Assignment 2 external environment

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Part (a)
Describe the general and task environment and the dimensions of each
The organization exists in interaction with the external and internal environments. The
organizational environment is a set of forces and conditions outside of the organization’s
boundaries that affects the way it operates and shapes its behaviour. These forces change over
time and thus present managers with opportunities and threats. To identify opportunities or threats
caused by forces in the environment, it helpful for managers to distinguish between the task
environment and the more encompassing general environment. The general environment and task
environment are the two components that make up an organizations external environment. The
external environment of an organization includes influential elements that both directly and
indirectly shape and impact its future, and as of late, has developed into an area of increasing
importance to managers worldwide.
The external environment, as agreed upon by Aharoni, Maimon and Segev (2008) and Daft and
Samson (2009), can be defined as all elements that exist outside an organization that may or may
not affect aspects of the organization. This includes all technological, political, economic and
social conditions that influence the future of the organization. As stated in Daft and Samson
(2009), an organizations external environment can be separated into two concepts, the general and
task environments. The general environment is the layer of the external environment that affects
the organization indirectly. The task environment is the layer of the external environment that
directly influences the organization’s operations and performance. These are discussed in turn.
The general environment is the layer of the external environment that affects the organization
indirectly. It is the 'outer layer of the environment – the dimensions that influence the organization
over time but often are not involved in day-to-day transactions' (Daft and Samson, p.92).
According to Hurtado and Mukherji, (2001), the general environment includes sociocultural,
technological, economic, legal-political and international elements. The general environment can
therefore be seen as having a water ripple effect on an organization, with each element having an
eventual, indirect but equally influential effect. It includes the wide-ranging economic,
technological, socio-cultural, demographic, political, legal and international (global) forces that

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affect the organization and its task environment. Since such elements are beyond the ability of a
single organization to affect or alter them therefore they cannot be influenced in the short run.
The technological dimension, as described by Daft and Samson (2009) refers to the current state
of knowledge about the production of goods and services. Technological environment can
positively or negatively impact the overall success of an organization. Different industries such as
automobile, telecommunications, and computer are greatly affected by frequent changes in
technology. Therefore in order to remain competitive, organizations must stay abreast of current
technological developments.
In the global environment, (Johnston, 1991), the political, social, cultural, and economic situations
of one country are significantly different from another country. Therefore development in a
country outside an organization’s home country has great influence on the success of the
organization. For example a slight increase in the value of a foreign currency has great influence
on the ability of an organization to conduct its business abroad. Therefore those organizations
which are purchasing raw materials from the abroad will find it difficult to purchase from them
because of the increase in the cost of production due to higher prices and vice versa.
According to Daft, (2004) the international dimension of the external environment represents
events originating in foreign countries as well as opportunities for local companies in other
countries. The international dimension represents a context that influences all other aspects of the
external environment. The international environment provides new competitors, customers, and
suppliers and shapes social, technological, and economic trends as well. The global environment
represents a complex, ever-changing, and uneven playing field compared with the domestic
environment. When operating globally, managers have to consider legal, political, sociocultural,
and economic factors not only in their home countries but in other countries as well.
According to Bourgeois, (1990) the political and legal refers to the legal and governmental
systems within which an organization must function. There are various government regulations
which can significantly influence the overall performance of an organization. For example the
laws regarding conditions of employment, taxation and investment. Similarly political stability
and positive attitude of elected government officials towards the business of an organization is
very important for the organization’s progress and prosperity. Bourgeois, (1990) further describes

