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Organizational Environment and its Impact on the Performance

Organizational Environment and its Impact on the Performance 

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 various factors present in its environment. These factors can be internal to the organization or can be externally related.

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 interconnect the internal work environment in the organization and make it a distinct feature of the organization. Organizational environment also differentiate the organization with other organizations. It also provides relative stability to the organization.

Organizational environment is not a homogenous entity, but represents a complex combination of large number of factors, each of which affects the organization in its unique way. The nature of the environment determines the framework within which the organization conducts its activities. The environment sets legal, technical-technological, socio-cultural and other limitations to the organizations. These jointly form the framework, i.e., the overall conditions in which the organization conducts its operations. Thus the environment directly or indirectly affects the ways and the dynamics of work of the organization within it.

Organization has open systems which constantly interact with the environment and in the process affect and are affected by the environment. Organization does not exist in a vacuum but exist in an environment which provides resources and limitations. If it is to remain prosperous, the organization is to continually adapt to its environment which is constantly changing. Normally, any negligence to adequately adapt to the environment is a major cause of the organizational failure.

It is not always possible to differentiate how environment influences the processes in the organization and it is even more complicated to bring out straight-forward lines from the organization to the environment it exists in. One has only to assume that these are processes which occur simultaneously and hence specifications of those influences frequently remain theoretical and even hypothetical.

External environment can be handled from different perspectives. Duncan (1972) has defined external environment as ‘the environment that consists of those relevant physical and social factors outside the boundaries of the organization or specific decision unit that are taken directly into consideration. The external environment could be determined through two dimensions – simple-complex and state-dynamic’.

The external environments which the organization confronts have an important influence upon its prospects of success. The resources available within the environment, the multiplicity of stakeholder demands to be addressed and the rates of change in these, each has serious implications for the functioning of the organization. . Nevertheless, it remains conceivable that the effects of different dimensions of the environment are not straightforwardly positive or negative, but can follow nonlinear patterns posing very different challenges at different levels.

The complexity of environment can be measured in terms of the factors which exist in environment and influence different subjects involved. If the complexity is low (i.e. simple environment) there are few factors, which are rather similar to one another in the decision process. In case of complex environment factors in the decision unit’s environment are large in number. The state-dynamic dimension indicates the degree to which the factors of the decision unit’s environment remain basically the same over time or are in a continual process of change.

Uncertainty involves a perceived inability to control or accurately predict outcomes of the interaction between an organization and its environment. It has been generally defined as the inability to assign probabilities to events. More recently, in the organizational context, uncertainty has been defined as a ‘lack of information about future events, so that alternatives and their outcomes are unpredictable’.

Since the organizations are engaged in various activities in the environments surrounding them, it is clear that the conditions in which they operate are also varied. Whatever be the nature of the environment, that is, the conditions they operate in, the organizations are to be well acquainted with them in order that they are able to operate purposefully and develop further. Poor knowledge of the environmental factors relevant for the organizational operations and the failure to adapt to them are the main causes of crises in organizations, and of their closure.

Factors affecting organizational environment

Factors which affect organizational environment falls into four categories namely (i) organizational factors, (ii) material and moral factors, (iii) psychological factors, and (iv) environmental factors.

Organizational factors – Organizational factors represent all forms and types of information coming to the employees, and which describe and clarify facts and characteristics of the organizational positions, relationships and circumstan­ces within the organization. These factors also specify for employees their duties dic­tated by their belonging to the organization, types of opportunities and interests they can get against fulfillment of the said duties and requirement. Organizational factors can be sub-divided into several groups such as organizational structure, employee intensity, supervision scope, mode of leadership, and style of decision making etc.

Material and moral factors – Material and moral factors for organizational environment are defined as an external force attrac­ting the employees thereto to get it through a certain behaviour allowing access to the incentives to which the employees are entitled. Thus incentive stands as the rewards which are obtained by the employees if their behaviours are satisfactory to the organization.

Employees who perceive higher levels of control at work are more satisfied, committed, involved, motivated, perform better, experience fewer emotional and physical symptoms, less absenteeism, fewer intentions to quit and experience less conflict. Further power and effectiveness increase when superiors share power and control with their subordinates.

Material factors mean such factors which satisfy material needs of the employees, while moral factors means such factors which satisfy moral needs of the employees. These factors are also sub-divided into positive and negative where positive factors facilitate and develop some disposal while negative factors pre­vent some sorts of disposals.

