Submitted by:

Shweta Jain  09609061 

Tanmay Jain  09609141
Mani Popli  09609190

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THE EXTERNAL ENVIRONMENT OF THE
ORGANIZATION

1) Economic Environment:
The markets within which an 2) Social Environment:
organization competes. An The external environment of
economic system is the way in the organization concerned
which a group of humans with society.
arrange their material
provisioning.

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 4) Physical
3) Political Environment: Environment: The external
The external environment of the environment of the
organization concerned with power organization in physical
and its exercise. environment ,ecosphere
surrounding organizational
activity.

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EXTERNAL ENVIRONMENT OF ORGANIZATION

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ECONOMIC SYSTEMS AND ACTORS
• Economic actor: An agency that engages in economic exchange.
• Economic relationship: The relationships of exchange between
economic actors.
• Competitor: A key type of organizational stakeholder. Key
organizations in the same industrial sector or market that compete
with an organization.
• Partner: A key type of organizational stakeholder. Key
organizations in the same industrial sector or market that
participate in a partnership arrangement with an organization.
• Customer: A key type of organizational stakeholder. Consumers
of an organization's products or services.

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 ACTOR AND RELATIONSHIP IN THE MARKET
Regulator

State of
Regulation

Relative
Relative Power Power of
Supplier of Buyer and Organization Buyer and
Customer
Seller Seller

Competitor Structure of Industry,

Basis of competitors, state
technological deployment

Competitor

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PORTER’S THEORY OF INDUSTRY STRUCTURE

“The threat of entry determines the likelihood

that new firms will enter an industry and
compete away the value, either passing it on to
buyers in the form of lower prices or
dissipating it by raising the costs of competing.
This means that industry structure,
determines who keeps what proportion of the
value a product creates for buyers”

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FLOW OF GOODS AND TRANSACTIONS
 Goods: Tangible or intangible objects produced by
organizations.
 Service: An activity delivered to a stakeholder.
 Tangible goods: Goods that have a physical form and
cannot be delivered to customers electronically.
 Intangible goods: Goods that fundamentally can be
represented as data and hence can be delivered to the
customer electronically.

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 Major Transaction Between Buyer And
Seller

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 Value chain

Social capital
Goods Services
(Community
(Supply Chain) (Customer Chain)
Chain)

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 COMMERCE
It is the economic process which deals with the exchanges of
goods and services from producer to final consumer. It can be
considered as a system or process involving a series of phases of
activities.
• Pre-sale activities occur before a sale is made.
• Sale execution consists of the activities involved in the actual
sale.
• Sale settlement involves those activities that complete the sale.
• After-sale activities take place after the buyer has received the
product or service.

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 SOCIAL NETWORKS
 Social network: A network of people and social relations.
 Managers spend a considerable amount of time networking. This
is because a social network is a particularly valuable resource for
them.
 Social capital is the productive value of people engaged in a dense
network of social relations. It consists of features such as
networks of secondary associations, and high levels of
interpersonal trust and reciprocity, which act as resources for
individuals and facilitate collective action.

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CONTROL IN ECONOMIC SYSTEMS

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HIERARCHIES
 They coordinate the flow of value by controlling and directing it at a higher level in
management structures.
 In hierarchies, order is designed and consciously organised to achieve outcomes.

MARKETS
 A market is a medium for exchanges between many potential buyers and many
potential sellers, and at least for larger companies, a series of markets forms the
immediate competitive environment.

NETWORKS
 Networks are a mediating form of coordination and governance between
hierarchies and markets.
 Many modern companies conduct trade or commerce in networks of partnerships.
Participation in them reduces the costs and risks of operation.

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 TRANSACTION COSTS, THE NATURE OF THE FIRM AND ELECTRONIC MARKETS, HIERARCHIES AND NETWORKS

We can classify markets and hierarchies using the balance of production costs
to coordination costs, and the balance of asset specificity to the complexity of
a product. The increased use of ICT would:
 Stimulate a trend towards electronic markets and electronic hierarchies.
 Enable companies to personalize goods and services more.

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 BUSINESS MODELS AND THE VALUE NETWORK

 Business model Specifies the structure and dynamics of a particular enterprise,

particularly the relationship between different stakeholders, benefits and costs to
each, and key revenue flows.
 All this comes down to the fact that organizations have choices in how they do
what they aim to do, and e-Business and e-Commerce multiply the options.
 For adaptive systems the model of the business must fit market circumstances. So it
must be founded in its key value chains and be viable in this environment. Its
activities must also be sustainable long-term.

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 VALUE-CHAIN, VALUE-NETWORK AND VALUE-
STREAM ANALYSIS

Value Network
 In this organizations interrelate and interact in complex networks of value
production, distribution and consumption.
 ICT can make it possible to deliver value along them more efficiently and

effectively .

Value-Network Analysis
 It is an extension of value-chain analysis which focuses on the activities and
relationships of the business with external stakeholders.
 It looks for ways of disaggregating or deconstructing the value network, as well as

ways of aggregating or reconstructing it.

Value-Stream Analysis
Its objective is to improve the efficiency of both internal and external processes,
frequently through the application of ICT.
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 REINTERMEDIATION

 People often find it

difficult to find the
precise product or
service they are
looking for.
 So a new breed of
intermediaries –
electronic
intermediaries – has
emerged.

The traditional retail chain consists of wholesalers,

distributors and retailers, but e-Commerce has cut out the
intermediaries, in what is known as Disintermediation.
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 The old payments process at Ford

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 SUMMARY
 Economies can be considered as systems for coordinating the production,

distribution and consumption of value.

 Activity between economic agents is typically organized in one of three ways:

hierarchies, markets or networks.

 According to Michael Porter, an economic environment is determined in terms of:

the competitive structure of the industry, the relative power of buyers and sellers,

the basis of competition, the state of technological deployment and whether the

industry is growing or stable.

 The concepts of the internal value chain and the wider value network provide the

business analyst with ways of considering potential changes to business systems.

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