External Effects on Organizational Behavior

Even though you are your own person, other people can influence your attitude and actions. In this lesson, we’ll learn how the same is true with organizations – external inputs can impact behavior within the organization. Organizational behavior can be positive or negative behavior that impacts an organization’s bottom line.

External Effects on Organizational Behavior

In the United States, from a legal perspective, organizations are often viewed as independent legal entities, much like individuals. But the only emotions, attitudes, and behaviors organizations can have come from the individuals that collectively make the organization. Organizational behavior is the study of how the individuals in an organization behave as members of a group.

Just like your good or bad mood can change if someone around you behaves a certain way, organizational behavior can be, and often is, influenced by external events. Because these factors are external to the organization, by definition they are outside of the organization’s control. That makes it more important to recognize external factors that may affect employees and proactively mitigate any negative impacts.

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Generally speaking, there are three categories of external effects that can influence organizational behavior. These are the role or reputation of the company in the local market, the relative strength of the local economy, and the competitive landscape of the industry. Let’s talk about how these three external factors can impact the behavior of individuals inside an organization.

Company Reputation

Full-time workers spend at least eight hours a day at their workplace, and their position in that organization is often how they define themselves. What someone does for a living is one of the first things people ask when introduced to new people. It can be a defining part of how we view ourselves as individuals.

Companies that are well-respected and in exciting industries often have good reputations – maybe as corporate citizens that contribute to local service or maybe as innovative leaders of their industries. This makes companies like Google, Apple, and GE the kind of companies that can benefit from good reputations among investors, analysts, customers, and others. Being part of those organizations can be like a badge of honor for an employee.

The opposite is true if the company has a poor reputation. Traditionally, cable companies and cell phone companies have some of the poorest customer service records. Working for those companies, therefore, may not be seen as glamorous or exciting by employees, and that can have a negative impact on the workplace, leading to a poor organizational culture.

Strength of the Local Economy

Employee morale at a company can be based on the relative strength of the local economy. That’s because if the economy is strong, there are jobs available and people often compare their compensation to open positions. If they feel they are underpaid or overworked, they’re going to change their behavior.

Oftentimes, in a growing economy, new employees need to be hired at higher salaries than older employers, which can cause tension between new employees and established employees. It can also lead people to think that ‘the grass is greener on the other side,’ which actually doesn’t cause them to leave the company but rather slow down their work productivity and decrease morale to a level they perceive to be fair for the compensation they receive.

Competitive Landscape

A competitive landscape is an external factor and can have either a good or a bad influence on organizational behavior. Competition can rally employees and get them excited about working together towards a common cause. But competition can also lead to some of the same influences as a strong economy. Employees of companies that aren’t performing well become envious of companies that are and either look to join that company or adjust their behavior to a level of productivity they think might be fair for what they are being paid.

Intense competition can also impact organizational behavior through the ethical decisions that must be made by managers and employees. Intense competition can sometimes lead to aggressive selling or advertising tactics, or even creative accounting tricks to help improve the look of financial performance.

Once questionable ethics enter the equation, organizational behavior can be significantly impacted because it either encourages employees to follow the lead and make their own unethical decisions, or it creates a sense of animosity between employee and employer that lowers employee productivity. Either way, if competition from the outside creates questionable ethics on the inside, organizational morale is going to suffer.

Lesson Summary

While organizational behavior refers to the behavior of individuals that make up an organization, factors external to the organization can still have a strong impact. The strength of the local economy, the reputation of the company, and the competitive landscape are all factors external to the company that can have a significant influence on organizational behavior.

Just because these things are external, and thus by their nature beyond the control of organizational managers, doesn’t mean they can’t be identified and the potential negative effects of them mitigated. Active involvement by managers to help encourage and keep their employees happy and focused can turn these potentially threatening external factors into motivators and opportunities.


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