ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Environment of an Organization or Company

Updated on May 7, 2020
AbdulWasay107 profile image

I am a student of chartered accountancy, and have good knowledge about organizations, businesses and their management.


The environment of an organization means anything outside the organization which affects how it acts and what it does. The environment plays a very important role in the decision making of the management of an organization. Change in environment can affect profitability and activities organization, the influence of the environment differs according to the circumstances of the organization.
It is the responsibility of the management to monitor developments in the business environment, and to consider how to react to such developments.

How to Analyze Organizational Environment?

One method of analyzing the environmental factors is to group them into 4 main categories namely:

  • Political and legal factors
  • Economic factors
  • Social, cultural and demographic factors
  • Technological factors

This method of analyzing the organizational environment is called PEST analysis.

PEST analysis involves considering all the environmental influences on the organization and deciding how to respond to these developments and changes.

Influences can change over time. Understanding the environment should be an ongoing process.

Let’s discuss all of the above-mentioned categories one by one.

Political and Legal Factors

Politics and law have too much influence in business affairs of the organization, changes in laws of the place where the organization is operating, as well as, changes in politics, globally and also of the place where the organization is operating, can lead to changes in organizational activities as well as profitability.

Multinational companies have to deal with additional problems, as they operate in many different countries, they have to plan their activities differently according to their respective environment.

Following are some examples of political and legal factors which might affect the business of the organization:

  • Education: In most of the countries, the government is responsible for most of the education system. Education policy affects the skills and knowledge of the workers who make up the workforce of the organization.
  • Environmental policy: Different countries have different policies regarding the protection of the environment, and the reduction of pollution in the air, water, and land. Organizations might be affected by the changes in such policies.
  • Taxation and subsidies: Governments use taxation to raise income, they might also use it to influence behaviors, such as to reduce the demand of certain products or to increase the demand. Governments sometimes also offer subsidies to encourage particular activities, organizations might be influence by such policies and decisions of governments. Etc.
  • Political instability: Business of organization is also influenced by political instabilities, such as civil wars, corruption, etc.

Economical Factors

Economics is the study of choices made by individuals and firms. Individuals and societies make use of limited economic resources to satisfy their needs and wants, economical factors might be split into 2 categories:

  • Macroeconomics
  • Microeconomics

Macroeconomics: is the study of the total economy or aggregate economy rather than individual buyers and sellers, it is concerned with factors such as level of unemployment, rate of inflation, economic growth, etc.

The activities of an organization are influenced by macroeconomic factors, for example, if there is a high rate of unemployment then the cost of labor will be low, and more labor can be hired. If the rate of inflation is low, then the cost of raw material used by the company to manufacture their products will also be low, more product can be manufactured at a lower cost.

Microeconomics: is concerned with the study of economic choices made by individuals, firms, and how their decisions are influenced by the price, cost, and level of satisfaction.

The decisions made by the management of the organization are influenced by microeconomic factors also, for example, company A is offering good quality laptops at $100 each, after a while company B starts its business of similar laptops, but are selling them for $80, then the demand of company A’s laptops will decline. Company A will have to come up with new ideas to increase the demand for their laptops.

Social, Cultural and Demographic Factors

Social factors in the environment refers to changes in tastes, values, preferences in the society, in the short term they are affected by fashion, demography is concerned with a specific aspect of society, for example, the size, spread, and distribution of society.

Organizations have to consider and respond to changes in society, their preferences and the needs of customers.

If such factors are not considered by the organization, then they will continue to offer products and services which are increasingly less relevant for the needs of customers.

Examples of social and demographic changes are:

  • A large number of individuals are concerned about health and weight, interest in healthy eating has increased,
  • Large number of people expects to travel to other countries regularly, interest in traveling has increased,
  • The trend of online shopping has increased, organizations not offering online services cannot make profits, as much as, those offering online services.

Technological Factors

Technology plays a very important role in the success of an organization’s business, if their product is completely technologically updated and is manufactured by using technological advancements, then its effectiveness and quality will be very high.
Organizations have to maintain technological developments in the design and development of products to remain competitive in the market. This factor plays a very important role in the high profitability of the company.


The organizations must consider the changes in the environment, and must respond effectively to those changes, to keep their business profitable and competitive. Changes in the environment can give rise to opportunities, for making more profits or expansion of business, as well as, threats, which might prevent organizations from achieving their objectives.


    0 of 8192 characters used
    Post Comment

    No comments yet.


    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at:

    Show Details
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the or domains, for performance and efficiency reasons. (Privacy Policy)
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)
    ClickscoThis is a data management platform studying reader behavior (Privacy Policy)