of organizations is as follows.

Political Factors entail the extent and process of government’s direct or indirect interference and influence on businesses in an economy. Political factors which are related with the areas such as tax policy, labour law, environmental law, trade barriers, tariffs, bonuses and political stability. Political factors also comes with the goods and services which the government wants to supply are called the merit goods and those that are not to be provided are called the demerit goods. Moreover, governments have great control over the health, education, and infrastructure of a firm.

Economic Factors include economic expansion, interest rates, exchange rates and the rate of inflation. These factors have a marked influence on how businesses function and make right decisions. For example, interest rates affect a company's cost of funds and therefore the degree to which an organization rise and expands. Exchange rates affect the costs of exporting commodities and the price and delivery of imported goods in economical way.

Social Factors are the cultural features that include not only health awareness but also inhabitants growth rate, age division, career attitudes and give importance on safety. Developments in social factors have an effect on the requirement of a company's goods and how the firm operates for that. For example, an aging population may involve a smaller and less enthusiastic employees thus increasing the cost of labour and the improvement in the social insurance scheme delivered by the government may increase the requirement for insurance services in a country. In addition, companies may change various management strategies in order to follow these social trends like those for recruitment of the older workers.

Technological Factors are components of the external environment that includes technological aspects such as Research and Development (R&D) action, computerization, technology influence and the ever changing trend in technology. Technological factors are used to determine restrictions to entry, less organized production level and manipulate decisions related to outsourcing. Also the shifts in technology can affect costs, quality, and stimulate further invention, innovation and competition and the way in which company executes its operations bearing in mind the pace at which technology is changing.

Legal Factors included in this component comprises of discrimination law, antitrust law, consumer law, employment law and health and safety law. These factors can influence the way in which a company operates its costs and determine the demand for its products.

Ecological Factors include all the environmental aspects such as weather, climate and the change in climate which may affect industries like tourism, farming, and insurance. Increasing awareness of the probable impacts of changes in climate is affecting the way in which companies work and the services they propose, both making new markets and retreating or eliminating the existing ones.

In the works of (Gutterman, n.d.), the research carried out by Woordward focused on the structure of an organization as a whole. It showed that technology plays a crucial role in designing the work activities and job tasks at the department levels of the organization. Each department should be able to identify the right use of technologies that would best enhance the core competencies that department constitutes to the overall competitive advantage of the organization. According to Woodward, different technologies are used for different types of production processes in an organization. There are Mass production, Unit production and Continuous process production and each of which requires appropriate manufacturing technology.

On the contrary, (Gutterman, n.d.) wrote that, Perrow developed a different framework for the technologies that can be used for diverse processes of production. The first category was referred as routine technology which applies in situations of low variety and high analyzability. This allows the workers to only use this technique for routine and standardized procedures in order to complete specific job activities. On the other hand is the non-routine technology which is used in situations where there is high variety and low analyzability. It is for complex tasks which are not in routine and requires different complex tasks. The third technology, called the craft technology used in situations of low variety and low analyzability applies when tasks call for extensive training and experience. Then lastly, the engineering technology is used in situations of high variety and high analyzability where the tasks are highly complex and requires a variety of tasks to be performed.

(Emery and Trist, n.d.), in their research of Emery-Trist typology of organizational environment, introduced four types of environments that effect the way the organizations operates. The environment with little uncertainty, stable and a few changes is referred to as the simplest type of environmental texture in which goals are comparatively unchanging in and randomly distributed. This is called the placid, randomized environment. In response to which organizations have standardized work processes, hierarchical and bureaucratic structures. The second one is called the Placid, clustered environment which is more complicated and complex but still a placid environment, and also can be explained in terms of clustering aims are not randomly distributed but band together in certain ways. In response to such an environment organizations become decentralized to be effective and planning becomes crucial. Further if we look forward, we come to next step of texturing called as the disturbed reactive environment where the level of uncertainty and change increases and the environment is highly unstable which becomes highly unpredictable and confusing. In such an environment, organizations require flexible, adaptable and decentralized structures to deal with changes in the dynamic environment. Yet a more complex environment is called the turbulent fields. In these, dynamic processes which create significant variances for the component organizations arise from the field itself. There is high interdependence between the organization and the society. And uncertainty increases to great levels. The organizations in such cases are required to have very fluid organizations, flexible managers and staff at all levels.

(Duncan, 1972), research states about the two typologies of the organization’s environment, the two dimensions identified includes, the simple-complex dimension which is affected by the environmental change. If the environmental complexity be it simple or complex depends on the environmental change which could be stable or dynamic.

Conclusion

Agitated competition has received much consideration, but an imperative question has not been remedied as to what organizational forms lead to success in hyper competitive environments. Such extreme competition forces organizations to move more rapidly and boldly and to trial in a form that do not follow the rules of traditional administrative theory. Some Bureaucratic vertical forms severely obstruct the capability to react to accelerating competition. On the other hand, the Flexible forms shows stimuli during the changes in the competitive surroundings in suitable and timely way. The research of (Volberda, 1996) examined several alternative flexible forms for co-operating with hypercompetitive environments. Flexibility comes from the collection of managerial capabilities, challenge and the awareness of the organization design challenge. On the foundation of theories of control, it is argued that organizational flexibility is intrinsically inconsistent and requires a productive resistance between change and conservation. The inconsistency of flexibility is portrayed in theoretical models that are defined in many competitive environments along with certain types of flexibilities and organizational conditions.

There is a rich typology of organizational forms for dealing with hyper competition. Each of which reflects a suitable form of addressing modification and maintenance. The implications of the typology for the strategy and organizational design research in hypercompetitive environments are thoughtful.