MANAGEMENT OF THE EXTERNAL ENVIRONMENT:
An Analysis of the Implications of the External Environment on Organisations
TABLE OF CONTENTS
I. Introduction
II. Organization and its Environment
A. Internal Environment
B. External Environment
1. Competitors
2. Economics
3. Society (Social System)
4. Business Exchange
5. Political Situation
III. The Computer Industry
A. The Case of IBM
B. Circumstances in Microsoft
IV. Conclusion
V. References
I. Introduction
Modern day decision-makers tend to deal with rather complicated problems that highly influence the operations of their respective organisations. This requires them to make decisions promptly and at the same time make sure that it directly deals with the issues that they are facing. They have to make sure that they make things right the first-time. One definite way of dealing with this is by consulting the general environment of the organisation. This paper intends to analyse the how the information that organisations acquire from the environment help them in keeping their operations on track. Specifically, the study will look into the use of the external environment. Close consideration will look on the situation regarding the company’s competitors, economic system, general society, business environment, and the legal situation that may or may not have an effect on their industry. Moreover, specific companies will also be taken into consideration to show how theories are implemented in real world settings. The companies that will be observed will be those involved in the IT and computer industry. The arguments and observations that will be provided in this paper are going to be based on academic and scholarly journals directly related to management and operational administration of organisations.
II. Organization and its Environment
Understanding the environment of the organisation offers the key to possibly uncovering the needed developmental changes that the organisation requires. The following discussions will provide a brief description on the internal and external environment and their importance for the modern organisation.
A. Internal Environment
The internal environment encompasses the company’s “physical and cultural aspects” that have major implications to the processes and executive development of the organisation., 2001, 801) With this in mind, the internal environment tends to tread the trails but not limited to human resource management concepts. In the study of (2003, 491), she indicated that the internal environment is rather important in the context of strategic planning for the organisation. She noted that in using the information relating to the internal environment, allows the decision makers of the organisation to become conscious of the qualities of work on how it is structured and carried out. In this respect, the said study has manifested the very elements that make up the internal environment of the organisation. These include the skill-level of the employees as well as the tacit and explicit knowledge displayed within the organisation. Another element included is the attributes of “the objects to which the work is performed,” as well as the implications of the relationships held within the organisation.
Based on this definition, one could surmise that the general elements held in the internal environment of the organisation include the knowledge management practiced which also complements the general culture held by the personnel. In following this line of logic, this does have some significant implications on the decision making of the company.
B. External Environment
Among with the internal environment of the firm, the external environment has similarly been marked as one of the major elements that influence the firm’s operations. As seen in the article of (2001, 38) the external environment is seen to be marred with uncertainty. This highlights the need for understanding this environment not only for the reason of having the needed data as a security blanket but to minimise the risk offered by uncertainty posed by the external environment. The following study will provide a set of observations based on existing literature relating to the external environment of the organisation.
1. Competitors
The modern setting where businesses conduct their operations tends to be marked with a level of viciousness where competing organisations tends to drive each other to the brink of leaving the market or even filing a claim of bankruptcy. As indicated in the seminal organisational theory of Porter, merely identifying the competitors of a particular company is not enough. ( 2000, 103) To a certain extent, knowing the other players in the industry is merely a part of the process. A more important factor in this endeavour is to distinguish the level of rivalry present in the marker. (p 104)
The intensity of the rivalries among the players in the industry tends to provide certain indications on the kind of organisations a particular firm is against. For instance, if an organisation finds out that the level of rivalry is considerably intense, then the firm may be battling against competitors with resource capabilities equal or greater from their own. This is especially true in instances where the number of player similarly increases.r, 2000, 104) The number of competitors tends to diminish the felt demand on the product or services offered by the organisation. However, if the firm finds out that the intensity of rivalry is rather unstable and unpredictable, then it could be an indicator of diversity in the competitors present in the industry. Specifically, difference in the strategies held by each organisation and the drive for far greater modes of differentiation tends to be present in the players in the industry.
