The interaction of managers and personnel that make up an organization is with the environment within the company, but in most cases an effective manager must also deal with the external environment.
In a certain way, each time plans are made in the organization, they consider the wishes and aspirations of members of society outside the organization, as well as the needs of material and human resources, technology and other requirements in the external environment.
Thus, senior management, whether they operate in a company, a government agency, a church or a university, must take into account the elements and forces of their external environment.
Therefore, the various elements that make up the external environment of organizations and the impact of the external environment on the organization and the relationships between companies and the society in which they operate will be described below. Firstly, emphasis is placed on various factors of the external environment and later, the analysis extends to the issues of social responsibility and ethical conduct.
Pluralistic society
Operating in a pluralistic society is nothing other than operating with many organized groups representing diverse interests. Each group has an impact on other groups, but none of them wield too much power.
Working in a pluralistic society has several implications for the organization. First, the power of the organization is balanced by various groups, such as those for the protection of the environment. Second, the organization's interests could be expressed by united groups such as the Chamber of Commerce. Third, the organization participates in projects with other responsible groups to improve society; for example: the efforts for the renewal of the cities within it. Fourth, in a pluralistic society, there may be conflict or agreement between groups. Finally, one group will always be aware of what other groups are doing.
The organization and its environment
The organization according to the "Systems Theory", can be considered as an open system, that is, "a set of elements interrelated with each other and with the environment or environment that surrounds it, is one that has an environment, that is, it is related, exchange and communicate with other systems "
The external environment is formed by those factors, forces, variables that influence an organization.
The external environment can be defined according to the Webster'Third New International Dictionary as:
Environmental conditions or forces that "influence or modify".
Set of social and cultural conditions, such as customs, laws, language, religion, political and economic organization, that influence the life of an individual or community (organization).
A usual way to classify the external environment or environment is: micro entorn and macro entorn, understanding the following:
Micro entornó, are those variables on which an organization can influence in some way. It is also classified as a specific environment
Providers
Competitors Direct Forces
customers
Macro half-closed, it is made up of variables that influence the organization and that it cannot control. It is also classified as a General Environment.
Economic
Technological
Social Indirect Forces
Political and legal
Ethical.
Macroenvironment. Indirect forces.
The economic external environment
The external economic environment is of interest not only to organizations whose mission is the production and distribution of goods and services that people can acquire, but is also of great importance for other types of organized companies, such as a government office that takes resources, generally from taxpayers and in exchange offers services desired by the public, a Church takes contributions from its members and responds to their religious and social needs, a University, which takes resources from taxpayers, students and donors of various kinds, transforming them into educational services and research.
Capital
Almost any type of organization needs capital in the form of machinery, buildings, property inventories, office equipment, tools of all kinds, and cash. Part of this may be produced by the organization itself, or they generally depend on various suppliers for their capital requirements, and the work of these suppliers is to produce the materials and other capital goods that an organization needs for its operation. This means that all types of operations depend on the availability and prices of the capital goods they require, but companies vary considerably from this availability.
For example, in Brazil there may be a lack of railway facilities, which are abundant in the United States.
Job
Another important input of the economic environment is the availability, quality and price of the workforce, the latter being a very important economic input for an organization. For example, relatively high wages in the United States and many European Nations often create cost problems for producers in those countries. Not surprisingly, many products that require high labor input are produced outside the United States and in nations such as Mexico, Korea, and Taiwan.
Price levels
The inputs in an organization are clearly affected by changes in the price level, inflation for example not only affects organizations, but also negatively affects all types of organization through its effects on the cost of labor, material and other assets.
Government Fiscal and Tax Policy
The nature of government fiscal and tax policies is another important factor in the organization. Although, strictly speaking, these are aspects of the political environment, their economic impact on all companies is impressive. For example, the Government controls the availability of credit through fiscal policy. Government tax policy affects all segments of society, as well as the way taxes are applied.
The external technological environment
The term technology refers to the sum total of the knowledge that one has on the ways of doing things. It includes inventions, techniques and the vast archive of organized knowledge. However, its main influence is in the ways of doing things, in how goods and services are designed, produced, distributed and sold.
Impact of technology and categories of technological change
The benefits of technology must be weighed against the problems associated with technological developments. What is required is a balanced approach that takes the benefits of technology while minimizing some of the unwanted side effects.
