KARDAN

UNIVERSITY
Management
By
Omid Sabah
Chapter No: TWO
Chapter Name: Understanding
Internal and External
Environments
 What is External Environments?

Major forces outside the organization

with potential to influence
significantly a product or services
likely success
OR
Impact of forces will be on the
success of product or services
 What is Internal Environment?
 General conditions existing within an
organization
Example: The internal environment
includes: organization members,
culture (values, beliefs, norms)
 Organizational Culture: system of

shared values, beliefs and norms

uniting members of an organization
 Types of External Environments?
The external environment can be divided
into two segments:
 Mega Environment (General Environment)

 Task Environment (specific external

elements)
Mega Environment:
The mega or general environment is the
external environment segment reflecting
broad trends and conditions within which
organization operates
 Five Major Elements of Mega
Environment
Technological Element: Reflects the current
knowledge about production of products and
services
Example: Most organizations are affected, either
positively or negatively, by technological progress

 Economic Element: System of producing,

distributing and consuming wealth

 Capitalist Economy: Economy in which economic

activity is governed by market forces and the
means of production are owned by individuals

 Socialist Economy: The state owns the means of

production, and economic activity is managed by
plan
 Continued
Examples
 Australia and New Zealand operates close
to the capitalist
 Today the socialist end is represented by
the china
 Third world countries (mainly poor
countries with low per capita income, little
industries and high birthrates) have
different patterns as they struggle to
weather follow either capitalist or socialist
models
 Continued
 Legal and Political Element: Refers to legal and
governmental systems within which an organization
functions

Example: Trends in legislation, court decisions, politics and

government regulations are important legal-Political
environmental aspects

 Socio-Cultural Element: Involves attitudes, values, norms,

beliefs and behaviors and other demographic trends

Example: McDonalds Socio-Cultural Policies in various

countries of the world
 Socio-Cultural aspects change, manager must monitor
trends for new opportunities or threats
 Continued
 International Element: The impact of international element
on organization is generally significant and its importance is
growing
 International issues greatly affect an organizations total
business abroad

Example: currency fluctuation influence organizations ability

to compete globally

Example: NAFTA (North America Free Trade Agreement)

shows opportunity for long term growth through:
 services move freely between participant

 tariffs and other trade barriers are eliminated

 Task Environment
 What Is Task Environment?
specific outside elements with which
an organization interfaces in the
course of conducting its business
The organizations major task
environment typically includes:
 Customers & Clients

 Competitors

 Suppliers

 Employees & Government Bodies

 Continued
 Customer & Clients: Individuals and
organizations purchasing an
organizations Product and Services

Example: Many Organization try to

stay close to customer, Paying
particular attention to service and
quality, Listening to customers and
trying serve them better
 Continued
 Competitors: Organizations must be
aware of the activities of their
competitors

Example: X company estimates what

competitors do and how much it
costs
 continued
 Suppliers: Are individuals supplying
resources such as: Raw materials,
products or services to conduct operations
Examples:
 World Wide Competition is Changing

because of this
 Fewer companies set together quality

standards, got better prices, and built

more cooperative supplier relationship
 Continued
 Labour Supply & Importance of
Managing Diversity:
 An organizations labour and supply
consists of people employable by
organization
 Diversity Plays important role in
labour force
 Continued
 Employees & Government Agencies:
Various governmental agencies provide
services and monitor Compliance with laws
and regulations at local, state or regional,
and national levels
Example:
 Usually organizations task environment
involves interaction with representatives of
specific government agencies (e.g. tax,
consumer affairs, police, health, and
workers compensation)
 Analyzing Environmental
Conditions
 Population Ecology model: focuses on
population or groups of organizations and
arguing that environmental factors cause
organizations with appropriate
characteristics to survive and others to fail

Example: Those organization which

survive environmental conditions suit
them is called natural selection model
 Continued
 Resource Dependence Model:
The resource dependence model sees organization
as being dependent on the environment for
resources

 In this model organizations cannot generate all

resources (e.g. finance, materials and services)
needed to operate
Example: General Motors buys many parts rather
than making them

 Organizations try to independent by developing

alternatives
 Continued
 Reconciling the Different Models:
Both population ecology and resource dependence
models are useful to managers
 Population ecology model, highlights the fact that

organizations have little control over

environmental factors
 Resource dependence model, shows managers

often have options influencing environmental

aspects
Example: The should monitor, understand and
influence environmental elements which can have
major impact on organization
 Characteristics of the Environment
 In analyzing the environment for an organization, it is
useful to consider two key concepts:
 Environmental Uncertainty: Occurs when an organizations
future circumstances cannot be assessed or predicted
accurately
Example: The more Uncertain the environment, the time and
effort managers must spend monitoring it

 The degree of environmental uncertainty results from two

major factors:
 Environmental Complexity: Number of elements in an
organizations environment and their degree of similarity
 Environmental Dynamism: