External Environment

An organization cannot survive on its own but it is surrounded by factors which influence the way it perform its tasks either positively or negatively. The business environment is categorized into two broad categories which are the internal and the external environment. Internal environment comprises of the factors which are within the control of the organization’s management and these factors range from the tasks of the personnel to the organization’s management itself (Smith, 2016). Even though these factors seem to be enough to drive the organization towards achieving its goals, there are external factors which ought to be integrated together with the internal factors to create harmony. These external factors include economic, political, technological and legal environment and the organization is not in control over them. They disclose the organization to threats or they can play an important role in offering many opportunities required for the market exploitation (Adeoye & Elegunde, 2012).

• It aids in developing long-term policies and a broad-based set of strategies.
• Taking action plans of incorporating technological advancement into the business.
• Helps in foreseeing socio-economic changes at all levels of the organization and its ability
• Helps the firm analyze the strategies of its competitor and develop the counter-measures effectively.
• It keeps the firm to be dynamic.

External environment

Along the path of success, the organization ought to take into account the external forces opportunities as well as threats, either during the present time or the future potential, the organization’s weaknesses ,its competitive secrets against the competitors ( Botha, Kourie & Snyman,2014).

       The several forces which constitute the external business environment can be embedded into the following;

1. Political and legislative factors
2. Legal environment
3. Economic factors
4. Technological factors
5. Competition
6. Socio cultural factors
7. Natural factors
8. Economic environment

There is a deep and a close association existing between the organization and the economic environment. The organization is obtaining all the required input or the raw materials with economic environment as its source and also, the output absorption is done (Anderson, Forsgren & Holm, 2015).

The main components of this environment include market, capital availability as well as market share for the firm’s product.  Economic policies have a direct influence on the activities of an organization. These are the policies which set up the government and include the following;

• The industrial policy: it covers the regulations which gives direction and the control measures over the industrial sector.
• Monetary policy: it encompasses all the actions whose target is to provide credit smoothly to the organization so as to boost it.
• Fiscal policies which include the government policies meant to provide control over the public expenditure and even taxation.

Economic system is also dictated by three systems which include;

• Mixed economy
• Capitalist economy
• Socialist economy

1. Political factors

These factors refer to the insertion of influence by political institutions, government policies, for the purpose of shaping, giving directions for the development and taking control measures in business activities. When stability and dynamicity reign the political environment, there is a tendency for an organization to grow and prosper. However, political instability causes the organization to fail in many of its operations. Failure can arise from lack of market accessibility, insecurity and unfavorable of terms of trade (Hamilton & Webster, 2015).

Political stability gives out a signal with strength and much confidence to the various groups or investors of interests. It is a fact that political ideology of a political party brings much influence to the firm together with its operations.

Labor disputes and frequent strikes negatively affect the firm’s operations. But due to high competition in the business environment, great maturity has been portrayed by the trade unions and this has contributed to the firm’s success via the participation of employees in the management process.

1. Legal environment 

A legal environment simply means the set laws or an umbrella of regulations whose influences are felt by the organization as well its operations. The legal environment provides a platform or a law framework which ought to be obeyed by the organization and ensures that all its activities conform to these rules. The following are some of the builders of this environment;

• Constitution provision; it is meant to provide the guiding and directing principles, citizens’ rights, government legislative powers which have influence on the operations of the organization
• Judicial decisions; it provides mechanisms for ensuring  public’s  interests become the main function of the government and even  ensuring that it acts within constitution boundaries.

1. Technological environment 

Importance of Studying External Business Environment

This environment is an inclusion of techniques, methods as well as the approaches that are adopted in goods or service production together with the distribution process. The technological advancement varies from a country to another with the developed countries like USA leading. It used in gauging the competitive ability of an organization. Therefore, for an organization to continue with its survival and growth, periodically, an organization ought to adopt changes in technological advancement. An indication may show that, being consistent task, improved product innovation is as a result of the scientific research. Hence, an organization will not have persistence in the market area if it still runs on obsolete and outdated techniques of technology.

1. Demographic factors

Demographic environment is concerned with the population and its characteristics which include size of the entire population, growth rate, and density and population distribution in an area of concern. All of these factors directly bear on the goods and service demand. For example, considering a region with high population rate and there are many children, demand for the children products is high. Labor availability is shown by the higher population rise and this will give an encouragement to the organization of using techniques which are labor intensive (Tung, Tang & King, 2018).

1. Natural environment 

This category comprises of the ecological as well as the geographical factors which in one way or the other influences the firm’s operations. This environment includes natural resource availability, weather or the climatic conditions, topography and aspects of locations. They greatly influence the business operations for instance, factories for processing sugarcane are only located at areas where sugarcane are planted. This is because it is very cheap to locate the factory near the inputs or the raw materials as this will reduce the transportation cost hence reducing the total production cost ((Von, 2010).

General business environment causes conflicts on the firm’s employees, to the socio-culture i.e. the people surrounding the organization. Due to the ever-increasing basic need’s prices, external forces cause stresses which are later replicated in the internal environment

The tensions between the management and the employees, safety and security constraints, values of interests existing among the workers, a poor channel of passing communication within the organization are some of the challenges which exist within the organization. External factors are outside the control of an organization but need to be factored in and harmonized altogether.

