EXTERNAL ENVIRONMENT OF THE ORGANIZATIONS
Explain clearly and in detail what are the external factors that are linked to organizations and how they influence decision-making.
It is well known that the external environment of organizations is a factor that is extremely influential in the growth and profitability of companies. Clear examples of some circumstances that influence companies are political events, wars, economic forces and the emergence of new technologies.
These conditions of the external environment of organizations create a series of repercussions such as threats and opportunities, which can be beneficial and drive them to growth, either accelerated or slow, or an economic deterioration of companies can arise. And that is why companies must adapt in the best possible way to the changes that are emerging in the external environment of organizations.
Thus, companies must analyze and understand the external environment. This environment can influence the strategic decisions of companies, with which they will be able to know which path they must take to rescue themselves from bankruptcy or to take advantage of an opportunity that exists at a certain time.
Similarly, carrying out a correct study of the external environment can help organizations to develop their mission, perfect their vision and thus be able to have highly desirable returns for any other organization that competes against them in a given market.
Today the conditions that regulate the world economy are not the same as they were 20 years ago, they are not even the same as last year. In the same way, technological changes and the capacities of organizations to be able to gather and collect information are increasingly superior and growing with each passing moment. Technological changes are not only affecting companies and the communities that surround them, but also nature in general, in addition to affecting the needs of customers and consumers depending on the product, since it is increasingly required more to organizations since if they do not do so, customers will prefer to resort to the competition and this is something that no company wants to happen.
It is then that with the ideal methods to gather information in the most efficient and rapid way, companies can anticipate some phenomenon and thus be able to adapt and establish interest groupsfor when the change occurs at the relevant time. That is why in order to carry out tasks that lead to the success of an organization, the external environment of an organization must be analyzed in the most effective and available way.
WHAT IS ENVIRONMENT?
The Royal Spanish Academy defines the word environment as "environment, what surrounds", taking a more complete definition of what is environment is said to
"Environment is the general environment that surrounds an organization and in which a set of factors of different nature is identified, which can affect or influence its configuration and results." (Moyano Fuentes, Bruque Cámara, Maqueira Marín, Fidalgo Bautista, & Martínez Jurado, 2011)
This is how we can say that companies are shaped in their environment by a certain number of environmental conditions and forces which have a great influence on the actions of the organization.
Thus, we can find that there are different types of environment depending on the origin of the external forces that affect companies. Below are the types of environments that affect organizations.
GENERAL ENVIRONMENT
The general environment of an organization is a composition of social factors that have some kind of impact within an industry. These social factors that are mentioned can be seen grouped into the following segments:
- Demographic segment Economic segment Political / legal segment Sociocultural segment Technological segment Global segment (Hitt, Ireland, & Hoskisson, 2008)
Below are some examples of each of the aforementioned segments and their corresponding analysis:
| Demographic segment | Population size
Age group structure Geographical distribution |
|
Ethnic composition
Income distribution |
|
| Economic segment | Inflation rates
Interest rates Trade deficit or surplus Budget deficit or surplus |
Individual savings rate
Savings rate of companies Gross domestic product |
||
| Political / legal segment | Antitrust laws
Tax laws Philosophy of deregulation |
Labor laws
Educational philosophy and policies |
||
| Sociocultural segment | Women in the EAP
Diversity of the PEA Attitudes towards the quality of working life |
Concern for the environment
Job and career preference changes Changes in preferences for the characteristics of products and services |
||
| Technology segment | Product Innovations | Private spending approach to support | ||
| Knowledge applications | research and development | |||
| Global segment | Important political events
Critical global markets |
Newly industrialized countries
Differences in the attributes of cultures and institutions |
Table 1.1 The general environment. Segments and elements (Hitt, Ireland, & Hoskisson, 2008)
It is well known that companies do not have any type of control over the general environment and that is why they must collect the necessary information to be able to understand all the segments that were previously mentioned, with which organizations can establish the best techniques and strategies to address those segments.
THE INDUSTRIAL ENVIRONMENT
The business environment is made up of various forces which directly affect organizations, their actions and the responses that an organization may have based on competitiveness, the forces and factors that are involved in the industrial environment of a company They are:
- The threat of new entrants The power of suppliers The power of buyers The threat of product substitutes The intensity of rivalry between competitors (Hitt, Ireland, & Hoskisson, 2008)
The aforementioned factors are those that determine the potential that an organization may have towards the market that surrounds it, so that they can obtain profits. However, organizations must choose the correct tools to be able to analyze and defend themselves from all these factors that are affecting their results.
Once a company was in the task of being able to study both the general environment and the industrial environment, it will see the need to carry out a competition analysis, so that in this way they can survive the factors that are affecting the organization's decision-making, as well as the expected results.
Once we know the environments that surround the organizations, we can carry out an analysis of what the external environment of the organizations is and the factors that are in it.
ANALYSIS OF THE EXTERNAL ENVIRONMENT
Usually the external environments of organizations are in some way very unstable and turbulent, as well as complex. Which leads to the interpretation of these environments is seen in some way difficult. It is then when organizations realize that as the external environment factors are so changing, the data they can obtain when carrying out the corresponding analysis is somewhat ambiguous or may be incomplete, which is why companies must carry out an already established methodology To obtain the best information from this environment, the procedure to be followed is called “external environment analysis”, which is made up of the following steps:
- Exploration Monitoring Forecasting Evaluation
This procedure is used to find opportunities and threats that surround the organization of interest. In order to understand what is being sought with this analysis, we must ground the concepts of opportunity and threat.
