Now, let us discuss about external environment. What is an external environment?

What
are the major constituents of external environment? External environment is something
which is outside the organizations boundary, something which is beyond organizations
control.

Examples of the constituents or elements of external environment – suppliers,

competitors, consumer groups, media, government, customers, economic conditions,
market conditions, investors, and technology, and so on. So, these forces which are
dominant or elements of external environment have an influence on the business.

For example, changes in tax or reforms in tax policies, changes in tax policies can have
an influence on the business organizations. Customers buy less, here the business would
have to reestablish its prices to survive the change or to sustain the change even though
the business had no involvement in initiating the change. It still has to adapt in order to
survive or make profits.

There are two layers of external environment or two factors or two elements of external
environment. One is general environment; another one is task or specific environment.
General environment consists of technological, socio-cultural, economic, and legal-
political dimensions. Task and specific environment consist of competitors, suppliers,
and customers.

(Refer Slide Time: 09:05)

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So, general environment influence on organizations over time, but often are not involved
in day-to-day transactions. The dimensions of general environment are technological
factors, social factors, economic, legal and political factors.

(Refer Slide Time: 09:29)

Technological dimensions include scientific and technological advancements. For

example, with latest trends in technology or adaptation of new technology, say for
example, Boeing had to switch over from analog to digital technology.

In a specific industry, any industry there is a revolution which is caused by changes in

technology or adaption of new technology which will have an impact on how the

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business organizations run. Computer networks, internet access, handheld devices, video
conferencing, cell phones, fax machines, and laptops, are the minimum tools of doing
business.

Earlier say let us take an example because of advent of video conferencing or

information technology in business. So there are changes in the recruitment policy.
Earlier in the recruitment process the prospective candidate had to appear in person to
appear for an interview process.

Whereas, today even interviews are conducted over video conferencing, meetings are
held over video conferencing, where technology has made the life’s of employees, life’s
of people, life’s of stakeholders at ease. Technology has transformed and has been a
game changer in the business world.

Social dimensions represent the demographic characteristics. The demographic factors

such as norms, customs and values of the general population, they have also influenced
the business originations plans. Important socio-cultural characteristics are geographical
distribution and population density, age and education level. Age and lifestyle factors,
education level has also influenced business decisions.

Economic dimensions represent a general economic health, economic health of the

country or region in which organization operates. Consumer’s purchasing power the
unemployment rate and interest rates are part of an organizations economic environment.

(Refer Slide Time: 11:33)

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Legal-political dimensions include government regulations in the local, state, and federal
levels, as well as political activities designed to influence company behavior. For
example, the government laws specify rules of the game. Many organizations especially
multinational enterprises have to contend with government and legal issues in other
countries. Managers must recognize a variety of pressure groups.

So, therefore, if all these factors in the business environment have an influence on the
decisions and plans of organizations, there must be an assessment of the pressure groups
that work within the legal-political framework to influence companies to behave in
socially responsive way. So, we will discuss about each of them in more details.

(Refer Slide Time: 12:37)

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Environmental factors influencing the planning process or the planning and strategic
decision making. As we have seen organization is responsive to various factors in the
external environment. The factors in the external environment as discussed now is the
political factor, economic factor, social factors, ecological, legal and technological
factors.

Let us take each one in more details. The political factors – government policies,
ideology, political events or wars, civil unrest, political instability, terrorism, non-state
groups, interest groups, trade unions and trade union policies have an influence on
organization.

Government policies, say for example, Government Policy in India, there is a change in
government policies towards employing more women. There is a reservation policy 33
percent of women need to be given employment, or there should be reservation for
women, which has influenced and given a kind of mandatory clause for organization to
hire more women in organizations.

Geopolitical events – wars or some kind of political geopolitical factors have an

influence on the decisions of organizations. Civil unrest or terrorism, these have
influenced organizations decisions. Interest groups, the pressure, public pressure groups
or interest groups has an influence on business organizations which lead to changes or
they have to be more responsive to the changes or the pressures which have been laid by
the interest group.

For example, McDonald – a US based organization or when it has grown or expanded its
operations in different countries. Let us take an example of India. When McDonald
ventured in Indian market, so the products were rejected or there was a hue and cry by
the public interest group giving a reason that the product has beef in its content.

So, as a result, the products were there was mass rejection, and McDonald had to change
its decision to have different type of product in Indian market, they removed the beef in
the content in the product, and they had to be more adaptive to the Indian culture and the
preferences and needs of people.

So, next factor we will discuss about economic factors. Economic growth patterns,
competitor behavior, behavior of competitors, suppliers, raw material prices, currency

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exchange rates, tax regimes and wage rates, also influence the change in wage rates. The
tax regimes influence the corporate decisions and the plans. Social factors, demographic
trends as we know that the people have different preferences and needs.

Each age group has a different preference about the products and services. Lifestyle of
people are changing. Lifestyle, people now are more conscious about the health. So, as a
result, there is more awareness amongst the organizations to have products which are
suiting or which are more suitable to the needs of the demographic trends and the
lifestyle preferences of people. So, organization is taking care of the needs and
preferences of each of the stake holder group.

Social values, attitude to work, discrimination trends, labor mobility, and skill
availability also influences availability of skills, availability of labor, it also influences
decision making of organizations.

Ecological factors, environmental rising, concern of environment, protecting

environment. So the actions of organizations are influenced by these concerns reducing
toxic emissions, pollutants, and regulations concerning use of certain techniques like
genetic modification of food, hazard prevention, noise pollution.

