Lecture # 5
Chapter 3 – Understanding Internal &
External Environments
Internal & External Environment
 External environment: major forces outside the
organization with potential to influence a
product or service’s success.
 Internal environment: general conditions
existing within an organization.
 Organizational culture: system of shared
values, assumptions, beliefs and norms uniting
members of an organization.
Types of External Environment
1. Mega-environment: broad conditions and
trends in societies in which an organization
operates.
2. Task environment: specific outside elements
with which an organization interfaces in the
course of conducting its business.
Mega-Environment
1. Technological element: current knowledge
regarding production of products and
services.
2. Economic element: systems of producing,
distributing and consuming wealth.
3. Legal-political
element:
legal
and
governmental systems within which an
organization must function.
4. Socio-cultural element: attitude, values,
norms, beliefs, behaviors and associated
demographic trends of a given geographic
area.
5. International element: developments in
countries outside an organization’s home
country with potential to influence the
organization. E.g. Currency fluctuations influences an
organization’s ability to compete globally.
Capitalist Vs. Socialist Economy
 Capitalist economy: economy in which
economic activity is governed by market
forces and the means of production are owned
by individuals. E.g. America
 Socialist economy: in this means of production
are owned by the state and economic activity is
co-ordinated by plan. E.g. China
Task Environment
1. Customers and clients: individuals and
organizations purchasing an organization’s
products or services.
2. Competitors: other organizations either
offering or with a high potential of offering
rival products or services.
3. Suppliers: organizations and individuals
supplying resources an organization needs to
conduct its operations with.
4. Employees: individuals working for an
organizations.
5. Government agencies: agencies providing
services and monitoring compliance with
laws and regulations at local, state or regional
and national levels. E.g. Tax and workers
compensation.
Analyzing Environmental
Conditions
1. Environment interface


Population ecology model or natural selection model:
model focusing on population or groups of
organizations, arguing that environmental factors
cause organizations with appropriate charactertics to
survive and others to fail.
Resource dependence model: model highlighting the
organization’s dependence on the environment for
resources and arguing to manipulate the environment
to reduce dependence.
2. Charactertics of the Environment
 Environmental Uncertainty: condition in which
future environmental circumstances affecting
an organization cannot be accurately assessed
and predicted.
 Environmental bounty: extent to which the
environment can support sustained growth and
stability.
Environmental uncertainty results from 2 major
factors:
i. Environmental complexity: number of
elements in an organization’s environment
and their degree of similarity.
ii. Environmental
dynamism:
rate
and
predictability of change in the elements of an
organization’s environment.
Methods of managing
Environmental Impacts
1. Adaptation
a. Buffering: stockpiling either inputs into or
outputs from a production or service process to
cope with environmental fluctuations.
b. Smoothing: taking actions aimed at reducing
the impact of fluctuations.
c. Forecasting: predicting changing conditions
and future events.
d. Rationing: providing limited access to a
product or service in high demand.
2. Favorability influence
a. Advertising and engaging in public relations
b. Boundary spanning: creating roles within an
organization.
c. Recruiting
d. Negotiating contracts
e. Co-opting: absorbing key members into a policymaking structure.
f. Strategic alliance: gaining mutual strategic advantage
by forming a partnership of two or more organizations.
g. Trade associations: organizations composed of
individuals or firms with common business concerns.
h. Political activity
3. Domain Shifts: changes in the product or
service mix offered, so an organization will
interface with more favorable environmental
elements. E.g. Organizations can expand their
current domains through diversification, or
expansion of products and services offered.
Internal Environment –
Organizational culture
Manifestation of Organizational Culture:
 Symbol: object, act, event or quality serving as
a vehicle for conveying meaning.
 Story: narrative based on true events.
 Rite: relatively elaborate, dramatic, planned set
of activities intended to convey cultural values
to an audience.
 Ceremonial: system of rites performed in
conjunction with a single event.