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INTRODUCTION:
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MODULE I
EXRENAL ENVIRONMENT
“The external environment includes all elements existing outside the boundary of the
organization that have the potential to affect the organization.”
Organizations today are evolving into business ecosystems. An organization ecosystem is a
system formed by the interaction among a community of organizations in the environment.
The external environment includes competitors, resources, technology and economic
conditions that influence the organization. The organization’s external environment can e
classified into two (i) General environment and (ii) Task environment. An ecosystem
includes organizations in all the sectors of the task and general environments that provide
the resource and information transactions, flows and linkages necessary for an
organization to thrive.
THE GENERAL AND TASK ENVIRONMENT:
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GENERAL ENVIRONMENT:
The dimensions of general environment include international, technological, socio-cultural,
economic, legal-political and natural.
a. International: The global market is a level playing field where geographical
divisions are irrelevant. The current era creates opportunities for companies to
expand into global markets and build a global supply chain. As managers plan for
expansion into global markets, they have to consider the international dimensions
of the external environment. The international environment provides new
competitors, customers and suppliers and shape social, technological and economic
trends as well.
The example of Starbucks co. which experienced mixed results once it expanded into
European markets. They reaped profit in Germany and UK, but they never turned a
profit in France even after completing 8 years. The reason was a sluggish economy
and Europe’s debt crisis has also hurt sales. They overcame this difficulty by mass
campaigning that included an upscale makeover of stores, with more seating and
customized beverages and blends that appeal to local tastes.
b. Technological: This dimension includes scientific and technological advancements
in a specific industry, as well as in society at large. Advances in technology drive
competition and help innovative companies gain market share. They also have the
potential to transform consumer expectations of an entire industry.
Driven by the popularity of e-readers, Barnes & Nobel is reinventing its traditional
bookstore image with a new digital strategy that managers’ hope will help it compete
with rivals Amazon, Apple, and Google on the digital book front.
c. Socio-cultural: This dimension represents the demographic characteristics as well
as the norms, customs, and values of the general population. Important socio-
cultural characteristics are geographical distribution and population density, age,
and education levels. Today’s demographic profiles are the foundations of
tomorrow’s workforce and consumers. By understanding these profiles and
addressing them in the organization’s business plans, managers prepare their
organization for long-term success.
d. Economic: The economic dimension represents the general economic health of the
country or region in which the organization operates. Consumer purchasing power,
the unemployment rate, and interest rates are part of an organization’s economic
environment. Because organizations today are operating in global environment, the
economic dimension has become exceedingly complex and creates enormous
uncertainty for managers.
In the US , many industries such as banking are finding it difficult to make a comeback
despite the slowly rebounding economy.
e. Legal-Political: This dimension includes government regulations at the local, state
and federal levels, as well as political activities designed activities to influence
company behavior. Many companies work closely with national lawmakers,
educating them about products and services and legislation’s impact on their
business strategies.
f. Natural: this dimension includes all elements that occur naturally on Earth,
including plants, animals, rocks, and resources such as air, water, and climate.
Protection of natural environment is emerging as a critical policy focus around the
world. Governments are increasingly under pressure to explain their pressure to
explain their performance on pollution control and natural resource management.
TASK ENVIRONMENT
The task environment includes those sectors that have a direct working relationship with
the organization, among the customers, competitors, suppliers and the labour market.
a. Customers: As recipient of the organization’s output, customers are important
because they determine the organization’s success. Organization has to be
responsive to market changes.
The Hershey Co. which practically invented modern candy with its popular Hershey
bars and Hershey Kisses, experienced serious losses in profit, market share, and stake
holder confidence after failing to understand customer’s tastes. They introduced
different types of chocolate, different fillings, different flavors etc. which the people
found confusing and retailers were unhappy trying to fins shelf space for all the
varieties.
b. Competitors: Organizations in the industry or type of business that provide goods
or services to the same set of customers are referred to as competitors. The positive
effect of this is that the customers always have options and the overall quality of
products goes high. Competitors are constantly battling for loyalty from the same
group of customers.
Managers at Target realized customers were scoping out merchandise in Target
stores and later buying it at a lower price from Amazon. This procedure known as
“showrooming” hurts the bottom lines of traditional retailers such as Target. They
encountered this problem by pushing suppliers to offer products that were exclusively
available at Target, as well as expanding the number of items available at Target.com.
c. Suppliers: Suppliers provide raw materials that the organization uses to produce
its output. A supply chain is a network of multiple businesses and individuals that
are connected through the flow of products or services.
For Toyota the supply chain includes over 500 global parts suppliers organized by a
production strategy called “Just-In-Time” which was a success.
d. Labour Market: The labour market represents people in the environment who can
be hired to work for the organization. Every organization needs a supply of trained,
qualified personnel. Unions, employee association, and the availability of certain
classes of employees can influence the organization’s labor market. The labour
market forces that affect the organization are:
i. The growing need for computer- literate knowledge workers
ii. The necessity for continuous investment in human resources through
recruitment, education training etc.
iii. The effect of international trading blocs, automation, outsourcing, and
shifting facility location on labour dislocations, creating unused labour pools
in some areas and labour shortage in others.