Psychological factors – These factors originate from the inside of the employees because of the perception of their attitude to the surrounding environment. Employees do not merely need satisfaction of their physical needs only, but there are other needs which they feel and endeavors to satisfy. These needs are known as psychological needs.

Psychological needs relate to the willingness of the employees in achieving and realizing results and desire to get an important social status. Psychologi­cal needs are characterized to a large extent by being personal, namely they can be found in some individuals rather than others.

The psychological factors are sub-divided into needs for commitment and belongingness, possession, struggle, and needs for power and influence. These factors can be further classified into the need for security and stability, allegiance and belonging, personal factors and the need for self realization.

Environmental factors – Environmental factors belongs to the environment external to the organization. They are represented by the factors which are present in the surrounding of the organization and affecting the organization. These factors include political and regulatory (P), economical (E), social (S), technical and technological (T), and ecological (E). These factors are parts of macro-environment and sometimes called PESTE (or sometimes due to the changed order of items STEP analysis) factors. The study of environmental factors for organizational environment makes possible the interpretation of many phenomena as well as control over many situations within the orga­nization. These factors affect the organizational policies and decision making. They also have influence on the long-run objectives of the organization.

Theoretical aspects

Organizational adaptation to the environmental conditions is an issue which has been studied extensively. In the contemporary environment which is subject to frequent changes, the organization is to develop a system of organizational response to any relevant changes in the environment, and in real time. In other words, the organization has to develop a set of competencies which enables it to respond to any events in the environment relevant for its operation. These competences develop in time, due to the organizational evolution which is continually in progress, so that the organization is permanently adapting to the changes of relevant conditions in the environment.

The organization adapts to the changes in its environment in the first place by its strategy, which reflects its operations in the environment. The strategy is in fact a special link between the organization and its environment. By implementing an adequate strategy, the organization either adapts to the environment, or adapts the environment to it. The selection of optimal strategy depends on the strategic management of the organization, namely, on the perception of the overall conditions in the environment, as well as the manner in which the organization is to operate in order to be permanently adapted to the changes in the environment in an effective and efficient manner. The implementation of the strategy itself refers to performing the activities in accordance with the limitations imposed by the organizational environment, by the defined strategy, and by the resources at disposal. A study has developed an integrated perspective which stresses action, coordination and adaptation and sees strategic management as a process of managing change.

On the other hand, organizations now compete in a complex and dynamic environment transformed by the flow of, and need for, instant information, where knowledge is increasingly becoming the most valuable resource. Thus, there is a general agreement that knowledge is critical to the pursuit of competitive advantage. Several studies are there which have increasingly focused on bundles of knowledge-based resources and their manipulation and integration with other resources. Managing knowledge inventories is a very important issue since, under conditions of environmental uncertainty; organizations need to be flexible if they are to react rapidly to unknown circumstances.

The process of forming and implementing the strategy within the organization is to be based on the cross functional coordination, feedback and continual learning of all the employees of the organization and the learning of organization as well. The management is to permanently initiate and foster controlled experimenting of all employees, as well as to support the development of all useful ideas, no matter where they come from. The role of the strategy is twofold. On one hand, it is the transmitter of influence of all relevant factors, or their changes in the environment, which it amortizes on their entering the organization; while on the other hand, it is a result of the impacts of all the circumstances taken into consideration in the process of its formulation.

Besides, the strategy is of utmost importance for any other elements in the organization which are designed and adjusted to one another in order that the defined strategies are to be smoothly fulfilled and the strategic goals are to be achieved. The role of the strategy is to define the criteria and limitations to be observed in the organizational structure designing, reward system creation, and the nature of organizational culture definition, etc.

Environmental impact upon organizational operations is an important and complex issue, not paid due attention to in many organizations. The considerations concerning the relationship between the organization and its environment are an important aspect. Many of the organizations are normally burdened with chronic problems, mainly the consequence of poor financial standing and large debts, poor prospects of efficient operations, inappropriate qualification structure of the employees, obsolete technology, inadequate organizational structure and excess number of employees, all these further aggravated by inadequate organizational operations. Such a situation needs that the method of the organizational operations and its structure is to be redefined, so that the organization can improve the competitiveness.

