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The External Environment

The External Environment. The External Environment. A source of information and resources for the organization Any area affecting the organization that is not within its control…but

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The External Environment

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  1. The External Environment External Environment

  2. 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 External Environment

  3. Influencing the External Environment • Overall, the environment is what cannot be influenced • But…. • Advertising • Public relations • Trade associations • Political activity External Environment

  4. 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 External Environment

  5. Information Adaptation Legitimacy Resources Role of the External Environment Survival Growth Access to Resources Source: Starbuck (1965) External Environment

  6. 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 External Environment

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

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

  9. An Economic View • Porter’s Five Forces • Suppliers • Buyers • Threat of substitutes • New entrants to the market • Current competitors External Environment

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