The Total Environment of the Firm

•From the viewpoint of top management, the environment in which the firm operates consists of a rich kaleidoscope of cultural, political, and economic factors. These serve as a combination of constraints and opportunities within which the internal make up of the firm impinges on it as either constraints or strengths, weaknesses, or capabilities.

•For purposes of establishing the company’s policies and goals, top management must fully understand and take into account all these external and internal environmental considerations.

•Once top management has set the company’s goals, it must establish its strategic plan toward achieving these goals.

•“”The only things which are certain are death and taxes.”

•Today, we are certain that there is another thing that is certain, namely, change. Changes that affect the firm usually lie outside the firm’s sphere of influence, the most effective and best-laid plan is that which anticipates and works toward change.

•Change also takes place within the firm itself, in those areas where top management has control over; its financial structure, the physical plant or factory, the capabilities of its management and its workers, and so on. These changes must be considered hand-in-hand with the external environment in accordance with the goals and the overall targeted plan established by top management.

Educational Factors

•The first category, the educational factors, is clearly an integral part of the environment and may be viewed from a number of perspectives.

Factors within the environment that can affect the management of the firm

• The literacy level and the percentages of the population that belong to the different educational strata for one, bear upon the marketing approach for the products which the firm is to produce.

• The types- even qualities of goods of that will be in demand vary according to individual tastes, which in turn are shaped by the educational backgrounds of the prospective consumers.

• Even the media and techniques used in advertising these products are also largely dictated upon by these very same factors.

•Percentages of literacy and educational levels also affect the type of workers and managers the firm will be able to hire in the course of working towards its goals. Foremen will necessarily spend more time supervising workers who are poorly educated and who are slow to learn.

•If some supervisors are illiterate, managers will have to take pains in conveying instructions orally.

•When this is experienced by management, planning any significant growth becomes much more difficult.

•In the case of a large firm, decentralization becomes a must, requiring a substantial amount of written communications – up and down and among departments.

•There is little the individual firm can do to affect the external educational environment. But, since the environment will keep on changing, the firm must be able to anticipate the extent and direction of such changes in order to develop sound strategic plans.

•On the other hand, there is much the firm can do about the educational levels of its workers and managers. Literacy and technical training can be given to workers and foremen.

•Personnel development must thus be an important part of any long-range plan if the firm wishes to strengthen its ability to achieve its set goals.

Socio-cultural Factors

•Socio-cultural factors that are present in the country should be given critical consideration by top management because these influence both the firm’s external environment as well as its internal system. Firms are constantly interacting with the cultural environment. They affect eachother.

•In the United States, the large corporations shape the attitudes and the value system of the communities these attitudes and values, inturn play upon the motivation, behavior, and performance of both the people dealing with the firms and those working the firms.

• When a firm’s top management institutes its own elaborate training program and creates an atmosphere for the exercise of authority, responsibility, imitative, risk etc., the culture– the value system– of the people working for the company undergoes a change.

• The company itself becomes a cultural subsystem. In fact, it can even become much more efficient than the surrounding firms and the surrounding society.

•There are limits of course, to the extent of cultural change that can take place within a firm. After all, employess must continue to interact with the more dominant (national) cultural system once they step out of their work premises and shed off their working roles.

•But change can be achieved, and the effect can be significant.

Economic Factors

•The size of the market is inevitably a critical factor. This relates to present products, as well as to other products and/or services into which the firm might diversify.

•Competition is multi-faceted. The existence and potential growth of competitors are economic factors which are of primary importance in developing a firm’s strategy.

Administrative and Political Factors

•It is important for the manager to remember that the political climate is only a part of the total environment acting upon his firm. Political factors operating in the environment should not, therefore, overwhelm management. It should not prevent the utilization of scientific management. It merely means that the goals and strategy of the firm must take this aspect of the environment into proper perspective in order to be realistic and effective as possible.

International Factors

•International environmental factors are those which affect a firm’s ability to most efficiently import equipment and goods, to export part or all of its production, and to enter into agreements with foreign companies so as to gain access to technology, patent rights, management know-how, financing and markets.

Environmental Constraints

Educational Factors

1. Literacy level2. Specialized vocational and technical

training and general secondary education

3. Higher education4. Special management programs5. Attitude toward education6. Education match with requirements

Socio-cultural factors

1. View toward industrial managers and management

2. View of authority and subordinate3. Inter-organizational cooperation4. View toward achievement and work5. Class structure and individual mobility6. View toward specific method7. View toward risk-taking8. View toward change

Economic Factors

1. Market size2. Central banking system and monetary

policy3. Fiscal policy4. Economic stability5. Organization of capital markets6. Factor endowment7. Social ahead capital8. Competition

Administrative and Political Factors

1. Relevant legal rules of the game2. Defense policy3. Foreign policy4. Political organization5. Government attitudes toward private

enterprise6. Political stability

International Factors1. View toward foreigners2. Nature and extent of nationalism3. General balance of payments position4. International trade patterns5. Membership and obligations in international financial

organizations6. International organization and treaty obligations7. Power or economic blog grouping8. Relevant legal rules for foreign business9. Import-export restrictions10. International investment restrictions11.Profit remission restrictions12.Exchange control restrictions