How to

Manage
Internal
and
External
Environmen
t
In a
Business
Organization
?
The soft-drinks giants, PepsiCo and Coca-Cola, suffered a decline in
sales of colas in India in the beginning of the year 2006 after an
environmental group, Centre for Science and Environment
(CSE) claimed to have found pesticides in their drinks up to 50
times the permissible health limits. These companies issued a
number of press statements and conducted many publicity
campaigns in India claiming that their beverages were perfectly
safe. The Union Health Ministry’s expert committee also
observes that Coke and Pepsi were safe. CSE, in turn, criticized
the expert committee’s findings and said that 11 of Coke and
Pepsi drinks contained average pesticide levels that were 24
times higher than the limits agreed by the Indian government.
Despite health ministry’s clean chit to colas, several States
continue to ban or restrict Coke and Pepsi. However, the
pesticide controversy adversely affected the sales of both Coke
and Pepsi as consumers started watching their diet more
closely. Organic food products suddenly became popular as
the healthier option. By definition, organic means fruits,
vegetables, food grains and processed products that have been
produced with no pesticide or inorganic fertilizers. Meanwhile
the soft drinks giants have been continuously advertising and
trying to convince the consumers about the safety of their
products.

The Pepsi Cola controversy raises an interesting question: Why are

soft drinks giants, Coca-Cola and PepsiCo putting in so much
effort on publicity campaigns in India after the decline in their
sales? The answer lies in the fact that their success is
dependent not merely on their internal management, but also
on many external forces as, for example, decisions and actions
of governments, consumers, other business firms and even
non-government organizations (NGOs) like CSE. Now, we shall
identify certain important external forces (or environmental
conditions) and their impact on the operations of business
enterprises.

Meaning of business environment

The term ‘business environment’ means the sum total of all
individuals, institutions and other forces that are outside the
control of a business enterprise but that may affect its
performance. As one writer has put it– “Just take the universe,
subtract from it the subset that represents the organization, and
the remainder is environment”. Thus, the economic, social,
political, technological and other forces which operate outside
a business enterprise are part of its environment. So also, the
individual consumers or competing enterprises as well as the
governments, consumer groups,

competitors, courts, media and other institutions working outside an

enterprise constitute its environment. The important point is
that these individuals, institutions and forces are likely to
influence the performance of a business enterprise although
they happen to exist outside its boundaries. For example,
changes in government’s economic policies, rapid
technological developments, political uncertainty, and changes
in fashions and tastes of consumers and increased competition
in the market— all influence the working of a business
enterprise in important ways. Increase in taxes by government
can make things expensive to buy. Technological
improvements may render existing products obsolete. Political
uncertainty may create fear in the minds of investors. Changes
in fashions and tastes of consumers may shift demand in the
market from existing products to new ones. Increased
competition in the market may reduce profit margins of firms.

On the basis of the foregoing discussion, it can be said business

environment, has the following features:

(i) Totality of external forces: Business environment is the sum total

of all things external to business firms and, as such, is
aggregative in nature.

(ii) Specific and general forces: Business environment includes both

specific and general forces. Specific forces (such as investors,
customers, competitors and suppliers) affect individual
enterprises directly and immediately in their day-to-day
working. General forces (such as social, political, legal and
technological conditions) have impact on all business
enterprises and thus may affect an individual firm only
indirectly.
(iii) Inter-relatedness: Different elements or parts of business
environment are closely inter-related. For example, increased
life expectancy of people and increased awareness for health
care have increased the demand for many health products and
services like diet Coke, fat-free cooking oil, and health resorts.
New health products and services have, in turn, changed
people’s life styles.

(iv) Dynamic nature: Business environment is dynamic in that it

keeps on changing whether in terms of technological
improvement, shifts in consumer preferences or entry of new
competition in the market.

(v) Uncertainty: Business environment is largely uncertain as it is

very difficult to predict future happenings, especially when
environment changes are taking place too frequently as in the
case of information technology or fashion industries.

(vi) Complexity: Since business environment consists of numerous

interrelated and dynamic conditions or forces which arise from
different sources, it becomes difficult to comprehend at once
what exactly constitutes a given environment. In other words,
environment is a complex phenomenon that is relatively easier
to understand in parts but difficult to grasp in its totality. For
example, it may be difficult to know the extent of the relative
impact of the social, economic, political, technological or legal
factors on change in demand of a product in the market.

(vii) Relativity: Business environment is a relative concept since it

differs from country to country and even region to region.
Political conditions in the USA, for instance, differ from those in
China or Pakistan. Similarly, demand for sarees may be fairly
high in India whereas it may be almost non-existent in France.

Importance of business environment

Just like human beings, business enterprises do not exist in
isolation. Each business firm is not an island unto itself; it
exists, survives and grows within the context of the element
and forces of its environment. While an individual firm is able to
do little to change or control these forces, it has no alternative
to responding or adapting according to them. A good
understanding of environment by business managers enables
them not only to identify and evaluate, but also to react to the
forces external to their firms. The importance of business
environment and its understanding by managers can be
appreciated if we consider the following facts:
(i) It enables the firm to identify opportunities and getting the first
mover advantage: Opportunities refer to the positive external
trends or changes that will help a firm to improve its
performance. Environment provides numerous opportunities
for business success. Early identification of opportunities helps
an enterprise to be the first to exploit them instead of losing
them to competitors. For example, Maruti Udyog became the
leader in the small car market because it was the first to
recognize the need for small cars in an environment of rising
petroleum prices and a large middle class population in India.

(ii) It helps the firm to identify threats and early warning signals:
Threats refer to the external environment trends and changes
that will hinder a firm’s performance. Besides opportunities,
environment happens to be the source of many threats.
Environmental awareness can help managers to identify
various threats on time and serve as an early warning signal.
For example, if an Indian firm finds that a foreign multinational
is entering the Indian market with new substitutes, it should act
as a warning signal. On the basis of this information, the Indian
firms can prepare themselves to meet the

threat by adopting such measures as improving the quality of the

product, reducing cost of the production, engaging in
aggressive advertising, and so on.

(iii) It helps in tapping useful resources: Environment is a source of

various resources for running a business. To engage in any
type of activity, a business enterprise assembles various
resources called inputs like finance, machines, raw materials,
power and water, labour, etc., from its environment including
financiers, government and suppliers. They decide to provide
these resources with their own expectations to get something
in return from the enterprise. The business enterprise supplies
the environment with its outputs such as goods and services
for customers, payment of taxes to government, return on
financial investment to investors and so on. Because the
enterprise depends on the environment as a source of inputs or
resources and as an outlet for outputs, it only makes sense that
the enterprise designs policies that allow it to get the resources
that it needs so that it can convert those resources into outputs
that the environment desires. This can be done better by
understanding what the environment has to offer.
(iv) It helps in coping with rapid changes: Today’s business
environment is getting increasingly dynamic where changes are
taking place at a fast pace. It is not the fact of change itself that
is so important as the pace of change. Turbulent market
conditions, less brand loyalty, divisions and sub-divisions
(fragmentation) of markets, more demanding customers, rapid
changes in technology and intense global competition are just
a few of the images used to describe today’s business
environment. All sizes and all types of enterprises are facing
increasingly dynamic environment. In order to effectively cope
with these significant changes, managers must understand and
examine the environment and develop suitable courses of
action.

(v) It helps in assisting in planning and policy formulation: Since

environment is a source of both opportunities and threats for a
business enterprise, its understanding and analysis can be the
basis for deciding the future course of action (planning) or
training guidelines for decision making (policy). For instance,
entry of new players in the market, which means more
competition, may make an enterprise think afresh about how to
deal with the situation.

(vi) It helps in improving performance: The final reason for

understanding business environment relates to whether or not
it really makes a difference in the performance of an enterprise.
The answer is that it does appear to make a difference. Many
studies reveal that the future of an enterprise is closely bound
up with what is happening in the environment. And, the
enterprises that continuously monitor their environment and
adopt suitable business practices are

the ones which not only improve their present performance but also
continue to succeed in the market for a longer period.

