1. CHAPTER 3 UNDERSTANDING INTERNAL & EXTERNAL ENVIRONMENTS
An organisation’s effectiveness is influenced by its external environment—the major forces outside the organisation able to impact on the success of its products or services. In addition organisations which could be successful are unable to be unless their internal environment is compatible with external conditions.
Further discussion can be found on page 64.

2. Objectives
Explain the concept mega-environment and outline its major elements.
Distinguish between task and mega environment and describe major elements of task environment.
Analyse environmental conditions and contrast population ecology and resource dependent model.
Explain characteristics of the environment and its impact on the organisation.
Describe methods organisations use to manage their environment.
Explain how internal environment influences organisations.

3. LECTURE OUTLINE Types of External environment
Mega environment (General)
Task environment (Specific)
Analysing environmental conditions
Managing environmental elements
Adaptation
Favourability influence
Domain Shifts
Pages 62, 64

4. Overview
Consider the business environment of organisations and how it influences the running of the organisation.
Recall system approach.
This approach links the organisation to its environment.
This interaction provides the organisation with its inputs and dispose of its output.
Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin

5. EXTERNAL ENVIRONMENT
Def: ‘Major forces outside the organisation with potential to influence significantly the likely success of a product or service.’
The organisation will be more successful if continually interacting with and receiving feedback from the external environment. This means that organisations need managers to expend effort understanding the external environment their organisation face.

6. External Environment
Open system – operates in constant interaction with the external environment.
Offers opportunities for growth, and poses threats that may lead to organisational failure.
Successful managers should pay attention to information that may affect the organisation.
Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin

7. EXTERNAL ENVIRONMENT External environment is made up of 2 parts:
1. The mega-environment (General)
The broad conditions and trends in societies in which an organisation operates.
They have indirect impact on organisation
2. The task environment (Specific)
Specific outside elements with which an organisation interfaces in the course of conducting its business.
Affects the organisation directly.
Pages 65, 69

8. THE MEGA-ENVIRONMENT The organisation Economic Factor
Technological Factor
Legal-political Factor
The organisation
Page 65
International Factor
Sociocultural Factor

9. THE MEGA-ENVIRONMENT Five major Factors: 1. Technological factor
Have direct impact on the running of an organisation.
eg. Using computer to improve efficiency of operations.
Recruit computer literate people while others have in house computer training programme.
From a Market competition perspective, companies offering technological advanced products may attract more customers than their rivalry.
Although specific technical knowledge can give an organisation a competitive edge, it should be recognised that in time technological progress may erode this edge.
Because the mix of state and private ownership of the means of production varies between countries, international corporations face different systems of economic ground rules.
A country’s legal system is often influenced by its political processes, i.e. government regulation may emanate from political issues.
Further discussion can be found on pages

10. THE MEGA-ENVIRONMENT 2. Economic factor 3. Legal-political factor
Represents the general economic conditions in which the organisation operates. Eg. Inflation, unemployment rates, exchange rates, consumer purchasing power…are all economic indicators that affect organisations.
3. Legal-political factor
Legal & governmental systems within which an organisation operates eg. government legislation, political direction and stability
Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin

11. THE MEGA-ENVIRONMENT 4. Sociocultural element
Attitudes, values, norms, beliefs, behaviours & associated demographic trends characteristic of a given geographic area may change. Manager must monitor new opportunities or threats.
eg. Improving people’s life expectancy, companies may make products especially for older adults.
Changes – can mean a demand shift across products/services
Because sociocultural aspects change, managers must monitor new opportunities or threats. Such changes can mean demand shifts across products and/or service types.
International elements affect how an organisation conducts business overseas. For example, currency fluctuations influence a firm’s global competitiveness.
Further discussion can be found on pages

12. THE MEGA-ENVIRONMENT 5. International element
Developments in countries outside of an organisation’s home country with potential to influence the organisation eg. Currency and exchange rate influence a firm’s competitiveness
Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin

13. EXTERNAL ENVIRONMENT
Organization’s external environment is crucial to its success and continued existence.
Organizations must be ready to change and innovate in response to its demands
The example of the Warren Featherbone Company demonstrates that an organisation’s external environment is crucial to its success and continued existence. Organisations must be ready to change and innovate in response to its demands.
Further discussion of the Warren Featherbone example can be found on page 64.

