Environmental factors play a major role in determining an organization's success or failure. Managers should strive to maintain the proper alignment between their organization and is environment. 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 organization's 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 organization's surroundings that are very likely to influence the organization. It also consists of five elements: competitors, customers, suppliers, regulators, and strategic partners. 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 organization's owners, board of directors, employees, physical environment, and culture. Owners are those who have property rights claims on the organization. The board of directors, elected by stockholders, is responsible for overseeing a firm's 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.
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 task environments.
One important indicator of how well an organization deals with its environment is its level of effectiveness. Organizational effectiveness requires that the organization do a good job of procuring 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.