Influence of Internal Environment on the Organization

Influence of Internal Environment on the Organization 

The organization is a complex and dynamic socio-economic system. It has an open character, being a component of the economy and society. Integration of the organization into the environment in which it operates shows that the organization is not only in an adequate relationship with the environment, but also that this relationship allows the manifestation of the internal dynamism of the organization. The activity of the organization is the result of the ongoing interaction between the organization and its environment.

Organization is not like an isolated island. It does not exist in a void but it is rather in a state of constant interaction with different elements present in its environment. In management, the word ‘environment’ does not necessarily mean physical surroundings, but it is used to describe all those influences which bear upon the individual organization. Organizational environment is used to mean, anything, which affects the organization. It affects the decisions, strategies, processes, and performance of the organization. The nature of the environment determines the framework within which the organization conducts its activities.

Organization is regarded as a human activity which is concerned with the production and distribution of goods and service. It is the sum total of the organized efforts by which the people engaged in the organization, provide the goods and services needed by the society for maintaining or improving the standard of living and quality of life to which an individual can aspire.

Organization consists of a collectivity with a relatively identifiable boundary, a normative order (rules), ranks of authority (hierarchy), communications system, and membership coordinating systems (procedures). The organization has its goals and human resources as well as constraints. Organizational employees have skills, knowledge, needs, and values pertaining to work and they and organization, both complement each other.

Organizational collectivity exists, on a relatively continuous basis in an environment, and engages in activities which are normally related to a set of goals. The organizational activities have outcomes for its employees, the organization itself, and for the society. The essence of organization revolves around the development of shared meanings, beliefs, values and assumptions which guide and are reinforced by the organizational behaviour.

Organizational environment is defined as a set of characteristics which describe the organization and distinguish it from other organizations within a given time period affecting behaviour of the employees therein. These characteristics affect the functional beha­viour of the employees, their trends, and motives. These characteristics basically inter-connect the internal work environment in the organization and make it a distinct feature of the organization. Organizational environment also differentiates the organization with other organizations. It also provides relative stability to the organization.

Some of the important features of the organization are (i) It includes groups of people (employees), structures, and mission, (ii) it involves a distinct form of correlation between the employees, the organization, and the organizational goals, as well as between the employees and the organizational structures, (iii) it is always specialized, has a mission which is represented by goals explicitly assumed by the employees and which is socially recognized, (iv) it ensures the coordination of the efforts of the employees for achieving the goals which are individually very difficult to achieve or even impossible to achieve, (v) it cannot exist without an appropriate management which sets the objectives, ensure the procedural, organizational structural, and organizational conditions necessary for achieving the objectives, as well as the coordination of the efforts of the employees along with their training and motivation, (vi) it has a formal organizational structure, based on well defined principles, rules, and relations and which are unanimously accepted and respected by the employees, (vii) it is an entity where the employees spend most of their lives and can form a career, and (viii) it exercises on its employees such an influence that they become intimate to the organization.

For the organization, the internal environment is an important variable which cannot be ignored. It is characterized by specific elements and ways of acting within the organization. It includes materials (e.g., raw materials, products, plant and equipment etc.), technology and processes, systems, employees, culture, and constraints etc. These variables influence its functioning.

Organization and its environment are closely inter-related and mutually inter-dependent. The environment has its bearing on the organization and the organization has its bearing on the environment. The success of organization lies in adjusting to the environmental changes and adapting its policies accordingly.

Organizational environment is not a homogenous entity, but represents a complex combination of large number of elements, each of which influences the organization in its unique way. These elements can be internal to the organization or can be externally related. The internal elements are normally regarded as controllable elements since the organizational management has control over these elements. It can alter or modify such elements e.g., its personnel, physical facilities, and organization and functional means such as marketing mix, to suit the environment.

