Spring 2007External Environment1 The External Environment

Spring 2007External Environment2 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

Spring 2007External Environment3 Influencing the External Environment Overall, the environment is what cannot be influenced But…. Advertising Public relations Trade associations Political activity

Spring 2007External Environment4 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

Spring 2007External Environment5 Role of the External Environment Source: Starbuck (1965) Growth Survival Adaptation Access to Resources Legitimacy Information Resources

Spring 2007External Environment6 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

Spring 2007External Environment7 The Task Environment 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

Spring 2007External Environment8 The General Environment 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

Spring 2007External Environment9 An Economic View Porter’s Five Forces Suppliers Buyers Threat of substitutes New entrants to the market Current competitors