The external environment contains an organization’s external factors that shake its businesses indirectly. The organization has no or slight control over these factors. The external environment factors of an organization reside outside the industry, leading to opportunities or threats.
Table of Contents
External Environment Factors of Organisation:
By definition, the external environment factors of an organization are what might affect it externally. For the convenience of analysis, we can divide the external environment factors of the organization into two groups:
- General environment (or remote environment), and
- Industry environment (or the immediate operating environment).
Read more: Internal Environment Factors
In the external environment factors of an organization, the general environment is the first factor. The general atmosphere is the nonspecific forces and dimensions in an organization’s surroundings that might touch its doings. It comprises political, economic, social-cultural, technological, legal, demographical, and international forces. You can learn more explanation of the general environment from PESTLED Analysis.
In the external environment factors of an organization, the industry environment is the second factor. The industry environment is the competitive environment of the business organization. Its elements are suppliers, consumers, competitors, new entrants, substitute products, etc.
The strategy-makers must comprehend the encounters and difficulties of both the isolated environmental factors and the instant operating ecological factors. They requisite to increase in value that the unknown environmental factors are widely uncontainable due to their faintly located external landscape. However, they can undertake appropriate strategies to deal with these factors, usually collectively with other industry actors, to reduce the intensity of their impact on the businesses. In contrast, the operating environmental factors are those in the instant competitive circumstances of a business. These are often regarded as ‘specific environment’ or ‘task environment.’ These factors fundamentally establish the competitive environment of a business. When strategists consider both the remote and operating environments, they can become more proactive in strategic planning and more dynamic in grabbing opportunities. In the following deliberations, you will find a wide-ranging explanation of the global environment.
How to Response External Environment Factors of Organisation?
External environment factors of organizations influence businesses in many ways. The influences may be positive or negative. Several forces in the environment may retard the growth of a commercial association. In the same way, specific effects may give an unexpected improvement to the growth of an organization. Thus, it is crucial for strategy managers to recognize the importance of environmental stimuli on the actions of their businesses. Based on such consideration, they can invent ways to respond to environmental forces.
It is essential for the strategy managers to understand the importance of environmental influences on the operations of their business.
A business organization can employ more than a few ways to respond to its situation. We discuss here some standard measures of external environment factors of an organization.
Firms can appoint solid lobbyists to negotiate with regulators to modify any law or chorus them to endorse new legislation that may unfavorably affect business actions. FBCCI (Federation of Bangladesh Chambers and Commerce and Industry) is a very powerful lobbyist. FBCCI representatives often undertake efforts to influence government agencies or ministries, or committees.
Organizations can influence their customers in different ways. Managers may devise new uses of a product. They may create a new set of products. They may create a new set of customers for products or direct their efforts toward taking customers away from competitors.
One of the ways to directly change the environment is to establish a long-lasting relationship with suppliers. Organizations can be done by signing long-standing agreements with static rates. This would serve as a hedge against inflation. Organizations can also protect themselves from the supply-related crisis by establishing backward linkage (that is, producing their materials). For example, a mineral water firm may start creating bottles by itself, or a soft-drink or fruit-processing firm might become its supplier of cans.
A company may involve itself in boundary-spanning for getting knowledge about what other companies are doing. A person is called a boundary spanner who collects information from outside the organization while he or she is working in the field. Salespeople, purchasing agents, relationship managers are most suitable as boundary spanners.
Companies can impact the external environment based on info collected through regular analysis and observation. This is known as environmental scanning. When surveyed, ecological scanning can vigorously screen the environment. Using environmental scanning and boundary spanner, organizations can organize and gather relevant info to support managers in making decisions.
A company may change its plan to deal with environmental alterations. The strategy-alteration may take any of the forms: a slight change in the strategy, adopting an entirely new approach, or maintain the status quo. Which one would better face the burdens of its competitive environment depends on circumstances that triumph.
To enter into upholding prominence or new markets in the present market or several other strategic issues, a company may resort to merger, acquisition, takeover, or alliance. Two or more companies may be combined (merge) to form a new company. A firm may buy another firm to acquire its asset. In the case of an acquisition (or takeover), the acquired firm may continue to operate as an acquiring firm’s subsidiary. The acquired (take-over) firm may cease to be existent and become part of the obtaining organization. When two or more organizations assume a new-fangled venture, it converts into a strategic alliance (if the venture is cooperative in nature) or joint venture.
These are the basic idea of the external environment factors of an organization. It will be tried to explain or details external environment factors of organization in the future.