The conceptualization of internal organizational environment through the 7Ss framework suggests that (i) strategy, (ii) structure, (iii) skills, (iv) staff, (v) systems, (vi) shared values, and (vii) style, play a major role in influencing the performance of the organization. These aspects provide an enabling internal environment for the organization to achieve its objectives.

The internal environment is the aspect which exists within the organization in which it is studied through some approaches such as functional approach, value-chain approach, learning curve or experience, core competence, and balanced scorecard. An internal environment can be said as the dynamics of the relationship which have moderation and mediation role in the components of the organization as a culture, strategy, leadership, decision-making process, structure, and resources.

The internal environment of the organization is an environment which is based on norms, directions, and specifications. The analyzing of the internal elements begins with the separation of three types of core resources such as (i) tangible assets which are the physical and financial means used to provide value for customers in the form of production facilities consisting of plant and equipment, raw materials, financial resources, and building, (ii) intangible assets which consist of brand reputation, organizational morale, technical understanding, patents, trade-marks as well as accumulated experience in the organization in which these assets are very important in creating competitive advantage, and (iii) organizational capability which is a skill in terms of capabilities and ways to combine assets, people, and processes used by the organization to change inputs into outputs.

Internal environment elements impact the organizations. These elements concentrate on how the employees behave and how their line managers treat them. Learning about the importance of the organizational internal environment elements is an integral part of improving the understanding of human resource management (HRM).

The internal environment is an important component of the functioning of the organization. It concentrates on the different elements which are present within the organization and can affect how its employees work / operate or what values the organization represents.

The organizational internal environment is the organizational resources which determine the organizational strengths and weaknesses. These organizational resources include human resources such as experience, ability, knowledge, expertise, and other considerations of all employees of the organization. The internal environment also includes organizational resources such as corporate processes and systems, including corporate strategy, structure, culture, material purchasing management, production, operations, finance, research and development, marketing, information systems and control systems etc. Also, it includes physical resources which consist of plant and equipment, geographic location, access to materials, distribution networks, and technology. The higher the organization can optimize the use of these resources, the higher the three above types of resources (human resources, organizational resources and physical resources) provide a sustained competitive advantage for the organization.

Internal environment can be defined as the dynamics of the relationship (relationship dynamism) which has a moderating and mediating role in the components of the organization like culture, strategy, leadership, decision-making process, and resources. It is identified as the characteristics of the internal environment which are trust building, commitment to ethical standards, open communication channels, a support system for individuals, and encouragement to seek for the opportunity.

The characteristics of organizational elements are the size of the organization, organizational structures, organizational strategy, strategy-making process, organizational resources, organizational culture, and top management team characteristics. Strengthening the capacity of the organizational employees by learning and training through different methods is very necessary for the organization to deal with the dynamics of the internal environment in the organization. It can be said that the essence of the organization is the ability of its employees to utilize its tangible and intangible assets for gaining the competitive advantage.

The internal environment is the strength of tangible and intangible assets and the organizational capabilities which value customers, have such competitiveness, and which converts inputs into outputs within organizations. This is formed by several indicators such as culture, strategy, leadership, decision-making process, and resources.

The internal environment of the organization comprises organizational-related elements which influence its capacity to achieve set objectives, develop and implement a viable plan, which as a result contributes to its performance. Internal environment is key internal aspects which need to be aligned within the organization for improved performance or effective change implementation. Internal environment can also be described as those internal controllable forces operating within the organization itself which have a direct impact on the performance of the organization.

Whereas the operationalization of the internal environment of the organization remains varied, it is normally accepted that internal environment is a key determinant of the organizational performance. Internal environmental forces provide strengths and weaknesses to the organization. The aspects forming the internal environment of the organization provide an enabling environment for the organization to achieve its objectives.

The internal environment of the organization is dissimilar to the external environment since it can be internally managed. It consists of the conditions and forces which exist within the organization. Internal environment portrays the ‘in-house’ situation of the organization. The management is to have full control over the internal environment.

