The external environment of an organization consists of task and general factors that can affect day-to-day operations. Competitors, customers, and suppliers are directly interactive dimensions of the business environment. General factors, such as economic, technological, sociocultural, political, and global influences, can indirectly influence business decisions.
External environment normally refers to external forces that can affect an organization. Two factors make up the external environment: task and general. The business environment typically consists of external groups that can affect the day-to-day operations of an organization. In the general environment, external forces can affect an organization’s ability to do business.
In general, the business environment has dimensions that are directly interactive with how an organization operates. The business environment can include competitors, customers, and suppliers. Because these dimensions can affect day-to-day operations, more attention is usually paid to each during strategic planning.
Competitors can drive the organization’s market plan for advertising and product positioning. Competitors can exist in several categories other than organizations offering similar products or services. A competitor in the external environment might be one that offers a substitute product to customers, such as buying a motorcycle rather than a car. Another might be an unrelated business vying for the same property in a thriving community.
Customers are natural or legal persons who are willing to pay for an organization’s products or services. For some organizations, customers may consist of individual consumers. Also, clients could be other companies or institutions. Changes in customers’ buying habits can affect the organization’s external environment.
Suppliers are essential to provide the resources needed to develop products or services. Some organizations may choose to work exclusively with one or more vendors, while others may use multiple companies. Working with a variety of vendors can insulate your organization from potential failure if one unique vendor fails.
The influences of general factors within the external environment are usually vague and could have long-term consequences. Each dimension is indirectly interactive with how an organization works, but can still influence business decisions. These dimensions include economic, technological and sociocultural influences. The political climate and global influences also contribute.
Economic size typically refers to the tax status of the area in which the organization operates. Usually, the factors can lead to high unemployment and inflation, which can drive economic growth. For example, with high unemployment, the demand for the organization’s products or services may decrease.
The technology dimension generally covers the methods used to develop products or services. The technology used within the organization, tools and applications, usually comes from the external environment. Advances in technology can improve the competitiveness of the organization.
When an organization considers sociocultural influences, it may look at people’s cultural norms and behaviors. Other characteristics may also include demographic and customs data. Sociocultural influences could help determine what types of products or services might appeal to society.
Changes in the political climate may involve corporate regulations that could stifle or facilitate growth. The relationship an organization has with the government could affect business operations. A business-friendly environment and political stability could determine the viability of corporate markets.
A flatter world from transportation and technology also advances factors in the external environment of businesses. Global influences can add pressure to an organization, even in places where no business operations exist. Foreign competition for similar products or services can threaten profits.
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