MGTS1301 Module Week 4

Introduction to the External and Internal Environment

Managers today are learning to succeed in a world of intense competition, globalisation of markets
and rapid technological change. To be effective, managers must monitor and respond to the
environment around them. Global issues such as climate change, pandemics, conflict and political
instability all have a major influence on organisations.

 The external environment includes all elements existing outside the boundary of an
organisation that have the potential to effect it. It provides the context within which
managers make decisions
 Corporate culture is the shared, knowledge, beliefs, values, behaviours and ways of thinking
among members of an organisation

The General Environment

 The general environment is part of the external environment
 It affects organisations indirectly and consists of all the background conditions outside the
boundaries of an organisation
 For example, changes in federal regulations or an economic recession are part of the
organisation's general environment
 These events do not directly impact day-to-day operations, but they do affect all
organisations eventually
 Changes in the general environment influence the success of existing organizations and
provide opportunities for new organizations to emerge

The general environment includes economic, socio-cultural, political-legal, technological and

natural environment conditions.
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1. Economic Conditions
Economic conditions include the overall economic health of the country or region where the
organisation operates. This includes a range of factors such as customer purchasing power, the
unemployment rate and interest rates.
 As most organisations operate in a global environment economic factors emerging from one
country can have a big influence on another. For example the collapse of the United States
Real Estate Market lead to the Global Financial Crisis of 2007 and 2008. This developed into
the Great Recession and led to the collapse of many banks

2. Socio-cultural conditions
Socio-cultural conditions include demographic characteristics as well as the norms, values and
beliefs of the population. Some of the key demographic trends in Australia include:
 Multiculturalism driven by a large immigration program, including many new migrants from
Asia
 An aging workforce and population as the baby boomers (generation born between 1946
and 1964) enter retirement
 Low carbohydrate diets changing food consumption patterns
 An increase in people living alone (30%) or in single-parent households[iv]
In terms of shared norms, values and beliefs, in 2019 the Australia Talks National Survey identified
climate change, saving for retirement, health and aging as the top personal concerns of Australians.

3. Political-legal conditions
Political-legal conditions incorporate government regulations at the local, state and federal levels
and includes political activities that influence organisations. The political system in Australia
generally supports capitalism and imposes limited regulation on businesses. Organisations in
Australia do need to comply with laws and regulations including those related to health and safety,
environmental protection, labor conditions and consumer protection.
 One of the most uncertain political and legal conditions for organisations in Australia relates
to the federal government’s policy on energy and climate change. For example, the carbon
tax implemented in 2012 was repealed in 2014. The regulatory uncertainty has made it
difficult for organisations to decarbonise and invest in renewables

4. Technological conditions
The technological environment includes scientific and technological advancements in industry as
well as the broader society. Some of the technological changes that are currently influencing
organisations relate to the development of the internet, biotechnology, and automation.
 The development of smartphone and wireless technology has fundamentally changed the
nature of work in many industries. The rise of platforms that enable ridesharing (e.g. Uber,
Lyft) and everyday people to rent out spare rooms (e.g. AirBnB) have fundamentally changed
transport and accommodation industries. Large technology companies, such as Alibaba, are
developing new forms of retail that are combining digital and face-to-face experiences.

5. Natural environment conditions

The natural environment includes all elements that occur naturally on earth including plants,
animals, rocks, air, water and climate. Organisations are dependent on the natural environment and
its resources for their existence. Increasingly, managers are responding to government regulation,
consumer concerns, media pressure, the actions of competitors or their own moral convictions to
consider the environmental impact of their organisations.
 For example, in response to increasing societal concern about the natural environment and
changes to the laws surrounding plastic bags, Coles and Woolworths supermarkets stopped
offering single use plastic bags in 20
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The Task Environment

The task or specific environment is part of the external environment that is closer to the
organisation than the general environment. It includes sectors that conduct day-to-day transactions
with the organisation. The task environment has a direct influence on an organisation’s basic
operations and performance and includes competitors, suppliers, customers and the labour market.

Competitors
 Other organisations in the same industry or type of business that provide goods or services
to the same set of customers. Each industry is characterised by specific competitive issues
- For example, the recording industry differs from the oil industry and the pharmaceutical
industry
- Companies in the pharmaceutical industry are highly profitable because it is difficult for
new firms to enter and compete

Suppliers
 Provide the raw material that the organisation uses to produce its output
 A supply chain is a network of multiple businesses and individuals that are connected
through the flow of products or services
 Every organisation survives and prospers, or otherwise, depending on the competitiveness
and effectiveness of its supply chain partners
- A chocolate manufacturer for example, may use suppliers from around the globe for
ingredients such as cocoa beans, sugar and cream

Customers
 Customers are those people and organisations in the environment who acquire goods or
services from the organisation. As recipients of the organisation's output, customers are
important because they determine the organisation's success
 Patients are the customers of hospitals, students the customers of universities and travellers
the customers of airlines

Labour Market
 The labour market represents people in the environment who can be hired to work for the
organisation
 Every organisation needs a supply of trained, qualified personnel. Unions, employee
associations and the availability of certain classes of employees can influence the
organisation's labour market