Types of business environment

Business environment can be broadly classified into:

Internal environment

External environment
A manager’s environment is made up of constantly changing factors-
both internal and external- that affect the operation of the
organization. If a new computer appears in the marketplace, the
managerial environment is affected. If key clients take their
business elsewhere, managers feel the impact. And if
technological advances date an organization’s current methods
of doing business, once again, the managerial environment has
to adapt.

Although managers can't always control their environments, they

need to be aware of any changes that occur, because changes
ultimately affect their daily decisions and actions. For example,
in the airline industry, deregulation opened up the market to
new airlines, forcing existing airlines to be more competitive.
Managers in existing airlines couldn't afford to ignore the
cheaper airfares and increased service that resulted. Not only
did managers have to identify the new challenge, but they also
had to act quickly and efficiently to remain competitive.

Internal environment
An organization’s internal environment is composed of the elements
within the organization, including current employees,
management and especially corporate culture, which defines
employee behavior. Although some elements affect the
organization as a whole, others affect only the managers. A
manager’s philosophical or leadership styles directly impacts
employees. Traditional managers give explicit employees, while
progressive managers empower employees to make many of
their own decisions. Changes in philosophy and/or leadership
style are under the control of manager. The following sections
describe some of the elements that make up the internal
environment:

Organizational mission statements

An organization's mission statement describes what the organization
stands for and why it exists. It explains the overall purpose of
the organization and includes the attributes that distinguish it
from other organizations of its type.

A mission statement should be more than words on a piece of paper;

it should reveal a company's philosophy, as well as its purpose.
This declaration should be a living, breathing document that
provides information and inspiration for the members of the
organization. A mission statement should answer the
questions, “What are our values?” and “What do we stand for?”
This statement provides focus for an organization by rallying its
members to work together to achieve its common goals.

But not all mission statements are effective in America's businesses.

Effective mission statements lead to effective efforts. In today's
quality-conscious and highly competitive environments, an
effective mission statement's purpose is centered on serving
the needs of customers. A good mission statement is precise in
identifying the following intents of a company:

Customers— who will be served

Product/services— what will be produced

Location— where the products/services will be produced

Philosophy— what ideology will be followed

Company policies

Company policies are guidelines that govern how certain

organizational situations are addressed. Just as colleges
maintain policies about admittance, grade appeals,
prerequisites, and waivers, companies establish policies to
provide guidance to managers who must make decisions about
circumstances that occur frequently within their organization.
Company policies are an indication of an organization's
personality and should coincide with its mission statement.

Formal structures
The formal structure of an organization is the hierarchical
arrangement of tasks and people. This structure determines
how information flows within the organization, which
departments are responsible for which activities, and where the
decision-making power rests.

Some organizations use a chart to simplify the breakdown of its

formal structure. This organizational chart is a pictorial display
of the official lines of authority and communication within an
organization.

Organizational cultures
The organizational culture is an organization's personality. Just as
each person has a distinct personality, so does each
organization. The culture of an organization distinguishes it
from others and shapes the actions of its members.

Four main components make up an organization's culture:

Values

Heroes

Rites and rituals

Social network

Values are the basic beliefs that define employees' successes in an

organization. For example, many universities place high values
on professors being published. If a faculty member is published
in a professional journal, for example, his or her chances of
receiving tenure may be enhanced. The university wants to
ensure that a published professor stays with the university for
the duration of his or her academic career — and this
professor's ability to write for publications is a value.

The second component is heroes. A hero is an exemplary person

who reflects the image, attitudes, or values of the organization
and serves as a role model to other employees. A hero is
sometimes the founder of the organization (think Sam Walton of
Wal-Mart). However, the hero of a company doesn't have to be
the founder; it can be an everyday worker, such as hard-
working paralegal Erin Brockovich, who had a tremendous
impact on the organization.

Rites and rituals, the third component, are routines or ceremonies

that the company uses to recognize high-performing
employees. Awards banquets, company gatherings, and
quarterly meetings can acknowledge distinguished employees
for outstanding service. The honorees are meant to exemplify
and inspire all employees of the company during the rest of the
year.