In looking at the discussions above, the importance of knowing the competitors and the level of rivalry is manifested in the market and the consequent industry of the firm. The bottom-line is that modern day competition among modern-day organisations tends to seek better value for their resources. Companies will find ways to establish strong differentiation for the main service or product that they offer along with other means of getting a fair (or otherwise) advantage over the other players in the industry.
2. Economics
The context of economics in an organisation tends to emulate the classical economic concept defined as the production, distribution, and consumption of resourcesic, 2006, 575) There has been a considerable number studies that has indicated the effects of the changes in the economic systems in the business sector. For instance, there is the study of (2002, 953) indicates that the economic systems of certain locales tend to provide the business sector one of the most indispensable elements of trade: coordination. Specifically, this phenomenon issues the necessary requirement of coordination among the different social institutions that directly and indirectly affect the organisation. The said author also indicated that a rather stable economic system provides the business sector the protection they need from the adverse implications of a considerably variable one. (p. 580)
Other studies also indicated that the economic system may inadvertently influence the internal environment of the organisation. An earlier study provided by (1994, 1) indicated that the market econmy of China has provided certain implications to the state-based companies’ human resource management Practices. Specific changes include those from the centralised planning to a more strategic one as the shift towards global trade ensues. Moreover, the reforms made in the said country have created a “dramatic growth” on the processes of the state-owned and private companies in the country. Seeing the points of these discussions, it appears that a thriving economic system provides more opportunities for businesses to flourish and eventually prosper.
3. Society (Social System)
In considering the issue of social systems, the context of culture prevails over the existing organisational studies. Specifically, the influential theory of Hofstede highlights the need to know of the culture of a particular location to create situation that will complement it with the goals of the organisation. The study of (1996, 753) indicated that the businesses in a particular country tends to manifest a high level of economic efficiency if the management processes implemented in each organisations emulate and goes together with the national culture.
In looking at the discussions above, it appears that companies have another important factor to consider especially if they intend to expand their operations in an international level. To this extent, the company could opt to seek markets where they could operate effectively without incurring major changes in the core business processes or they could display flexibility and adapt their system to the culture of the market. At any rate, if improvements in the operations of the organisation are fervently sought by a particular firm, they must ensure that their principles, policies and goals complement the national culture.
4. Business Exchange
The issue of business exchange covers the financial element of the external environment. Specifically, the monetary system is taken into consideration. Some organisational studies have connected the monetary system of a particular state to have a major effect on the accumulation of capital of the organisations. To illustrate, the study of Beuving (2006, 324) indicated that the presence of opportunities in accumulating capital in the Lebanese setting has triggered an increase in the effectiveness in the second-hand car trade. In the same manner, the rather rich set of opportunities has created a business pattern unique on this market niche.
Moreover, an earlier study made bon (1982, 48) noted that the issue of capital accumulation does not only affect a particular organisation. The social structure, in the same way, has also been influenced in the context of Indonesia. As the said study claimed, it has contributed greatly for the transformation of Indonesia in the later part of the 1980s and the earlier part of the 1990s. The creation of opportunities at this juncture eventually made the state dominantly capitalist in nature.
Looking at the cited studies in this section, the presence of opportunities for capital accumulation allows the organisation to improve eventually. Nevertheless, this assumption also requires organisations to actually take advantage of the opportunity provided for by business exchange that complement their operations.
5. Political Situation
The political situation of an external environment tends to similarly have some implications in the business subjected to it. One such implication is highlighted in the studyeiga (2006, 1379) which stated that political instability makes it more likely for the external environment to incur a rather high rate of inflation. This means that prices of the products and services of the businesses tends to be higher than they can actually spend. Thus, this means that whenever businesses acquire the raw materials that they need, they automatically incur loss. Though they could pass this loss to the end-users of their product or service, the increased price of the major commodities that they are selling tends to diminish the demands and possibly limit the actual consumption of the public given the issue of high price as deterrence.
