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External Environment

The external environment consists of any area outside an organization's control that can affect its decisions and operations. It provides resources and information to organizations and is the destination of their outputs. While the environment cannot be directly influenced, organizations can try to shape perceptions of it through advertising, public relations, and lobbying. Understanding the constraints and opportunities in the external environment is important for organizational survival, growth, legitimacy, and access to resources. The document goes on to describe conceptual models for analyzing the external environment, including its complexity, dynamism, and availability of resources, as well as Porter's Five Forces framework.

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Dama Morallo
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35 views9 pages

External Environment

The external environment consists of any area outside an organization's control that can affect its decisions and operations. It provides resources and information to organizations and is the destination of their outputs. While the environment cannot be directly influenced, organizations can try to shape perceptions of it through advertising, public relations, and lobbying. Understanding the constraints and opportunities in the external environment is important for organizational survival, growth, legitimacy, and access to resources. The document goes on to describe conceptual models for analyzing the external environment, including its complexity, dynamism, and availability of resources, as well as Porter's Five Forces framework.

Uploaded by

Dama Morallo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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The External Environment

Spring 2007 External Environment 1


The External Environment
• A source of information and resources for the
organization
• Any area affecting the organization that is not within its
control…but
• “The totality of physical and social factors that are taken
directly into consideration in the decision-making
behaviors of individuals within the organization”
• Source of inputs and feedback, the destination of outputs

Spring 2007 External Environment 2


Influencing the External
Environment

• Overall, the environment is what cannot


be influenced
• But….
• Advertising
• Public relations
• Trade associations
• Political activity

Spring 2007 External Environment 3


Why Does the Environment Matter
?
• The organization must exist within the
constraints of the environment:
• Owner / public acceptance
• Economic survival
• The environment is the source of resources for
the organization
• Organizations’ responses to the external
environment will depend on how decision-
makers view the environment

Spring 2007 External Environment 4


Role of the External Environment

Information

Adaptation Survival

Growth
Access to
Legitimacy
Resources

Resources Source: Starbuck (1965)

Spring 2007 External Environment 5


Conceptualizing the Environment
• Characteristics
• Complexity (number of entities)
• Dynamism (rate of change)
• Munificence (availability of resources)
• Entities
• Task environment: immediately relevant to organization
• General environment: not immediately relevant to
organization
• An entity can move between task and general environment;
decision-makers must be aware of any movements

Spring 2007 External Environment 6


The Task Environment
• Industry • Human Resources
• Competitors • Labor market
• Industry structure and • Employment agencies
size • Schools and
• Competitiveness universities
• Related industries • Other companies’
• Raw materials employees
• Suppliers • Labor unions
• Manufacturers • Market
• Real estate • Customers
• Services • Potential customers

Spring 2007 External Environment 7


The General Environment
• Financial resources • Government
• Stock market • Local / state / federal laws and
• Banks regulations
• Investors • Court decisions
• Tax policy
• Technology
• Political pressures
• R&D
• Production • Socio-Cultural
• Automation • Population demographics
• New materials • Population values
• Social responsibility
• Economic conditions
• Recession / inflation • International
• Economic growth • Foreign firms’ activities
• Investment • Entry into foreign markets
• Unemployment • Cultural differences
• Political and legal differences
• Exchange rates

Spring 2007 External Environment 8


An Economic View

• Porter’s Five Forces


• Suppliers
• Buyers
• Threat of substitutes
• New entrants to the market
• Current competitors

Spring 2007 External Environment 9

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