Every organization needs to be perceived as operating in an environment. Organizations are neither self-sufficient not self-contained. Rather they exchange resources with and dependent upon external environment. External environment can be defined as all the forces and conditions outside the organization that are relevant to its operation and influence the organization. Organizations take inputs(raw materials, money, labor and energy) from the external environment, transform them into products or services, and send back as output to the external environment. The other environment is internal which can be defined as all the forces and conditions within the organization that influences its behavior. Thus, environment can be broadly classified into (1) Internal environment, and (2) External environment.
(1) Internal Environment
Each business organization has an internal environment, which includes all the elements within the organization's boundaries. Strictly speaking they are part of the organization itself. The major components of the internal environment are :
b. Shareholders and Board of Directors
(2) External Environment
According to James Stoner, External environment can be defined as all elements outside an organization that are relevant to its operation. This environmental context becomes more clear if the external environment is further divided into two distinct segments:(1) general environment and (2) task environment.
(a) General Environment
The general environment consists of interrelated forces that can be categorized into four elements:
1. Economic Environment
2. Socio-Culture Environment
3. Political Legal Environment
4. Technological Environment
(b) Task Environment
The task environment puts indirect pressures on business management through the institutional processes of following elements:
4. Financial Institution