Factors in the External Environment Influences from outside the organization, that is, the external environment, clearly influence employee behavior. Factors from the external environment include the general state of the economy (e.g., the rate of inflation, level of unemployment); the various governmental laws, regulations, and regulatory agencies; the activities of other organizations or competitors plus the many global and technological issues. these as general forces that influence the organization and all parts within it. Even organizations with strong internal work environments and high levels of employee behaviors can be negatively impacted by external factors such as a downturn in the economy or a sudden technological change. External forces often lead organizations to reduce their workforce. For example, downsizing refers to voluntary actions on the part of organizations to reduce the overall size of their workforce, generally to reduce costs. A huge number of organizations have had major work- force reductions over the past 30 years, including AT&T, Boeing, DuPont, IBM, Xerox, and United Technologies (the organization highlighted in the Opening Case). Despite the widespread nature of downsizing, there is little solid evidence concerning its long-term effectiveness as a business practice. A study by Wayne Cascio of companies that downsized more than 3 percent in a given year found “no significant, consistent evidence that employment downsizing led to improved financial performance, as measured by return on assets or industry- adjusted return on assets”.10 A negative relationship between downsizing and firm performance was found in a sample of Spanish companies. Similarly, an ASTD survey found that downsized organizations reported lower organizational performance, lower quality products or services, and lower employee satisfaction compared to organizations that had not downsized.

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