In a previous post, we have discussed the internal factors that can affect organizational culture.
However, just like those internal factors there are several external factors too which can have a profound impact on the organizational culture.
Culture is a driving force inside organizations that drives superior performance and higher productivity.
What type of culture a company adopts affects its productivity, social image and productivity in both the short and the long run.
Culture has several levels as outlined by Edgar Schein.
Many organizations have benefitted by adopting cultures that drive higher performance.
There are several factors that play an important role in shaping the organizational culture.
Apart from the internal factors like leadership and employees, external factors like the political and economic environments of the markets in which the business operates, industry environment and social factors also shape the organizational culture.
The external factors are generally not controlled by organizations.
However, organizations can still take steps that help them manage the influence of these factors on organizational culture.
Technological and industrial factors are both internal and external factors since they come into play both internally and externally.
Here we will discuss these external factors and their effect on organizational culture.
External factors and their influence on organizational culture
Political and legal environment of a market can affect the organizational culture in several ways.
For example, governments form laws that impact organizations in diverse ways.
Whether an organization prefers it or not, it has to abode by these laws to operate safely in any market.
Several organizations have established culture that focus strongly on compliance and ethics.
Starbucks is one such example of an organization with a culture of ethics and compliance.
The political environment of a market has a direct impact on its operations and profitability.
To a certain extent that also affects the company’s culture and how it carriers out its day to day operations.
For organizations, while it is impossible to remain completely free from the influence of political factors, they can manage its influence on their business and culture through compliance and by establishing rules organization wide that make compliance a part of daily operations.
Whether on a smaller or a larger scale, political factors have a definite impact on the organization’s goals and objectives which may require changes according to changing laws and political environment.
These things have a definite impact on the organizational culture which will need to adopt corresponding changes to comply.
Economic factors have a direct and crucial influence on both business operations and organizational culture.
Consumer spending, level of inflation, level of employment and other economic factors including economic fluctuations in the international market have a direct and deep impact on businesses and their cultures.
As economic changes happen, businesses make corresponding changes to their strategies and business operations.
A recession or market crash also impacts organizations at a very deep level.
Adopting to economic changes is critical to the survival of business organizations.
So, it is also critical to adopt organizational cultures and structures that allow companies to flexibly respond to these changes.
There are several industrial factors too that affect organizations internally as well as externally.
For example, internally what industry sector a business operates in, affects its organizational culture.
Externally, the company’s competitors also influence the business operations of a company.
Therefore, firms operating in a hypercompetitive industry environment, for example in the technological sector, adopt company cultures that drive higher competitiveness and faster innovation.
Several times industry sector related rules and regulations also have an important effect on the company’s culture and work environment.
Being competitive requires businesses to align company objectives and company culture with the industry norms.
Company’s social image affects their sales and profitability.
It is why across the world company’s focus on maintaining a strong social image.
A strong social image is an important requirement that affects the popularity of the businesses in their respective markets and impacts their growth rate.
However, the social image of businesses is also related to their organizational culture.
Now, social expectations from companies have changed as has consumer behavior around the world.
Consumers like to buy from businesses that have a strong social image.
In order to maintain a strong social image, several companies have made social responsibility and sustainability important parts of their organizational culture.
They promote diversity and ethical standards inside the organization to maintain a strong social image.
Due to the higher government and public scrutiny too, it is important for businesses to adopt cultures focused on social responsibility and sustainability.
There are several such examples in the industry where companies have maintained cultures that focus on these factors in all aspects of their operations.
Technology is both an internal factor and an external factor affecting company culture.
In some regards it is an internal factor and controllable and in others it is an external factor and out of the company’s control.
However, organizations can still safely manage the influence of technology on organizational culture as an external factor.
Technology is currently, a major part of the business operations of organizations across the industry.
It has dramatically altered the way that companies operate and continues to grow faster.
Every new innovation brings new changes and requires companies to adapt fast or stay lagging behind.
Internally, while companies can control their investment in technology and technological training of employees, externally they need to keep a watch on how the technological environment industrywide is changing and how it affects their business.
Technological innovations by competitors can sometimes have a significant impact on a company’s business operations and profitability.
It is why companies that have highly digitalized operations promote a culture of risk taking.
How can companies manage the external factors?
While it may not be possible for companies to eliminate the external factors and their impact on their business completely, that can still effectively manage them through research and information.
It is critical for business managers to stay up to date with the latest developments in their respective industry sectors and markets.
Changes happen daily and they impact organizations at various levels.
Some changes may have a more profound impact compared to the others.
It is why companies keep dedicated research and development teams that can research and develop new innovations as well as improve the existing products and processes.
Companies need to have a flexible system in place to drive faster innovation and higher adaptability.
Managing external factors requires a focus on education of stakeholders.
For example, employees and suppliers are a very important group of stakeholders that the company requires to keep informed and updated to be successful.
If a company plans to bring an organization wide change, it will need to inform, educate and train its employees to make the change lasting and successful.
Educating employees and suppliers whenever and wherever necessary offers the company the opportunity to manage growth better.
Another important method to manage the influence of external factors on the organization’s operations and culture is to focus on building lasting and trustful relationships.
For example, customers and external but very important stakeholders for a business.
Suppliers are also an important group of external stakeholders, which some companies treat as partners and provide support through training and education programs.
There are several organizations that are known for their excellent customer focus.
The retail industry is replete with such examples, including Walmart and Costco.
Developing stronger customer relationships helps develop loyal customers and driver superior business growth.
A company’s relationships with its suppliers also affects the company’s profitability and operational performance.
Apart from it, managing relationships with other entities like the government and regulators is also important for businesses.
However, the companies that are most successful at managing their relationships with all the key stakeholders are the organizations that have established and maintained an environment and culture of trust.