The scope of technological change is shown below
1. Greater possibilities of controlling time and distance for the movement of cargo and passengers.
2. Greater possibilities of generating, storing, transporting and distributing energy.
3. Mechanization or automation of physical processes.
4. Mechanization or automation of certain mental processes.
5. Greater understanding of individual or group behavior and how to manage it.
6. Better knowledge of diseases and their treatment.
The external social environment
It is difficult to separate social, political and ethical media, however, for conceptual purposes if possible.
The social environment is made up of the attitudes, desires, expectations, degrees of intelligence and education, beliefs and customs of people in a certain group or society. The political and legal environment is primarily the complex of laws, regulations and government agencies, and their actions, that affect all types of companies. The ethical means comprises the set of generally accepted and practiced standards of personal conduct. Although these standards may or may not be codified by law, in any group in which they are applied they have the same force as the law.
Attitudes, beliefs and social values
There is a diversity of values that makes it difficult for senior management to design a medium conducive to performance and satisfaction. It is even more difficult to respond to these forces when they are outside the company. However, they have no alternative but to take them into account in their decision-making.
Throughout social development, various social beliefs have emerged that are important to top management:
1. The belief that there are opportunities for people willing and able to work to take advantage of them.
2. Faith in business and respect for their owners and leaders.
3. Belief in competition and competitiveness in all aspects of life, but particularly in business.
4. Respect for individuals, regardless of race, religion, or creed.
5. Belief and respect for education.
6. Faith in logical processes, science and technology.
7. Belief in the importance of change and experimentation to find better ways of doing things.
Even though these and other beliefs have tended to erode as the population's standard of living improves and the expectations of a better life tend to increase faster, they continue to have strength.
The external environment: political and legal
As indicated before, the political and legal environment of top management is linked to the social environment. Laws are normally passed as a result of social pressure and problems. However, once they are approved, they usually remain on the books after the socially perceived need to institute them has disappeared.
The political environment
Political media (attitudes and actions of political and government leaders and legislators) change with the emergence and development of social demands and beliefs. The government affects almost all companies and all aspects of life. With respect to an organization, it acts in two essential functions: it promotes and limits business. Finally, the Government is the main customer that buys goods and services.
The legal means
The other role of the government is to limit and regulate business. There is very little that top management can do in any organization that is not linked to and often specifically controlled by law or regulation.
Many of the laws and regulations are necessary, even though many become obsolete. However, they represent a complex medium for senior management. They are expected to know the restrictions and legal requirements applicable to their actions. Therefore, it is natural that they have a legal expert very close to them when making decisions.
Many of the laws and regulations develop slowly, so insightful managers must not only respond to social pressures, but also have the problem of anticipating and facing political pressures as well as laws that could be passed.
Ethical
Everyone, whether they are in government, business, a university, or any other organization, cares about ethics. In Webster's New Collegiate Dictionary, ethics is defined as: " the discipline that has to do with good and evil and with moral duty and obligation ". Business ethics has to do with truth and justice and has a variety of aspects such as the expectations of society, fair competition, advertising, public relations, social responsibilities, consumer autonomy and the conduct of corporation in your home country as well as abroad.
Ethical theories
In organizations, managers compete for information, influence and resources. The criteria that guide ethical conduct and developed as three basic types of moral theories in the field of normative ethics are:
1. Utilitarian theory suggests that plans and actions should be evaluated for consequences. The idea is that plans and actions should produce the maximum good for the greatest number of people.
2. The rights-based theory holds that all people have basic rights such as the right to freedom of conscience, free expression, the correct process and others.
3. The theory of justice, which requires that decision makers be guided by justice and fairness as well as fairness.
Institutionalization of ethics
Senior management is responsible for creating an organizational environment that encourages ethical decision-making, by institutionalizing that conduct. Referring with this to the application and integration of ethical concepts in everyday actions. Theodore Purcell and James Weber suggest that this can be accomplished in three ways: through 1) company policy or a code of ethics, 2) a formally integrated ethics committee, and 3) teaching ethics of management Development. The most common way to institutionalize ethics is to establish a code of ethics, less common is the use of ethics committees.
