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The external environment normally refers to outside forces that may influence an organization. Two factors make up the external environment: task and general. The task environment typically consists of external groups that may have an influence on daily operations of an organization. In the general environment, outside forces may influence an organization’s ability to do business.
Generally, the task environment has dimensions that are directly interactive with how an organization operates. The task environment may include competitors, customers and suppliers. Since these dimensions may influence daily operations, more attention is usually devoted to each during strategic planning.
Competitors may drive the organization’s market plan for advertisements and product positioning. The competitors may exist in several different categories beyond organizations that offer similar products or services. A competitor in the external environment could be one that offers a substitute product to customers, like purchasing a motorcycle rather than a car. Another could be an unrelated business vying for the same property in a thriving community.
Customers are individuals or entities willing to pay for an organization’s products or services. For some organizations, customers may consist of individual consumers. Additionally, customers could be other businesses or institutions. Changes in customers’ purchasing habits may have an influence on the organization’s external environment.
Suppliers are vital to providing the resources necessary to develop the products or services. Some organizations may choose to work exclusively with one or more suppliers, while others may use several different companies. Working with a variety of suppliers may insulate the organization from potential setbacks if an exclusive supplier goes out of business.
The influences of general factors within the external environment are typically vague and might have long-term consequences. Each dimension is indirectly interactive with the operation of an organization, but may still influence business decisions. These dimensions include economic, technological and sociocultural influences. Political climate and global influences also factor in.
The economic dimension typically refers to the fiscal health of the area where the organization operates. Usually, the factors may involve high unemployment and inflation, which may determine economic growth. For example, with high unemployment, the demand for the organization’s products or services may decrease.
The technological dimension generally covers the methods used to develop products or services. The technology used within the organization—tools and applications—typically comes from the external environment. Advances in technology may improve the organization’s competitiveness.
When an organization considers sociocultural influences, it may look at the cultural norms and behaviors of people. Other characteristics may also include demographics and customs. Sociocultural influences might help to determine which types of products or services may appeal to society.
Changes in the political climate may relate to business regulations that could either stifle or facilitate growth. The relationship an organization has with the government could influence business operations. A pro-business environment and political stability could determine the viability of business markets.
A flatter world from transportation and technology advances also factors into the external environment of business. Global influences may add pressure to an organization, even in places where business operations do not exist. Foreign competition for similar products or services may threaten profits.