Challenges of the External Environment Imposed on Managers

8/4/2019 Challenges of the External Environment Imposed on Managers

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Challenges of the External Environment Imposed on Managers

The managers 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 labor force, legal, political, legal considerations, society, unions, thecompetition, customers/suppliers, and technology. One of the greatest challenges facing all

organizations today is managing uncertainty. Managers must do what they can to reduceuncertainty 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.

Labor force

The capabilities of a firms employees determine to a large extent how well the organization canperform its mission. Since new employees are hired from outside the firm, the labor force is

considered an external environment factor. The labor force is always changing. This inevitablycauses changes in the workforce of an organization thus affecting the way management must

deal with its workforce. (Mondy 1995, p.36) Changes in the countrys labor force create dynamic

situations within 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.

Legal Considerations

Law is important in business transactions. It provided a basic framework within which a businessenterprise must operate. It facilitates smooth functioning of business transactions and protects

both the businessmen and customers. All business organizations must comply also with the legalconstraints of that country. In turn when a firms operations extend into other countries, the laws

and regulations of those countries must be taken into account. (Mondy 1995, p.36)

Society

Members of society may also exert pressure on management. The public no longer accepts the

actions of business organizations without questions. People learned that voicing out theirdisagreements in newspapers and other forms of media can produce changes. The 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 tosocietal interests, it is said to be socially responsible. Social responsibility is the 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 womens movement, implementing physical fitness activities for employees and

also encouraging and advising employees on the correct diet. Such activities enhance a firms
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image in the community and in the long run may improve the firms profitability. (Mondy 1995,

p.37)

Unions

Wage levels, benefits, and working conditions for millions of employees now are decisions madejointly by unions and management. A union is a group of employees who have joined togetherfor 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 favor of labor and sometimes in management. The emphasis in the futurewill 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. Thats 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)

Competition

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 shortsupply. An easy solution would be to increase the wages but this will lead to a bidding war whenseveral competitors need people with the same skills. Besides competition in product and service

markets forces employers to keep labor 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 aco-operative agreement with the competition.

Customers/Suppliers

The people who use a firms product and services are an important part of the externalenvironment because sales are critical to a firms survival. In order to survive in the competitive

business world, what managers can do is advertise, use a differentiated price structure, ration

demand, change domain to where there are more customers in order to reduce environmentuncertainty. (Robbins 1989, p.262)

In dealing with suppliers, managers can use multiple suppliers instead of just sticking to onesupplier. 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 merger.

Technology


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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 newtechnology results from changes in other environment 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. Its not only employees that have to

be trained but also managers have to constantly upgrade themselves to keep up with newtechnology.

The Economy

By economic environment, we mean the characteristics of the economic system in which thebusiness operate, i. e., the pattern of economic growth, economic policies, measures, and

incentives provided for economic development. Organizations rely on economic surplus to thrive

and prosper. With larger surplus, more organizations get the resources they need to grow and

develop thus becoming more specialize. For instance, Australian companies benefit directly fromgovernment 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 environmentalfactor affecting a managers job. (Mondy 1995, p.41) For example, when the economy isbooming, 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

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 acrossnations. 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 virtuallyall 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)

Technological

Introduction of personal computers

Ability to transmit data, both nationally and internationally

Worldwide telephone direct dialing and uses of faxes

Social


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Womens movement

Concern for physical fitness and correct diet

Return to inner-city living

Economic

Deregulation of various industries

Lowering of tariffs

Decline in the inflation rate

Political

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

Managers approaches change in the external environment either proactively or reactively. Aproactive 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 signsof 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.

Advertising

Managers in an organization engage the services of advertising firms to market their product orservices thus building on brand loyalty and lessening its dependence on consumers. Managersseek 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

differential advantage over another in the same industry.

Contracting


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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 organizations output.

Coalescing

When an organization combines with one or more other organizations for the purpose of jointaction, 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.

Co-opting

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 interestsof 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, andsuccessful 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 boastsfar more technology and less government regulation. To be successful in this environment,managers must demonstrate 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 tolearn from past successes and failures in developing an approach to a better business

organization.

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Challenges of the External Environment Imposed on Managers