14. TASK ENVIRONMENT
Def: ‘The specific outside elements with which an organisation interfaces in conducting its business’.
Organisation’s task environment depends on the specific product and services it offers and locations it chooses to conduct business.

15. Government & regulators The employment market/Labour supply
THE TASK ENVIRONMENT
Competitors
Government & regulators
Customers/ clients
THE ORGANISATION
The employment market/Labour supply
Suppliers
This environment depends on the products, services and locales where an organisation operates. Each organisation must assess its own situation to determine its specific task environment. Any organisation has difficulty influencing the mega-environment, but may affect its task environment.
The example of the Warren Featherbone Company demonstrates that an organisation’s external environment is crucial to its success and continued existence. Organisations must be ready to change and innovate in response to its demands.
Further discussion can be found on page 69.

16. THE TASK ENVIRONMENT Five elements: Customers and clients Competitors
Individuals and organisations purchasing an organisations products/services
Competitors
Other organisations offering (or with a high potential to offer) rival products/services
Suppliers
Organisations and individuals supplying resources an organisation needs to conduct its operations
Many organisations work to be close to the customer, particularly attending to service and quality and listening to customers.
Organisations must be aware of competitors’ activities (see ‘Management skills for a globalised economy: Keeping tabs on competitors’, page 70).
Global competition has meant that firms can lower costs by having fewer contracted suppliers.
Further discussion can be found on pages

17. THE TASK ENVIRONMENT Labour supply Government agencies
Being able to attract, motivate and retain human resources is crucial to an organisations
Employers can expect to recruit from a more diverse population.
Government agencies
Task environment require interactions with government agencies in providing services and monitoring compliance with laws and regulations at local, state or regional and national levels eg, tax, police and health authorities.
Being able to attract, motivate and retain human resources is crucial to an organisation and now employers can expect to recruit from a more diverse population.
Usually the task environment requires interactions with representatives of different government agencies e.g. tax, police, health, consumer affairs.
Further discussion can be found on pages

18. THE TASK ENVIRONMENT KEEPING TABS ON COMPETITORS
(Ways of tracking what your competitors are doing)
Commercial databases eg newspapers, magazines, patent filings etc.
Specialty trade publications eg product advertising, new product announcement etc.
Local newspaper clippings
Advertised vacancies
Published market research
Trade shows & product literature
Personal contacts
Page 70

19. MANAGING THE ENVIRONMENT
Managers have three options when faced with environmental uncertainty.
Adaptation
Involves making changes to the internal operations of an organisation to align it favourably with changes in the external environment.
Favourability influence
Involves trying to change the environment so that it becomes more favourable to the organisation.
Domain shifting
Involves moving away from an unfavourable environment to a more favourable one that has abundance of opportunities and few threats.
In seeking to manage the environment, managers have three options: adapting to the environmental elements, trying to influence the environment and thus make it more favourable and/or shifting the domain in which they operate to a more favourable one.
The choice made may depend upon feasibility.
Further discussion can be found on page 77.

20. ADAPTATION Buffering Smoothing Forecasting Rationing
Stockpiling either inputs into, or outputs from, a production or service process to cope with environmental fluctuations
Smoothing
Taking actions aimed at reducing the impact of fluctuations, given the market
Forecasting
Predicting changing conditions & future events that significantly affect an organisation’s business
Rationing
Providing limited access to a product or service in high demand
The adaptation strategy accepts the existing environment as given and seeks to develop a rational process for dealing with it.
Further discussion can be found on pages

21. FAVOURABILITY INFLUENCE
Advertising & public relations
Boundary spanning
Recruiting
Negotiating contracts
Co-opting
Strategic alliances
Trade associations
Political activity
Rather than accept environmental aspects as givens, this approach holds that organisations can change some environmental aspects.
Further discussion can be found on pages

22. DOMAIN SHIFTS
Move out of a current product, service or geographic area into a more favourable domain
Expand current domains through diversification or expansion of products/services offered
Page 79

23. Glossary Economic Factors
Represent the general economic conditions prevailing in the environment with in which the organisation operates.
Socio-cultural Factors
Includes the societal norms, values, customs as well as demographic (ie. Population) trends seen in the environment.
Political-legal Factors
Includes government legislation, political direction and stability.
Technological Factors
Include level of technology development in the economy.
Natural environment Factors
Refer to natural conditions in the business environment, such as weather and natural disasters.
Copyright  2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin