Impact of External Environment on Modern Organizational Structure and Design

This essay analyzes the impact of the external environment on modern organizational structure and design, focusing on the sectors of retail and banking. It examines the political, economic, socio-cultural, technological, and legal factors that influence organizational performance. The study aims to understand how changes in the external environment affect the structure and function of modern businesses.

Individual essay

Table of Contents
INTRODUCTION...........................................................................................................................1
Thesis Statement.........................................................................................................................1
LITERATURE REVIEW................................................................................................................1
External Environment scanning..................................................................................................1
Political environment..................................................................................................................2
Economic environment...............................................................................................................3
Socio-cultural environment.........................................................................................................4
Technological environment.........................................................................................................5
Legal environment......................................................................................................................5
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................8

INTRODUCTION
Modern organisation is different from traditional businesses that relies on the
technologies and are boundary-less Aldehayyat, (2015). Modern business is dynamic that can be
described by the change that makes the industries spend on R&D to survive in the market. This
kind of organisations are boundary-less and can be operate through technologies. Business
environment is consisting of external condition and forces that have potential influence the
organisation. Generally, it is divided in two major parts i.e. External or macro environment and
internal or micro environment. Change in environment have impact on the modern organisation
structure and design that will be analysed in this essay with suitable examples. The study aims to
do external environment scanning for that purpose PESTLE analysis will be done. The external
analysis is done by contrasting various sectors such as; Retail and Banking.
Thesis Statement
The external environment is the surrounding that is of changing nature in which the
business operates. How these changes within external environment affects the performance of
the business organisation?
LITERATURE REVIEW
External Environment scanning
External environment scanning is defined by Bahmani, Farhadpoor & Hamidi, (2017) as
the process that systematically analyse the external environment in order to identify the sources
that has impact on businesses. The scanning identifies the changes from six various
environmental context including; political, socio-cultural, demographic, legal, economic,
organisational competitive and technological.
Borges & Janissek-Muniz, (2018) state that, at the global level any specific change in
business environment can affect the management function and organisational design.
Organisational design refers to the structure of any company. It is essential to develop
organisational design to identifies dysfunctional aspects of work flow, structure, process and
system and realigns them to convert it reality. Aldehayyat, (2015) mentioned that the business
environment of the industries moves through is made up of external and internal elements.
Internal environmental factor involves; management, cash flow, culture of the organisation,
physical assets and skill, knowledge and capabilities of the workforce.
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On the other hand Hall (2015) mentioned that external elements include media and
trends, law, technologies, policies and competition.
Any of these factors can change instantly that is required to mould the functions and
structure of the management accordingly. According to Borges & Janissek-Muniz, (2018)
management functions are; planning, organising, directing and controlling and organisational
structure can be fall into various category; functional, product/service, matrix, divisional,
geographical.
Political environment
As per the view of Huarng & Mas-Tur (2016) Political environment plays a very essential
role in organisational structure and how the businesses are function. This environment can affect
the business as in the global context, organisation operates in many countries and different
governmental policies could open a door of opportunity for some businesses or become a risk
factor that can lead the organisation to a serious loss. The political environment has affects on
the functions and management to the industries. Currently, UK is passing the most critical time
that is because some political decisions such as Brexit that also affect various car industries like;
Nissan and Honda. This decision can affect the surroundings in different way and mainly it will
affect retail industries in UK state by Liao, (2018). In accordance with the changes of Brexit
Nissan and Honda were force to close their factory. Also, separation of Britain from EU led to
tremendous labour market trends and polices which affected the labour incentives and capital
incentives.
For example, Zara is a retail clothing company that operates globally and in any change
in the political environment can affect the business either in positive or negative way. The free
trade agreement in Europe have boosts the sale of Zara UK as they can easily move their goods
between European countries. But on the other hand Zara could get more expensive by the Brexit.
It has been mentioned by Robinson, (2015) that more than 130,000 UK retail companies will
force to pay VAT upfront for the first time on all the goods that are imported from EU after
Brexit. This is because a weaker pound by Brexit that means retailer have to spend more money
to get the product, thus, they look into cheaper option. The change put pressure on the company
to lower down their prices than before.
