The Business Environment of Organizations

To lead an organization efficiently we must know where our company is situated, what are the outside influences and the inside ones.

Outer environment (macro environment)

There are some factors in the lives of organizations that affect them, but they don't have any control over them (much like in our own life). We can define three major areas, but these are just the large groups, they just give a general outline.

Political-legal environment:
The effects of this are quite visible. Just think of the effect of changing taxes, or raising interest rates. If the legal system, pushed by politics lowers he acceptable emission rates, companies may have to invest in new equipment or close down.

Technological state (R+D):
Technology can bring millions to one company and take millions from another. Organizations on the frontier usually experience a boom, with many following, but some rivals may go bankrupt. A good manager has to be aware of change and embrace technology to gain an edge on competition.

Social-Cultural environment
This is a very important but also very diverse category. Think of a company in China and a company in Hungary. A Hungarian company only has to produce for a potential market of about 10 million. A Chinese company has a potential market of 1.3 billion., which is 130 times as much! That alone is a huge difference, and we haven't even touched cultural differences. For example in India, McDonalds probably wont sell any hamburgers made from beef because they don't eat that there. A manager has to keep all these in mind when leading an organization!


Inner environment (microenvironment)

This is the environment that an organization can influence. It may not be able to correct all flaws in the microenvironment, but it has a much better control over it than the macro environment. The microenvironment consists of seven larger parts:

Organizations have to find the right people for each job. This means finding some highly specialized people and generally trained workers. Organizations are limited by their money supply and the constraints of the general workforce.

Owners and the board
The investment mood is a primary question for every organization. A positive mood means funds, while a negative mood means extra costs. It is important that the owners are satisfied with the company, but this doesn't always mean large profits have to be shown all the time. Many companies can choose between keeping profits and investing them. It is the manager's job to balance the aims if the company and the owners (although many times this can be the same).

Another important goal of the company is to keep the consumers happy. Today, competition is so large that for every product, there are ten of the same, but different brands. Organizations recognize that it is in their own interest to keep consumers happy.

The inputs of organizations are supplied by its contractors. Depending on size the contractors may race to keep the organizations happy, but it may happen vice-versa. The main objective here is sustaining a well oiled input supply system.

Competition, or rather the observation of it, is important if the company wants to keep its position on the market. It is also possible for organizations to buy a part of their competition, or they can try to outsmart them.

Financial organizations
Their effect is possibly the most visible. For example, the exchange rate difference between two banks could mean millions of extra loss or profit. Their guarantee may be needed for large projects, but aside all that, the most important thing is that they insure functionality day to day.

The government
Governments may have a direct or indirect effect. They may subsidize, giving money directly to the organizations. They can also give extra tax-refunds or they may punish unlawful behavior.

Information is for educational and informational purposes only and is not be interpreted as financial or legal advice. This does not represent a recommendation to buy, sell, or hold any security. Please consult your financial advisor.