Every time managers plan, they take into account the needs and desire of members of society outside the organization as well as the needs for material and human resources, technology and other requirements in the external environment. They do likewise to some degree with almost every other kind of managerial activity.
All managers, whether they operate in a business, a government agency, a church, a charitable foundation, or a university, must, in varying degrees, take into account the elements and forces of their external environment. While they may be able to do little or nothing to change these forces, they have no alternative but to respond to them. They must identify, evaluate and react to the forces outside the enterprise that may affect its operations. The impact of the external environment on the organization is illustrated. The constraining influences of external factors on the enterprise are even more crucial in international management.
Managers operate in a pluralistic society, in which many organized groups represent various interests. Each group has an impact on other groups, but no one group exerts an inordinate amount of power. Many groups exert some power over the business. There are many stake holders or claimants in the organization, and they have divergent goals. It is the task of the manager to integrate their aims.
Working within a pluralistic society has several implications for business. Various groups such as environmental groups keep business power in balance. Second, business interests can be expressed by joining such as the Chamber of Commerce. Third, business participates in projects with other responsible groups for the purpose of bettering society; an example is working towards the renewal of inner cities. Fourth, in a pluralistic society there can be conflict or agreement among groups. Finally, in such a society one group is quite aware of what groups are doing.
The technological environment:
One of the most pervasive factors in the external environment is technology. It is science that provides knowledge, and it is technology that uses it. The term technology refers to the sum total of the knowledge we have of ways to do things. It includes inventions, it includes techniques, and it includes the vast store of organized knowledge about everything from aerodynamics to zoology. But it main influence is on ways of doing things, on how we design, produce, distribute, and sell goods as well as services.
Managers must take into account the ecological factors in their decision making. By ecology I mean the relationship of people and other living things and their environment such as soil, water, and air. Land, water, and air pollution are of great concern to all people. Land may be polluted by industrial waste such as packaging. Water pollution may be caused, for example, by hazardous waste and sewer systems. Air pollution can be caused by a variety of sources such as acid rain, auto exhaust fumes, carcinogens, from manufacturing processes and other causes.
A variety of federal legislation has been passed dealing with solid waste, water, and air pollution. Managers must be keenly aware of the many laws and regulations, and must incorporate ecological concerns in their decision making.
The External Environment
All outside factors that may affect an organization make up the external environment. The external environment is divided into two parts:
Directly interactive forces include owners, customers, suppliers, competitors, employees, and employee unions. Management has a responsibility to each of these groups. Here are some examples:
The second type of external environment is the indirectly interactive forces. These forces include sociocultural, political and legal, technological, economic, and global influences. Indirectly interactive forces may impact one organization more than another simply because of the nature of a particular business. For example, a company that relies heavily on technology will be more affected by software updates than a company that uses just one computer. Although somewhat removed, indirect forces are still important to the interactive nature of an organization.
The sociocultural dimension is especially important because it determines the goods, services, and standards that society values. The sociocultural force includes the demographics and values of a particular customer base.
Demographics are measures of the various characteristics of the people and social groups who make up a society. Age, gender, and income are examples of commonly used demographic characteristics.
Values refer to certain beliefs that people have about different forms of behavior or products. Changes in how a society values an item or a behavior can greatly affect a business. (Think of all the fads that have come and gone!)
The political and legal dimensions of the external environment include regulatory parameters within which an organization must operate. Political parties create or influence laws, and business owners must abide by these laws. Tax policies, trade regulations, and minimum wage legislation are just a few examples of political and legal issues that may affect the way an organization operates.
The technological dimension of the external environment impacts the scientific processes used in changing inputs (resources, labor, money) to outputs (goods and services). The success of many organizations depends on how well they identify and respond to external technological changes.
For example, one of the most significant technological dimensions of the last several decades has been the increasing availability and affordability of management information systems (also known as MIS). Through these systems, managers have access to information that can improve the way they operate and manage their businesses.
The economic dimension reflects worldwide financial conditions. Certain economic conditions of special concern to organizations include interest rates, inflation, unemployment rates, gross national product, and the value of the U.S. dollar against other currencies.
A favorable economic climate generally represents opportunities for growth in many industries, such as sales of clothing, jewelry, and new cars. But some businesses traditionally benefit in poor economic conditions. The alcoholic beverage industry, for example, traditionally fares well during times of economic downturn.
The global dimension of the environment refers to factors in other countries that affect U.S. organizations. Although the basic management functions of planning, organizing, staffing, leading, and controlling are the same whether a company operates domestically or internationally, managers encounter difficulties and risks on an international scale. Whether it be unfamiliarity with language or customs or a problem within the country itself (think mad cow disease), managers encounter global risks that they probably wouldn't have encountered if they had stayed on their own shores.
All managers, whether they operate in a business, a government agency, a church, a charitable foundation, or a university, must, in varying degrees, take into account the elements and forces of their external environment. While they may be able to do little or nothing to change these forces, they have no alternative but to respond to them. They must identify, evaluate and react to the forces outside the enterprise that may affect its operations. The impact of the external environment on the organization is illustrated. The constraining influences of external factors on the enterprise are even more crucial in international management.
