External environment (specific or task environment)
The external environment, often referred to as the specific or task environment, encompasses various factors outside a company's control that significantly influence its operations. This environment is typically divided into two categories: the macro environment and the micro environment. The macro external environment includes broad factors such as economic performance, demographic shifts, technological advancements, political changes, and social movements. For instance, economic conditions can impact spending habits, while shifts in demographics may require companies to adjust their marketing strategies to cater to an aging or more diverse population.
On a more localized scale, the micro environment involves elements such as customers, suppliers, competitors, and the workforce. Customers play a crucial role as businesses must understand and meet their needs to thrive. Suppliers affect operational capabilities by providing necessary materials and services, and competition influences pricing and market strategies. Additionally, public perception and labor relations can dramatically impact a company's reputation and efficiency. To succeed, businesses must be agile and responsive to these external forces, adapting their strategies as the environment evolves.
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External environment (specific or task environment)
In business, the external environment refers to factors outside of a company that influence its operation. Also known as the specific or task environment, the external environment consists of forces beyond the control of a business. To ensure success, businesses must react and adapt to these forces and the changes they bring. External environments are often divided into two types: the macro environment and the micro environment. Several factors are generally considered to have a direct effect on a company's external environment; these include customers, suppliers, competitors, employees, and the government.
Overview
The macro external environment is typically defined as those wide-ranging factors that affect business operations. The most impactful macro external force on a business is the overall performance of the economy, as it affects everything from expenditures, to production, to marketing. Others can include demographic forces such as the cultural characteristics or education level of a region. For example, companies may have to adjust their marketing strategies as the population of an area grows older or more diverse. Businesses must also adapt to changes in the environment or in the availability of natural resources.
Technological factors also affect the external environment, as businesses need to adapt to changes in technology. The booming popularity of the internet at the beginning of the twenty-first century, for instance, forced many long-standing businesses to shift to online sales. Technological updates must also be incorporated into the means of production to ensure maximum efficiency. Political forces and changes in government regulations can affect how a company manages its operations. At times, businesses may be forced to change to comply with new laws. Companies must also adapt to shifting social forces. An increased public awareness in clean energy may prompt a business to change how it operates.
Micro factors in the external environment are smaller-scale elements that still have a significant effect on a business. The most significant among all external factors are the customers. Customers can range from individual consumers to corporate clients. Companies must constantly analyze and fulfill customer needs to maintain their business. Suppliers and business partners are another fundamental aspect of the external environment. They control the materials or services a company needs to operate. If a supplier is the only provider of materials, it has a greater impact on its partner business.
Businesses must also adapt to the actions of their competition. The prices a direct competitor charges for its products affects the prices a business can charge. For example, if the competition lowers its prices, a business must consider whether it should follow suit. Companies must also take into account the target audience of a competitor and decide if it wants to target the same consumers. In an effort to satisfy consumers, businesses must be aware of public opinion. A business scandal or news of a security breach can damage a business, while positive news can have the opposite effect. Workforce and labor issues affect businesses in several ways. Companies must hire competent individuals to ensure quality production. They must also be able to resolve labor disputes to maintain business efficiency.
Bibliography
Daft, Richard L. "The Environment of Management." New Era of Management. Thomson South-Western, 2008, pp. 68–205.
Gartenstein, Devra. "Five Components of an Organization's External Environment." Chron, 29 Jan. 2019, smallbusiness.chron.com/five-components-organizations-external-environment-17634.html. Accessed 26 Aug. 2024.
"The Impact of Micro and Macro Environment Factors on Marketing." Oxford College of Marketing, Oct. 2023, blog.oxfordcollegeofmarketing.com/2014/11/04/the-impact-of-micro-and-macro-environment-factors-on-marketing/. Accessed 26 Aug. 2024.
Makos, Jim. "External Factors Affecting a Business: What to Include in Your Analysis." PESTLEanalysis.com, 2 Apr. 2024, pestleanalysis.com/external-factors-affect-business/. Accessed 26 Aug. 2024.
"What Are the Different Business Environment Types?" Indeed, 14 Aug. 2023, uk.indeed.com/career-advice/career-development/business-environment-types. Accessed 26 Aug. 2024.