Environments Shape Organizations

Environments Shape Organizations Introduction Organizations’ performance largely depends on the environment under which they operate. Here, environment can mean either internal or external factors that directly or indirectly affect how an organization operates towards achieving its set goals.Advertising We will write a custom research paper sample on Environments Shape Organizations specifically for you for only $16.05 $11/page Learn More These factors are known for causing either positive or negative impacts that consequently influencing how that organization works. In most cases, environments dictate how organization operates, and the more stable an environment is, the more successful it will be. At times, organizations can change their way of operation or structural body in order to match with the environmental conditions. Environment also has a contribution towards the strategic plan of the organization. This is important because it provides means in which set goals and objective s are achieved. For an organization to perform best, it must have competitive advantage in that, it must be in a position to offer different goods and services in a different manner with the immediate organizations or of the same goods and services but in a different way that is most likely to satisfy the customer. Other factors in the surrounding that are likely to have an impact on an organization include; the market in which it operates, availability of skilled labor, availability of required resources and raw materials, accessibility, availability of potential customers and their level of demand for the products. The internal factors may include; management, organizational structure, availability of funds and synergy aspects in the organization (Draft, Marcic, 2010). In some cases, organizations can change the environment under which they operate; this is due to the objectives, goals, vision and mission of the organization. Due to the services delivered, organizations can affect its surrounding either negatively or positively. The type of environment available is bound to determine how an organization will operate either for the better or worst.Advertising Looking for research paper on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More How environment shape organizations The ability of an organization to succeed depends with the ease with which it adapts to the new environment. This is due to the fact that environment has the capability of affecting how resources are utilized and how products are received by the customers. In most cases, organizations are affected internally by factors such as regulation measures for safety and other services such like packaging and advertising. Work processes and organizational structure is also affected (Harrison, 2005). Environmental factors that are bound to affect an organization are divided into two categories, that is; PEST and SWOT. Under pest, po litical, economic, social and technological (PEST) aspects are considered. On the other hand, strengths, weaknesses, opportunities and threats (SWOT) are considered. These factors are determined through analysis that is PEST and SWOT analysis respectively. PEST analysis and at times referred to STEP analysis can be defined as macroeconomic factors that are capable of influencing strategic planning in an environmental scan. In the United Kingdom, environmental and legal factors have been chipped in amounting these acronyms to PESTEL or PESTLE. Today, ethics and demographic factors have been included to make the acronyms STEEPLED. PEST analysis is important as it helps an organization know some of the factors that have to be put in mind for a successful operation. Usually, it enables an organization understand its current position, its potentials, performances of its market and how to continue in its field of operation without much hindrances. The earlier mentioned macroeconomic facto rs do not directly affect an organization but do affect demand and supply of goods and services eventually affecting its performances. PEST analysis is vital especially when a company wants to join a new market as it helps identify the available opportunities (What is PEST analysis? , n.d) Main aspects of PEST analysis Economic Factors considered here include; changes in various rates such as inflation, exchange and interest. Economic growth in a country is inclusive; this factor is core for any business progress as it determines it’s easy or difficult of succeeding. This is so because it affects demand and available capital plus its cost.Advertising We will write a custom research paper sample on Environments Shape Organizations specifically for you for only $16.05 $11/page Learn More In cases where capital is readily available due to its cheap cost, organization can be in a position to invest easily with hopes of making profits. It is also apparent that demand of some goods and services grows with the positive growth of a country’s economy. Chances for successful exploitation of a certain strategy is also determined by the economic conditions at the very time, it is possible for an organization to perform well during economic recession while another can only succeed during economic rise depending on the services or goods being provided. It is therefore possible for the latter one quitting the market making a way for the former to get into the market. Many organizations leave the market during times of economic crisis. Exchange rates are also known to determine hoe cheap or how expensive imported goods are, this suggest the price at which goods and services offered by the organization will be sold or bought at. Inflation rates have a great influence on a company’s progress because with a continued increase in good’s prices over time, demand decreases and this affects sales in a company leading to its colla pse. Variations in rates of interests can have adverse effect on organizations during loan repayment or any other payment. This is in the sense that, repayment is made b use of the agreed rate regardless of the rise or drop in rates at the time of payment. If for example, during time of crediting the rates are high then they drop during payment, the company is likely to gain in terms of monetary value and vice verse. All these rates are interrelated and they have an impact on how an organization operates. Political The government has an influence on a country’s economy through; tax policy, political stability, employment rules, environmental laws, tariffs and trade restrictions. In most case the government have the mandate to determine the goods to import or export and those ones not to. Also, it can decide on the countries to trade or not trade with. These decisions affect organizations either positively or negatively.Advertising Looking for