           In order to overcome these challenges, an organization ought to undertake the following measures or frameworks;

1. Attraction and retaining of clients 

In order to achieve its goals, an organization ought to maximize on the customer requirements-step because it is through the customer that market is established. Attracting new customers or clients should be taken as a key mission of any organization in order to expand the market for the purpose of maximizing profits and meeting on the competitive advantage (Berggren & Bergek, 2011). This can be achieved by broadly advertising the firm’s product.

Existing clients are to be maintained by embracing a system which focuses more on the needs of the clients as it will show the loyalty of the firm on its clients.

1. Confidence promotion

Economic Environment

Promoting confidence in the firm’s economy instills an assurance in the minds of the customers that the firm and its operations are still in existence and they have no hurry to exit the market. This is done whether there is an economic crisis in the region or not. This will even attract the financiers and any other person of a goodwill who might be having the interest of making an investment or provide raw materials to the firm on a credit basis. Therefore, organizations ought to aim at providing factual evidence for the clients that the operation of the organization is even getting much stronger than never before (Ferrell & Fraedrich, 2015).

• Adopting and using the current advanced  technology

 The current technology is very dynamic and robust therefore an organization has to embrace in it in terms of production and distribution needs of the product offered to the customers so as to meet their requirements accordingly.

 Adopting the advanced technology means that the organization has increased its competitive advantage against its competitors. So, starting from the planning step, developing the goals all the way up to the commercialization step, managers of the organization should provide a room for future technological advancement in the product area (Brodbeck & Guillaume, 2015).

This process is important to an organization and it is usually one of the roles of the top management of an organization. The events from the past, current circumstances as well as the future perceptions are what help an organization in shaping the decision making-making –process effectiveness (Seargeant & Spence, 2018).

Strategic forces behind the influence of the strategic decision-making procedure include the following;

1. Decision characteristics which are specific in nature.
2. Internal environment characteristics
3. External environment characteristics
4. Features of team of management

Divergent view exists in that managers of different firms or even from the same organization view the similar internal and the external challenges differently.

Decision’s familiarity, which is the degree of clarity of a decision-maker and the characteristics of the process are the main players in this scenario. Decision’s impact size, opportunity or threats, the complex nature of the decision and the nature of the risk are what influences the general process of decision making (Anderson, Forsgren & Holm, 2015).

The following are some of the factors which are termed as internal environment factors which impact the process of decision-making;

1. Size of the organization –smaller organizations have a deeper and greater rate of involvement than the managers from the larger units in process of making decisions.
2. Power and structure of the firm-structure constitutes the formalization, level of integration together with centralizing effort. It is clear that a formally-integrated effort positively expand the rationality as well as interaction of the process of making decisions.

• Organizational performance- higher speed of making decisions have a positive impact on the general performance of the firm.

This is a set of factors which are not in control of the organization and include;

1. Dynamism of environment- change rate, absence and environmental predictability are what are composed in this dynamism. An increment in the level of environmental dynamism is taken to show an accompanying increased rationality which occurs in the process of making decision strategically (Douglas,Bigby,Knox & Browing ,2015).
2. Environmental opportunity- a negative relation exists between the threats of competition and rationality extent as well as the flexibility required in the process of strategic decision-making  (Calabrese, Iandolo, Caputo & Sarno, 2018)
3. Environmental hostility – a positive relation exists between hostility of environment and the decision-making rationality and the negative relation exists in where there is decentralization or existence of political influence.
4. Uncertainty- it brings negative relation to the rationality extent.

 Conclusion

External environment comprises of the factors which affect the operations of the organization even though an organization cannot have a direct control over them. These forces can affect the organization that if they are not integrated together to ensure that harmony exist in ensuring that they cannot adversely the firm.  An organization ought to find ways and techniques of solving the challenges caused by these factors (Leonidou, Christodoulides & Thwaites)

Decision making in an organization should consider the several factors ranging from the internal to the external factors.

References 

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Laszlo, C., & Cescau, P. (2017). Sustainable value: How the world’s  leading companies are doing well by doing good. Routledge

Leonidou, L. C., Christodoulides, P., & Thwaites, D. (2016). External Determinants and Financial Outcomes of an Eco?friendly Orientation in Smaller Manufacturing Firms. Journal of Small Business Management, 54(1), 5-25.

Seargeant, D., & Spence, J. (2018). 4 strategies to unlock performance management constraints: Hospitals and health systems are confronted with unprecedented challenges in managing performance in the current business environment, yet all too many organizations have limited understanding of how best to meet these challenges. Healthcare Financial Management, 72(4), 56-62.

Smith, B. (2016). Nature and Geography: Tragic Voids within Marketing Textbooks and the External Business Environment. In Global Perspectives on Contemporary Marketing Education (pp. 47-64). IGI Global

Tung, V. W. S., Tang, M. F. C., & King, B. E. M. (2018). Tourism industry career prospects and the business environment: E vidence from C anada and M acau. International Journal of Tourism Research.

Von Nordenflycht, A. (2010). What is a professional service firm? Toward a theory and taxonomy of knowledge-intensive firms. Academy of management Review, 35(1), 155-174.