THE EXTERNAL ENVIRONMENT

The External Environment consists of several elements outside of an organization which will influence its development and behavior in the marketplace. In addition, economic, political, and technological factors have a major influence on the development of our business.

ELEMENTS OF THE EXTERNAL ENVIRONMENT

Customers	Suppliers	Banks	Competitors	Labor Unions	Government Agencies

THE CYBER-ENVIRONMENT

A new type of environment has developed during the last decades and it provides unique opportunities to small business owners all over the world. This environment is called the Cyber-Environment, or Internet, and it exists on the World Wide Web.

Since the beginning of the 1990's the Internet has evolved into a major marketing vehicle for many thousands of businesses world-wide. In fact, the Internet became the most dynamic marketing and business environment at the end of the 20th century and it continues its exponential growth well into the 21st century.

There are approximately 2.5 Billion Internet Users in the world at present and it is expected that about three billion people will be surfing the Internet in the very near future. More details about the Wild-Wild-Web (WWW) are provided in Tutorial 5.

CUSTOMERS

According to Peter F. Drucker:" The only valid purpose of a business is to create and satisfy a customer." In fact, the identification of Customers and their needs is the first step toward survival of the organization. 

Customers are the ones who generate the need for products and services, thus initiating business interaction in the marketplace. Since their needs change over time, customers represent uncertainty to any organization. It is important, therefore, to ensure timely identification of customers' needs in order to exploit the opportunity of satisfying those needs at a profit. It is also essential to remember two important rules related to customers as presented below.

TWO IMPORTANT RULES RELATED TO CUSTOMERS

• • Rule No. 1: The customer is always right!
• • Rule No. 2: When the customer is wrong - use Rule No. 1!

SUPPLIERS

Suppliers represent another important factor in the external environment which influences the development of the organization. 

Business owners and managers must constantly make decisions related to the purchase of raw materials, components, parts, and a broad range of finished products in the process of running routine business activities. Thus, the development and success of an organization depends upon establishing sound relations with suppliers to obtain required materials at the right price and at the right time. 

Effective liaison with suppliers is of a particular importance to the organization if it aims to minimize its level of inventory and ensure timely supply of goods and services to customers. You should cultivate your suppliers as your friends, because their dependability and quality of their products or services will influence your company's ability to satisfy your clients' needs.

TWO IMPORTANT RULES RELATED TO SUPPLIERS

• • Rule No. 1: If your supplier is good - you look good!
• • Rule No. 2: If your supplier is bad - you don't look good!

BANKS

Banks and other financial institutions play a significant role in the development of an organization by providing lines of credit, loans, and other financial services. 

Once sufficient capital is obtained, the organization can activate the business process and proceed with it's regular operational activities. It is very important, therefore, for business owners and managers to understand how to negotiate with various financial institutions in order to secure availability of capital for organizational growth. 

Development of sound relations with banks is of paramount importance to small and medium-sized companies which often experience shortages of funds and difficulty of obtaining additional finances.

TWO IMPORTANT RULES RELATED TO BANKS

• • Rule No. 1: Your bank may "give you an umbrella, when the sun is shining".
• • Rule No. 2: Your bank may "ask you to return the umbrella, when the rain begins!"

COMPETITION

Competitors constantly influence a broad range of managerial decisions related to routine business activities and to the development of an organization. If the marketplace is highly competitive, business owners and managers must ensure that the organization remains competitive and provides high quality products or services to customers at the right price.

Competitors represent a significant factor in formulating the organization's marketing plan and adopting suitable product development, price setting, promotion and distribution strategies. It is important, therefore, that business owners and managers monitor relevant trends in the marketplace in relation to competition in order to secure the company's survival and growth in a highly competitive environment.

TWO IMPORTANT RULES RELATED TO COMPETITION

• • Rule No. 1: Business is all about competition.
• • Rule No. 2: If you want to succeed - you must always be "one step ahead"!

LABOR UNIONS

Small and many medium-sized companies are generally not affected by Labor Unions. It's only when the company really starts to grow and employ a substantial number of people that labor unions usually begin to play a significant role. 

Labor unions were established to protect the interests of specific categories of employees and to regulate the negotiating process between employers and workers.

Organizations constantly need employees with different skills and experience who often belong to a specific labor organization. Several laws which relate to employment procedures and labor unions have been passed in the United States since the 1930s. In accordance with The National Labor Relations Act Of 1935, for example, every organization must recognize and negotiate with a particular labor union selected by its employees. 

Business owners and managers, therefore, need to be familiar with the labor legislation which regulates employment procedures, collective bargaining processes (for larger companies), and other labor-related issues.

TWO IMPORTANT RULES RELATED TO LABOR UNIONS

• • Rule No. 1: Be aware of labor unions.
• • Rule No. 2: Don't make labor unions become aware of you!

GOVERNMENT AGENCIES

Whether you like it or not - Government Agencies are here to stay! These agencies play a constant and important role in our business lives and this is not likely to change! Federal, state, and local governments have introduced a broad range of Laws And Regulations which stipulate what business organizations can or cannot do. These laws and regulations are discussed in detail throughout this program and some of them are outlined below.

LAWS AND REGULATIONS WHICH MAY AFFECT YOUR BUSINESS

Business owners and managers need to be familiar with pertinent laws and regulations, which may relate to their specific industry, to ensure that their company strictly follows these laws.

