Organizational and Natural Environments

What can affect the business environment? Fuel prices Policies New Technologies Natural calamities Competition Social trends Economic factors War

Organizational and Natural Environment

System theory External environment: all elements outside an organization that are relevant to its operations Inputs: raw materials, money, labour and energy from the external environment, transform them into products or services and send them back as outputs to the external environment. External environment has direct-action and indirect-action elements Direct action elements: also called stakeholders include shareholders, unions, suppliers etc. Indirect action: technology, economy and politics of a society

Origins of the Stakeholder Concept

What is a stake?
An interest or a share in an undertaking and can be categorized as:
Interest Right
Legal

Ownership

Moral

Stakeholder
Definition Person, group, or organization that has direct or indirect stake in an organization because it can affect or be affected by the organization's actions, objectives, and policies. Key stakeholders in a business organization include creditors, customers, directors, employees, government (and its agencies), owners (shareholders), suppliers, unions, and the community from which the business draws its resources.

Although stake-holding is usually self-legitimizing (those who judge themselves to be stakeholders are de facto so), all stakeholders are not equal and different stakeholders are entitled to different considerations.

Who Are Business Stakeholders?

Production and Managerial Views

Who Are Business Stakeholders?

Elements of the direct-action environment

Direct action environment is made up of stakeholders individuals or groups that are directly or indirectly affected by an organization's pursuit of its goals External stakeholders: Customers: Exchange resources in the form of money for an organizations products and services Customer may be an institution school, hospital or government agency, contractor, distributor, manufacturer or an individual etc. Suppliers: Every organization buy inputs raw materials, services, energy equipment and labour from the environment and uses them to produce output. Zero inventory Just in time

Elements of the direct-action environment

Government: It acts as facilitator, regulator Governments and courts decisions play a major role in shaping the strategies and policies of the modern business organization Ban on smoking/non-iodized salt.

External stakeholders
Labour Unions: Collective bargaining to negotiate wages, working conditions, hours of work etc. Recently, both personnel staff and union management have been professionalized. Unions now days prefer stock ownership, profit sharing and gain sharing programmes instead of sit down strikes and violence.

External stakeholders
Special-interest groups: Consumer advocates and environmentalists Concept of Exit, Voice and Loyalty Baba Ramdev opposing use of cold drinks Jain community

Media: Organizations realize that they operate in fish bowl Executives who deal with media need to be strong in communication and clearly deliver their opinions Financial institutions Organizations depend on financial institutions like commercial banks, investment banks and insurance companies for supply of funds

External stakeholders
Competitors To increase its share organization must: Gain additional customers, either by garnering a greater markets share or by finding ways to increase the size of the market itself Eg. Special telecom schemes to teenagers, rural areas etc. Or beat its competitors in entering and winning in an expanding market (Projects with huge investments) In either case organization must analyze the competition the competition and establish a clearly defined marketing strategy in order to provide superior customer satisfaction Other stake holder groups Eg. Medical association of India

Internal stakeholders
Employees Changing nature of workforce For implementing concepts like Team building, self managed teams organizations need better educated and flexible employees Shareholders and board of directors
Increasing interests of shareholders in the day to day operations Investment from some social groups

ORGANIZATIONAL STAKEHOLDERS

STAKEHOLDERS FOR SSNL

Employees
SSNL officers unions Farmers, Villagers

Narmada Bacho Andollan

Investors, Govt of Guj, Govt of India Villagers, Advasis
Vendors, Suppliers
News papers, TV channels

Sardar Sarovar Nigam Ltd (Narmada Dam)

Tube well owners

Association of cement manufacturers

Boards, Regulators, Local Panchayats

Who Are Business Stakeholders?

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Stakeholder typology - Coco cola pesticide issue

Dormant Educational institutions, big purchasers, Local people where the plant is located, general public Dominant Government, Testing laboratories Dangerous - Testing laboratories Discretionary Media, Dependent Suppliers, dealers, other businesses dependent on the company Demanding -

Managing multiple stakeholder relationships

Network and coalitions
A particular issue may affect multiple groups

- Stoppage of coco cola -- Government, Educational institutes, Media, Scientific laboratories. Network and coalitions
A single individual or group may have multiple relationships with an organization eg. A person may be working in a company, buy its products, may be a member of environmentalist group Stakeholders need to balance their conflicting roles

Principles of Stakeholder Management

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Elements of the indirect action environment

The indirect action component of external environments affects the organization two ways: First, forces may dictate the formation of a group that eventually becomes a stakeholder Second, it creates a climate rapidly changing technology, economic growth or decline, changes in attitudes toward work in which the organizations exist and to which it may have to respond. Eg. People who want to save environment by not using plastic bags

Some variables all managers should keep in mind!!!

Social Variables Demographics changing composition of population (teenagers, old aged) Eg. Cloth business targeting teenagers Lifestyles they reflects attitudes Eg. nuclear families, more spending on luxury products Social values Eg. Equality for women, increased social and economic expectations of customers Economic variables
Rise in income levels Rise in savings, investments, productivity

Political variables Rigorous or a lenient view

Eg. Coco Cola

Technological variables

How do managers manage the indirect action environment? Managers monitor the indirect-action environment for early-warning signs of changes which will later affect the organization. Information sources: grapevine, managers in other organizations, journal publications online computer services, government statistics. etc.

Natural Environments
Current environmental concerns Pollution
Air and solid

Climate changes
Global warming/Green house effect

Ozone depletion
Other issues adequate water supplies, population and food security

Frameworks for thinking about the natural environment

The cost benefit framework If benefits of a proposed environmental regulation outweigh its costs, then it should be implemented Eg. Construction of a dam Eg. Effect of vehicle pollution on general public Difficulty in quantification. The sustainable development framework
Engage in those organizational activities that can be sustained for a long period of time or that renew themselves automatically Advocates to coordinate our action across companies, geographies and political entities. Eg. Ban on using products by all countries which harm the environment while producing. DDT.

Postures adopted by organizations for greening of environment

The legal posture
Obey rules and invent environment friendly technology

The market posture

Go as per the market/customers requirements, ISO, Eg. Some countries have been forced to use of recycled paper

The stakeholder posture

Responding to multiple stakeholder groups Educating employees, helping community efforts, appealing investors etc for environment conservation

The Dark green posture

Adopting environmental values and using natural resources carefully. Eg. Not using cosmetics tested on animals, not using materials which cannot be recycled.