The Royal Spanish Academy defines opportunity as "quality of opportune, that is, of what is presented and acts at the right time", however it can be said that a business opportunity is a condition that is present within the general environment, the which companies should identify and exploit as much as possible to obtain a competitive advantage in this way.
"A threat is a condition present in the general environment that could hinder the activities of the company to achieve strategic competitiveness" (Hitt, Ireland, & Hoskisson, 2008)
A brief description of each of the steps that comprise this methodology will be given below.
EXPLORATION
Exploration is basically studying and exploring all elements of the general environment. The exploration gives companies the first glimpse of anomalies and changes that are emerging in the general environment and those that may occur in the future. There are a number of ways you can scan your general environment. Many organizations resort to carrying out this exploration using some type of software 3 in order to have more accurate data and not so ambiguous and incomplete.
MONITORING
Through this process, analysts try to see if the data obtained through exploration has generated some kind of trend or if something truly important is emerging within the general environment. For a monitoring to be said to be effective, it must identify the interest groups that are important to the company that is carrying out the study, since there are certain groups that are of greater interest to the company throughout its existence. Therefore, they must pay greater attention to the needs of these groups.
FORECAST
- 3 Software: A set of programs and routines that allow the computer to perform certain tasks.
The forecasts are made by the analysts of the companies in order to have future projections of what may happen with the company, depending on different factors that may intervene such as seasonality or trends of a product or service which is being taught by said company. Although it is well known that the forecasts will never be exact they will help to have the possibility of having an appreciation.
EVALUATION
The objective of the evaluation is to determine the strategic management of the company by studying the effects of trends and changes that may arise. This is an attempt to specify the implications that the company may have and in the same way to be able to know what is the correct strategy that the company should carry out.
Now we will analyze the segments that come within the general environment.
DEMOGRAPHIC SEGMENT
The demographic segment is usually studied because it is one of the most influential factors towards companies. This demographic segment is made up of various factors which are:
- Population size. It is very important to analyze the size of the population since as the years go by there are more human beings in the world, to which it is said that in 2020 there is a forecast that there will be about 10 billion inhabitants in the world. This is why demographic changes are extremely important to analyze. The structure of the age groups. It is known that the population of various countries is aging at an enormous speed and in other countries such as the USA and European countries the people who were conceived in the baby boomare about to retire. This leads companies to have higher costs in terms of medical services. And in the same way this population will pay less taxes because they no longer work. Geographical distribution. The tendencies of people to move or change where they live change the tax bases of state and local governments. However, telecommunications technologies help in a good way that this does not happen because people can stay at home and communicate with third parties. Ethnic composition.The ethnic composition is increasingly changing in all countries, with which companies must develop and market products that meet the particular needs of different ethnic groups. (Hitt, Ireland, & Hoskisson, 2008) Distribution of the income of a population. Companies are aware of how the income distribution of populations is presented.
ECONOMIC SEGMENT
"It refers to the essence and direction of the economy in which the company competes or could compete" (Hitt, Ireland, & Hoskisson, 2008)
Since most nations are connected to each other, companies must be faced with implementing the analysis process I mentioned earlier in order to have a better appreciation of the global economy.
POLITICAL / LEGAL SEGMENT
This is where organizations try to have a say in the supervision of the sets of laws that govern a country as well as the regulations. Basically in this segment, companies try to influence the decisions of the countries in the most drastic way.
SOCIOCULTURAL SEGMENT
This segment is made up of the social and cultural scope of the populations to which the products of an organization are directed and varies with respect to each country. The sociocultural segment usually influences changes in demographic, economic, political / legal and technological conditions.
TECHNOLOGY SEGMENT
Technological changes affect a large number of sectors that exist within societies. These effects arise from different changes such as the launch of new products, processes and materials. Furthermore, this segment includes various institutions whose purpose is to create new knowledge.
GLOBAL SEGMENT
"It includes new global markets, existing markets that are undergoing change, major international political events, and critical cultural and institutional characteristics of global markets." (Hitt, Ireland, & Hoskisson, 2008)
Global markets give companies more opportunities to obtain the resources they need to be successful.
CONCLUSION
As could be seen, there are a large number of factors that influence the external environment of organizations, which must be analyzed in the best possible way by companies so that they can be successful in their operations and in the same way they can survive. the changes that are generated throughout the world.
REFERENCES
- Hitt, MA, Ireland, RD, & Hoskisson, RE (2008). Strategic management. Competitiveness and globalization. Concepts and cases. 7th edition. México DF: CENGAGE Learning. Moyano Fuentes, J., Bruque Cámara, S., Maqueira Marín, JM, Fidalgo Bautista, F. Á., & Martínez Jurado, PJ (2011). Business administration: a theoretical-practical approach. Madrid: Pearson education, Royal Spanish Academy. (2005). rae.es. Retrieved on February 16, 2016, from http://lema.rae.es/dpd/srv/search?key=entornoReal Académia Española. (2005). rae.es. Retrieved on February 16, 2016, from
Interest Group: An Interest Group is a group of people, organized by a common interest, in order to act jointly in defense of that interest.
Competition analysis: It is the analysis of the capabilities, resources, strategies, competitive advantages, strengths, weaknesses and other characteristics of the current and potential competitors of a company or business, in order to be able, based on said analysis, to take decisions or design strategies that allow you to compete with them in the best possible way.
Baby Boom: Birth explosion originated in the period 1946-1964.
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