Elements of the internal environment of the organization exist and operate within the boundary of the organization. These elements include physical and material resources, financial resources, human resources, information and knowledge, technological resources, organizational procedures and processes, capabilities of the organization, incentives, organizational objectives, goals and employees’ skills, organizational demographics such as size, inter-departmental linkages, and organizational culture etc. Some of these are tangible, such as the physical facilities, the plant technology, or know-how etc. while some others are intangible, such as information processing and communication capabilities, reward and task structure, performance expectations, power structure, employees’ capabilities, and organizational culture etc.

Within the internal organizational environment, capabilities are created in the organization for delivering value to the customer. This value is fundamental to defining the organizational purpose. The building of the organizational capabilities is carried out in a planned manner over a period of time. The deployment of resources for the capability build up is a key responsibility of the management. The elements of the internal environment include (i) shareholders, (ii) board directors, (iii) employees, (iv) organizational culture, (v) organizational resources, and (vi) organizational image / goodwill. The internal environment depends mainly on how its board of directors, its management, and its employees function within the organizational culture.

Both the management and the employees are important elements of the internal environment and the organizational success largely depends on the capabilities of these elements. Organizational culture is the collective behaviour of the management and the employees of the organization and constitutes the values, visions, beliefs, habits of the employees and the management. The organizational culture plays a major role in shaping the organizational success. As the foundation of the internal environment of the organization, it plays a major role in shaping the behaviour the management and the employees. A strong culture helps the organization to achieve its goals easily.

Organizational resources are also important for the organizational success.  They mainly constitute (i) physical resources, (ii) human resources, (iii) financial resources, (iv) informational resources, and (v) technological resources. Physical resources include land and buildings, stores, all kinds of materials, equipment and machinery. Human resources include management and the employees. Financial resources include capital used for financing the operations of the organization including working capital.  Informational resources encompass the records and data needed to make effective decisions.

Organizational image and goodwill determine the reputation of the organization which is a very valuable intangible asset. High reputation and goodwill develop a favourable image of the organization while a negative image destroys the organizational efforts to attract customers for its products as well as talented employees.

Innovation is a strategic tool in the competition and it is needed for establishing and improving the organizational functioning for achieving sustainable development and creating competitive advantage. A competitive advantage is a success factor in winning the market competition which the organization is required to have for its successful functioning. As a result, the organization can sustain its performance in the future through the innovation of its products which meet the needs of the dynamic market.

A number of internal elements which exist inside the organization are termed as its internal environment. These elements are management, employees, organizational culture, organizational structure, management strategies, and material and human resources etc. These elements act as strengths for the organization and can also become a reason of weaknesses of the organization. These elements have an impact on the organizational decisions and strategy. Some of these elements are described below.

Management philosophy and value system – The value system of the organization refers to the organizational goals, norms, and moral beliefs which influence a specific mindset of its employees. Establishing and maintaining a clear set of values creates organizational consistency and integrity, which shows what the management and the employees stand for. The values and ideologies of the organization affect the selection of the working systems of the organization, principles and policies adopted. Its working culture, values, when shared and followed across the organization facilitates its performance. Some common examples of values which frequently make up the value systems of the organization are strong work ethics, honesty, self-respect, respect for others, integrity, leadership, and loyalty.

Value statement defines the organizational basic philosophy, principles and ideals. It also sets the ethical tone for the organization. The values of the organization are evident in the statement which defines the organization and the processes used to achieve its mission and vision.

Values represent the core priorities in the organizational culture, including what drives employees’ priorities and how they truly act in the organization etc. Values are increasingly important in strategic planning. They frequently drive the intent and direction for ‘organic’ planners.

Vision, mission, and objectives – Vision and mission both relate to the purpose of the organization and are typically communicated in some written form. Vision and mission are statements from the organization which tell about (i) the organizational identity and its values, (ii) the future of the organization, (iii) the strategy to achieve the organizational mission, and (iv) how to measure the degree of success. These interdependent, cascading roles, and the relationships among them, are summarized in the Fig 1.

