The Relationship between an Organization and Its Environment

For any organization, the environment consists of the set of external conditions and forces that have the potential to influence the organization. In the case of Subway, for example, the environment contains its customers, its rivals such as McDonald’s and Kentucky Fried Chicken, social trends such as the shift in society toward healthier eating, political entities such as the U.S. Congress, and many additional conditions and forces.

It is useful to break the concept of the environment down into two components. The general environment (or macroenvironment) includes overall trends and events in society such as social trends, technological trends, demographics, and economic conditions. The industry (or competitive environment) consists of multiple organizations that collectively compete with one another by providing similar goods, services, or both.

Every action that an organization takes, such as raising its prices or launching an advertising campaign, creates some degree of changes in the world around it. Most organizations are limited to influencing their industry. Subway’s move to cut salt in its sandwiches, for example, may lead other fast-food firms to revisit the amount of salt contained in their products. A few organizations wield such power and influence that they can shape some elements of the general environment. While most organizations simply react to major technological trends, for example, the actions of firms such as Intel, Microsoft, and Apple help create these trends. Some aspects of the general environment, such as demographics, simply must be taken as a given by all organizations. Overall, the environment has a far greater influence on most organizations than most organizations have on the environment.

Why Does the Environment Matter?

Understanding the environment that surrounds an organization is important to the executives in charge of the organizations. There are several reasons for this. First, the environment provides resources that an organization needs in order to create goods and services. In the 17th century, British poet John Donne famously noted that “no man is an island.” Similarly, it is accurate to say that no organization is self-sufficient. As the human body must consume oxygen, food, and water, an organization needs to take in resources such as labor, money, and raw materials from outside its boundaries. Subway, for example, simply would cease to exist without the contributions of the franchisees that operate its stores, the suppliers that provide food and other necessary inputs, and the customers who provide Subway with money through purchasing its products. An organization cannot survive without the support of its environment.

Second, the environment is a source of opportunities and threats for an organization. Opportunities are events and trends that create chances to improve an organization’s performance level. In the late 1990s, for example, Jared Fogle’s growing fame created an opportunity for Subway to position itself as a healthy alternative to traditional fast-food restaurants. Threats are events and trends that may undermine an organization’s performance. Subway faces a threat from some upstart restaurant chains. Saladworks, for example, offers a variety of salads that contain fewer than 500 calories. Noodles and Company offers a variety of sandwiches, pasta dishes, and salads that contain fewer than 400 calories. These two firms are much smaller than Subway, but they could grow to become substantial threats to Subway’s positioning as a healthy eatery.

Executives must also realize that virtually any environmental trend or event is likely to create opportunities for some organizations and threats for others. This is true even in extreme cases. In addition to horrible human death and suffering, the March 2011 earthquake and tsunami in Japan devastated many organizations, ranging from small businesses that were simply wiped out to corporate giants such as Toyota whose manufacturing capabilities were undermined. As odd as it may seem, however, these tragic events also opened up significant opportunities for other organizations. The rebuilding of infrastructure and dwellings requires concrete, steel, and other materials. Japanese concrete manufacturers, steelmakers, and construction companies are likely to be very busy in the years ahead.

Third, the environment shapes the various strategic decisions that executives make as they attempt to lead their organizations to success. The environment often places important constraints on an organization’s goals, for example. A firm that sets a goal of increasing annual sales by 50 percent might struggle to achieve this goal during an economic recession or if several new competitors enter its business. Environmental conditions also need to be taken into account when examining whether to start doing business in a new country, whether to acquire another company, and whether to launch an innovative product, to name just a few.

https://opentextbc.ca/strategicmanagement/chapter/the-relationship-between-an-organization-and-its-environment/

Dear Hashim Fawzi ,

I would like to recommend the A-R-A model to answer your question. Here is a basic idea behind this relationship model.

The A-R-A model is a conceptual model for understanding business-to-business (B2B) relationships, developed and championed by the Industrial Marketing and Purchasing Group. They have proposed that all business relationships are made up of three layers - actor bonds, resource ties and activity links.

These may be defined as follows:

• Actor bonds: factors which connect actors - 'the buyer', 'the seller' - and influence how they perceive each other and form their identities in relation to each other;
• Resource ties: connections between the various resource elements (technological, material, knowledge resources and other intangibles) of two companies, which result from how the B2B relationship has developed and themselves become a resource for each company arising from their investment in their commercial relationship;
• Activity links: technical, administrative, commercial and other activities which operate within one company and may be connected in various ways to the activities of another company as a relationship develops.

Please find attached the research paper could be helpful to answer your question. I used similar model to design the summer school program of university of applied science in Germany.

Regards,

Nayan Kadam

Today , organizations are operating in a dynamic and fast changing environment that make the situation more challenging for developing consistent strategy. A majority of organizations face problems when executing their strategic vision . for management professionals, it is important to know about the reasons underlying the difficulties of organizations to reach strategic alignment. Strategic alignment is the ability to create a fit or synergy between the position of the organization within the business environment and the design of the appropriate business processes, resources and capabilities (IT) to support the execution. Strategic alignment cannot be reached when strategy development is considered to be a separate process isolating from environment. Organization have better chance of wining in today’s challenging business environment. If they are strategically aligned in finding their own distinctive approach, organizational capabilities, their valuable resources, and management systems to fulfill their enterprise’s purpose. Organization must focus on long term strategy for business sustainability in an uncertain future. following link may be helpful

https://hbr.org/2017/02/how-aligned-is-your-organization

https://repository.usfca.edu/cgi/viewcontent.cgi?article=1281&context=capstone

Very simple that people prefer to overlook...... Organization strategies fails due to its deployment and implementation. Deployment and Implementation success is dependent on the capacity and capabilities of the HUMANWARE and its overarching LEADERSHIP to drive the strategic implementation. The bottom line is that the strategic implementation is only as good as the human capacities and capabilities (barring political and personal interests; power play) the main resources and work environment

Business organization use organization strategy to win the competition in the market place by manage it's redource. Before formulating organization strategy, firstly should be undergo the external scaning, which mean the business environtment and then internal scanning.

A business strategy determines the decisions and course of action that businesses take to achieve competitive advantage and is therefore it is crucial. The development of a strategy is about formulating what should be changed to evolve from the current situation to the desired future state. This is achieved through strategic alignment of business strategies with organisational resources and environment which in tern strengthen the organisational ability to create a fit or synergy between organisational resources.

The strategy of an organization needs to be anchored in its available resources, otherwise it could be a mere dream. On the other hand, the environmental constraints - Economy, environment, laws in general - are basic and equally must be taken into account in any plan.

Resources can be men (human), money, machines, materials, method etc. However, environment can also be categorised broadly into external(macro) or internal (micro). Decisions and strategies cannot be communicated same way with external environment e.g Legal, political, economic, international etc except the resources are available internally that will assist the network of strategies - corporate (senior management) in the organisation to the lower level management who will interact with immediate community where corporate social responsibilities are carried out by the organisation otherwise there will be a problem using only one strategy to reach external environment. These two variables must be defined i.e external environment and resources before any strategy can be adopted.