Lecture 3 Outline: External Environment Mega Environment

Lecture 3 outline
 External environment
 Mega environment
 Technological
 Economic
 Political/legal
 Cultural/social
 International
 Task environment
 Analyzing the environment
 Accessing environmental uncertainty
 Managing the environment
Principles of Management
External Environment
 These are the major forces outside the
organization with potential to influence significantly
the likely success of a product or service. It
consists of:
 Mega environment – the broad conditions and trends in

societies in which an organization operate
 Task environment – specific outside elements with which

an organization interfaces in the course of conducting its
business.
Five major elements:
1. Technological
Current state of knowledge regarding production of products and services
2. Economic
Systems of producing, distributing & consuming wealth
3. Political and legal

Legal and governmental systems within which an organization must
function
4. Cultural
Attitudes, values, norms, beliefs, behaviors and associated demographic
trends and characteristics of a given geographic area
5. International
Developments in countries outside of an organization’s home country with
the potential to influence the organization
Technological
 It includes scientific and technological advancements.
 Research indicates that technology tend to evolve
through periods of incremental change through
technology breakthroughs that either enhance or destroy
the competence of firms in an industry.
 Numerous publications and online services provide
information on technology.
 It influences the way we do things, how we design,
produce, distribute and sell goods and services.
 Eg. Internet and use of computers
Economic
 In a capitalist economy , the market activity is governed
by market forces and the means of production are
privately owned by individuals, either directly or through
corporations.
 In a socialist economy, the means of production are
owned by the state and economic activity is coordinated
by state plan.
 In practice, countries tend to have hybrid economies,
incorporating elements of capitalism and socialism.
 In any economic system, organizations are influenced by
a variety of economic factors such as inflation and
interest rates.
 Eg. Recent economic recession that has hit our country
Political and legal
 Organizations must operate within a legal

framework of the country in which they do
business.
 Organizations are subject to an increase in
lawsuits filed by customers or employees.
Socio/cultural
 This represents the demographics as well

as the norms, customs and values
 This element is of a major importance to
multinational organizations.
 Socio/cultural trends can result in
important shifts in demand for products.
International environment
 Fluctuations of the dollar against other
currencies influence the ability of an
organization to compete in international market.
 Free trade agreements can affect an
organization either positively or negatively.
 The international environment provides new
customers, competitors, suppliers and shapes
social, technological and economic trends
 Eg. Effect of mad cow, bird flu
Task environment factors:
1. Customers/clients
Individuals and organizations purchasing products/services
2. Competitors
Other organizations offering rival products/services
3. Suppliers
Organizations and individuals supplying resources an
organization needs to conducts its operations
4. Labour supply
Individuals potentially employable by an organization
5. Government agencies
Agencies providing services and monitoring compliance with
laws and regulations at local, state or regional and national
levels
Why do organizations care so much for
the external environment?
 The resaon is that the environment creates

uncertainty for organization managers and
they must respond by designing the
organization to adapt to the environment.
Analysing The Environment:
Environment characteristics:
 Certainty vs. Uncertainty
 Condition in which future environmental
circumstances affecting an organisation can
/cannot be accurately assessed and predicted
 Organizations must manage
uncertainty to be effective
Characteristics of the environment
• Complexity:
Number of elements in an organisation’s environment and their
degree of similarity. When an environment becomes more
heterogeneous, managers have more variables to deal with.
• Dynamism:
Rate and predictability of change in the elements of an
organisation’s environment, for example, environments where
change is slow and relatively predictable are stable.
• Uncertainty:
Conditions in which future environmental circumstances affecting
an organization cannot be accurately assessed and predicted
• Bounty:
Extent to which the environment can support sustained growth
and stability
Managing The Environment
Three approaches to managing the environment:
 Adaptation
Involves changing internal operations & activities to make the
organisation and its environment more compatible.
Four common methods are:
Buffering – stockpiling either inputs into or outputs from a

production or service process
Smoothing – taking actions aimed at reducing the impact of
fluctuations
Forecasting – predicting conditions and future events which affect
the firm’s business
Rationing – providing limited access to a product or service in high
demand
 Favourability influence
Involves trying to alter environmental elements to make them more
compatible with the organisation’s needs. Some ways are:
Advertising and public relations – using mass media to gain publicity

for the product or service
Boundary spanning – creating roles within the organization interfacing
with important elements in the environment
Recruiting – to hire people from a specific organization due to their
skills and knowledge of the environment
Co-opting – adding key people to the policy making structure
Strategic alliances – arrangement where two or more independent
organizations form a cooperative partnership to gain mutual strategic
advantage
Trade association – organizations composed of individuals or firms
with common business concerns
 Domain shifting
Changing product/service mix to create
favourable interface
Domain shifting
We are done guys!!
Just chill!!
Catch you after a break!

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Lecture 3 outline

 Mega environment – the broad conditions and trends in

 Task environment – specific outside elements with which

3. Political and legal

 Organizations must operate within a legal

 This represents the demographics as well

 The resaon is that the environment creates

Buffering – stockpiling either inputs into or outputs from a

Advertising and public relations – using mass media to gain publicity

Catch you after a break!

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