External Environment The Organization's External Environment example essay topic

II. THE EXTERNAL ENVIRONMENT The organization's external environment includes the factors that affect its performance from outside its boundaries. Although managers can control the internal environment, they have very limited influence over what happens outside the organization. A. Customers Customers have a major effect on the organization's performance through purchasing products. Without customers there is no need for an organization.

1. Is Customer Service Important Yes. The Strategic Planning Institute conducted a study that revealed that the organizations with high service strategies increased their market share by 6% per year and their return on sales was 12%. Organizations with low service strategies had a decrease in market share of 2% and a return on sales of only 1%. B. Competition Organizations must compete for customers. Competitors's trategic moves affect the performance of the organization. WORK APPLICATION Example student answer 4.

Give an example of how one firm's competitors have affected that business. In East Longmeadow there is a Big Y Supermarket that had no competitors near by. However, an Edward's Supermarket moved in almost across the street from the Big Y. As a result, Big Y has lost some customers it would have had if Edward's had not moved in across the street. C. Suppliers Many organizations' resources come from outside the firm. Organizations often buy land, buildings, machines, equipment, natural resources, and component parts from suppliers. Therefore, an organization's performance is affected by suppliers. D. Labor Force The employees of the organization have a direct effect on its performance. Management recruits human resources from the available labor force outside its boundaries.

Unions also provide employees for the organization. Unions are considered an external factor because they become a third party when dealing with the organization. E. Shareholders The owners of a corporation, known as shareholders, have a significant influence on management. Most shareholders of large corporations are generally not involved in the day-to-day operation of the firm, but they do vote for the directors of the corporation. The board of directors also is generally not involved in the day-to-day operations of the firm.

However, it hires and fires top management. F. Society Individuals and groups have formed to pressure business for changes. People who live in the area of a business do not want it to pollute the air or water or otherwise abuse the natural resources. G. Technology The rate of technological change will continue to increase. Few organizations operate today as they did even a decade ago. Products not envisioned a few years ago are now being mass-produced. The computer has changed the way organizations conduct and transact business. New technologies often change product use.

New technology creates opportunities for some companies and a threat to others. WORK APPLICATION Example student answer 5. Give an example of how technology has affected one or more organizations, preferably one you work or have worked for. When I used to shop at Price / Costco, it had tow people at the checkout. One person would read the product numbers to the other one who would type them into the cash register. But now Price / Costco finally upgraded its technology to the modern computer scanners.

Now it only needs one person at each cashier station, it is more accurate and faster at checking people out, so it has created customer value. I used to hate the slow old system. H. Economy The organization has no control over economic growth, inflation, interest rates, foreign exchange rates, and so on, yet these things have a direct impact on its performance. In general, as measured by gross international product (GNP) and gross domestic product (GDP), businesses do better when the economy is growing than during times of decreased GNP / GDP, or recession. The last U.S. recession occurred during the last quarter of 1990 and the first two quarters of 1991. Since then the economy has been growing at an unsteady rate. I. Governments Foreign, federal, state, and local governments all set laws and regulations that businesses must obey.

The governmental environment is sometimes referred to as the political and legal environment. Governments create both opportunities and threats for businesses. Organizations and governments are working together to develop free trade between countries. The General Agreement on Tariffs and Trade (GATT) is an international organization to which over 100 countries belong.

GATT works to develop general agreements between all members, and it acts as a mediator between member countries who cannot resolve differences or when one country feels another is using unfair practices. There are European trade alliances, the largest being the European Union (EU), formerly called the European Community, which consists of 15 full-member countries. Since late 1992, EU is a single market without national barriers to travel, employment, investment, and trade. The U.S. -Canada agreement was was expanded to include Mexico into the North American Free Trade Agreement (NAFTA) made in 1993 and implemented in 1994.

In the next 10 to 15 years, as many as 20,000 separate tariffs are expected to be eliminated to allow free trade among member countries. There is talk of expanding NAFTA to include alliances in Central and South America. Pacific Asia (Pacific Rim Countries) form a trading block. These agreements between governments also affect the way firms conduct business in a global environment. APPLYING THE CONCEPT Answers AC 2-2 The External Environment 6.

Technology. A new material is a technology change. 7. Competition.

AT&T lost its monopoly because it now has competition. 8. Economy. The government can influence the economy through monetary policy of changing the amount of money in the economy. 9. Shareholders.

They own the company and appoint top managers. 10. Governments. The government can stop mergers and acquisitions when it believes society will be harmed by the business transaction. J. Chaos and Interactive Management According to Ack off, unlike reactive managers (who make changes only when forced to by external factors) and responsive managers (who try to adapt to the environment by predicting and preparing for change before they are required to do so), interactive managers design a desirable future and invent ways of bringing it about. They believe we are capable of creating a significant part of the future and controlling its effects on us. They try to prevent, not merely prepare for, threats and to create, no merely exploit,.