Fig 1 Role of vision and mission statements

Vision and mission create a target for strategy development. Vision and mission provide a high-level guide, and the strategy provides a specific guide, to the goals and objectives showing success or failure of the strategy and satisfaction of the larger set of objectives stated in the mission.

Vision and mission of the organization are expressed in words, while its objectives are the actionable and measurable steps for achieving the mission. The mission and objectives guide the organizational philosophy, policy, and priorities.

Vision and mission statements play three critical roles. These are (i) to communicate the purpose of the organization to stakeholders, (ii) to inform strategy development, and (iii) to develop the measurable goals and objectives by which to measure the success of the organizational strategy.

The organizational vision and mission directly impact then objectives of the organization. This is possible since the objectives of the organization are specific goals or outcomes which the management wants the organization to achieve through following its unique values and maintaining its vision.

There are several types of objectives which the organization can have which include (i) economic objectives which ae related to the production costs and the organizational profits, (ii) social objectives which can include the objectives of maintaining a high standard of the products and services or transition to more sustainable and fair-trade marketing practices, (iii) employee related objectives which can include the objectives of taking care e.g., the employees’ economic, motivational, training and development needs, so as to maintain high levels of employee satisfaction, (iv) organic objectives which are goals because of a direct result of the organizational processes and operations, e.g., effectively using profits for raising the capital, and (v) global objectives which are the specific goals that the organization desires to accomplish for building and maintaining its strong position in the global market.

Organizational structure – Organizational structure contains the internal basic elements in the organization as responsibilities, duties, and tasks which all are directed towards creating an effective network of communication between different levels of employees for assuring the smooth flow of information. Organizational structure is also the framework of all internal activities designed to achieve the strategic goals and objectives of the organization. It defines the organizational roles and responsibilities assumed by each of the employees. It set the lines for the inter-action between employees and their superiors. It is the base for assigning roles and tasks, clarifies the tasks and processes each employee in the organization is to carry out so as the organizational short term and long-term objectives and goals are properly achieved. Additionally, organizational structure defines roles and tasks, assures smooth data flow, and sets the boundaries in the relationship between the different levels of management structure till reaching the individual employee.

The structure of the organization is a set of rules which outline reporting relationships within the organization. As part of this important internal element, the organization defines the roles and responsibilities of the employees. There are different types of organizational structures which different organizations can choose to implement, including a hierarchical or matrix organizational structure.

Organizational structure refers to the relations between the components of the organization as a whole. The organization structure can be considered mostly of two types namely (i) physical, and (ii) social. Physical structure refers to the relations between physical elements of organizations as buildings and geographical places in which the works are carried out. In organization theory, social structure refers to the relations between social elements as people, positions and organizational units (e.g., departments and sections). It is the social structure which is normally referred to as ‘organizational structure’.

Organizational structure refers to the model of internal relations in the organization. Through it, the organizational elements are clarified the (i) power, relations and reporting, (ii) formal communication channels, and (iii) responsibility and delegation of power for taking decisions. Organizational structure is the framework of the relations on jobs, systems, operating process, people and groups making efforts for achieving the organizational goals. It is a set of methods dividing the task to determine the duties and coordinates them. Through the organizational structure, the organizational activities are divided, organized, and coordinated. The organization creates the structure for coordinating the activities of work elements and controlling the employees’ actions.

The organizational structure determines the way the job tasks are formally divided, grouped, and coordinated within the organization. When the organizational management develops or changes the structure, it is engaged in organizational design, a process which involves decisions about six key elements namely (i) work specialization, (ii) departmentalization, (iii) chain of command, (iv) span of control, (v) centralization and decentralization, and (vi) formalization.

Organizational culture – Regarding the composition of the internal environment of the organization, there are several points of view. Each of these points of view emphasizes some elements, without excluding the others. Majority of the views consider organizational culture to be synonymous with the internal environment of the organization.

