What is the definition of environment uncertainty, with examples?
Environmental uncertainty is the degree to which an organization lacks factual or competent information concerning the internal and external operating environment for the organization. Simply, it is the unknown in the organization and in the field of business relevant to company operation.
External environmental factors for an organization form the structure for how businesses operate in their market. Factors include customer demand, product availability, resource availability, political influence and competition. Some environmental factors are ubiquitous while others are more unique to a specialized environment. For example, construction companies often deal with the Environmental Protection Agency (EPA) when building or proposing new sites. An internet based company will not have the same concern, but will deal with other regulatory agencies. However, both must be concerned with resource management and competition.
Organizations can address environmental uncertainty in a variety of ways. Simplifying their operation is one method. The more complicated an organizational method is, the higher degree of environmental uncertainty because there are more external and internal factors to manage. Organizations can also manage their growth to control costs and diversify risk. There is no single best way to address environmental uncertainty. The best defense is information which is not always available (or poorly analyzed) or simply cannot be known.
Environmental uncertainty is when conditions are constantly changing within a business environment. As a result, management has little influence over factors that are outside of the company’s control. For example, the economy could collapse at any time. This would impact the company. New technology could alter the landscape within a given business. One concern that some businesses have today is a shortage of skilled workers to do the work the company needs done in order to make its products. The company may have little control over these circumstances. Companies need to prepare for any changes that might occur so they can quickly respond to these changes.
There are several things a company can do to deal with environmental uncertainty. These changes require a change in normal business strategies. For example, a company could simplify what it is doing by having a more narrow strategic focus. Companies that produce many different products will be subject to a greater deal of environmental uncertainty because there are more factors involved in making multiple products. It might be wise to focus on products that usually are bought under any circumstances. A company could also pursue a less aggressive business strategy. The company might hire fewer workers or not expand to other locations.
Companies need to deal with environmental uncertainty.