Mahmood & et. al., (2017) mentioned that despite the uncertainty surrounding from the
political instability trade relations, VAT and tariffs, retailers have to plan and they required to
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consider all the potential changes that may lie ahead which impact design of management and
function. The political stability also affects the organisation designs. For example; the political
instability has major effect on automaker car industry such as; SUV, Nissan, etc. As per the
policy made by government make pressure on the company to change the organisational design
and structure as well as in their policies. The business environment changes with the change in
political environment over a period of time. It impacts on the effectiveness of the retail industry
in terms of sales, threat of substitute products, strategic decisions, etc. stated by Hall (2015).
Economic environment
Robinson & Simmons, (2018) state that every industry is basically a unit of economy that
operates within the market system with the aim of making profit and drive the sales. Thus, the
design of organisation and management function is base on the economic environment of the
country. Change in the economic environment can affect the industries in UK in negative as well
as in positive way. The decisions in every context of the business is determined in response to
macro-economic and micro-economic environment. Song & et. al., (2015, August) mentioned
that banking industry and the economy are tied. It will be affects by how income inflows.
Furthermore, It helps the banking sector to determine and understand the present situation of the
marketplace. Banking sector in UK are outsourcing their business. Out sourcing of bank
operation can be defined as a process in which company delegates some of operation within the
business. The reason to outsource by banking sector in UK is they have lack of time, money and
skill due to some economic reason and one of the biggest reasons is Brexit. Main operation
which are outsourced are the IT operation of the business and also to the Asian country as in
Asia it is easy to get IT employee as compare to UK. The banks such as; Barclays bank and
Lloyd are facing duplication in the structure and technology that lead in increase in costs.
Lower inflation keeps the production cost low. It mainly affects the manufacturer in UK.
The change enables them to produce more side by side the demand of services and goods also
enhance as if consumer have more disposal income Huarng & Mas-Tur (2016) stated that the
disposal household income of the company was 27,300 pounds in 2017 that increase with 2.6%
from 2016.
For example; Barclays is a global financial service provider. The banking sector could be
affects by the inflation rates. It was analysed by Mahmood & et. al., (2017) that the inflation rate
in UK was 2.7% in the start of 2018 and in the year end it was calculated by 2.2% in October
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2018. This fall down affect the disposal income of the local people and have same impact on the
bank. Change in inflation affects the currency and its value that causes instability. Lower
inflation means high level in currency of UK that affect the banks as foreign investors think
thrice before giving their funds to the high currency country. Brexit is an important issue of the
country's economy that forced Barclays Bank to lower interest rate from 0.5% to 0.25% in 2016.
Barclays bank offers 6.90% as its highest interest rate and 6.75% as its lowest interest rate. On
the other hand Cummings, Bridgman & Brown (2016) mentioned that lower exchange rate open
the doors of opportunity for many banking industries such as; Lloyd Banking Group and along
with it, lower interest also make the bank more proactive. It helps the business to grow as seen
that there has been 64% increase in the number of banking sector since 2000. Lower interest rate
improves the effectiveness of the industry. If the income level is low that will affect the design of
the organisation and especially banks. Lower interest rate also will see that number of the
investor will be less as they will be less interested in risking their money at low level of return
which will eventually affect the organization structure.
Socio-cultural environment
For instance, of car manufacturer; consumers change their beliefs and values in energy
conservation and change in global climate may create a change in preference and demand of
consumers as they are demanding more hybrid sedans than gas guzzling SUVs.
On the other hand, Cummings, Bridgman & Brown (2016) stated the trend is rapidly
changing that similarly changes the preference of consumers. Customers are now, preferring
online buying rather than purchasing from physical outlets that changes the way traditional
business are operating. It has been seen as positive affects on the businesses that enable them to
develop with the trend that can attract consumers more easily. The trend is observed by online
fashion industry, Rose. They change their design of the process and provide same day or max to
max next day delivery, less expensive items such as many more services to the consumers.
For overcoming issues regarding socio-cultural environment and to influence social
values many businesses develop many strategies and utilize the marketing, advertising and
targeted public relation strategies. For example; Fashion retail industries are often use public
relation campaign for repair or build up their business image. BP launched in 2012, their massive
public relation campaign with the aim to bring improvement in the company's image after some
massive oil leak incident.
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Another example is of Pepsi; research by Masouros & Papadopoulos (2016) shown that
social environment has greatly impacted the beverage company. Perhaps because Pepsi is a non-
alcoholic beverage and they are required to maintain a sharp difference in culture all over the
world. Changes in customer preferences leads to changes in internal business environment and to
manage dynamics of external socio-cultural Pepsi focuses on altering organisation design to
manage change and customer expectations. Further, Khan and Hashim, 2014, outline example of
cultural change in General Motors where objective of cultural change is to speed up the day to
day decision making process. The GM changed the culture with the motive of improving
efficiency of the employees and make individuals accountable and responsible for own work.
