FHTM

Delivered by:
musliha.ahmed@mnu.edu.mv

The Environment

Defining the External Environment

The forces and institutions outside the organization
that potentially can affect the organizations
performance

Components of the External Environment

Specific environment: external forces that have a
direct and immediate impact on the organization
General environment: broad economic, sociocultural, political/legal, demographic, technological,
and global conditions that may affect the
organization

Public
Public
Pressure
Pressure
Groups
Groups

Suppliers
Suppliers

The
External
Environment

THE
THE
ORGANIZATION
ORGANIZATION

Competitors
Competitors

Customers
Customers

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The General Environment

Economic Conditions

Include interest rates, inflation rates, changes in

disposable income, stock market fluctuations, and the
general business cycle, among other things

Legal-Political Conditions

Include the general political stability of countries in

which an organization does business and the specific
attitudes that elected officials have toward business
Federal and provincial governments can influence
what organizations can and cannot do. Some
examples of legislation include:

Canadian Human Rights Act

Canadas Employment Equity Act
Competition Act
Marketing boards

The General Environment

Socio-Cultural conditions
Include the changing expectations of society

Demographic conditions
Include physical characteristics of a population
(gender, age, level of education, geographic
location, income and family composition)

Technological conditions
Include the changes that are occurring in
technology

Global conditions
Include global competitors and global consumer
markets

How the Environment Affects

Managers

Environmental Uncertainty
The extent to which managers have knowledge
of and are able to predict change. Their
organizations external environment is affected
by:
Complexity of the environment: the number
of components in an organizations external
environment
Degree of change in environmental
components: how dynamic or stable the
external environment is

Environmental Uncertainty Matrix

Stakeholder Relationships

Stakeholders
Any constituencies in the organizations external
environment that are affected by the
organizations decisions and actions

Why Manage Stakeholder Relationships?

Can lead to improved organizational performance
Its the right thing to do given the
interdependence of the organization and its
external stakeholders

Managing Stakeholder
Relationships
Identify the organizations external
stakeholders
Determine the particular interests and
concerns of the external stakeholders
Decide how critical each external
stakeholder is to the organization
Determine how to manage each individual
external stakeholder relationship

Organizational Stakeholders
Employees

Customers

Unions

Social and Political

Action Groups

Shareholders

Competitors

Organization

Trade and Industry

Associations

Communities

Suppliers

Governments
Media

Summary and Implications

How much control do managers have?

The reality is probably somewhere

between the omnipotent and symbolic
views

What effect does culture have on

managerial actions?

A strong culture supports the goals of

the organization making it easier for
managers to achieve goals

Summary and Implications

What kinds of cultures can managers

create?
Ethical, innovative and customer-responsive
cultures

What influence does the environment

have on managers?
The environment plays a major role in
shaping managers decisions and actions

External Environment
Major

forces outside the

organisation with potential to
influence significantly a
product or services likely
success.

External environment is made up of:

1.The Mega-Environment
The broad conditions and trends in societies
in which an organisation operates.
2.The Task Environment
Specific outside elements with which an
organisation interfaces in the course of
conducting its business.

Components of the External

Environment
Specific environment: external forces
that have a direct and immediate impact on
the organization.
General environment: broad economic,
socio-cultural, political/legal, demographic,
technological, and global conditions that
may affect the organization.

The Organization and Its Environments

The specific environment

SPECIFIC ENVIORNMENT/ task

enviornment
The specific environment or task
environment of an organization includes those
external forces that have a direct impact on
managers decisions and actions and are directly
relevant to the achievement of the organizations
goals.
The main forces that make up the specific
environment are:

customers,
suppliers,
competitors,
and pressure groups.

CUSTOMERS
Customers provide the backbone of success
for any business, whether business-toconsumer or business-to-business.
Businesses must conduct research in their
industries to determine levels of product
demand by customers, which provides
foundations for company sales and profits.
For a company to be successful, it must also
keep up with changing customer views,
attitudes and demand for products and
services.

Suppliers

The role of suppliers for a business is critical, as the

business is reliant on a third party which can exert
considerable influence. This environmental factor,
according to James Neblett, involves the number of
suppliers in the industry and the suppliers as well as
the companys bargaining power. For example, a few
large suppliers that dominate the market and supply
material for which there is no good substitute often
means that companies needing those supplies pay
higher prices.