Managers operate in a pluralistic society, in which many organized groups represent various interests. Each group has an impact on other groups, but no one group exerts an inordinate amount of power. Many groups exert some power over the business. There are many stake holders or claimants in the organization, and they have divergent goals. It is the task of the manager to integrate their aims.
Working within a pluralistic society has several implications for business. Various groups such as environmental groups keep business power in balance. Second, business interests can be expressed by joining such as the Chamber of Commerce. Third, business participates in projects with other responsible groups for the purpose of bettering society; an example is working towards the renewal of inner cities. Fourth, in a pluralistic society there can be conflict or agreement among groups. Finally, in such a society one group is quite aware of what groups are doing.
The technological environment:
One of the most pervasive factors in the external environment is technology. It is science that provides knowledge, and it is technology that uses it. The term technology refers to the sum total of the knowledge we have of ways to do things. It includes inventions, it includes techniques, and it includes the vast store of organized knowledge about everything from aerodynamics to zoology. But it main influence is on ways of doing things, on how we design, produce, distribute, and sell goods as well as services.
Managers must take into account the ecological factors in their decision making. By ecology I mean the relationship of people and other living things and their environment such as soil, water, and air. Land, water, and air pollution are of great concern to all people. Land may be polluted by industrial waste such as packaging. Water pollution may be caused, for example, by hazardous waste and sewer systems. Air pollution can be caused by a variety of sources such as acid rain, auto exhaust fumes, carcinogens, from manufacturing processes and other causes.
A variety of federal legislation has been passed dealing with solid waste, water, and air pollution. Managers must be keenly aware of the many laws and regulations, and must incorporate ecological concerns in their decision making.
The External Environment
All outside factors that may affect an organization make up the external environment. The external environment is divided into two parts:
- Directly interactive: This environment has an immediate and firsthand impact upon the organization. A new competitor entering the market is an example.
- Indirectly interactive: This environment has a secondary and more distant effect upon the organization. New legislation taking effect may have a great impact. For example, complying with the Americans with Disabilities Act requires employers to update their facilities to accommodate those with disabilities.
Directly interactive forces include owners, customers, suppliers, competitors, employees, and employee unions. Management has a responsibility to each of these groups. Here are some examples:
- Owners expect managers to watch over their interests and provide a return on investments.
- Customers demand satisfaction with the products and services they purchase and use.
- Suppliers require attentive communication, payment, and a strong working relationship to provide needed resources.
- Competitors present challenges as they vie for customers in a marketplace with similar products or services.
- Employees and employee unions provide both the people to do the jobs and the representation of work force concerns to management.
The second type of external environment is the indirectly interactive forces. These forces include sociocultural, political and legal, technological, economic, and global influences. Indirectly interactive forces may impact one organization more than another simply because of the nature of a particular business. For example, a company that relies heavily on technology will be more affected by software updates than a company that uses just one computer. Although somewhat removed, indirect forces are still important to the interactive nature of an organization.
The sociocultural dimension is especially important because it determines the goods, services, and standards that society values. The sociocultural force includes the demographics and values of a particular customer base.
Demographics are measures of the various characteristics of the people and social groups who make up a society. Age, gender, and income are examples of commonly used demographic characteristics.
Values refer to certain beliefs that people have about different forms of behavior or products. Changes in how a society values an item or a behavior can greatly affect a business. (Think of all the fads that have come and gone!)
The political and legal dimensions of the external environment include regulatory parameters within which an organization must operate. Political parties create or influence laws, and business owners must abide by these laws. Tax policies, trade regulations, and minimum wage legislation are just a few examples of political and legal issues that may affect the way an organization operates.
The technological dimension of the external environment impacts the scientific processes used in changing inputs (resources, labor, money) to outputs (goods and services). The success of many organizations depends on how well they identify and respond to external technological changes.
For example, one of the most significant technological dimensions of the last several decades has been the increasing availability and affordability of management information systems (also known as MIS). Through these systems, managers have access to information that can improve the way they operate and manage their businesses.
The economic dimension reflects worldwide financial conditions. Certain economic conditions of special concern to organizations include interest rates, inflation, unemployment rates, gross national product, and the value of the U.S. dollar against other currencies.
A favorable economic climate generally represents opportunities for growth in many industries, such as sales of clothing, jewelry, and new cars. But some businesses traditionally benefit in poor economic conditions. The alcoholic beverage industry, for example, traditionally fares well during times of economic downturn.
The global dimension of the environment refers to factors in other countries that affect U.S. organizations. Although the basic management functions of planning, organizing, staffing, leading, and controlling are the same whether a company operates domestically or internationally, managers encounter difficulties and risks on an international scale. Whether it be unfamiliarity with language or customs or a problem within the country itself (think mad cow disease), managers encounter global risks that they probably wouldn't have encountered if they had stayed on their own shores.
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