Organizational Context (Environment)

The environment is the surroundings or conditions in which a person, animal, or plant lives or operates. Now when we place that in an organizational context, environment basically means the surroundings or conditions in which a business operates. There is an internal environment as well as the external environment that can be further sub-divided into a micro and macro point of view.

It is important to understand the business environment so that you make sure you do not lose out to any newcomers or new products that is set to change the entire market. We see many examples such as Nokia vs Apple, MySpace vs Facebook, MSN vs Skype and many more. In each of these examples, the former lost out to the latter due to multiple factors that the latter had and the former chose to ignore initially only to bite them back harder.

In the internal environment, there are a number of aspects, namely,

•      Structure

•      Objectives

•      Culture

•      Technology

•      Leadership

•      Finance

•      People

Essentially, these are the conditions, entities, events and factors within an organization that influences its activities and choices, particularly the behavior of the employees.

Lets go on to the external environment.

Micro – PORTER’S FIVE FORCES

Macro - PESTle

In the Micro perspective, we can look at Porter’s 5 forces, which is a simple but powerful tool for understanding where power lies in a business situation. This is useful, because it helps you understand both the strength of your current competitive position, and the strength of a position you're considering moving into. The collective strength of the 5 forces determines industry profitability.

The 5 forces are as follows:

·      Bargaining power of suppliers

·      Threats of substitute products

·      Bargaining power of buyers

·      Threats of new entrants

·      Intensity of rivalry within the industry

To better explain each of these points, I will be giving examples based on the railway industry.

The bargaining power of suppliers refers to how easily can suppliers of your product affect you. The fewer the supplier choices you have, and the more you need suppliers' help, the more powerful your suppliers are. In the railway industry, supplier power in higher as it highly dependable on companies that maintain railway tracks and its staff, without whom it cannot run.

Threats of substitutes refer to how easily consumers can find an alternative way of doing what you do. For example, planes and buses can be seen as substitutes to the railway, however, the railway may be slower than flights but is usually more convenient while buses are the most convenient but usually slower. Hence, the threat is neither high nor low.

Buyer power refers to the power direct consumers hold; whether they can demand cheaper prices, better products. Buyer power is likely to be high in the railway as there is a low switching cost from 1 form of transport to the next.

Threats of new entrants can be also seen as the industries barriers to entry. This can include access to supply and distribution channels, a strong barrier for new railway entrants as large amounts of resources will be needed to build new trains and tracks may be difficult to share with existing market players.

The intensity of rivalry within the industry: If you have many competitors, and they offer equally attractive products and services, then you'll most likely have little power in the situation, because suppliers and buyers will go elsewhere if they don't get a good deal from you. On the other hand, if no one else can do what you do, then you can often have tremendous strength. From this point of view, the railway industry has a relatively low intensity of rivalry.

Now lets look at the Macro, PESTLE. This is an acronym for Political, Economic, Socio-Cultural, Technological, Legal and Environmental. These are all factors that have a direct influence on any organization and PESTLE aims to how these factors will affect the organization.

Political includes privatisation/ deregulation policies, health and safety as well as government stability. For example, it would not be a good time for an organization to focus on the Ukrainian market due to its current political turmoil.

Economic refers to, but not solely, inflation, unemployment, consumer activity. Low inflation rates and a strong employment market would drive organisations to invest more since their investments are unlikely to devalue.

Socio-Cultural can refer to changes in lifestyles, education and health as well as distribution of income. During an epidemic, organisations could benefit more from providing products and services related to health.

Technological changes happen very quickly these days with new patents and products out in the market quicker than you can read this blog! Organisations that can keep up with these changes stand to benefit in the short and long run.

Legal is essentially the laws that can have both a direct and indirect effect on an organization. An example would be certain laws to protect society, which would prevent many organizations from selling harmful drugs.

Environmental factors refer to renewable energy supplies, green issues, carbon footprints, etc. To curb global warming from worsening, more and more companies are required to be greener in their operations and this may affect their production costs among other things.

These are the various environmental factors in an organizational context.

“Business is like living in a jungle, you need to be constantly aware of your surroundings lest someone takes over you before you can react on time.”

                                                                                                                                      Nitin Bhagwan ;)

Material Links:

1. http://www.businessdictionary.com/definition/internal-environment.html
2. http://www.mindtools.com/pages/article/newTMC_08.htm

Management Theory

In this entry, I will be talking about a few different theories, hence it would probably be longer than my previous posts; however, this has to be done so as to ensure that the explanation of each theory is not compromised.

