• THE ORGANIZATION’S ENVIRONMENTS

• The external environment is everything outside an organization’s

boundaries that might affect it.
• There are two separate external environments: the general
environment and the task environment.
• An organization’s internal environment consists of conditions and
forces within the organization.
• The General Environment
• Each of the following dimensions embodies conditions and events
that have the potential to influence the organization in significant
ways.
• The Economic Dimension The economic dimension of an
organization’s general environment is the overall health and vitality of
the economic system in which the organization operates.
• 2 Particularly important economic factors for business are general
economic growth, inflation, interest rates, and unemployment
• After several strong years of growth, the U.S. economy fell into a
recession during 2008 and only began to recover from it in 2012.
• During this period, energy and related prices jumped, business and
economic growth slowed dramatically, and unemployment
mushroomed as one struggling business after another made
workforce cuts.
• The Technological Dimension The technological dimension of the
general environment is made up of the methods available for
converting resources into products or services. Although technology is
applied within the organization, the forms and availability of that
technology come from the general environment.
• Computer-assisted manufacturing and design techniques, for
example, allowed Boeing to simulate the more than three miles of
hydraulic tubing that runs through its 787 aircraft. The results include
decreased warehouse needs, higher-quality tube fittings, lower labor
costs, and major time savings.
• The Political–Legal Dimension The political–legal dimension of the
general environment consists of government regulation of business
and the relationship between business and government. This
dimension is important for three basic reasons.
• First, the legal system partially defines what an organization can and
cannot do
• Second, pro- or anti-business sentiment in government influences
business activity.
• Finally, political stability has ramifications for planning. No business
wants to set up shop in another country unless trade relationships
with that country are relatively well defined and stable. Hence, U.S.
firms are more likely to do business in England, Mexico, and Canada
than in Syria and Afghanistan.
• The Task Environment
• Because the general environment’s impact is often vague, imprecise,
and long term, most organizations tend to focus attention on their
task environment, which includes competitors, customers, suppliers,
strategic partners, and regulators
• Although the task environment is also quite complex, it provides
useful information more readily than the general environment
because the manager can identify environmental factors of specific
interest to the organization, rather than deal with the more abstract
dimensions of the general environment
• Competitors An organization’s competitors are other organizations
that compete with it for resources.
• The most obvious resources that competitors vie for are customer
dollars. Under Armour, Adidas, and Nike are competitors, as are
Albertson’s, Safeway,and Kroger.
• McDonald’s competes with other fast-food operations, such as
Burger King, Wendy’s, Subway, and Dairy Queen
• Customers A second dimension of the task environment is customers,
or whoever pays money to acquire an organization’s products or
services. Most McDonald’s customers are individuals who buy food.
But customers need not be individuals.
• Schools, hospitals,government agencies, wholesalers, retailers, and
manufacturers are just a few of the many kinds of organizations that
may be major customers of other organizations.
• Some institutional customers, such as schools, prisons, and hospitals,
also buy food in bulk from restaurants such as McDonald’s.
• Supplier Suppliers are organizations that provide resources for other
organizations. McDonald’s buys soft-drink products from Coca-Cola;
individually packaged servings of ketchup, salt, and pepper from
various wholesalers; Big Mac ingredients from wholesale food
processors; and napkins, sacks, and wrappers from packaging
manufacturers. Besides material resources such as these, businesses
also rely on suppliers for information (such as economic statistics),
labor (in the form of employment agencies), and capital (from lenders
such as banks).
• Regulators Regulators are elements of the task environment that have
the potential to control, legislate, or otherwise influence an
organization’s policies and practices.
• There are two important kinds of regulators. Regulatory agencies are
created by the government to protect the public from certain
business practices or to protect organizations from one another.
• Powerful federal regulatory agencies include the Environmental
Protection Agency (EPA), the Securities and Exchange Commission
(SEC),the Food and Drug Administration (FDA), and the Equal
Employment Opportunity Commission (EEOC)
• Strategic Partners Another dimension of the task environment is
strategic partners (also called strategic allies)—two or more
companies that work together in joint ventures or other partnerships.
• As shown in Figure McDonald’s has several strategic partners. For
example, it has one arrangement with Walmart whereby small
McDonald’s restaurants are built in many Walmart stores.
• The firm also has a long-term deal with Disney: McDonald’s promotes
Disney movies in its stores, and Disney has allowed McDonald’s to
open restaurants near its resorts.
• The Internal Environment
• Organizations also have an internal environment that consists of their
owners, board of directors, employees, and physical work
environment.
• Owners The owners of a business are, of course, the people who have
legal property rights to that business. Owners can be a single
individual who establishes and runs a small business, partners who
jointly own the business, individual investors who buy stock in a
corporation, or other organizations.
• McDonald’s has 1.02 billion shares of stock, each of which represents
one unit of ownership in the firm. The family of McDonald’s founder
Ray Kroc stills owns a large block of this stock, as do several large
institutional investor
• Board of Directors A corporate board of directors is a governing body
that is elected by the stockholders and charged with overseeing a
firm’s general management to ensure that it is run to best serve the
stockholders’ interests.
• Employees An organization’s employees are also a major element of
its internal environment. Of particular interest to managers today is
the changing nature of the work-force, which is becoming increasingly
more diverse in terms of gender, ethnicity, age,and other dimensions.
Workers are also calling for more job ownership—either partial
ownership in the company or at least more say in how they perform
their jobs.
• Physical Work Environment A final part of the internal environment is
the organization’s actual physical environment and the work that
people do. Some firms have their facilities in downtown skyscrapers,
usually spread across several floors.
• Others locate in suburban or rural settings and may have facilities
more closely resembling a college campus. Some facilities have long
halls lined with traditional offices.
Impact of environment on business
• When organizations decide to increase their level of
internationalization, they can adopt several strategies. Each strategy is
a matter of degree, as opposed to being a discrete and mutually
exclusive category. And each has unique advantages that must be
considered