Managing Uncertainty
 The environment creates uncertainty for the managers, who must respond by designing the
organisation to adapt to the environment or influence the environment
Environmental uncertainty
 There is a lack of complete information regarding what developments will occur in the
external environment
 This makes it difficult to predict future states of affairs and to understand their implications
for the organisation
 Environmental changes may evolve unexpectedly
 The more uncertainty is present, the more attention an organisation must direct towards the
external environment by monitoring and spotting emerging trends
 Environmental uncertainty also requires organisations to show flexibility and adaptability in
organisational designs and work practices
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Adapting to the external environment

Adapting involves an organisation changing itself to respond to the external environment through
boundary-spanning roles, forecasting, inter-organisational partnerships and mergers and joint
ventures.
 People in boundary spanning roles detect and process information about changes in the
environment. They also represent the organisation’s interests to the environment.
Employees who work in marketing and purchasing are boundary spanners who connect with
customers and suppliers in the task environment. Many organisations now use business
intelligence to collect data about their competitors and customers through websites,
commercial data bases, financial reports and other sources.
 Forecasting is a systematic process for making predictions about the future using statistical
analysis or expert options. Managers can use economic and social information to predict
future trends in consumer spending, business investment, interest rates and inflation. This
can allow them to prepare for the changes in the environment and to plan for crises.
 Inter-organisational partnerships are collaborations between organisations that can enable
responses to changing technologies, government regulation and competition. Organisations
that usually compete with one another sometimes collaborate to compete in particular
markets or to develop a specific technology. For example competitors Ford and General
Motors worked together to develop a six speed transmission.
 When a single company lacks the resources to complete a complex project they may engage
in a merger or joint venture to manage uncertainty. Mergers occur when two organisations
join to become one. A joint venture involves a strategic alliance between two or more
organisations. For example, oil and mining companies have developed joint ventures to
explore for oil in remote Western Australia.

Influencing the external environment

A second approach for handling environmental uncertainty involves changing the external elements
causing problems. Widely used techniques include advertising and public relations, political activity
and trade associations.
 Advertising and Public Relations: Advertising has become a very successful way to manage
demand for an organisation's products or services. Organisations spend large amounts of
money to influence consumer tastes.
 Political Activity: Political activity represents organisational attempts to influence
government legislation and regulation. Many companies pay lobbyists to express their views
to federal and state politicians.
 Trade Associations: Most organisations join with others having similar interests - the result
is a trade organisation. In this way, organisations work together to influence the
environment, including federal legislation and regulation. Trade associations are numerous
and varied.

The Internal Environment

The internal environment of an organisation includes corporate culture, production technology,
organisation structure and physical facilities. Of these, corporate culture is particularly important for
competitive advantage. The internal culture must fit the needs of the external environment and the
company strategy. A good fit between environment strategy and culture can create a high-
performance organisation.
 Corporate culture is the set of key values, beliefs, understandings and norms shared by
members of an organisation
 The concept of corporate culture helps managers understand the complex, often hidden
aspects of organisational life. Culture is learned by members of the organisation as they
cope with external and internal problems, and taught to new members as the correct way to
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perceive, think and feel within the organisation. When new members are recruited into the
organisation, they begin to learn the organisation's culture through orientation events and
activities.

Visible and invisible corporate culture

 Examples of visible culture include stories, rituals and rites, heros and symbols. Symbols
include artefacts such as such as dress, office layout and slogans.
 Examples of invisible culture include expressed values, underlying assumptions and deep
beliefs, such as 'people here care about one another like a family'.
 Some values become so deeply embedded in a culture that members are no longer
consciously aware of them. These basic, underlying assumptions and beliefs are the essence
of culture and subconsciously guide behaviour and decisions within organisations.

Connecting culture and the external environment

The right fit between culture, strategy and the environment is associated with four types of culture
that vary based on two dimensions:
1. The extent to which the external environment requires flexibility or stability, and
2. The extent to which a company’s strategic focus is internal or external
The four types of culture associated with these differences are adaptability, achievement,
involvement and consistency.

1. Adaptability
 The adaptability culture emerges in an environment that requires fast response and high-risk
decision making. Managers encourage values that support the company’s ability to rapidly
detect, interpret and translate signals from the environment into new behaviours.
Employees have the autonomy to make decisions and act freely to meet new needs, and
responsiveness to customers is highly valued. Managers also actively create change by
encouraging and rewarding creativity, experimentation and risk taking.
2. Achievement
 The achievement culture is suited to organisations concerned with serving specific
customers in the external environment, but without the intense need for flexibility and rapid
change. This results-oriented culture values competitiveness, aggressiveness, personal
initiative, cost-cutting and willingness to work long and hard to achieve results. An emphasis
on winning and achieving specific ambitious goals is the glue that holds the organisation
together.
3. Involvement
 The involvement culture emphasises an internal focus on the involvement and participation
of employees to adapt rapidly to changing needs from the environment. This culture places
high value on meeting the needs of employees, and the organisation may be characterised
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by a caring, family-like atmosphere. Managers emphasise values such as cooperation,

consideration of both employees and customers, and avoiding status differences.
SquareSpace is a successful start-up that has a flat, open and creative company culture.
4. Consistency
 The consistency culture, uses an internal focus and a consistency orientation for a stable
environment. Following the rules and being thrifty are valued, and the culture supports and
rewards a methodical, rational, orderly way of doing things. In today’s fast-changing world,
few companies operate in a stable environment, and most managers are shifting towards
cultures that are more flexible and in tune with changes in the environment.