If there is anything that is steadfast and unchanging, it is change itself. Change is inevitable, and organizations that don’t accept change and that make adjustments to their business model to keep up with changes are doomed to fail. There are events or situations that occur that affect the way a business operates, in a positive or negative way. These events or situations can have either a positive or a negative impact on a business and are called environmental factors.
Every organization needs to be perceived as operating in an environment. Organizations are neither self-sufficient not self-contained. Rather they exchange resources with and dependent upon external environment. External environment can be defined as all the forces and conditions outside the organization that are relevant to its operation and influence the organization. Organizations take inputs (raw materials, money, labor and energy) from the external environment, transform them into products or services, and send back as output to the external environment. The other environment is internal which can be defined as all the forces and conditions within the organization that influences its behavior. Thus, environment can be broadly classified into
(1) Internal environment
(2) External environment
(1) Internal Environment
Each business organization has an internal environment, which includes all the elements within the organization’s boundaries. Strictly speaking they are part of the organization itself.
The internal environment is the environment that has a direct impact on the business. There are some internal factors which are generally controllable because the company has control over these factors. It can alter or modify such factors as its personnel, physical facilities, and organization and functional means, like marketing, to suit the environment. The major components of the internal environment are:
- Management changes
- Employee morale
- Culture changes
- Financial changes and/or issues
(2) External Environment
External environmental factors are events that take place outside of the organization and are harder to predict and control. External environmental factors can be more dangerous for an organization given the fact they are unpredictable, hard to prepare for, and often bewildering. It refers to the environment that has an indirect influence on the business. The factors are uncontrollable by the business.
Some examples of external environmental factors are:
(a) General Environment
The general environment consists of interrelated forces that can be categorized into four elements:
- Economic Environment
- Socio-Culture Environment
- Political Legal Environment
- Technological Environment
(b) Task Environment
The task environment puts indirect pressures on business management through the institutional processes of following elements:
- Financial Institution