I will be talking about Management Theory (MT). MT is clearly very important, as it is essentially a study of how to make all the people in your organization more productive. The theory provides a basis for action where companies can act upon to bring about the desired results from their employees. To me, such an understanding would only increase my knowledge as to how I should be running my business, which would be essential if I want my business to succeed! With management, you have to balance a multitude of tasks daily and being familiar with MT can help greatly.

Within the MT, there are 4 main schools, the Classical School (CS), the Human Relations School (HRS), the Systems Approach (SA) as well as the Contingency Theory (CT).  

CLASSICAL SCHOOL 

The CS owes its roots to several major contributors, including Frederick Taylor, Henry Gantt, Henri Fayol and Max Weber. Part of CS included the Scientific Management Theory, introduces by Mr Taylor. He believed that organizations should study tasks and develop precise procedures that specializes workers to match those tasks. They would be motivated almost entirely by the pay that would range according to the quantity and quality of their output. A success story would be how Ford reduced the production time of their cars drastically by following the Scientific Management theory. Another prominent theory would be Weber’s Bureaucracy which were based upon 5 main characteristics:

1. Tasks are allocated as official duties

2. Clear division of labour and high levels of specialization

3. Use of hierarchical authority

4. A fixed system of rules and regulations and a structure of authority

5. Employment is based on technical qualifications

However, there were lots to criticize about the CS despite its many successes. Firstly, there was the case of untested assumptions where the basic assumption is that workers are primarily motivated by money and that they work only for more money and that productivity is the best measure of how well a firm is performing, failing to recognize the different want and needs of employees unrelated to the workplace or may view their jobs only as a necessary evil.

In their stress on formal relationships in the organization, classical approaches tend to ignore informal relations as characterized by social interchange among workers, the emergence of group leaders apart from those specified by the formal organization. Hence, it is likely that many important factors affecting satisfaction and performance, such as letting employees participate in decision making and task planning, will never be explored or tried. These are just some of the many criticisms regarding the CS.

HUMAN RELATIONS SCHOOL

The HRS focuses more on the individuals in a workplace than the rules, procedures and processes. Instead of directives coming directly from management, a human relations theory provides communication between employees and managers, allowing them to interact with one another to help make decisions. Instead of giving workers quotas and requiring certain procedures, workers are exposed to motivational and emotional tactics to get them to increase productivity. The focus of this style is creating fulfilled, productive workers and helping workers invest in a company.

Although this sounds fantastic, there are a few drawbacks when applying the HRS. Companies risk workers becoming too social or easily swayed by personal emotions and opinions when making decisions, rather than relying on hard data. It may be more difficult to reprimand employees for poor performance or dismiss them once they have become invested in the company. 

SYSTEMS APPROACH 

The SA by direct definition is, “Management thinking that emphasizes the interdependence and interactive nature of elements within and external to an organization.” Therefore, system in simple terms in respect to management, it is a set of different independent parts working together in interrelated manner to accomplish a set of objectives.

The SA is an attempt in bringing together both the CS and the HRS where managers are encouraged to view organizations as part of the larger environment and as a whole; while focusing on the interrelationship between structure and behavior.

The problem with the SA is that it does not fully recognize the stark differences in systems that it tries to bring together making it rather unpractical. It cannot be easily and directly applied to practical problems.

CONTINGENCY THEORY

Finally the CT. This theory recognizes that there is no universal or one best way to manage. Therefore the most appropriate structure and system of management depends on the contingencies of each situation. Hence an organization that effectively applies the CT would not only have a proper ‘fit’ with the environment but also between its subsystems.

It is hard to critique a theory that is very flexible, however, that in itself is the flaw. The logical extension of the CT is that all situations are unique. Assuming this is true, then management can only be practiced by intuition and judgement, thereby negating the value of prior knowledge regarding management.

So maybe…

We may not need to study Business to actually have a successful one! (:P HAHA)

Material Links: 

1. http://smallbusiness.chron.com/difference-between-classical-management-theory-human-relations-theory-35928.html

2. http://www.cliffsnotes.com/more-subjects/principles-of-management/the-evolution-of-management-thought/classical-schools-of-management

3. http://en.articlesgratuits.com/article.php?id_article=1592

4. http://wiki.answers.com/Q/Why_is_management_theory_important?#slide=22

5. http://www.slideshare.net/artinsane/systems-approach-to-management

6. http://www.businessdictionary.com/definition/systems-approach.html

7. http://www.slideshare.net/arunnaikvs/contingency-theory-of-management