The manager’s job cannot be accomplished in a vacuum within the organization. Many interacting external factors can affect managerial performance. The external environment consists of factors that affect a firm from outside its organizational boundaries.
The external factors include the labour force, legal, political, legal considerations, society, unions, the competition, customers/suppliers, and technology. One of the greatest challenges facing all organizations today is managing uncertainty. Managers must do what they can to reduce uncertainty by reading the signals, following the trends, and scanning the external environment. The way in which trends in each of these areas affect the workplace is discussed later in this paper.
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The capabilities of a firm’s employees determine to a large extent how well the organization can perform its mission. Since new employees are hired from outside the firm, the labour force is considered an external environmental factor. The labour force is always changing.
This inevitably causes changes in the workforce of an organization thus affecting the way management must deal with its workforce. (Mondy 1995, p.36) Changes in the country’s labour force create dynamic situations within an organization. For example, changing values and laws have contributed to greater participation rates by women in the employment market thus parental leave and child-care facilities provided by employers are becoming more common demands.
Law is important in business transactions. It provided a basic framework within which a business enterprise must operate. It facilitates the smooth functioning of business transactions and protects both the businessmen and customers. All business organizations must comply also with the legal constraints of that country. In turn, when a firm’s operations extend into other countries, the laws and regulations of those countries must be taken into account. (Mondy 1995, p.36)
Members of a society may also exert pressure on management. The public no longer accepts the actions of business organizations without questions. People learned that voicing out their disagreements in newspapers and other forms of media can produce changes. A large number of laws and policies passed in recent years is the result of the publics¡¦ influence. An organization in order to remain acceptable to the general public must accomplish its mission within the range of societal norms and remain in societal good books.
When a firm responds effectively to societal interests, it is said to be socially responsible. Social responsibility is enforced or felt obligated of managers, acting to serve or protect the interest of groups other than themselves. Many firms strive to be good corporate citizens by working with cooperatively with members of the community to control pollution, drug abuse, unemployment, participating in drive funds, supporting the women’s movement, implementing physical fitness activities for employees and also encouraging and advising employees on the correct diet. Such activities enhance a firm’s image in the community and in the long run, may improve the firm’s profitability. (Mondy 1995, p.37)
Wage levels, benefits, and working conditions for millions of employees now are decisions made jointly by unions and management. A union is a group of employees who have joined together for the purpose of dealing with their employer. (Mondy 1995, p.36) Its is considered as an external environment because the impact of the decisions made are being influenced by external forces outside the boundaries of the organization. Sometimes the outcome of making those decisions lies in the favour of labour and sometimes in management.
The emphasis in the future will likely shift to a management system that deals with directly with individual workers to satisfy their needs and allow the company to compete more effectively. That’s the reason why union membership is slowly decreasing. Some of the strategic actions undertaken by managers with unions are to negotiate a long-term no-strike agreement, increase usage of subcontractors, negotiate a dispute settling procedure, and also appointing a prestigious union official to board of directors. (Robbins 1989, p.262)
Business organizations not only must compete in terms of sales and profit but also in other areas. For example, each firm must have competent and skilled employees, which are often in short supply. An easy solution would be to increase the wages but this will lead to a bidding war when several competitors need people with the same skills. Besides competition in product and service markets forces employers to keep labour costs low.
What managers do is that they introduce other benefits and working conditions in terms of recruitment and retention. In terms of sales and profit, what managers can do is advertise the product to build brand loyalty, select a less competitive domain, and merge with competition to gain larger market share and also negotiate a co-operative agreement with the competition.
The people who use a firm’s product and services are an important part of the external environment because sales are critical to a firm’s survival. In order to survive in the competitive business world, what managers can do is advertise, use a differentiated price structure, ration demand, change the domain to where there are more customers in order to reduce environmental uncertainty. (Robbins 1989, p.262)
In dealing with suppliers, managers can use multiple suppliers instead of just sticking to one supplier. This to ensure that even if one particular supplier stops supplying, the firm will still go on operating due to the services or goods provided by the other suppliers. The managers could also negotiate long-term contracts; inventory critical supplies or maybe even vertically integrates through a merger.
