Why Is Understanding An Organization's Environment Important?

Why Is Understanding An Organization's Environment Important
The understanding of organization’s environment is necessary and very important for top management as an organization can’t work or survive without its environment, both external and internal environment.

Importance of Organization’s Environment

1. Provide Resources

To run the organization, it needs resources, such as human, raw material, assets, intellectual, etc., from environment which are used to convert inputs (raw material) into outputs (goods / products). For example, a company needs skillful and trained workers and employees to complete the job tasks efficiently and effectively to get desired results such as some employees’ work is to increase sales by marketing campaign, give answers to the questions asked by customers to solve their problems.

2. Increase In Productivity

By using efficiently and effectively use of resources, the production of the company increases as professional and trained workers and office staff are hired, advance technology is used, money is used to purchase goods or assets to make profits and run the business successfully, etc.

3. Make Proper Planning And Decisions

By knowing and managing external and internal environment, the top management is able to plan well and then can take correct decisions. For example, if the company knows that what are the customers’ needs and wants (e.g., they may need wheat and vegetables, in the south region etc.,) in the market, then the company makes plans on how to deliver these items in the south region such as using methods such as by roads, by air, online, etc., and then, finally, take correct decision such as by road and online as these are cheaper methods to deliver wheat and vegetables to customers.

4. Check Performance And Make Strategic Decisions

The company can evaluate its plans, strategies, decisions by analyzing and responsive actions taken by the employees, customers, suppliers and other stakeholders. If they are satisfied and happy with the company’ decisions, then it is good for the company, otherwise, it needs to change the decisions to get better results and improve its performance.

What are the competitors doing in the market? Either they decrease the prices of substitute products without losing quality or not? If new competitors are entered in the industry, then what steps should be taken to compete with this new firm? For example, if an IT Company decreases the price of a substitute product, let’s say, laptop, the other competitor IT Company also decreases the price in order to avoid losing customers, otherwise, the customers will shift towards the first competitor company.

Opportunities And Threats To The Company

Opportunities are possibilities and situations, which if an organization avails, lead to an increase its performance whereas Threats are those factors which create negative impacts on the performance of the organization. So, the company has opportunities and threats from its environment. For example, if the customers in the market are more willing to buy mobile phones, then the mobile phone company should avail this opportunity and invest more in creating and developing mobile phones. Also, the company can invest more on complementary products as screen protectors, phone charger and batteries, etc., as customers also need these products to make better use of the of mobile phones.

In case of threats, the company may face natural disasters (earthquake, flood, storm, etc.), economy recession, etc., the company may face heavy losses or may be shutdown. These negative effects, especially, natural disasters is uncontrollable and inevitable. However, the company can take precautionary measures to minimize the loss / damage to the business.

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