The final component, the social network, is the informal means of

communication within an organization. This network,
sometimes referred to as the company grapevine, carries the
stories of both heroes and those who have failed. It is through
this network that employees really learn about the
organization's culture and values.

Organizational climates

A byproduct of the company's culture is the organizational climate. The overall tone of

the workplace and the morale of its workers are elements of daily climate. Worker
attitudes dictate the positive or negative “atmosphere” of the workplace. The daily

relationships and interactions of employees are indicative of an organization's climate.

Resources

Resources are the people, information, facilities, infrastructure, machinery, equipment,

supplies, and finances at an organization's disposal. People are the paramount resource

of all organizations. Information, facilities, machinery equipment, materials, supplies, and

finances are supporting, nonhuman resources that complement workers in their quests to

accomplish the organization's mission statement. The availability of resources and the

way that managers value the human and nonhuman resources impact the organization's

environment.

Managerial philosophies

Philosophy of management is the manager's set of personal beliefs and values about

people and work and as such, is something that the manager can control. McGregor

emphasized that a manager's philosophy creates a self-fulfilling prophecy. Theory X

managers treat employees almost as children who need constant direction, while Theory

Y managers treat employees as competent adults capable of participating in work-related

decisions. These managerial philosophies then have a subsequent effect on employee

behavior, leading to the self-fulfilling prophecy. As a result, organizational philosophies

and managerial philosophies need to be in harmony.

Managerial leadership styles

The number of coworkers involved within a problem-solving or decision-making process

reflects the manager's leadership style. Empowerment means delegating to subordinates

decision-making authority, freedom, knowledge, autonomy, and skills. Fortunately, most

organizations and managers are making the move toward the active participation and

teamwork that empowerment entails.

When guided properly, an empowered workforce may lead to heightened productivity and

quality, reduced costs, more innovation, improved customer service, and greater

commitment from the employees of the organization. In addition, response time may

improve, because information and decisions need not be passed up and down the

hierarchy. Empowering employees makes good sense because employees closest to the

actual problem to be solved or the customer to be served can make the necessary

decisions more easily than a supervisor or manager removed from the scene.
External environment

A business does not function in a vacuum. It has to act and react to what happens outside
the factory and office walls. These factors that happen outside the business are
known as external factors or influences. These will affect the main internal
functions of the business and possibly the objectives of the business and its
strategies. The external environment is divided into two parts:

• Directly interactive: This environment has an immediate and firsthand impact

upon the organization. A new competitor entering the market is an example.

• Indirectly interactive: This environment has a secondary and more distant

effect upon the organization. New legislation taking effect may have a great

impact. For example, complying with the Americans with Disabilities Act requires

employers to update their facilities to accommodate those with disabilities.

Directly interactive forces

Directly interactive forces include owners, customers, suppliers, competitors, employees,

and employee unions. Management has a responsibility to each of these groups. Here are

some examples:

• Owners expect managers to watch over their interests and provide a return on
investments.

• Customers demand satisfaction with the products and services they purchase
and use.

• Suppliers require attentive communication, payment, and a strong working

relationship to provide needed resources.

• Competitors present challenges as they vie for customers in a marketplace with

similar products or services.

• Employees and employee unions provide both the people to do the jobs and
the representation of work force concerns to management.

Indirectly interactive forces

The second type of external environment is the indirectly interactive forces. These forces

include sociocultural, political and legal, technological, economic, and global influences.

Indirectly interactive forces may impact one organization more than another simply

because of the nature of a particular business. For example, a company that relies

heavily on technology will be more affected by software updates than a company that

uses just one computer. Although somewhat removed, indirect forces are still important

to the interactive nature of an organization.

The sociocultural dimension is especially important because it determines the goods,

services, and standards that society values. The sociocultural force includes the

demographics and values of a particular customer base.

• Demographics are measures of the various characteristics of the people and

social groups who make up a society. Age, gender, and income are examples of

commonly used demographic characteristics.

• Values refer to certain beliefs that people have about different forms of behavior
or products. Changes in how a society values an item or a behavior can greatly

affect a business. (Think of all the fads that have come and gone!)