This includes the level of advancement of knowledge and equipment in society (or in specific countries), and the rate of development and application of such knowledge. The need for new technology results from changes in other environmental factors. New skills are continually needed to meet new technological demands. Advancements in technology have rendered some skills obsolete, requiring periodic retraining of affected employees. It’s not only employees that have to be trained but also managers have to constantly upgrade themselves to keep up with new technology.
By economic environment, we mean the characteristics of the economic system in which the business operate, i.e., the pattern of economic growth, economic policies, measures, and incentives provided for economic development. Organizations rely on the economic surplus to thrive and prosper. With a larger surplus, more organizations get the resources they need to grow and develop thus becoming more specialized.
For instance, Australian companies benefit directly from government economic forecasts, a national banking system and international economics treaties. The economy of the nation and of various segments of the country is a major environmental factor affecting a manager’s job. (Mondy 1995, p.41) For example, when the economy is booming, managers will find it often more difficult to recruit qualified workers. On the other hand, when a downturn is experienced, more applicants are typically available.
Political stability provides a conducive environment to do business. A responsive and responsible government instills the confidence and attracts both local and foreign investors. In a politically stable society, organizations are assured that their investments, properties and other assets are safe. They will be more willing to invest larger amounts of capital for a longer period of time.
There is also a considerable variation in the scope of government activities across nations. At one extreme sit the governments that confine their activities strictly to protecting the nation from internal and external threats thus implementing a few laws or rules to limit the actions of organizations. At the other extreme is government that attempt to permeate virtually all aspects of society. Sometimes organizations may find themselves making the decision to withdraw their business from a particular country due to the many constraints. Managers of the organization will then have to adapt to doing business in a new environment.
Major environmental changes in recent years (Australia)
Introduction of personal computers
Ability to transmit data, both nationally and internationally
Worldwide telephone direct dialing and uses of faxes
Concern for physical fitness and correct diet
Return to inner-city living
Deregulation of various industries
Lowering of tariffs
Decline in the inflation rate
Move to the ¡§right¡¨ by political parties
Rise of the ¡§green¡¨ movement
Aboriginal land rights movement
Managers’ response to the external environment and the external strategies used
Manager’s approaches change in the external environment either proactively or reactively. A proactive response is taking action in anticipation of environmental changes. A reactive response is simply responding to the environmental changes after they occur. For example, reactive managers may demonstrate concern for employee welfare only after the start of a union-organizing attempt. Proactive managers try to spot early signs of discontent and correct the signs of discontent before matters get worst. Proactive managers also prevent customers¡¦ complaints rather than ¡§handle¡¨ them. In all matters, proactive managers initiate rather than react. (Mondy 1995, p.42)
Now we turn to some external strategies used by managers to change the environment to make it more favorable to an organization.
Managers in an organization engage the services of advertising firms to market their product or services thus building on brand loyalty and lessening its dependence on consumers. Managers seek to reduce competitive pressures, stabilize demand and allow it the opportunity to set prices with less concern for the response of its competitors. It is successful when one organization gains a differential advantage over another in the same industry.
This protects the organization from changes in quantity or price on either the input or output side. For instance, managers may agree to a long-term fixed-price contract to purchase materials and supplies or to sell a certain part of the organization’s output.
When an organization combines with one or more other organizations for the purpose of joint action, it is called coalescing. These mergers often brought about economies of scale by eliminating redundant administrative personnel and by providing opportunities for merging technical and managerial expertise. Its also reduces uncertainty by lessening inter-organizational competition and dependency.
Managers may choose to absorb uncertainties by encompassing elements in the network. For example, inviting an environmentalist lobbyist or a merchant banker to sit on the board of your organization is likely to reduce resistance and could also lead to easier access to money markets.
Use of third parties
Occurs when managers of one organization use the services of another organization to negotiate on their behalf. Professional and trade associations are obvious examples. It protects the interests of consumers and maintains standards. (Wilson 1990, p.311)
The one certain condition managers will face in the latter half of the 1990s is rapid change, and successful managers will be those who adapt and thrive. The task of managers in the latter half of the 1990s will be the same as in the latter half of the 1960s–producing results–but the external environment will be very different. Today’s world is more complex and international and boasts far more technology and less government regulation.
To be successful in this environment, managers must demonstrate a personal commitment to the success of the organizational unit and excellent communications. Moreover, managers must educate and train, get individuals to work together as members of teams, and measure performance improvement. It is also important to learn from past successes and failures in developing an approach to a better business organization.