Code of ethics and its implementation through formal committees
A code is a statement of policies, principals, or rules that govern conduct. The codes of ethics do not only apply to business companies; they must guide the conduct of employees in all organizations and in daily life, but it is not enough to create a code of ethics, the appointment of an ethics committee made up of internal and external directors is considered essential to institutionalize ethical conduct. The functions of the committee in this case would be:
1. Hold regular meetings to discuss ethical issues.
2. Confront poorly defined areas.
3. Communicate the code to all members of the organization.
4. Verify possible code violations.
5. Apply the code.
6. Reward compliance and punish violations.
7. Review and update the code.
8. Communicate the committee's activities to the board of directors.
Social responsibility of senior management
In the 20th century, the mission of organizations was exclusively economic, but today, the social participation of organizations has increased. Even when there are doubts about what their social responsibility really is. This concept is not new, this analysis took strength with the book Social Responsibilities of the Businessman, by Howard R. Bowen, who suggested that companies should consider the social implications of their decisions and then Corporate Social Responsibility is defined as having seriously considering the impact of the company's actions on society. However, a more recent concept is, the social response, which means: "the ability of a corporation to relate its operations and policies to the social environment, in such a way that they are mutually beneficial for the company and society ”. Both definitions focus on organization, but the main difference between social responsibility and social response is that the latter foresees actions and "how" the company responds.
Microenvironment. Direct forces
customers
They are current or potential customers and can be individuals or organizations. For example: institution, hospital, government entity, contractor, distributor or manufacturer, and the individual consumer. Today organizations transform their processes to adapt to customer needs.
Competitors
Nothing should be taken more serious than competitors if an organization wants to increase market share. Every organization should seek to know the strategies of present and future consumers.
The competitors include foreign competitors, start-ups, and those from other sectors (product of some diversification strategy).
High competition in a sector, for example, causes a product price drop, or aggressive sales strategies.
Providers
Organizations are not self-sufficient, so they require supplies and services. For example, raw materials, services, energy equipment and labor.
This factor is important because depending on what the organization acquires from its environment and what it does with what it acquires, they determine the quality and the final price of the product.
Suppliers can also pose a threat when they are unique or their customer is not significant to them and may even become a future competitor.
Observation and analysis of the environment
As it has been analyzed, it is important to consider the environment as an explanatory factor and predictor of the events of organizations, therefore a good alternative for good management is the observation and analysis of the environment as a necessary element for decision-making, but this also represents certain problems:
The environment is extremely complex and changing. Observing the environment involves costs that not all organizations are capable of bearing. It is difficult to specify which factors are the most relevant to take into account and, above all, the extent of each observation.
Paradoxically, the greater the degree of information that is possessed and the greater the power of analysis and prediction tools, the greater the difficulty in making accurate future predictions. The speed of the changes and the level of turbulence in the environment is currently of such magnitude that it is difficult to predict long and medium-term predictions.
Years ago the environment of an organization was relatively stable and observation was not so necessary to predict changes, it was enough to project the trend to successive years to have a rough idea of where things were going.
Currently, classical techniques are insufficient to predict the future. The speed of the variations requires constant observation, hence the emergence of several methods focused on prediction, one of which is the "scenario method".
This method is basically the consideration of several different and alternative futures hypotheses when evaluating the future. When simultaneously considering various options for the future, two things are allowed:
1. Contemplate more possibilities for the future than that described by a certain prediction technique
2. See in different environments what would be the strengths and weaknesses, threats and opportunities and prepare for it.
The methodology of this scenario method could be described as follows:
1. Define the variables or factors to take into account (factors of the external environment).
2. Establish behavioral hypotheses for each of these variables.
3. Set trends and future events in terms of probabilities.
4. Consider possible and realistic scenarios.
5. Design the environment profile for each possible scenario and see its impact on the organization for which the observation is made.
Conclusions
In short, top management operates in a complex environment. They are affected by the economic, technological, social, political, legal and ethical environment (and in some way influence it). Determining the appropriate relationships between various organizations and society is not easy. However, many organizations make serious efforts to establish a beneficial environment for individuals, businesses and society.
Bibliography
ADMINISTRATION. Administration and Society: The external environment, social responsibility and ethics. Harold Koontz and Heinz Weihrich. Ed. Mc Graw Hill.
HUMAN RESOURCES MANAGEMENT. The organizations. Chiavenato, I. Ed. Mc Graw Hill.