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the economic dimension, that it is about how the prevailing economic conditions have a great
impact on the management practices in an organization. Different economic factors such as
inflation, interest rates, changes in per capita income and stock market fluctuations affect the
profitability and success of an organization. For example if the per capita income of people
decreases, it will decrease their purchasing power which will ultimately lower the demand for
goods and services. Due to lower demand, prices fall and the profit of an organization shrink.
The socio-cultural elements include customs, norms, behaviors, societal values, beliefs and many
others. Socio-cultural aspects are subjected to change therefore managers must adapt their
practices to the changing expectations of the society. It is necessary to monitor the prevailing
trend from time to time because such changes might offer new opportunities or pose significant
threats. For example if there is a shift in the behaviour of people for a certain product, the demand
of the product will increase along with an increase in price (Daft and Samson (2009).
The task environment is the layer of the external environment that directly influences the
organization’s operations and performance. As described in Daft and Samson (2009) it is more
relevant to an organization in comparison to the general environment, in that it has a direct and
immediate impact on the organization. The task environment 'includes the sectors that conduct
day-to-day transactions with the organization and directly influences its basic operations and
performance. They include customers, the labor market, suppliers as well as competitors (Daft and
Samson, 2009). In essence the task environment is the set of forces and conditions that affect an
organization’s ability to obtain inputs and dispose of its outputs.
In discussion, Bourgeois, (1990) considers that regulators are units in the task environment that
have the potential to control, regulate, or influence a company’s policies and practices. Regulatory
agencies are created by the government to protect the public from certain business practices or to
protect organizations form one another. Labor includes all of a company’s employees that are
used as inputs to provide services to their clients. According to Bourgeois, (1990) labor is
especially an area of concern when most of the employees in an industry are unionized which
leads to higher remuneration packages because of collective bargaining agreements. Unions often
cause organizations to struggle to create competitive advantage in the economic market – usually
achieved by providing the least expensive service possible.

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Competitors refer to those organizations that either offer or have potential to offer rival services. It
means that not only existing rivals are threats so the success of an organization bur the potential
newcomers could be disastrous too. The company’s managers must know who their main
competitors are with their respective weaknesses, to use it as inputs to create competitive
advantage in the industry. The more competitive the market is, the more profits are driven down
but if a company can raise the expected level of service, thus increasing the start-up cost of new
entrants into the market and restricting them they could control the market. With fewer substitutes
in the market a company will be the market leader or trend setter in the industry and thereby
increase profits (Baker and Astor, 2005).
Customers and clients refer to those individuals and organizations that purchase a company’s
services. Cliff, (2005) asserts that any company exists to meet the needs of customers through
which they earn revenue and profits. But these customers bring potential uncertainty to an
organization’s success because of their changing tastes, preferences, and lifestyle etc. Therefore
the company must improve the quality of their service, stay close with the customers and listen to
the customers about their needs. The suppliers, according to Cliff, (2005) are based on the
understanding that companies purchase these resources from various individuals and
organizations know as suppliers. The term suppliers also include providers of financial inputs
such as banks, insurance companies and pension funds etc. It is the responsibility of each manager
to ensure the steady flow of needed inputs at the lowers price available in order to maintain the
effectiveness of the company.
Within the perimeters of this essay, it has been recognized that the external environment of an
organization is vital as identified in the principal forces—both task and general—that create
pressure, influence managers and thus affect the way organizations operate. Both can be useful to
identify opportunities or threats caused by forces in the environment. Managers ought to
distinguish between the task environment and the more encompassing general environment. This
way the organization will be able to obtain inputs and dispose of its outputs appropriately, while at
the same time operate effectively on a wider scale that exceeds the local to incorporate the wide
ranging spheres of the global scale.

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References
Aharoni, Y., Maimon, Z. and Segev E., (2008). Performance and Autonomy in Organizations:
Determining Dominant Environmental Components. Management Science, 24 (9), 949-959.
Baker, S. and Astor, A., (2005) “The Business of Nanotech,” Business Week (February 14, 2005):
64–71.
Bourgeois, L. J. (1990) “Strategy and Environment: A Conceptual Integration,” Academy of
Management Review 5: 25–39.
Cliff E., (2005) “Wherever You Go, You’re On the Job,” Business Week (June 20, 2005): 87–90.
Daft, L.R and Samson, D. (2009). Management (3rd ed.).Victoria: Cengage Learning Australia.
Daft, L. R. (2004) Organization Theory and Design, 8th ed. Cincinnati, OH: South-Western,
2004, pp. 136–140
Hurtado, P. and Mukherji, A, (2001). Interpreting, categorizing and responding to the
environment: the role of culture in strategic problem definition. Management Decision, 39 (2),
105.
Johnston, W. B. (1991) “Global Work, The New World Labor Market,” Harvard Business Review
(March–April 1991): 115–127.

