The specific part of an organisations external environment is unique to its industry
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Author : Ami Fitri Utami, SE., MSM Despite of the emergence of internal stability, a firm’s external environment is also challenging and complex for a business. Due to its effect on performance, firm must develop skills required to identify opportunities and threats that are a part of its external environment. In general, there are three major parts of external environment in business includes the general environment, the industrial environment and the competitor’s environment. First, the widest environment which reflected in the general environment contains of segments and elements in the broader society which may affect industries and the competing firm inside. In this vein, the general environment classified into differed seven segments i.e: demographic, economic, political/legal, sociocultural, technological, global and physical. For each segment, the firm has to determine the strategic relevance of environmental changes and trends. These aspects are imperative due to current changes. Moreover, the industrial environment has a more direct effect on the firm’s competitive actions and responses compared with the general environment. By this, the analysis of industrial environment might be done by using the five forces model of competition includes the threat of entry, the power of suppliers, the power of buyers, product substitutes, and the intensity of rivalry among competition. By studying these forces, the firm finds a position in an industry where it can influence the forces in its favor or where it can buffer itself from the power of the forces to achieve strategic competitiveness and earn above-average returns. While general and industrial environment urge companies to understand a wider external business environment, the competitor environment includes those strategic groups in the business population. Since competitive rivalry is greater within a strategic group, competitor analysis urges the firm to understand about the future objectives, current strategies, assumption, and capabilities of the companies with which it competes directly. These attempt also might called as a competitor intelligence which aimed to gather the set of data, information, and knowledge that allows the firms to better understand its competitors and thereby predict their likely competitive actions and responses.  The external environment of a business, also known as the macro environment, includes all factors outside the reach of the business, that can impact the operations of the business. External factors influence the choices a business makes, as they determine opportunities and risks. Let's take a look at these different factors in more detail. External business environmentAll businesses are impacted by their external environment. Sometimes a business has to act upon and react to what happens outside of the scope of its operations. These external influences are known as external factors. Multiple different factors can influence a business's external environment. These factors are often unpredictable and can change suddenly. The external environment plays a huge role in the types of strategies and actions a business decides to implement. The external environment can affect competitiveness, budgeting, decision making, and the marketing mix. The main external factor that influences business most is competition. Competition is the degree to which businesses compete with one another in the market. Most businesses, especially when operating in a popular industry, will have to face intense competition. The amount and type of competition mostly depend on the industry a business operates in. Although competition is one of the most significant factors, several other external aspects affect the strategies and actions taken by a business. External environmental factorsFour main components make up the external environment of businesses. These are the main external factors you have to consider when operating a business. Economic factorsSeveral economic factors can influence the business environment. One of them is market conditions. Size and growth rates are good indicators of market conditions. Market conditions are made up of many different economic elements that affect the attractiveness of a market. For instance, good market conditions can be described by economic growth and increasing market demand. Economic growth measures the value of output in a country's economy. One way you can measure economic growth is through Gross Domestic Product (GDP). This is the total value of all finished goods and services produced in a country's economy during a given period. Another factor is market demand, which measures how much of a good or service consumers are willing and able to pay for. Demographic factorsDemographic factors are related to the population. For instance, an increase in the size of a population will most likely lead to an increase in demand for goods and services, as there are more potential consumers. Changes in the age of a population will also have significant influences on businesses. An ageing population (more old people) will have different demands than a younger population. Older consumers tend to want and need different goods and services than young people. Environmental and social factorsSociety increasingly expects higher standards of environmental and sustainability-related awareness from businesses. Unfortunately, a lot of businesses contribute significantly to the creation of environmental damage. Some governments have stepped up in this regard, passing certain legislation in order to protect the environment. Many governments impose quotas on the amount of harmful substances firms can emit within a timeframe, and fine businesses that over-pollute or ignore the legislation. These legislations are there to force firms to take into account the social costs (the cost to society and the environment) of production. External environment analysisA useful tool for analysing the external environment of an organisation is 'PESTLE'. PESTLE analysis takes a look at six different external factors that could have an impact on your business and rates the intensity and importance of each. PESTLE stands for political, economic, social, technological, legal, and environmental/ethical factors.
PoliticalThe 'P' in PESTLE. Political factors play a huge role for businesses operating in certain industries. Political factors include:
EconomicThe first 'E' in PESTLE. As outlined earlier, economic and market factors can significantly impact business functions. Some economic factors to consider include:
SocialThe 'S' in PESTLE. These socio-cultural factors include:
TechnologicalThe 'T' in PESTLE. Technology, especially in today's society, plays a huge role in business development and decisions. With technology developing rapidly, here are a few factors to keep in mind when considering the external environment of the business:
LegalThe 'L' in PESTLE stands for legal considerations regarding the external environment of a business. These include:
Environmental/ethicalFinally, the second 'E' stands for environmental and ethical factors. These include:
External Environment - Key takeaways
What is specific external environment of the Organisation?The external environment, also known as the macro environment, is out of the control of an individual business. Factors like competition, market, economic, demographic, and environmental factors all play a role in the external environment of an organisation.
What are the two types of external organizational environments?The two kinds of external organizational environments are the general environment and the specific environment.
What are the components of external environment?Here are the nine types of external environment factors that affect businesses:. Technological factors. ... . Economic factors. ... . Political and legal factors. ... . Demographic factors. ... . Social factors. ... . Competitive factors. ... . Global factors. ... . Ethical factors.. Which one of the following is not a part of the external environment of an organization?Answer and Explanation: The correct answer is D) competitors. Competitors are not categorized as part of an organization's environment; they are not involved in organizational decision-making and development strategies.
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