research paper on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More Interest rates are influenced by inflation rates which greatly depend on the banks restrictions outlined by the government’s priority. The government has a big role in the determination of how organizations are funded. Political stability has also a direct effect on how a company can perform. During political crisis, many companies are unable to operate leading to their low performances, as compared to the times when there is peace in a country. Qualified labor is required for best performance which ii only possible through training that is directly influenced by the government. A country’s infrastructure and health are also under the control of the government and they have an impact on the companies’ progress in terms of goods and services delivery and adequate labor respectively. Social Demography, age distribution, health issues, safety concerns and profession stance are some of the factors under this. A company’s performance and its products demand ar e dictated by social aspects. For example, young people have vigor and are more willing to work as compared to the aging employees, this has a direct effect on how a company operates and if young labor is to be incorporated, labor value increases. Demand of a company’s products depends on age distribution and the number of people working. It is therefore important for a company to recognize how demand changes with fashion in order to operate to an optimal customer satisfaction. Technology Technology is comprised of automation, technological advancements, research and development (R and D activity). These factors have influences such as lowering entry barriers into the market, maintaining economic level quantity (EOQ) and decisions outsourcing. Technology leads to innovations and creation of new industries. Technology offers a company competitive advantage thus creating threats to the existing ones. It has a hand in improving an organization’s services and products thou gh this can be an additional cost due to the required training before it is being implemented. Environmental Specific industries are prone of environmental and ecological factors such as weather and climate change. Such organizations include; insurance, tourism and agriculture. Knowledge of these factors influence companies’ performance and how they deliver creating. This paves way for new market and demolition of the ones in operation. Legal These factors include laws such as antitrust, employment, consumer, discrimination, security and health. All these laws affects ways in which an organization works and the rate of its product’s demand. PEST analysis is an appropriate and effective tool of creating a clear image of the environment under which organizations work. Threats and opportunities of a given organization are determined through this analysis hence supporting strategic planning that helps in attainment of the set goals in a more sufficient manner compared to i ts surrounding competitors. Together with PEST analysis, SWOT analysis can be used in order to determine environments of barriers involved include revenge from already industry players, capital required, accessibility to distribution routes and scale economies. Availability of product’ substitutes A threat to an organization’s products and services is experienced when there exists new and equal substitutes. These encourage customers to switch to these alternatives thus affecting an organization’s performance. Apart from a customer’s readiness to go for substitute, other threats that result from this are; how the new substitutes work in the market and their cost, also how much it costs to switch to this alternatives. Customer’s/ buyer’s bargaining power Bargaining power for buyers is high when there are many suppliers and more distribution channels for a product. This is a threat to an organization as there will be no constant customers as th ey will always have a variety means of the required products at a price that is friendly to them. Profits are cut down tremendously when there exists such a threat. Suppliers’ bargaining power Suppliers have a key role in the determination of a company’s profitability. This is because they supply material such as raw materials, labor and expertise. When the bargaining power for suppliers is high, then the profits made will be lower. This is possible when a firm is not the only customer to the supplier or when a supplier is the only one serving the firm. In such cases, a supplier can be reluctant to work with a firm or hike the supply cost and this has a great effect on an organization. Intensity of competition from rivalry Rivalry to an organization is brought about by various aspects such as availability of competitors whereby if there are equal organizations in mode of their structure, then competition will be high as compared to when there are rare industries of the same size. Others may include industries’ costs, product differentiation level, exit and entry costs and strategic objectives (Strategy- analyzing competitive industry structure 2004). Conclusion It is evident that an organization’s shape is determined by the environment in which it operates. Factors affecting an organization can be either external or internal. In business these factors can be evaluated by use of analysis strategies such as the SWOT, PEST and porter’s competitive models. Usually, the identified micro and macro environment are known to influence an organization’s performance in the market either positively or negatively. Therefore, an organization’s ability to achieve its set goals heavily depends on these environmental factors. Environment is also capable of determining how organizations enter new markets or exit. Environments are therefore very important as it can help organization know what products to deal with or how to attain a competitive advantage over its rivalries. References List Draft, R. Marcic, Dorothy. (2010). Understanding Management. Wodsworth: Cengage Learning. Five competitive forces model porter. (2011). Retrieved from valuebasedmanagement.net/methods_porter_five forces.html. Harrison, M. (2005). Diagnosing organizations: methods, models and processes. London: Sage Strategic management. (n.d). Retrieved from quickmba.com/strategy/pest/ Strategy- analyzing competitive industry structure. (2004). Retrieved from http://tutor2u.net/business/strategy/porter_five_forces.htm SWOT analysis examples: Reports on different companies. ( n.d). Retrieved from marketingteacher.com/lesson-store/lesson-swot.html. SWOT analysis method and examples, with free SWOT template. ( n.d). Retrieved from businessballs.com/swotanalysisfreetemplate.htm. What is PEST analysis? (n.d). Web. Available from coursework4you.co.uk/essays-and-dissertations/pest-analysis.php.