One of the starting steps in this complex endeavour is actually to define the factors which affect the organizational operations to a great extent. If the nature of the environment is understood and the factors affecting organizational operations are determined, then the management is able to define effective and efficient strategies to improve the level of competitiveness of the organization.

Organizational environment and employees

It is normally seen that a particular environment, as described by its climate, is capable of benefiting the well‐being of the people exposed to it. Organizational environment characterized as supportive and employee‐focused are associated with affective outcomes such as organizational commitment. There is a link exists between the organizational environment and the burnout of employees. The organizational environment can also have a powerful influence on employee perceptions of empowerment. A participative environment, for example, one which ‘recognizes the critical value of human capital to the success of an organization’ by respecting employees, and acknowledging their contribution, facilitates perceptions of empowerment.

Employee empowerment, in turn, is normally advocated as especially important to the delivery of the services and is associated with positive affective, behavioural, and organizational work outcomes. It is found, for example, that as a result of feeling empowered, and employees tend to feel less anxious, and cope better with adverse events, thus reducing the risk of burnout. Further, it is often emphasized that the aspects of environment which promote the well-being of the employees by helping them to feel valued and respected, for example, are important to service delivery.

Employees need to feel that their own needs have been met within the organization before they can become enthusiastic about meeting the needs of the customers. When employees encounter organizational practices which help them to feel respected and appreciated by their organization, they create, because of their more positive attitudes and behaviours, a more positive experience for the customers.

Management emphasis on ensuring that the work attitudes and behaviours of employees are conducive to the delivery of high quality service is therefore vital to the effectiveness of the organization. It is normally stressed that management practices need to include the foundations for employees to enable them to deliver quality services to the customers. This means that behind service environment, it is important to develop another environment where the conditions which promote a service environment can exist.

It is often proposed that management, in its pursuit of service quality, needs to create two related, but different environments namely (i) an environment for service, and (ii) a foundation climate for the well‐being of the employees. The foundation issues for the health and well‐being of employees refer to contextual factors which sustain the behaviour of the employees. An environment for service thus rests on the provision of fundamental organizational support for employees in the way of resources, managerial practices, and supportive supervision which assist them to perform their duties effectively.

There are a number of resources which the organization can provide to promote an environment for employee welfare that fosters both employee empowerment and commitment and minimizes the process of burnout. Social support, for example, is a key organizational resource which serves as a source of respect and appreciation for employees, and focuses on the quality of interpersonal relationships an employee has with co‐workers, supervisors and the organization. In fact, the social support is defined as resources (actual or perceived by an employee) which are available from one or more others. These resources include relational provisions of attachment, social integration, opportunity for nurturance, reassurance of worth, and guidance in problem solving.

As an aspect of communication, social support serves a number of beneficial functions. Theoretically, social support benefits employees by helping the employees to cope with the negative effects of stressors. Findings of a study show that those employees reporting high levels of social support perceived less stress in their organizational roles, and an improved level of well‐being and work attitudes than their counterparts, who report lower levels of social support.

Receiving social support also tends to enhance employee perceptions of empowerment by facilitating their appraisal of situational control and sense of meaningfulness. Support also fosters employees’ belief in their ability to perform their duties effectively, thus facilitating a sense of feeling enabled. It has been shown that the employees who experience job competence, who regard their duties as meaningful, and are actively involved in implementing a variety of strategies in their duties, are likely to experience reduced negative burnout symptoms, especially when accompanied by high levels of support.

The type of support (affective, instrumental, informational and appraisal) has been consistently identified as an important dimension of social support. Affective support consists of intangible forms of support, such as social recognition, and the expression of emotional concern, which offers caring, listening or advice. Instrumental support refers to tangible forms of support, such as the provision of practical help in solving problems. Informational support includes directives or suggestions, while appraisal support includes affirmation or evaluative feedback. Many supportive interactions, however, tend to fulfill more than one function, for example, it has been found that higher levels of informational support leads to stronger perceptions of emotional support, while higher levels of emotional support leads to stronger perceptions of informational support. The overlap between these two forms of support suggests that the two constructs are closely related in practice. Although they may not be interchangeable, it does mean that comparisons between them are difficult.

