Using NOL as a case study, this essay examines the principles behind why organisations have to operate in and be responsible to a number of different external environments. It begins with a general discussion of the management theories behind why and how organisations interact with the environment. It then explores how NOL deals with its external environment before concluding that NOL's business is able to thrive because the company is mindful to respond and be responsible to the external environment.
According to the system theory (Bertalanffy 1972, pp. 407-26), a closed system has no interaction with the outside environment, while an open system survives on interacting with the outside world. Clearly, most organisations are open system as they are dependent on their external environment for inputs such as raw materials, human resources and capital. In turn, their outputs are produced for the consumption of the outside world (Bateman & Snell 1996, p. 42). Surely, therefore, an organisation's environment is important to its strategic management (Bateman & Snell 1996, p. 56).
Management scholars have come up with different ways to characterise an organisation's environment. For instance, Bateman and Snell (1996, pp. 57-69, 73) distinguishes between the macroenvironment and the competitive environment, while Robbins and Mukerji (1994, pp. ...
These are forces that management must take into account when doing strategic planning. The competitive environment is composed of forces that are closer to the organisation with examples including, but not limited to competitors, threat or new entrants, threat of substitutes and customers. In short, macroenvironmental forces are factors that are less controllable than factors in the competitive environment. As for the typology observed by Robbins and Mukerji (1994, pp. 60-66), the general environment refers to everything outside the organisation whereas the specific environment is that part of the environment directly related to the achievement of organisational goals. By way of a clarifying example, the general environment includes factors such as political and economic conditions and the social milieu and the specific environment typically includes supplies, customers, competitors etc.
Irregardless of the particular terminology used by different scholars, the received wisdom today is that companies must respond effectively to the environment. Bateman and Snell (1996, pp. 69-73) forcefully argue that companies can devise proactive strategies to change the environment using strategic maneuvering. For instance, companies can change the boundaries of their competitive environment through merging with or acquiring a competitor's company, domain selection and the like. Robbins and Mukerji (1994, pp. 68-69), on the other hand, are not as forceful as Bateman and Snell. They argue that most organisations are powerless to change their environment, but large and powerful organisations can manage the environment in such a way that minimises the constraints imposed unto them by the environment.