Every organisation has to work within a framework of certain environmental forces and there is a continuous interaction between the organisation and its environment. The impact of environment on organization is manifold. The interaction suggests a relationship between the two. This relationship can be analyzed in three ways.
First, the organisation can be thought of as an input-output system. It takes various inputs-human, capital, technical-from the environment. These inputs are transformed to produce outputs-goods, services, profits-which are given back to the environment. Thus, the organisation merely performs the function of input-output mediator. In this process, the environment in its interaction with the internal factors of the organisation will determine what kind of inputs should be taken or outputs given.
Second, the organisation can be taken as the central focus for realizing the contributions of many groups, both within and outside the organisation. When these groups contribute to the well being of the organisation, they must have a legitimate share in organizational outputs. These groups may be employees, consumers, suppliers, shareholders, movement, and the society in general. Thus, the organizational functioning will be affected by the expectations of these groups and the organisation has to take these factors into account.
Third, the organisation can be treated as operating in environment presenting opportunities and threats to it. Thus, how an organisation can make the best use of the oppm.lunities provided or threats imposed is a matter of prime concern for it. Any single approach by itself is insufficient to explain the complex relationship between the organisation and its environ-ment-Moreover, these approaches are not inconsistent to each other; they are complementary. Thus, an organisation will be affected by the environment in which it works.
The environment-organisation interaction has a number of implications from strategic management point of view.
1. The environmental forces may affect different parts of the organisation in different ways because different parts interact with their relevant external environment. For example, the technological environment may affect the organization’s R & D department. Further, these forces of the environment may have direct effect on some parts but indirect effect on others. For example, any change in the fiscal policy of government may affect the finance department directly but it may affect production and marketing indirectly because their program may be recasted in the light of new situation, though not necessarily.
2. The environmental influence process is quite complex because most things influence all other things. For example, many of the environmental forces may be interacting among themselves and making the impact on the organisation quite complex. Moreover, the impact of these forces on the organisation may not be quite deterministic because of interaction of several forces. For example, the organisation structure will be determined on the basis of management philosophy and employee attitudes. But the organisation structure becomes the source for determining the employee attitudes. Thus, there cannot be direct and simple cause-effect relationship rather much complexity is expected.
3. The organizational response to the environmental forces may not be quite obvious and identical for different organizations but these are subject to different internal forces. Thus, there is not only the different perception of the environmental forces but also their impact on the organisation. Key factors determining responses to environmental impact may be managerial philosophy, life cycle of the organisation, profitability, etc.
4. The impact of environmental forces on the organizations is not unilateral but the organizations may also affect the environment. However, since the individual organizations may not be able to put pressure on the environment, they often put the pressure collectively. Various associations of the organizations are generally formed to protect the interest of their members. The protection of interest certainly signifies the way to overcome unilateral impact of the environment on the organizations. The nature of organisation-environment interaction is such that organizations, like human species or animals, must either adjust to the environment or perish.