5.3 External Factors of Organizational Culture

Describe the external factors associated with organizational culture

There are two types of factors that influence organizational culture: internal and external. External influences and factors play a large role in how organizations choose to operate. Understanding these external factors and how companies need to adapt to them will help explain the inner workings of an organization. While there are a number of internal factors also at play, external factors help to shape how organizations choose to manage and account for internal factors.

Let’s get started by first defining and exploring organizational culture and then diving into the number of factors that can influence it!

Learning Outcomes

  • Describe external factors and their influence on organizational culture
  • Analyze how organizations can manage external factors

We experience external factors and regulations in our everyday lives. When we drive, we follow speed limit signs to avoid a ticket. When we shop, we have to pay a mandated sales tax. We can be refused service at a restaurant if we arrive without our shoes or our shirt. These are all small examples of how external factors influence our daily lives and the decisions we make. While external factors are outside of our control, they still influence us and creates boundaries in which we need to operate. The same goes for organizations.

Organizations would prefer to control every aspect of their operations, and rightfully so! However, there are a number of external factors at play which do not allow organizations to have complete control over every piece. Let’s explore some of these external factors and the influence they have on organizational culture.

Political Factors

There are a variety of ways in which politics can influence organizational culture. On a large scale, Congress creates laws and regulations that may change the way an organization operates. Even if the organization may disagree with a law, they are still legally obligated to abide by it. On a smaller scale, relationship politics may also influence culture. Competing against other organizations for clients or market share can be political in nature and influence the way an organization chooses to operate. Politics on a small or a large scale can change company goals and objectives and the way they choose to work towards them.

Economic Factors

Rolls of dollar bills ranging from one dollar bills to one-hundred dollar bills.The economy plays a role in our everyday lives. How much money we make, how much money we spend, wants and needs, competitive pricing, etc. are all factors in financial decisions we make on a daily basis. Organizations are also heavily influenced by economic factors. A market crash or a recession will directly impact the sales of an organization. When people are no longer able to afford a product or choose to spend their money elsewhere, companies are directly impacted. On the other hand, companies are affected when the economy is good and people are able to spend or invest more money. Adapting to the changes in the economy and being able to adjust organizational strategies to accommodate for them, is essential to company survival.

Industry Factors

In every industry, there are a number of competitors. The actions your competitors take may influence the decisions you make within your own organization. Being able to adjust company culture to adapt to your competition is necessary to ensure company longevity. Other industry factors include updated industry standards and safety requirements that change over time. Ensuring compliance with industry standards requires adjusting company objectives to realign the business.

Social Factors

Public opinion and societal expectations are large external factors that force companies to reevaluate how they operate. If the public has a negative perception of your organization, it could have a detrimental impact on your company’s bottom line. Society has high expectations for organizations to be socially responsible. Social responsibility incorporates a wide variety of topics including community outreach, diversity promotion, sustainability, and high ethical standards. Each of these topics need to be incorporated into a company’s culture in order to be successful. With the scrutiny of the public and instant access to information through technology, companies are well monitored by society.

Technology Factors

Image of a person holding a tablet. Several hexagons appear to be coming out from the tablet. Each hexagon has icons on it, including the following images: a lightbulb, a robot, a world map, tools, a handshake.Technology is a huge part of today’s workforce. It is constantly updating and changing, making it challenging at times for companies and their employees to keep up. Technology is an important external factor of organizational behavior. It has dramatically changed how companies do business over the years and it continues to make waves with every new technology innovation. Incorporating technology into the organizational culture of every organization is important to develop and maintain a successful, state of the art company.

Practice Question

https://assessments.lumenlearning.com/assessments/13941

As you can see, there are a number of external factors that influence how a company chooses to operate. It is important to note that external and internal factors directly affect each other. A company’s internal factors characterize their relationship with the public. Understanding their internal goals and objectives can help a company better explain or present themselves to society. Both internal and external factors impact each other through the changes they facilitate within the organization. A successful company utilizes both internal and external factors to introduce change and communicate changes effectively to their team and society.

Managing External Factors

Overhead photograph of three individuals working on paper plans spread on a desk.Companies are not able to eliminate external factors but they do have the ability to manage them. First and foremost, organizations need to stay well-informed on up-to-date information. With daily changes within industry, the economy, and society, there is a lot of information to keep up with. Establishing roles within a company to research and report on new information is a great way to delegate a very important task. For example, some organizations have a research and development team that is responsible for researching and creating new products. Human resource teams may be held responsible for keeping up-to-date with information around hiring laws or wage laws. These individuals would be required to share their findings and help to create a plan to accommodate for these changes. Without a system in place to ensure the latest information is shared and discussed, companies may face compliance issues or lose a competitive advantage.

Education is another way to manage external factors. For example, sustainability is a popular topic in today’s society. If a company chooses to become a more sustainable organization, it is important for them to establish a training and development program. A training and development program can help instill sustainability within the culture of an organization. An initiative like sustainability needs to be instilled and enforced throughout every level of an organization in order to be successful. The same goes for any new initiative a company would like to implement. Training should accompany any new law or policy change that changes how an organization operates. By educating all organization members, companies can better implement change.

Managing relationships is another important part of managing external factors. Developing healthy relationships with customers and suppliers is extremely beneficial. Customers are at the heart of most organizations. Without customers, most companies would not exist. Creating a good customer relationship allows organizations to understand how they can better meet customer needs. Customers are external factors that greatly influence the operations of an organization. Having a strong relationship with suppliers is also an important way to manage external factors. Providing clear expectations and needs to your supplier can alleviate future problems. Regulators are another group of individuals companies should foster a working relationship with. Examples of regulators include the health department, the FDIC, and the local fire marshal. Having a working relationship with these organizations and individuals can help organizations stay informed and aware of new policy changes or current issues within the organization that need to be addressed.

Practice Question

https://assessments.lumenlearning.com/assessments/13942

Whenever there is an external factor requiring change, organizations need to adapt their internal operations in order to accommodate. The next section will discuss and evaluate internal factors that influence an organization’s culture. As you read the next section, keep in mind the external factors we discussed and how they can be addressed through the use of internal factors.


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  • External Factors of Organizational Culture. Authored by: Freedom Learning Group. Provided by: Lumen Learning. License: CC BY: Attribution
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5.3 External Factors of Organizational Culture by Graduate Studies is licensed under a Creative Commons Attribution 4.0 International License, except where otherwise noted.