The source of workplace support has been identified as another important dimension of social support. The empowerment and work attitudes of the employees, can, hence, be enhanced, and burnout reduced, when employees develop supportive relationships with such sources of workplace support as the organization, line managers, and peers. Employees’ perception of support by the organization, for example, can help them develop global beliefs concerning the extent to which the organization, its management value their contributions, and care about their well‐being. An organization which is perceived as supportive, respectful and trusting of employees, and values their contributions, is a viable mechanism for enhancing employee work outcomes, such as commitment, and burnout.

It is seen that having a high quality relationship with the line manager positively affects the entire work experience and influences affective work outcomes such as commitment, and decreases the level of distress suffered by employees. When employees perceive that their line managers are supportive, their perceptions of control also increase. It has been seen that when employees perceive they are trusted to control how their duties are performed, they feel committed and become attached to their organization, and reciprocate by performing in accordance with supervisory and organizational preferences. Employees who perceive they have more control over how their work duties are performed have reduced burnout symptoms. In view of these, it is seen that the organization environment has certain impact on the employees’ psychological environment.

Different studies have shown that the organizational environmental perceptions are related to individual attitudes and behaviours. There are certain view that it is important to understand the shared meaning which the employees ascribe to organizational characteristics since it is this subjective understanding which determines the feelings and behaviours of the employees. Keeping this in view, it is expected perceptions of empowerment environment to be positively related to individual‐level perceptions of psychological empowerment. This practice is to help individuals to better understand the meaning of their work and develop a sense of competence in performing their tasks, and it makes them feel better which has a positive impact on the organization. The organizational environment is required to enhance employees’ feelings of competence and impact in the organization. Hence organizational environment and psychological empowerment are positively correlated.

Types of the organizational environment

The word ‘environment’ means the surroundings or conditions in which a particular activity is carried on. The organization being a social entity has a hierarchical structure where all necessary items are put together and they act within it to reach the collective goal. The activities of the organization are always affected by the environment.  The elements of the organizational environment namely (i) general environment, (ii) task environment, and (iii) internaenvironment are shown in Fig 1.

Fig 1 Elements of the organizational environment

Every organization works under either an external environment or an internal environment. Both the environments affect the operation of the organization. Hence, the management is to make in-depth analysis of the elements of the environments so that it can develop a thorough understanding of the impacts these environments are making on the operation of the organization so that appropriate strategies can be developed for the achievement of the organizational objectives.

Internal environment

The internal environment of the organization comprises organizational-related factors which influence its capacity to achieve set objectives, develop and implement a viable plan, which consequently 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 an organizational performance.

Whereas the operationalization of the internal environment of the organization remains varied, it is generally 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 an 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) owners and shareholders, (ii) board directors, (iii) employees, (iv) organizational culture, (v) organizational resources, and (vi) organizational image / goodwill. The internal environment consists mainly of the organization’s management, the board of directors, employees and 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 determines the reputation of the organization which is a very valuable intangible asset. High reputation / goodwill develop a favourable image of the organization while a negative image destroys the organizational efforts to attract customers and talented employees.

External environment

Elements existing outside the organizational control define the external environment. The organization does not know how the external environment elements shape up. The external environment elements constitute both the general environmental factors and the organizational specific factors. Management is required to continuously read signals from the external environment to spot emerging opportunities and threats. The external environment presents opportunities for growth leadership, and market dominance, it also poses the threat of obsolescence for products, technology, and markets. The interaction of the external organizational factors is given in Fig 2

Fig 2 Interaction of external environmental factors

The general environment factors are those factors which do not have a direct effect on the operations of the organization but influences the activities of the organization. These factors normally include political, economic, socio-cultural, technological, regulatory, environmental (natural) and demographic factors. The factors of the general environment are broad and non-specific.

The organizational specific factors have direct impact on the operations of the organization. The organization has no control over these factors. However, it is possible to manage to a certain extent, the organizational specific factors. The important organizational specific factors (Fig 3) are suppliers, customers, designers and consumers, competitors and new entrants, substitute products, and strategic partners. Further, regulatory bodies have also an influence on the organization specific factors.

Fig 3 Important organization specific factors

The management is to makes the strategy for the organization is to understand the challenges and complexities of both the general environmental factors as well as the organization specific environmental factors. The management is required to appreciate that the general environmental factors are largely non-controllable because of their distantly located external nature. When the management take into cognizance of both the general (remote) and organization specific (operating) environments, it is likely to become more proactive in strategic planning.

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