Environmental factors play a major role in determining an organizations success or failure. Managers should strive to maintain the proper alignment between their organization and its environments. All organizations have both external and internal environments.

The external environment is composed of general and task environment layers. The general environment is composed of the nonspecific elements of the organizations surroundings that might affect its activities. It consists of five dimensions: economic, technological, sociocultural, political-legal, and international. The effects of these dimensions on the organization are broad and gradual. The task environment consists of specific dimensions of the organizations surroundings that are very likely to influence the organization. It also consists of five elements: competitors, customers, suppliers, strategic partners, and regulators. Because these dimensions are associated with specific organizations in the environment, their effects are likely to be more direct and immediate.

The internal environment consists of the organizations owners, board of directors, employees, physical environment, and culture. Owners are those who have claims on the property rights of the organization. The board of directors, elected by stockholders, is responsible for overseeing a firms top managers. Individual employees and the labor unions they sometimes join are other important parts of the internal environment. The physical environment, yet another part of the internal environment, varies greatly across organizations.

Organization culture is the set of values, beliefs, behaviors, customs, and attitudes that helps the members of the organization understand what it stands for, how it does things, and what it considers important. Organization culture is an important environmental concern for managers. Managers must understand that culture is an important determinant of how well their organization will perform. Culture can be determined and managed in a number of different ways.

Organizations and their environments affect each other in several ways. Environmental influences on the organization can occur through uncertainty, competitive forces, and turbulence. Organizations, in turn, use information management; strategic response; mergers, acquisitions, and alliances; organization design and flexibility; direct influence; and social responsibility to adapt to their environments.

One important indicator of how well an organization deals with its environments is its level of effectiveness. Organizational effectiveness requires that the organization do a good job of acquiring resources, managing them properly, achieving its goals, and satisfying its constituencies. Because of the complexities associated with meeting these requirements, however, experts may disagree as to the effectiveness of any given organization at any given point in time.