Chapter 2: The External Environment
The Environmental DomainOrganizational environment is defined as all elements that exist outside the boundary of the organization that have the potential to affect all or part of the organization.
An organization’s domain is the chosen field of action. It is the territory an organization stakes out for itself for its products, services, and markets served.The environment comprises several sectors or subdivisions of the external environment that contains similar elements.
Task EnvironmentThe task environment includes sectors with which the organization interacts directly and that have a direct impact on the organization’s ability to achieve its goals. The task environment typically includes the industry, raw materials, and market sectors, andperhaps the human resources and internal sectors.
Competitors, industry size and competitiveness, related industries
Raw materials sector
Suppliers, manufactures, real estate, services
Human resources sector
Labor market, employment agencies, universities, training schools, employees in other companies, unionization
Financial resources sectorStock market, banks, credit unions, private investors
Customers, clients, potential users of products and services
Techniques of production, science, computers, information technology, e-commerce
Economic conditions sector
Recession, unemployment rate, inflation rate, rate of investment, economics, growth
Government sectorCity, provincial, federal laws and regulations, taxes, services, court system, political processes
Age, values, beliefs, education, religion, work ethic, consumer and green movements
Competition from and acquisition by foreign firms, entry into overseas markets, foreign customs, regulations, exchange rate.
General EnvironmentThegeneral environment includes those sectors that might have a direct impact on the fairly operations of a firm but will indirectly influence it. The general environment often includes the government, socio-cultural, economic conditions, technology, and financial resources sectors. These sectors affect all organizations eventually.
International ContextThe growing importance of the internationalsector means that the environment for all organizations is becoming extremely complex and extremely competitive.
Environmental UncertaintyTwo essential ways the environment influences organizations
The need for information about the environment
The need for resources from the environment
Uncertainty means that decision makers do not have sufficient information about environmental factors,and they have a difficult time predicting external changes. Uncertainty increases the risk of failure for organizational responses and makes it difficult to compute costs and probabilities associated with decision alternatives.
Simple-Complex DimensionThe simple complex dimension concerns environmental complexity, which refers to heterogeneity, or the number and dissimilar of external elementsrelevant to an organization’s operations. The more external factors that regularly influence the organization, and the greater number of other organizations in the domain, the greater the complexity.
Stable-Unstable DimensionThe stable-unstable dimension refers to whether elements in the environment are dynamic. An environmental domain is stable if it remains the same over a period of months oryears, or experiences readily predictable change.
Instability may occur when competitors react with aggressive moves and counter moves regarding advertising and new products, as happened with Nokia.
Although environments are more unstable for most organizations today, an example of a traditionally stable environment is a public utility.
FrameworkSimple + Stable Small number of external...
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