Organizational culture comprises the unwritten customs, behaviours and beliefs which determine the ‘rules of the game’ for decision making, structure, and power. It includes a system of ideas and concepts, customs, traditions, procedures, and habits for functioning in a specific macro-culture. It is implicit, invisible, intrinsic, and informal awareness of the organization which directs behaviour of the employees and which results from their behaviour. It is based on the shared history and traditions of the organization combined with the current leadership values. In effect, culture dictates the way the organizational functions are performed. The organizational survival tactics which facilitate assimilation and personal success depends on the organizational culture.

Culture is defined as ‘the complex whole which includes knowledge, beliefs, morals, capabilities and habits acquired by persons as members of the society’. It consists of patterned ways of thinking, feeling and reacting, acquired and transmitted mainly by symbols, constituting their embodiments in artifacts. The essential core of culture consists of traditional ideas and especially their attached values.

Organizational culture evolves from the social practices of the organizational employees, and hence, it is a socially created reality which exists in the heads and minds of the employees as well as in the formal rules, policies, and procedures of organizational structure. Culture is an ongoing process of reality construction, providing a pattern of understanding which helps the employees to interpret events and to give meaning to their work and work-place. Hence, culture is an evolutionary and dynamic process which incorporates changing values, beliefs, and underlying assumptions regarding the organization.

Culture ensures the norms of behaviour and also gives mechanism which helps the employees in their personal and social survival. The culture is the man-made part of environment. It reflects the way of life of people, their traditions, heritage, and design for living, etc. It is the totality of beliefs, norms and values, which is related to the patterned regularity in people’s behaviour. The organizational culture is a combination of environment employees operate in, their way of interaction with one another, the policies, and procedures taken up in the environment.

There are several functions of the organizational culture. These are (i) it creates a clear distinction between one organization with another, (ii) it brings a sense of identity to the employees of the organization (iii) it facilitates the emergence of a commitment to something wider than the individual self-interest of the employees, (iv) it is a social adhesive which helps unify the organization by providing the right standards to be performed by the employees, and (v) it is a mechanism of ‘meaning and control’ which guides and shapes the attitudes and behaviour of the employees.

There are seven primary characteristics which capture the essence of the organizational culture (Fig 2). These are (i) innovation and risk taking which encourages the employees to be creative and to take risks and hence improve the productivity, (ii) attention to detail which means that the employees are attentive, and their attention to details determine success or failure, (iii) outcome orientation which means that the organizational management focuses on final outcomes or the processes used to achieve the goals, (iv) people orientation which means that the consideration in management decisions tends to affect people within the organization, (v) team orientation which reflects that the work events are organized in the organization among teams or individual employees, (vi) aggressiveness which shows that the employees are aggressive and competitive or easy-going during work, and (vii) stability which reflects  that the organization is looking forward for either maintaining the status quo or keeps growing.

Fig 2 Primary characteristics of organizational culture

Organizational culture is normally used to describe the internal environment of the organization since it is of particular importance in making the organization more efficient and has a long-term influence on it. The distinctive sign of solid organizational identity is the existence of a strong organizational culture. In general, the organizational culture of the organization pre-supposes the existence of a ‘system of values, ideals, beliefs and common conduct rules which unite the employees of the organization’.

Culture is found in every aspect of the organization. Each organization has its own ‘set of beliefs, ideals, values and norms of conduct which are reflected in its structures, systems, and strategy approach’. These values, ideals, beliefs, and rules of conduct are not directly observable. The concrete manifestation of organizational culture is achieved through the symbols, stories, rituals and the ceremonies.

Organizational culture includes the organizational past and present, the human resource in the organization, technology and physical resources, but also the goals, objectives, and values of employees. Since each organization has a unique combination of the above elements, there does not exist two organizations with the same organizational culture.

