Final answer:
The environment of an organization encompasses all external factors outside its boundaries, including externalities, hierarchies, and operations. Examples such as the impact of concert noise on nearby residents and the practice of outsourcing highlight these external influences.
Step-by-step explanation:
The environment of an organization is most easily defined as anything outside the boundaries of that organization. When analyzing an organization such as a large, impersonal business or formal organization, it's necessary to consider the roles of hierarchies, functions, outside exchanges, and the impact of those exchanges on the external environment. They are all part of the greater system in which the organization operates. Formal organizations are typically structured with a hierarchy of authority, and policies established to foster impersonality in professional dealings. External factors, such as social, economic, or environmental influences, can act as externalities, affecting third parties without their direct involvement in an organization's activities.
As an example, consider externalities like a nearby outdoor concert, which is a consequence of a market exchange between the concert producer and the concert attendees, affecting local residents due to the reach of the sound. These are kinds of spillover effects that highlight the broad impact beyond an organization's immediate operations or exchanges. Additionally, organizations may pursue outsourcing, which is hiring labor or services from outside the company, to maintain efficiency and reduce costs, yet another element of the organization's environment.