So, organization has to be more concern towards the needs of ecology or to maintain an
ecological balance concern for planet, the soil, land, water and air. So, the product should
be free from any kind of pollutants which will not disturb the ecological balance. Legal
factors – specific laws of the land, then international law, international trade agreements,
human rights, local regulations by laws, also influence the organizations decision
making.

Technological factors like computing power and cost, new products, the demand for new
products, new facilities, innovations, innovations in products. Apple has been innovating
new products much in advance taking care of the, or maybe they are concerned towards
the needs of customers.

So, their planning about the new product in order to be more responsive to the changing
preferences, changing demands of customers. Internet trading, new production methods,
innovation in transports. So, these are the factors in changing technological factors which
have influenced organizations and its organizations and its decisions.

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(Refer Slide Time: 18:08)

Overall forces in business environment. If we look at the forces, one is hyper

competition, disruptive and high velocity innovation, out of sector competition. There is
intense competition within each environment there is intense rivalry. Let us take an
example of telecom sector.

Earlier there was monopoly of BSNL. Then many new entrants came after the changes of
liberalization in trade policies. So, the advent of liberalization, globalization, there were
many players in the market which led to increase in or rise in competition.

As a result, to be more sustainable or to be more competitive, the organization has to

respond to adapt to the changes, to be more innovative in products and services. So,
geopolitical pressures, interdependent global economy, global warming, climate change,
all these factors have also resulted, and impacted, they have created a kind of force on
the organization.

Fashion trends, the next big thing is the change in fashion, changing preferences. People
are or the fad is also driving is a kind of force which is driving the business organizations
plans. So these factors are leading organizations to adapt to change. In order to maintain
their continuity, the organizations are more understanding or they are more sensitive to
these forces in the business environment, and they are moving ahead with new plans.

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Demographic factors, the generation Y, generation Z, all these are they have a different
desire, need, and preference of the products. So, all these demographic forces have also
influenced the business environment. And then mandatory factors like legislation, social
responsibility, so organizations responsiveness or responsibility towards the planet, so
they have to take care, they are more concerned about all these environmental forces.

Process, product, service failures, governance problems, these are some environmental
factors which have influenced overall the managerial decision making or the strategy
formulation.

(Refer Slide Time: 20:25)

CSR policies and practices- pollution control, product improvement, repair of

environment, recycling of waste material, energy saving, these are some policies and
practices which have come up as a result of the environmental forces.

To be more responsive to the environmental forces, pollution control measures have been
adapted, products have been improved. Say for example, the vehicles, the concept of
hybrid car have come into, now the companies are manufacturing hybrid cars which are
fuel efficient as well as which are responsive to which at have less carbon emission.

Repair of environment, recycling waste materials, so these are some polices which have
been formulated by the organizations to be more responsive or to address to the needs of
different stake holders. Energy saving or energy efficiency. Equal opportunities being

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given to various stake holders. Minority employment, as we discussed earlier 33 percent
reservation or mandatory employment of women in all organizations. So, giving equal
opportunity to both genders.

Advancement of minorities, employment of minorities, taking care of the needs of

weaker sections, advancement of women, and support of minorities in the businesses,
support of disadvantage sections of society, which gives overall these policies of equal
employment address to the needs of multiple stake holders. Personal factors – employ
health and safety, training, personal counseling, sub contractor code of behavior,
providing medical care or insurance to the personnel.

So, the internal stakeholders or people who are working in the organization, their needs
need to be taken care of by providing health and safety, by giving them health and safety
benefits.

So, every organization takes care of providing medical facilities to the employees,
medical benefits, insurance – health insurance to the employees, so that they are more
engaged in employment. They are willing to work for the organization; there is a sense
of belongingness developed. So, providing the necessary benefits to employs is one of
the important policies.

Giving training to the employees, so that it will take care of the career advancement
opportunities. Personal counseling, counseling to the employees by the mentors or
coaches which will address provide them psychological safety and take care of the
professional advancement. Subcontractor code of behavior, providing medical care or
insurance, so basically these are personal policies or the strategies which are practices
which have been designed by the managers as well as the organization at large.

Community involvement, charitable donations, organization also provides donations,

promotes public health initiatives, and the supports education and the art community
involvement in projects. Infosys is a global company which takes care of providing large
amount of fund to address to the needs of community development. It helps in
improvement or providing infrastructure to the government schools in Karnataka.

It helps in developing library resources as well as provides computers to those

government schools which were otherwise deprived of such kind of infrastructure.

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Ensuring safety in the products, quality of products, sustainability, percentage of
materials that can be recycled. So, the products which are released, the products which
are meant for consumption need to be safe and they are also of good quality. And which
is free from any kind of say the product is fit for use. Suppliers – fair terms of trade,
black listing unethical, irresponsible suppliers and sub contractor code.

(Refer Slide Time: 25:02)

So, the task or specific, now let us discuss about what are the constituents or elements of
the specific environment. Specific environment includes those sets of factors that have a
direct working relationship with the organization. For example, customers, competitors,
and suppliers, they directly influence the business organizations; they are the constituents
of the task environment or specific environment.

Customers are people, define as people and organizations who acquire goods or services
from the organizations. Patients are the customers of hospitals; students are customers of
schools; travelers are the customers of airlines. So, there are different types of customers
for different organizations. Competitors are other organizations in the same industry
which are operating in the same industry or the type of business that provide goods or
services to the same sets of customers.

Competitors are overall, they are other organizations which are operating in the industry
or the type of business which have a same sets of customer base, and who offer the
similar goods and services to those sets of customers. Coco Cola and Pepsi are

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