The External Environment

Organizational environment:

All elements existing outside the organization’s boundaries that have the potential to affect the organization.

The tremendous and far reaching changes occurring in today’s world can be understood by defining and examining components of the external environment . The external organizational environment includes all elements existing outside the boundary of the organization that have the potential to affect the organization. The environment includes competitors resources technology and economic conditions that influence the organization . It does not include those events so far removed from the organization that their impact is not perceived.

General environment: The layer of the external environment that affects the organization indirectly.

Task environment: The layer of the external environment that directly influence the organization’s operations an performance.

Internal environment: The environment that includes the elements within the organization’s boundaries.

The organization’s external environment can be further conceptualized a having two layers; General and task environments, as illustrated. The general environment is the outer layer that is widely dispersed and affects organizations indirectly. It includes social, demographic and economic factors that influence all organizations about equally . Increase in the inflation rate or the percentage of dual career couples in the workforce are part of the organization’s general environment. These events do not directly change day to day operations, but the do affect all organizations eventually. The task environment is closer to the organization and includes the sectors that conduct day to day transactions with the organization and directly influence its basic operations an performance. It is generally considered to include competitors suppliers and customers.

The organization also has an internal environment which includes the elements within the organization’s boundaries . The internal environment is composed of current employees management, and epically corporate culture which defines employee behavior in the internal environment and how well the organization will adapt to the external environment.

Exhibit illustrates the relationship among the general, task, and internal environments. As an open system the organization draws resources from the external environment and releases goods and service back to it. We will now discuss the two layers of the external environment in more detail. Then we will discuss corporate culture the key elements in the internal environment. Other aspects of the internal environment, such as structure and technology, will be covered in Paris Four and Five of this book.

General environment

The general environment represents the outer layer of the environment. These dimensions influence the organization over time but often are not involved in day to day transactions with it. The dimensions of the general environment include international, technological socio cultural economic and legal political.

International dimensions

Portion of the external environment that represents events as well as opportunities for US companies in other countries

The international dimension of the external environment represents events originating in foreign countries as well as opportunities for US companies in other countries. Note in Exhibit that the international dimensions represent a context that influences all other aspects of the external environment. The international environment provides new competitors customers, and suppliers and shapes social, technological and economic trends as well.

Toady, every company has to compete on a global basis. High quality, low priced automobiles from Japan and Korea have permanently changed the American Automobile industry. Toyota recently over took Ford to become the world’s second largest automaker and managers plan to take the company to Number 1 by 2010. foreign companies like Toyota , Sony, and Nokia have made huge jumps in recent years on Fortune magazine’s list of the World’s Most Admired Companies . Nokia is the world’s top maker of cell phones ,and Korea’s Samsung Corp, is rapidly closing in on US based Motorola for the Number 2 spot. For many US companies such as Starbucks and Wal-Mart domestic markets have become saturated and their only potential for growth lies overseas. E-commerce organizations too are making international expansion a priority. The United States share of worldwide e-commerce is falling as foreign companies set up their own e-commerce ventures. When operating globally managers, have to consider legal, political socio cultural and economic factors not only in their home countries but in various other countries as well . For example a drop in the US dollar’s foreign exchange rate lowers the price of US products overseas increasing export competitiveness. Many companies have had to cut prices to remain competitive in the new global economy.

Source: The New Era of Management