Technological environment
The environment where the technologies are developed very rapidly is one of the most
vivid and source of the change that affect the business environment on extreme level give
meaning by Hornstein (2015). From this the role of organisational managed has changed.
Technological change can bring advantage and opportunities for modern organisation. It has
changed the way in which enterprises functions. The technological environment is mainly
provides a knowledge of the development in innovation that can change the business operation of
the company and consumer preference. The growth in technological development in UK stated
by Hornstein (2015) from 2007 to 2018 approx 35%, including, IT, AI and other technological
advancement.
It majorly affects car industries, gadgets manufacturer, online shopping sites, etc. For
example, car industry in wholesale and retail sectors are totally depends on manual workers until
the auto-makers began using robots. The development in IT has taken over almost all the units of
the businesses like; Nissan and Honda. Dhingra & et. al., (2016) state that 90% of the 1732
multifunctional industrial robots are in UK are in current car industries.
It changes the way traditional businesses operates. It reduces the production time,
enhance consumer experience. Starbucks, adopts and develops many mobile technology in their
marketing strategy and decisions Hornstein (2015). Mobile payment are slowly introduced by the
company that change the way people think about the company. Other than that many
technological changes has been introduced to the employees with the trend that makes their
operation more easier. Jones and Jones, 2013, outlined about Value creation model which is used
by manufacturing organisations like GE, GM, etc. focus on environment like skilled workforce
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with technical knowledge but on the other hand, companies like Amazon and McDonald’s are
focused on hiring individual who are skilled and capable enough to interact directly with clients
regardless of technological advancement. Also Technology increases the cost of the company to
adapt the new technology to carry out the operation in the organization as it demands huge
amount of the finance to adopt new technology.
Legal environment
Legal environment consist laws and regulations developed by the government. The
environment has impact on the business structure and management as well. Legal environment
include all the regulatory and law determinants that can positively or negatively affects the
decisions of management and market actions of company functioning in specific country.
Various countries have their own set of laws and rules that need to be follow by the company
operates in the area.
The Equity Act 2010 by the government of UK state that employees must be paid equal
and also make strict law for women harassment and bullied from workplace. The working hours
laws have made the impact on organisations to changed their working shift pattern Pugh (2016).
Many of the retail industries like; Tesco, Sainsbury brings lot of part-time jobs and reducing the
full-time jobs. Moreover, innovation ideas of retail industries that boost profit margin and make
them competitive among rivals Bailey & De Propris (2017). Consumer protection law state that
organisations should fairly treat their employees and change their company policy accordingly.
Under this law, weight and measures Act ensures that the goods are sold are weighted on the
weighting equipment that must be required by the company, stated by Doppelt, (2017).
According to the employee protection law, organisations change their policies that protect the
interest of their employees. It is essential for the organisation to organised as per the legal entity.
Implying to changing business regulations and laws leads to changes in policies and working
practices of firm which impacts design that is working pattern organisation.
After analysing the changes, management is responsible to understand the Kurt Lewin's
Change Theory to manage the change and overcome the effect of the environmental factors Kurt
Lewin's Provide a three step model that gives a manager or change agent in the organisation an
idea of what to implement in the management function and structure when dealing with people
(Hayes, 2018). The model named as Unfreeze-change-freeze model.
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For example; Change agent or manager is responsible for resistant to change. In Nissan,
Carlos Ghosn is the change agent. He organised 9 cross-functional team for handling Nissan
problems. In the unfreezing stage they ensure that employees are ready for change. Execute the
intended change in the change step and ensure that the change becomes permanent in the
freezing stage. On the other hand Dhingra & et. al., (2016) mentioned that many retail industries
increase the driving forces from the external environment and reduce the restraining forces that
negatively affect.
Current Trend in Banking and Financial Sector
Artificial Intelligence on rise all the bank and the financial institute in the UK is working out on
how to use the artificial intelligence in the organization. As AI can help the organization in
decreasing the cost, enhance revenue, reduce fraud and improve the customer satisfaction for the
organization. AI has been divided into 3 main type, cognitive automation, cognitive engagement
and cognitive insight.
Cloud Banking is the another trend for the banking sector in the UK as all the bank in the sector
trying to use the cloud banking in the organization. As cloud banking will help all the sector in
improving and organizing banking and financial activity.