This can be analyzed using PEST analysis.

PEST analysis stands for "Political, Economic, Social, and Technological analysis" and
describes a framework of macro-environmental factors used in the environmental
scanning component of strategic management. The model has recently been further
extended to STEEPLE and STEEPLED, adding education and demographics factors.It is
a part of the external analysis when conducting a strategic analysis or doing market
research and gives a certain overview of the different macroenvironmental factors that the
company has to take into consideration. It is a useful strategic tool for understanding
market growth or decline, business position, potential and direction for operations.
The growing importance of environmental or ecological factors in the first decade of the
21st century have given rise to green business and encouraged widespread use of an
updated version of the PEST framework. STEER analysis systematically considers
Socio-cultural, Technological, Economic, Ecological, and Regulatory factors.

The Model's Factors

• Political factors, or how and to what degree a government intervenes in the

economy. Specifically, political factors include areas such as tax policy, labour
law, environmental law, trade restrictions, tariffs, and political stability. Political
factors may also include goods and services which the government wants to
provide or be provided (merit goods) and those that the government does not want
to be provided (demerit goods or merit bads). Furthermore, governments have
great influence on the health, education, and infrastructure of a nation.

Major Elements of Political Environment

The Constitution of the country
Prevailing political system
The degree of politicisation of business and economic issues
Dominant ideologies and values of major political parties
The nature and profile of political leadership and thinking of political personalities
The level of political morality
Political institutions like the government and allied agencies
Political ideology and practices of the ruling party
The extent and nature of government intervention in business
The nature of relationship of our country with foreign countries

• Economic factors include economic growth, interest rates, exchange rates and the
inflation rate. These factors have major impacts on how businesses operate and
make decisions. For example, interest rates affect a firm's cost of capital and
therefore to what extent a business grows and expands. Exchange rates affect the
costs of exporting goods and the supply and price of imported goods in an
economy

Components of Economic Environment

Existing structure of the economy in terms of relative role of private and public
sectors.
The rates of growth of GNP and per capita income at current and constant prices
Rates of saving and investment
Volume of imports and exports of different items
Balance of payments and changes in foreign exchange reserves
Agricultural and industrial production trends
Expansion of transportation and communication facilities
Money supply in the economy
Public debt (internal and external)
Planned outlay in private and public sectors

• Social factors include the cultural aspects and include health consciousness,
population growth rate, age distribution, career attitudes and emphasis on safety.
Trends in social factors affect the demand for a company's products and how that
company operates. For example, an ageing population may imply a smaller and
less-willing workforce (thus increasing the cost of labor). Furthermore, companies
may change various management strategies to adapt to these social trends (such as
recruiting older workers).

Major Elements of Social Environment

Attitudes towards product innovations, lifestyles, occupational distribution and
consumer preferences
Concern with quality of life
Life expectancy
Expectations from the workforce
Shifts in the presence of women in the workforce
Birth and death rates
Population shifts
Educational system and literacy rates
Consumption habits
Composition of family

• Technological factors include ecological and environmental aspects, such as

R&D activity, automation, technology incentives and the rate of technological
change. They can determine barriers to entry, minimum efficient production level
and influence outsourcing decisions. Furthermore, technological shifts can affect
costs, quality, and lead to innovation.

• Legal factors include discrimination law, consumer law, antitrust law,

employment law, and health and safety law. These factors can affect how a
company operates, its costs, and the demand for its products.

• Environmental factors include weather, climate, and climate change, which may
especially affect industries such as tourism, farming, and insurance.Furthermore,
growing awareness to climate change is affecting how companies operate and the
products they offer--it is both creating new markets and diminishing or destroying
existing ones.