TWO IMPORTANT RULES RELATED TO FEDERAL LAWS

• • Rule No. 1: Always respect and obey all federal and state laws!
• • Rule No. 2: If you have any doubts - use Rule No.1

EXTERNAL CONDITIONS WHICH MAY AFFECT YOUR BUSINESS

• Economic Conditions.

Economic conditions are impacted by the prevailing interest rates, inflation rates, stock market indexes, the trend of the Gross Domestic Product (GDP), and other related factors. Improved economic conditions naturally stimulate an increased demand for products and services, thus creating additional opportunities for organizational growth.

• Political Conditions.

Political conditions are stimulated by general stability within a country and specific policies of government officials. In the United States, organizations generally enjoy substantial benefits and continuous encouragement of new business ventures as a result of the free enterprise system.

• Social Conditions.

Social conditions must also be taken into consideration by managers and entrepreneurs. These are particularly important since values, tastes, and needs of customers change in accordance with their specific lifestyles.

• Technological Conditions.

Technological conditions need to be examined on a regular basis in order to secure continuation of organizational development and growth in a highly competitive environment.

THE INTERNAL ENVIRONMENT

In addition to the external environmental factors, organizational development depends upon the availability of certain elements within your company. 

These elements constitute the Internal Environment of the organization as illustrated below. Each element of the company's internal environment plays a critical role in its performance and development.

MAIN ELEMENTS OF THE INTERNAL ENVIRONMENT

Human Resources	Financial Resources	Operational Resources	Marketing Resources	Organizational Culture

HUMAN RESOURCES

Human Resources are of paramount importance to any organization. In fact, many business owners and managers agree that skilled, experienced, motivated, and loyal employees represent the biggest asset of every successful business organization.

The prime purpose of Human Resources Management, therefore, is to obtain, train, compensate, integrate, motivate, and manage employees within the organization to ensure cost-effective utilization of human resources.  Moreover, business owners and managers must be knowledgeable and well-prepared to carry out specific Human Resources Management Tasks to ensure a profitable long-term organizational performance.  Some of these tasks are summarized below.

Note:

Human Resources Management is discussed in detail in Tutorial 2.

FINANCIAL RESOURCES

Financial Resources are required by all organizations to provide for continuous operations and to fund the company’s growth. 

The prime sources of capital utilized by organizations include their own retained earnings, equity capital provided by shareholders, and debt capital provided by banks and other financial institutions.  Availability of sufficient capital is of prime importance since it enables the organization to fund all operational activities, offer more favorable payment terms to its customers, and obtain maximum discounts from suppliers.

 In addition, sufficient capital enables the organization to offer competitive salaries, wages, and employee benefits, thereby attracting a higher caliber of employees and management personnel. Furthermore, sufficient capital enables the organization to purchase modern equipment, thus ensuring higher operational efficiency and productivity.

The main purpose of Financial Management, therefore, is to plan, obtain, manage and control financial resources to ensure their effective utilization within the organization.  Moreover, business owners and managers must be knowledgeable and well-prepared to carry out specific Financial Management Tasks to ensure a profitable long-term organizational performance. Some of these tasks are summarized below.

Note: 

Financial Management is discussed in detail in Tutorial 3.

OPERATIONAL RESOURCES

Operational Resources may vary depending upon the specific nature of the company’s operational activities, such as service, merchandising, manufacturing, project, or contract management. For manufacturing companies, for example, these resources may include manufacturing equipment and tools, materials and spare parts inventories, production, assembly, storage, and distribution facilities, and vehicles. 

Operational resources are of particular importance to a manufacturing organization and usually require a substantial investment of capital. Acquisition, maintenance, and development of operational resources represent an integral part of operational activities. 

The main purpose of Operations Management, therefore, is to plan, obtain, manage, and control operational resources to ensure their effective utilization within the organization.  Moreover, business owners and managers must be knowledgeable and well-prepared to carry out specific Operations Management Tasks, depending upon the nature of the company’s activities, to ensure a profitable long-term organizational performance.  Some of these tasks are summarized below.

Note: 

Operations Management is discussed in detail in Tutorial 4.

MARKETING RESOURCES

Marketing Resources of an organization include experienced marketing employees,  well-prepared marketing and sales plans and budgets, productive sales force, and the company's goodwill in the marketplace. 

Every organization requires a detailed marketing and sales plan, which outlines its strategy regarding its products and services, price setting, promotion, and distribution. An accurate marketing and sales plan plays a critical role throughout the budgeting process and helps to secure effective utilization of all company resources. 

Comprehensive marketing and sales plans, productive sales force, and strong goodwill in the marketplace are expected to help the organization to promote its products and services to customers in the most cost-efficient manner. 

The main purpose of Marketing And Sales Management, therefore, is to plan, obtain, manage and control marketing and sales resources to ensure their effective utilization within the organization.  Moreover, business owners and managers must be knowledgeable and well-prepared to carry out specific Marketing And Sales Management Tasks to ensure a profitable long-term organizational performance.  Some of these tasks are summarized below.

Note: 

Marketing And Sales Management is discussed in detail in Tutorial 5.

MAIN ELEMENTS OF THE ORGANIZATIONAL CULTURE