CONCLUSION
From the present individual essay, it has been summarised that environmental changes
can affect the businesses. It can be in positive or negative way. In other words, environmental
changes can be an opportunity or may be appears as a challenge for various sectors. The
environment has been evaluated by PESTLE analysis which is very helpful for the businesses to
evaluate the possible changes that force them to make change in their structure and strategies to
overcome the issues if there any and take the opportunity from the changes if any.
From the pestle analysis it has been evaluated that political changes in UK is a
disadvantage for the retail sectors. The economic environment fluctuates very rapidly that affects
on the function of the modern business as well as on the consumer preferences. Socio-cultural
and technological environmental changes are an opportunity for the organisation if they develop
the strategy according to the trend and continuous research and development make them able to
bring uniqueness and innovation in the organisation. Lastly, legal environmental changes is a
protector for the organisations, employees and for consumers. The laws are helpful in any term
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but many types of taxes and other charges can affects the business cost and consumer buying
behaviour.
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REFERENCES
Books and Journals
Aldehayyat, J. S. (2015). Environmental scanning in business organisations: Empirical evidence
from a Middle Eastern country context. Management Research Review. 38(5). 459-481.
Bahmani, Z., Farhadpoor, M. R., & Hamidi, M. (2017). Study of the Information Sources
Features and its Effect on Managers' Environmental Scanning Behavior. International
Journal of Information Science and Management (IJISM). 15(2).
Borges, N. M., & Janissek-Muniz, R. (2018). Individual environmental scanning as a barrier to
collective processes in organizations: A view based on the illusion of control. Revista de
Gestão. 25(3). 321-335.
Hall, C. (2015). Awareness of external resource constraints during environmental scanning:
building understanding and improving practice (Doctoral dissertation, University of
Cambridge).
Liao, Z. (2018). Social capital and firms' environmental innovations: The moderating role of
environmental scanning. Business Strategy and the Environment. 27(8). 1493-1501.
Robinson, C. V. (2015). An exploration of external environmental scanning and the strategy
process (Doctoral dissertation, Heriot-Watt University).
Robinson, C. V., & Simmons, J. E. (2018). Organising environmental scanning: Exploring
information source, mode and the impact of firm size. Long Range Planning. 51(4). 526-
539.
Song, J. & et. al., (2015, August). The Effect of Social Media on Supply Chain Sensing
Capability: An Environmental Scanning Perspective. In Twenty-first Americas
Conference on Information Systems, Puerto Rico.
Hayes, J. (2018). The theory and practice of change management. Palgrave.
Doppelt, B. (2017). Leading change toward sustainability: A change-management guide for
business, government and civil society. Routledge.
Pugh, L. (2016). Change management in information services. Routledge.
Hornstein, H. A. (2015). The integration of project management and organizational change
management is now a necessity. International Journal of Project Management. 33(2).
291-298.
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Cummings, S., Bridgman, T., & Brown, K. G. (2016). Unfreezing change as three steps:
Rethinking Kurt Lewin’s legacy for change management. Human relations. 69(1). 33-60.
Huarng, K. H., & Mas-Tur, A. (2016). Turning Kurt Lewin on his head: Nothing is so theoretical
as a good practice. Journal of Business Research. 69(11). 4725-4731.
Mahmood, W. B. W. & et. al., (2017). Behavioral Support for Change: Integration of Planned
Organizational Change Model and Theory of Planned Behaviour. Malaysian Journal of
Social Sciences and Humanities (MJSSH). 2(3). 1-8.
Bridgman, T. (2016). Unfreezing change as three steps: Rethinking Kurt Lewin’s legacy for
change management.
Dhingra, S. & et. al., (2016). The impact of Brexit on foreign investment in the UK. BREXIT
2016. 24. 2.
Bernstein, A. (2018). Brexit impact on the care sector.
Masouros, P., & Papadopoulos, T. (2016). The Impact of Brexit on UK Company
Law. European Company Law. 13(6). 208-209.
Bailey, D., & De Propris, L. (2017). Brexit and the UK automotive industry. National Institute
Economic Review. 242(1). R51-R59.
Khan, M.A. and Hashim, M., 2014. Organizational Change: Case Study of General Motors.
In ASEE 2014 Zone I Conference, April (pp. 3-5).
Jones, G.R. and Jones, G.R., 2013. Organizational theory, design, and change. Upper Saddle
River, NJ: Pearson.
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