The environment of the business organization and its impact

The environment of the business organization and its impact

For the management of an organization to be effective, its manager must be familiar with the action of external factors, which manifest themselves with different forces in different periods and have a direct or indirect impact on the organization itself.

The importance of the external environment is reflected in the increasingly significant dependence of the organization on it. The organization, as an open system, depends on the rest of the world in terms of the supply of resources, personnel, users, etc.

Any change in the action of one factor of the external environment affects the other factors. Eg. the increase in the prices of fuels and electricity has an impact on the final consumer price.

The external environment is characterized by its degree of complexity, ie. the number of factors and their strength of influence on the behavior of the organization.

An organization finds itself in a more complex external environment when it uses many different technologies that are evolving and vice versa.

The external environment is also characterized by its dynamics. It is the speed with which changes take place in the external environment itself.
The external environment is also characterized by uncertainty.

It is a function of the amount of information available to the management of the organization on the action of a particular factor or set of factors belonging to the external environment.

If the information is small or there is doubt about its accuracy, the external environment becomes more uncertain. When the information is adequate, then the uncertainty is less.

The external environment is a set of factors that affect the behavior of the organization, which is a set of reactions and decisions of management to the impact of the external environment.

Factors that belong to the external environment affect the behavior of the organization with different forces during different periods. They are “unforeseen circumstances” that either help or hinder the achievement of the organization’s goals.

The factors of the external environment are diverse. They are systematized into two main groups of direct impact environment and indirect impact environment.

An organizational environment of direct impact

The environment of direct impact includes factors that have a direct impact on the behavior of the organization and are influenced by the organization itself.

They are suppliers – of materials, of capital, of labor resources; laws and decisions of state bodies, consumers, competitors, trade unions. Each organization receives materials, equipment, energy, capital, and labor through a network of suppliers.

Some organizations are highly dependent on the constant flow of materials they receive. Accordingly, the quantity, quality, and delivery time are essential.

For this reason, each organization also has a corresponding supply of the most necessary materials, given the foreseeable deterioration of relations with suppliers.

However, for the prosperity of any organization, not only materials but also capital is needed. In this sense, it is dependent on banks, government funding programs, shareholders, etc.

Without security, however, who can effectively use complex technologies, capital and perform specific tasks, the organization can not prosper. The main task of the management of an organization is the selection and maintenance of capable staff and improving their skills.

All laws and decisions of state bodies are a factor that has a direct impact on the behavior of the organization. Eg. – taxes, the increase of electricity, the different types of licenses and permits.

The existence of an organization depends on its ability to find customers and meet their needs.

If the capabilities of the consumer are not satisfied, at least as they are satisfied by the competing organization, then the organization is doomed to bankruptcy.

The organizational environment of indirect impact

The environment of indirect impact includes factors that do not have a direct and immediate impact on the behavior of the organization. Reference: “Business Value-Oriented Priorities, Organizational Priorities in the Business Management of the Organizations”,

They are scientific and technical progress (technologies); the state of the national economy; social and cultural factors; political factors; international events and factors of the international environment.

Technology is the only factor that belongs to both the internal and external environment. When it exists as a commodity on the market, but the organization does not have enough capital to buy it, it is a factor that belongs to the external environment.

However, the impact is indirect because the old technology can be exploited.

The state of the national economy should be constantly assessed by the management of the organization, as well as how it affects the functioning of the organization.

The state of the world economy should also be taken into account, as it is also essential for the national economy. Eg. if forecasts indicate an increase in inflation, management should increase its inventories.

Pay can also be fixed, etc. Social and cultural factors have an indirect impact on the behavior of the organization. These include receiving bribes, attitudes towards entrepreneurship, gender, many ethnic and religious prejudices.

Indirect influence on the behavior of the organization has the political factors, which determines the attitude of the state administration to business, the lobby in parliament which aims to obtain accurate and accurate information about decisions of these bodies that affect the interests of the organization.

International events are factors influencing the behavior of the organization, which are characterized by increased complexity due to the set of factors that characterize each country, such as – economy, culture, volume and quality of labor and material resources, laws, government agencies, political stability, technological level, etc.

An organization can establish itself on the international market in different ways. The simplest way to penetrate the international market is to export.

Another way is licensing, by selling the license for the production of our products to a foreign organization.

A way to establish the international market is direct capital investments, which are the strongest degree of international business, as the organization creates its company abroad while maintaining full control over production and all other components. Another way to establish an international market is to create multinational corporations.



Factors of the international environment influence the functioning of international business, and they are – culture, economy, legislation, government regulation, and political environment.

Given the above, it follows that the environment of indirect impact is more complex than the environment of direct impact.

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