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Part (b)
Explain how organizations adapt to an uncertain environment and identify techniques
managers use to influence and control the external environment.
In today’s turbulent business environment, being able to respond in a timely way to emerging
threats and opportunities is crucial to an organization’s survival and prosperity. An organization’s
effectiveness can be improved by leader decisions that facilitate innovation and adaptation.
Adaptation involves changes made to cope with external threats and to exploit opportunities
created by new technology, changing markets, and the shifting needs and expectations of
customers. The ability to adapt becomes even more important when the external environment is
turbulent and uncertain. This is when an organization is in a situation where the management have
little information about its external environment that is in a state of flux and, hence, largely
unpredictable. Uncertainty is greater in times of rapid technological change, political and
economic turmoil, or new threats from competitors. In these situations, innovation is usually
necessary to develop an appropriate response to emerging threats and opportunities.
Uncertainty is seen as not having sufficient information about environmental factors which results
in a difficult time predicting changes. It is a lack of information for, and knowledge in decision
making. It is also postulated as resulting from the indistinct and convoluted causal configuration
underlying the internal operations of the firm, its environment, and the complex relationship
between the firm and the environment (Collis 1992). Uncertainty is equally viewed as a product of
unpredictability, environmental turbulence and the complexity of influential variables. Further,
uncertainty is also perceived as a tangible facet of the external environment, and as an
illumination of the perceptual method through which managers interpret their decision situation
(Milliken 1987).
Organizations need to adapt in an environment that is uncertain in order for them to be afloat and
well prepared for any eventualities. Miles and Snow, (1998) suggest that organizations develop a
systematic and identifiable pattern of behavior toward environmental adaptation. The major
elements of adaptation and the relationships among them are conceptualized by what they call an
“adaptive cycle” over time. The cycle embodies different business strategies, representing
organizations’ response to the competitive environment. An organization’s strategy addresses

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three types of problems, which represent the dimensions of the “adaptive cycle:” the
entrepreneurial, the engineering, and the administrative. The entrepreneurial problem relates to
how an organization orients itself to the marketplace, that is, its market-product domain. The
engineering problem refers to the organization’s technical system, that is, technology and
processes used to produce its products and services. The administrative problem is about how an
organization attempts to coordinate and implement its strategies, that is, structure, control, and
process issues. Miles and Snow, (1998) classify firms by their adaptive decision patterns into
prospectors, defenders, analyzers, and reactors.
A prospector strategy focuses on product innovation and market opportunities. Firms adopting this
strategy tend to emphasize creativity and flexibility over efficiency in order to respond quickly to
changing market conditions and take advantage of new market opportunities. The organizational
structure of prospector firms is informal and decentralized for more flexibility and quicker
response to the changing environment (Stathakopoulos 1998). Prospectors tend to have
decentralized control systems and to use ad hoc measurements (Miles and Snow 1998).
Russell and Russell, (1992) explain that high levels of uncertainty generate more innovation
through opportunity seeking and adaptation to change. Prospectors tend to perceive their
environment as highly uncertain or increased levels of innovation create the perception of
increased uncertainty among managers. Miller and Friesen, (1998) suggest that innovators may
even shape their environments by introducing new products, technologies, and process. Lumpkin
and Dess, (1996) indicate that innovators may shape their environment by influencing trends and
even creating demand. Chen and Hambrick, (1995) define proactiveness, which is an important
dimension of entrepreneurial orientation, as taking the initiative to shape the environment to one’s
own advantage. They argue that through its strategy, an organization attempts to shape
environmental elements to its advantage.
A defender strategy searches for market stability, and offers and seeks to protect a limited product
line for a narrow segment of the potential market. Defenders try carving out and maintaining
niches within industries where competitors find it difficult to penetrate. They compete mainly on
the basis of price, quality, delivery, and service and concentrate on operating efficiencies and tight
control of costs to maintain their competitiveness. Their structures and processes are formalized

