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External environment is made up of two basic parts:
• task environment, and
• wider environment.
Task Environment can be defined as:
• all possible suppliers of:
- labor,
- information,
- money,
- materials,
- and so on;
• markets,
• competitors,
• regulators, and
• associations relevant for organization’s products and services.
The Wider Environment can be defined by such indicators as:
• public attitudes,
• state of technological development,
• economy,
• occupational system,
• political system,
• demographic characteristics of people and organizations,
• society’s social structure,
• current price levels,
• laws, and so on.
To understand organization’s internal processes one needs to understand its environment.
Because organizations must rely on their environments for providing:
• inputs and disposing of outputs,
• the number and size of competitors,
• the number and size of and suppliers,
• diversity of markets served,
• characteristics of regulators and associations.
Rate at which these factors are changing can all be the relevant forces that help to shape organizational processes.
To determine the current state of a specific organization’s external environment, it is important to identify and describe potentially relevant:
• suppliers,
• customers or clients,
• regulators,
• competitors, as well as
• organization’s current relationship with those entities.
Questions to Determine the Present State of External Environment
1. Considering the organization’s current products and services, what other organizations, groups, or important people constitute its task environment? That is, who are the relevant potential suppliers, customers, or clients, regulators, competitors, and so on?
2. What are the key characteristics of the various entities in the task environment in terms of:
a. size,
b. objectives or desires,
c. stability,
d. capabilities,
e. technologies used,
f. attitudes about organization, and so on?
3. If the organization is in a clearly definable industry, and this has competitors, why is it that some competitors are more successful than others? What are the key success factors in the industry?
4. With whom does the organization currently interact? How dependent is it on each of those external elements? In each case, what is the basis of that dependence? How much countervailing (equal) power does the organization have? What is the basis of that power?
5. What are the most important characteristics of the organization’s outer environment? What are the current economic, political, legal, technological, and social trends of importance?
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