The culture of the organization determines organizational strategy, attitude towards groups outside the organization, the main criteria for the selection, evaluation and promotion of the employees, and leadership style of the management etc. In order for the organization to achieve, in the long run, a high level of performance, the organizational culture is to be at the same time strong which is accomplished through powerful management which delivers all the core values. A consistent and well-defined system of values, alongside a performing management accepted by all the employees leads to the organization’s development in the long run.

The culture of the organization is to be appropriate, in line with the strategy used by the organization. It is to be adaptable i.e., flexible to changes in the external and internal environment. Organization which has an adaptable culture based on innovation, is a successful organization which can influence the competitive environment in its favour.

Strong organizational culture shows the employees that the organization is unique, it has its own identity, and contains a lot of symbolic elements which ‘come to be expressed through language, accounts, artifacts, behaviour and other manifestations which relate to everyday life’. Building a strong organizational culture does not mean abandoning individual cultural elements, but harmonizing values, beliefs, individual symbols with those promoted by the organization.

The culture of the organization which is deeply rooted in the organizational identity cannot be easily changed. That is why, the impact which a powerful culture has on the efficiency of the organization, can be positive or negative. The impact is positive when organizational culture is widespread among the employees, they accept it and help achieve the organizational goals. The negative impact occurs when the organizational culture has a negative influence on the organizational goals.

Human resource – Alongside organizational culture, the organizational internal environment also includes other elements within the organization. These are its board of directors, management and leadership, and employees. Board of directors have a considerable influence on the other components of the internal environment. This is since they are the ones who decide, directly or through their representatives, on the matters regarding the organizational main direction, profit distribution, and development of the organization. Management, through its decisions and actions, influence both the organizational adaptation to the evolution and influences of the external environment as well as the actions and behaviour of the employees in the organization. Employees, through relationships which are established between them and the way they are determined to work for achieving the goals of the organization. Employees are the ones who determine the success or failure of the organization.

Human resource is considered the most important asset of an organization, but very few organizations are able to fully harness its potential. Human resource management (HRM) is defined as composed of policies, practices and systems which influence employees’ behaviour, attitude, and performance. Paying special attention to the HRM is an important requirement for the organization. HRM practices and processes constitute part of the management of the human resource in the organization. There are several HRM practices which have potential to improve and sustain the organizational performance.

HRM does not have only a limited role in the organization, rather, it is to support the organizational goal and objectives. It is to ensure that the HRM processes and practices are aligned towards the motivation and satisfaction of the employees so that the organization can grow and be productive. HRM practices and processes are also to be effective in order to present the organization a competitive advantage as well as provide environment for achieving the set targets.

It is well known that the human resource of the organization gives it the competitive strength. Human resource in the organization can constitute technological, marketing, financial, transportation and logistics, and many other experts, managers, supervisors, and the work-force. Further, the success of even a very visionary management of the organization at a time of unparalleled technology development depends on the organizational human resource. Hence, for the organizational management to succeed, it is essential that proper and effective HRM practices and processes are developed in the organization.

HRM practices can play three major roles, namely (i) building of critical organizational capabilities, (ii) improving the satisfaction of the employees, and (iii) improving the satisfaction of the customers and the stakeholders. Proper HRM practices do make a difference in the working efficiency of the organization. They improve internal capabilities of the organization to deal with current challenges being faced or future challenges to be faced by the organization. Positive HRM practices also promote the well-being of the employees of the organization. The commitment and motivation built through good HRM practices can lead to hard work and can have a very big influence on the performance of the organization. Organizations with right HRM practices can create a sustainable and lasting capability of the organization in managing internal performance and facing the external challenges. A typical model of HRM practices linked to organizational performance is shown in Fig 3.

Fig 3 A typical model of human resource management practices

There is no single best HRM practice which suits all the organizations. Good HRM practices vary from organization to organization. The practices which are good for one organization may not fulfill the needs of other organization since the organization can be functioning in different type of environment. In fact, good HRM practices do not constitute a set of discrete actions but an approach to the organizational management. Hence, every organization is required to develop distinct system of HRM practices which is peculiar to the organization itself.