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and centralized (Stathakopoulos, 1998). According to Miles and Snow, (1998) analyzer firms are
hybrids, combining the characteristics of prospectors and defenders. They try to balance
efficiency and cost control with innovation. They tend to copy and imitate the successful ideas of
prospectors, but they systematically assess and evaluate new business ideas before they move
selectively to promising areas. Analyzers tend to operate in at least two different product-market
areas: one stable, in which they emphasize efficiency, and one variable, in which they emphasize
innovation. Their organizational structures are complex, reflecting the diverse markets they
operate in. They try to combine characteristics of both mechanistic and organic organizations.
Stathakopoulos, (1998) asserts that reactors simply react to environmental change and make
strategic adjustments only when forced to do so. They characteristically lack coherent strategy and
are unable to respond quickly to environmental changes.
According to Hong, (1999) in the face of uncertainty, management should uphold essential values,
including flexibility, continuous improvement, initiative, and a quest for excellence. Instead of
viewing adaptation as an infrequent reaction to dramatic, one-time events, it is better to view it as
a continuous process that involves a combination of many and frequent incremental improvements
and occasional major changes. In organizations with this type of culture, Hong recommends that
new ideas be nurtured and promoted, information widely and freely shared, and people and
systems be flexible and ready to respond to changes when they occur. Over an extended period of
time the leaders of an organization can strengthen cultural values that encourage innovation and
flexibility. A continuous monitoring of the environment is also essential if an organization is
going to survive comfortably in an uncertain environment. According to Jauch and Kraft, (2006)
monitoring the environment involves collecting and analyzing information about opportunities
and threats in the external environment and identifying trends and opportunities to enhance
business performance. The focus of external monitoring should be the sectors of the environment
on which the work unit is highly dependent (such as clients and customers, suppliers, competitors,
or governmental agencies). External monitoring in organizations is more effective when people at
all levels are involved and relevant information is recognized and used to improve strategic
decisions.
It is imperative that organizations facing an uncertain environment engage in well taken strategic
planning. In this regard, Namiki, (1989) recommends and states that strategic planning is the

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process of determining where you are, where you want to be in the future, and how you will get
from here to there. The process includes setting strategic objectives, identifying tactics and actions
for attaining them, and determining the resources and actions needed to implement the strategies.
Although senior management has the ultimate responsibility for strategic decisions, the most
successful leaders find ways to involve people throughout the organization in the strategic
planning process. Yukl and Lepsinger, (2004) contend that a strategy will not improve
organizational performance unless it is relevant and feasible. The likelihood that an organization
will be able to achieve a competitive advantage is determined, in part, by its ability to identify and
leverage its core competencies—its knowledge about particular activities and its ability to carry
out those activities. Core competencies can be the key to the future success of an organization;
they help it remain competitive in its current business and enable it to diversify into new
businesses.
As environmental uncertainty moves from low to high, the adaptive decision pattern should move
from defender to prospector. Environments of moderate uncertainty are associated with the
adaptive pattern of analyzers. The level of uncertainty may be objective and measurable or
subjective and perceived. The important issue is how organizations behave in such environments.
Accordingly, proactiveness is always better than being reactive to negative circumstances or
changes in the environment.

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References
Chen, M. J., and Hambrick, D. C. (1995). Speed, stealth, and selective attack: How small firms
differ from large firms in competitive behavior. Academy of Management Journal 38: 453-482.
Hong, J. (1999). Structuring for organizational learning. The Learning Organization 6, no. 4147.
Jauch, L., and Kraft, K., (2006) Strategic management of uncertainty. Academy of Management
Review 11: 777-790.
Miles, R. E., and C. C. Snow. (1998). Organizational strategy, structure, and process. New York:
McGraw-Hill.
Miller, D., and Friesen, P. H., (1978). Archetypes of strategy formulation. Management Science
24: 921-933.
Namiki, N. (1989). Miles and Snow’s typology, perceived environmental uncertainty, and
organizational performance. Akron Business and Economic Review (Summer) 20, no. 2: 72-89.
Russell, D., and Russell, C. J., (1992). An examination of the effect of organizational norms,
organizational structure, and environmental uncertainty on entrepreneurial strategy. Journal of
Management 18, no. 4: 639-647.
Stathakopoulos, V., (1998). Enhancing the performance of marketing managers—Aligning
strategy, structure and evaluation systems. European Journal of Marketing 23, no. 5/6: 536-558.
Yukl, G. and Lepsinger, R. (2004) Creating Value by Balancing Multiple Challenges and Choices.
Pfeiffer.

Assignment 2 external environment

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