What is the definition of Organizational Environment?

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Definition of Organizational Environment

Why are organizations affected by their environments? In order to answer this question, let's look at two very different organizations: Basic Bolt Company and Terrific Technologies.

Basic Bolt Company sells bolts to large manufacturing companies as components to make large machines and engines. They face a relatively static environment with few changing environmental forces. Currently, there are no new competitors in their market, few new technologies being discovered, and little to no activity from outside groups that might influence the organization.

Opposite from this, Terrific Technologies is an Internet marketing start up that faces a dynamic environment with rapidly changing regulations from the government, new competitors constantly entering the market, and constantly shifting consumer preferences.

These two companies have very different organizational environments. Organizational environments are composed of forces or institutions surrounding an organization that affect performance, operations, and resources. It includes all of the elements that exist outside of the organization's boundaries and have the potential to affect a portion or all of the organization. Examples include government regulatory agencies, competitors, customers, suppliers, and pressure from the public.

To manage the organization effectively, managers need to properly understand the environment. Scholars have divided environmental factors into two parts: internal and external environments.