The External Environment

and the
Business Environment

Business Environments
are divided into two
primary
Categories
External &
Internal

Business Environments

The external environment encompasses

all issues, occurrences, trends, etc.
that are peripheral to the corporation
and beyond the control of the
organization.
The internal environment relates to all
aspects within the confines of the
organization and generally are within
the control of the organization
Both environments exert significant
influence over the formation of a
company's strategy and its degree of
success.

Environmental

Changes

Changes in the external

environment (general & competitive)
competitive
may require a company to adjust
its strategic plans.
Likewise, changes within the internal environment
of a firm may force a company to change its tactics
and strategies.
Example - New personnel with unique knowledge
and skills may join the company OR valuable
employees with unique knowledge and skills may
leave the firm.

Environmental Changes

(Contd)

Predicting the extent, direction, and speed of

environmental change with any degree of
precision is difficult and often impossible.
impossible

Abrupt environmental changes can quickly

transform strategic plans from effective to
obsolete"
A firm must be prepared to rapidly adapt to
unexpected changes since this can mean the
difference between success and failure.

The General Environment

Components of the External Environment

Copyright 2013 Pearson Education, Inc. publishing as Prentice Hall

The External Environment

The external environment is the factors, forces, situations,
and events outside the organization that affect its
performance. It includes the following components:
Political component - Policies and processes and the
extent to which government intervenes in the economy - Tax
Policy; Tariffs, etc.
Economic component - encompasses factors such as
interest rates, inflation, changes in disposable income, stock
market fluctuations, and business cycle stages.
Socio-cultural component - is concerned with societal and
cultural factors such as values, attitudes, trends, traditions,
lifestyles, beliefs, tastes, and patterns of behavior.

The External Environment

Technological component - focuses on scientific and
industrial innovations.
Environmental component relates to ecological and
environmental forces; Environmental protection laws;
Waste disposal; Energy consumption, etc.
Legal component - looks at federal, state, and local
laws, as well as other countries laws and global laws.
Global/International component - encompasses
issues associated with globalization and a world
economy.

You are encouraged to re-visit the Presentation

Slides and recording from the 1st BbC Session.

Ways that the External Environment

affect Managers
Three (3) ways that the external environment affect
managers:
1. Its impact on jobs and employment
2. The amount of environmental uncertainty (the
degree of change and complexity in an
organizations environment) that exists can affect
organizational outcomes.
Therefore assessing
environmental uncertainty is important.
3. The nature of stakeholder relationships /
Managing stakeholder relationships.

Assessing Environmental Uncertainty

Three (3) ways that the external environment
affect managers:
Its impact on jobs and employment
The amount of environmental uncertainty /
Assessing environmental uncertainty
The nature of stakeholder relationships /
Managing stakeholder relationships.

Copyright 2013
Pearson Education,

Environmental Uncertainty Matrix

How does the concept of environmental uncertainty
influence managers?
Cell 1 (a stable-simple environment) represents the
lowest level of environmental uncertainty and Cell
4 (a dynamic and complex environment) represents
the highest level of environmental uncertainty.
Not surprisingly, managers have the greatest
influence on institutional outcomes in Cell 1 and
the least influence in Cell 4.
Because uncertainty is a threat to an institutions
effectiveness, managers try to minimize it.

Managing Stakeholder Relationships

Stakeholders are any constituencies in an
institutions environment that are affected by
the decisions and actions of that institution.
Stakeholders include both internal and
external groups because both groups can affect
what an institution does and how it operates.

Organizational Stakeholders

Copyright 2013 Pearson

Education, Inc. publishing as
Prentice Hall

Why Stakeholder Relationships must be

managed?
Managers benefit from good management of
stakeholder relationships because stronger
relationships can improve the predictability of
environmental changes; lead to more
successful innovations; foster a greater degree
of trust among stakeholders; and increase
institutional flexibility to reduce the impact of
change.

Benefits to managing External

Stakeholder Relationships
Good stakeholder management improves institutional
performance.
The institution is perceived as doing the right thing,
which demonstrates corporate social responsibility
and creates a positive image of the institution.
Because an institution depends on external groups
for resources and as outlets for goods and services
(such as customers/clients), decisions that consider
stakeholders interests can pay off.

References:
S. Robbins, D. DeCenzo and M. Coulter Fundamentals of Management - 8th Edition
Published by Prentice Hall

www.albany.edu/faculty/van
ness