Management style – It is the specific way in which organizational management approach its leadership responsibilities. It is the style for ensuring of the good team collaboration and encouraging a positive work environment. There are three types of management styles which are normally used in the organizations. These are described below.

The first is the autocratic management style. An autocratic management rarely listens to the employees’ feedback while taking decisions. This style of management can be highly effective in the situations where fast-paced results are needed. In this style, management needs the employees to complete their tasks quickly and efficiently.

The second is the democratic management style. Democratic management is happy to consider everyone’s opinions and ideas. Typically, it tries to take decisions after consulting the employees. This style is useful when complicated and difficult decisions are needed to be taken. This style needs a long time for decision making. In this style, the majority of the employees find decisions to be positive and useful.

The third is the persuasive management style. A persuasive management first makes the decisions and then tries to provide the employees with realistic reasoning behind the decisions. This style can be effective in situations when the management wants to maintain high productivity and efficiency levels while making management seem less autocratic.

Employees relations – Employees are among the most important resource of the organization. They are the most valuable asset. The nature and quantity of work performed by them have a direct impact on the productivity of the organization. Hence, healthy employee-relations in the organization are a pre-requisite for the organization in achieving growth and success. The term employee relations is a broad term which incorporates several aspects such as work-life balance, equal opportunities, and managing of diversity etc.

Employee relations is concerned with maintaining employee-management relation, which contributes to satisfactory productivity, and increase in employee morale and motivation. It can be seen primarily as a skill-set or a philosophy, rather than as a management function or well-defined area of activity. It emphasizes the relationship with individual employees. Present day organizational management accepts that the ideas of ’employee voice’ and the ‘psychological contract’ are important issues and these are reflected in the organizational employee relations policies and aspirations.

Employee relations focus on both individual and collective relationships in the work-place, with an increasing emphasis on helping line managers to establish trust-based relationships with the employees. A positive climate of employee relations with high levels of employee involvement, commitment, and engagement can improve organizational performance as well as contribute to the well-being of the employees.

Employee relations have several positive effects in the organization which includes strengthening of corporate communication and culture, improvements in the organizational products for satisfying the customers, providing opportunities for the training and development of the employees, and providing information to the employee based on their needs.

Employee relations are a broad concept which involves maintaining a working environment which satisfies the needs of the management and the employees. An effective employee relations programme involves creating and cultivating a productive work-force. Employee relations include defining the scope for employee participation in management decisions which relate to health and safety, collective bargaining, communication, and conflict resolution. In the present dynamic and competitive environment, it is necessary for the organization to maintain suitable employee relations as a way of achieving sustainable competitive advantage. Fig 4 shows elements of employee relations.

Fig 4 Elements of employee relations

Physical and technological resources – Physical resources are tangible assets which the organization owns, such as land, plant and equipment, buildings or infrastructure. These assets are an integral part of several internal processes, including manufacturing products or services which the organization offers to its customers. The offerings of the organization are to be very competitive. Technological resources, also known as technological capabilities constitutes the technical know-how of the organization.

Physical assets and facilities owned by the organization have an impact on its effective working. Also, research and development R&D), and technological capabilities of the organization help the organization to innovate and become more competitive in the market.

Internal power relationship – It determines the support which the management enjoys from different levels of employees, shareholders and board of directors. This support has important influence on the decision making and their implementation.

Company image and brand equity – The image of the organization matters while raising finance, forming joint venture, or other alliance, market offering, entering purchases, sales contracts, launching of new products etc. Brand equity is also relevant in several of these cases.

Financial factors – These consists of financial policies, position, capital structure of the organization, as all the other important organizational strategies and decisions are dependent on financial resources possessed by the organization.

Marketing resources – They directly influence the efficiency of marketing activities of the organization, for example, distribution network, structure of marketing function, skills and quality of people in marketing function etc. the marketing resources also facilitate the organization in brand extensions and product developments etc.

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