Environmental factors play a major role in determining an organization’s success or failure. All organizations have both external and internal environments.
The external environment is composed of general and task environment layers. The general environment is composed of the nonspecific elements of the organization’s surroundings that might affect its activities. It consists of five dimensions: economic, technological, sociocultural, political-legal, and international. The effects of these dimensions on the organization are broad and gradual.
The task environment consists of specific dimensions of the organization’s surroundings that are very likely to influence the organization. It consists of seven elements: competitors, customers, suppliers, regulators, labour, owners, and strategic allies. Because these dimensions are associated with specific organizations in the environment, their effects are likely to be direct.
The major direct forces of an organization’s external environment are the customers that the organization must satisfy, the competitors with whom the organization must effectively compete for customers, the suppliers that provide the organization with essential resources, and human resources – people in the external environment from whom the organization must draw an effectively performing work force.
Customers purchase an organization’s products and services. They may be individuals or organizations. Organizations typically respond to customer forces in the external environment by taking action: they conduct customer research that focuses on both present and potential customers. Organizations seek to identify their present and potential customers. Organizations seek to identify their present customers’ degree of satisfaction with their products and services and to discover any changing preferences.
All organizations require resources – funds, energy, equipment, services, and materials – to produce a product or service that succeeds in the marketplace. Suppliers are organizations that provide these resources.
To succeed, an organization must make effective moves and countermoves, ones that maintain or advance the company’s position in the marketplace and that cannot be easily nullified by competitors’ responses.
Competitors are an organization’s opponents, the companies against which the organization competes for customers and needed resources (e.g., employees, raw materials, even other organizations) in the external environment.
Human resources are the vast resource of people in the external environment from which an organization obtains its employees. People are perhaps an organization’s most precious internal resource because they are the organization’s lifeblood. They provide the knowledge, skills, and drive that create, maintain, and advance organizations. To be successful, an organization must attract and keep the individuals it needs to achieve its objectives.
The indirect forces of the external environment can affect managers in at least two ways. First, outside organizations can have a direct influence on an organization or an indirect influence through a direct force. For example, a consumer activist group may lobby for certain causes, such as equal credit opportunities for women. Local media may apply pressure to keep open a plant that management planned to close. Legislation may force managers to alter the way they report certain information concerning hiring practices. Second, certain indirect forces can influence the climate in which the organization must function.
The internal environment consists of the organization’s board of directors, employees, and culture. Culture is especially important. Managers must understand not only its importance but also how it is determined and how it can be changed.
The internal environment includes the day-to-day forces within the organization in which managers perform their functions. For example, the level in the organization where management is performed has implications for managerial performance: top-level managers do different things than middle-level managers, who in turn, do different things than first-level managers. Coping with managerial demands in the internal environment requires managers to have different skills and to perform different roles. Skill requirements and role performance are important forces in the internal environment.
Individuals often limit their perspective of an organization to the elements and activities that exist within the organization: the employees, managers, equipment, tools, procedures, and other elements that combine to create the organization’s product or service. However, this perspective is so limited. A complete picture of any organization must include its external environment, the large arena that exists outside the organization and comprises many varied forces that impact the organization’s structure, processes, and performance. These forces may be direct, exerting an immediate and direct influence on the organization, or they may be indirect, influencing the climate in which the organization operates (and becoming direct forces under some conditions).