In specific studies,l (2000, 43) noted that that the political instability in Turkey was the main factor that triggered a crisis in the business sector of the country. This also took place in the sn (2000, 93) indicating that Indonesia’s SME sector have acquired considerable damage as the volatility of the political situation in the country has emerged in the later part of 1997.
Seeing the discussions above, it appears that the state have similarly been deemed as an important part of the external environment of any organization. The policies made and ratified by the government that the business sector may find either unfavourable or otherwise share this effect on specific organisations. Moreover, assuming that the policies ratified by the government are highly favourable to organisations, then the issue of stability tends to cancel it out. The changeability of the leadership or type of government tends to manifest some level of doubt on the part of the investor or owner may have doubts as to whether the operations of the business are safe in the said environment.
III. The Computer Industry
The computer industry has become one of the most flourishing industries in the world. The study has chosen this industry for the reason that the companies have the propensity to change market as they want and not to mention play at the international level. This reflects that any changes from the external environment will essentially have a effect on their operations.
A. The Case of IBM
IBM is one of the pioneers in the IT industry, particularly in terms of manufacturing hardware. In the early part of the 1990s, they have experienced considerable losses in business opportunities from their German counterparts 2006, 389) As it turned out, the German government have made attempts to create a policy that will collect information in their own markets. (p 393) IBM has not foreseen the possibility that these ratified policies have allowed German agencies to inadvertently eavesdrop on the communication lines of the company. Thus, this set of sensitive information is leaked to their competitors in the German market. As a result, significant loses has been incurred in terms of the business opportunities of the company.
B. Circumstances in Microsoft
The issue relating to Microsoft is that its operations in the United States have gone against the Anti-trust law of the country. (2002, 65) provided a detailed discussion on the case. The said article noted that Microsoft was pursued by the American government because of their supposed monopolistic hold on the operating system industry. Specifically, the Windows operating system was held in question. The company contended that the said actions it took were a product of competition not of any other intentions held in bad faith.
The problem, according too (2002, 66) is that the actions manifested by the government is slightly tantamount to harassment. It was closely held that the company was merely holding on and controlling a large market and not actually holding a monopoly over the industry.
In this sense, it is seen that Microsoft has considerably been affected by the laws protecting thew land. The context on this issue is that companies tend to vie for supremacy of the market. However, with the governments seemingly proctoring the principles of fair competition and fair trade will inevitably find fault whenever a firm succeeds over its competitors. The case of Microsoft highlights the issue on how the government should draw the line on these types of situations. To a certain extent, the Microsoft case may have become a deterrent for successful companies in holding on and controlling large markets.
IV. Conclusion
In order for real development to take place, change must also ensue. The discussions above have highlighted the need of organizations to monitor changes in the external environment given that these elements provide the greatest implications. Changes in the economy, society, legal, and political environments essentially falls under the changes of the external environment. The practitioner-based research cited above has manifested the need to recognise the changes required of the external environment such that they are able to adapt flexibly and meet its demands. A perceptive limitation of this study is the use of rather large corporations like Microsoft and IBM, which indicate that they have the capability to rebound on the possible adverse implications provided by the fluctuations in the external environment. This also means that the discussions presented above may less likely to be applicable for smaller companies in the industry. At any rate, the bottom-line of the discussions above is to espouse vigilance on the part of the organisation regarding their general environment. On the whole, one must recognise that the operations of the organisation require a balance of consideration on the overall environment, both internal and external. A clear understanding of the external environment will allow the organisation to manipulate the internal environment to deal with the changes brought upon them. At this point, established theories could help but one must realise that at some point, they don’t complement the respective situations where companies find themselves. Theories only provide some sort of guidelines as opposed to offering a panacea to the issues relating to the external environment.
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