Competitors

A business makes many decisions about the

direction to go based on the success, or lack
of its competitors. From the customers
standpoint, competition provides choice.
Businesses must analyze competitors to find
and exploit weaknesses to gain increased
market share. Businesses often conduct
analyses to help identify strengths and
weaknesses of current competitors and
threats which can come from future
competitors in the marketplace.

Pressure groups
They are organisations formed to influence government or
business policy, at local, national or international level.
There has been huge growth in pressure group activity in
recent years.
Pressure groups can be single issue - such as anti smoking
pressure group (eg.ASH), or they can multi issue - such as
Trades Unions.
Single issue groups are just concerned with influencing policy on a
single concern, for example ASH will try to get laws passed limiting
tobacco advertising, increasing the size of health warnings on
cigarette packets, and preventing smoking in public places.
Multi issue groups like Trade Unions may try to influence policy on
workers rights, minimum wages, international workers cooperation, economic policy and so on.

Pressure groups you are likely to have probably heard of include,

Friends of the Earth and Greenpeace.

The general environment

The General Environment

The General Environment

The set of broad dimensions and forces in an
organizations surroundings that create its
overall context.
Economic dimension
Technological dimension
Sociocultural dimension
Political-legal dimension
International dimension

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McDonalds General Environment

3
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The economic dimension

The Economic dimension encompasses the following forces:
Inflation
Interest Rates
Stock markets
Unemployment
Tax Rates
Recession
Strength of the Dollar
Rates of Charitable Contributions

The Technological
dimension
The technological dimension encompasses the following forces:
The Internet
Facsimile Technology
Online Bill-Pay
Instant Message, Robotics
CAD/CAM
Bar Code Technology
E-mail

The Sociocultural
dimension
The sociocultural dimension encompasses the following forces:
Low-carb Foods
Core Values (Freedom, Independence, etc)
Aging Baby Boomers
Population Migration
Back-to-School Retail Extravaganza
Pro-union Sentiment

The Political-Legal
dimension
The Political-Legal dimension encompasses the following forces:
Different political and legal authorities
Disabilities Act or other such acts
Different Statutes
Tort Reform / Welfare Reform or other such Reform bills
Different authorities rulings

The International
dimension
The International dimension encompasses the following forces:

Foreign State-owned Utilities

Exchange Rates
Language Differences
International Outsourcing
Varying Environmental and Labor Policies

The environment and

managers

An organization in a certain
environment will be managed and
controlled differently from an
organization in an uncertain
environment with respect to positions
and departments, organizational
differentiation and integration, control
processes, and future planning and
forecasting.

Organizations need to have the right fit

between internal structure and the
external environment.

POSITIONS AND DEPARTMENTS

As the complexity in the external environment increases, so does the

number of positions and departments within the organization, which
in turn increases internal complexity.

This relationship is part of being an open system. Each sector in the

external environment requires an employee or department to deal
with it:
The human resources department deals with unemployed people who want to
work for the company.
The marketing department finds customers.
Procurement employees obtain raw materials from hundreds of suppliers.
The finance group deals with bankers.
The legal department works with the courts and government agencies.
Today, many companies are adding e-business departments to handle electronic
commerce and information technology departments to deal with the increasing
complexity of computerized information and knowledge management systems.

PLANNING AND
FORECASTING
The final organizational response to uncertainty is to
increase planning and environmental forecasting.
When the environment is stable, the organization
can concentrate on current operational problems
and day-to-day efficiency.
Long-range planning and forecasting are not needed
because environmental demands in the future will be
the same as they are today.
With increasing environmental uncertainty, planning
and forecasting become necessary. Planning can
soften the adverse impact of external shifting.

Organizations that have unstable environments

often establish a separate planning
department.
In an unpredictable environment, planners scan
environmental elements and analyze potential
moves and countermoves by other
organizations.
Planning can be extensive and may forecast
various scenarios for environmental
contingencies. As time passes, plans are
updated through re-planning.
However, planning does not substitute for other
actions, such as boundary spanning. Indeed,
under conditions of extraordinarily high
uncertainty, formal planning may not be helpful
because the future is so difficult to predict.