Applicability of the Factors

The model's factors will vary in importance to a given company based on its industry and
the goods it produces. For example, consumer and B2B companies tend to be more
affected by the social factors, while a global defense contractor would tend to be more
affected by political factors. Additionally, factors that are more likely to change in the
future or more relevant to a given company will carry greater importance. For example, a
company who has borrowed heavily will need to focus more on the economic factors
(especially interest rates).
Furthermore, conglomerate companies who produce a wide range of products (such as
Sony, Disney, or BP) may find it more useful to analyze one department of its company
at a time with the PESTEL model, thus focusing on the specific factors relevant to that
one department. A company may also wish to divide factors into geographical relevance,
such as local, national, and global (also known as LoNGPESTEL)

Use of PEST Analysis with Other Models

The PEST factors combined with external micro-environmental factors can be classified
as opportunities and threats in a SWOT analysis. PEST/PESTLE alongside SWOT can be
used as a basis for the analysis of business and environmental factors.

SWOT analysis
SWOT analysis is a tool for auditing an organization and its environment. It is the first
stage of planning and helps marketers to focus on key issues. SWOT stands for
strengths, weaknesses, opportunities, and threats.
Strengths and weaknesses are internal factors. Opportunities and threats are external
factors.
In SWOT, strengths and weaknesses are internal factors. For
example:A strength could be:

• Your specialist marketing expertise.

• A new, innovative product or service.
• Location of your business.
• Quality processes and procedures.
• Any other aspect of your business that adds value to your product or service.

A weakness could be:

• Lack of marketing expertise.

• Undifferentiated products or services (i.e. in relation to your competitors).
• Location of your business.
• Poor quality goods or services.
• Damaged reputation.

In SWOT, opportunities and threats are external factors. For

example: An opportunity could be:

• A developing market such as the Internet.

• Mergers, joint ventures or strategic alliances.
• Moving into new market segments that offer improved profits.
• A new international market.
• A market vacated by an ineffective competitor.

A threat could be:

• A new competitor in your home market.

• Price wars with competitors.
• A competitor has a new, innovative product or service.
• Competitors have superior access to channels of distribution.
• Taxation is introduced on your product or service.

A word of caution, SWOT analysis can be very subjective. Do not rely on SWOT too
much. Two people rarely come-up with the same final version of SWOT. TOWS
analysis is extremely similar. It simply looks at the negative factors first in order to
turn them into positive factors. So use SWOT as guide and not a prescription.
Simple rules for successful SWOT analysis.

• Be realistic about the strengths and weaknesses of your organization when

conducting SWOT analysis.
• SWOT analysis should distinguish between where your organization is today, and
where it could be in the future.
• SWOT should always be specific. Avoid grey areas.
 • Always apply SWOT in relation to your competition i.e. better than or worse than
your competition.
• Keep your SWOT short and simple. Avoid complexity and over analysis
• SWOT is subjective.

Once key issues have been identified with your SWOT analysis, they feed into
marketing objectives. SWOT can be used in conjunction with other tools for audit and
analysis, such as PEST analysis and Porter's Five-Forces analysis. So SWOT is a very
popular tool with marketing students because it is quick and easy to learn. During the
SWOT exercise, list factors in the relevant boxes. It's that simple. Below are some
examples of SWOT analysis .

SWOT Analysis Examples

Example 1 - Wal-Mart SWOT Analysis. Strengths - Wal-Mart is a powerful retail brand.

It has a reputation for value for money, convenience and a wide range of products all
in one store. Weaknesses - Wal-Mart is the World's largest grocery retailer and control
of its empire, despite its IT advantages, could leave it weak in some areas due to the
huge span of control. Opportunities - To take over, merge with, or form strategic
alliances with other global retailers, focusing on specific markets such as Europe or
the Greater China Region. Threats - Being number one means that you are the target
of competition, locally and globally.
Example 2 - Starbucks SWOT Analysis. Strengths - Starbucks Corporation is a very
profitable organization, earning in excess of $600 million in 2004.Weaknesses -
Starbucks has a reputation for new product development and creativity. Opportunities
- New products and services that can be retailed in their cafes, such as Fair Trade
products. Threats - Starbucks are exposed to rises in the cost of coffee and dairy
products.
Example 3 - Nike SWOT Analysis. Strengths - Nike is a very competitive organization.
Phil Knight (Founder and CEO) is often quoted as saying that 'Business is war without
bullets. 'Weaknesses - The organization does have a diversified range of sports
products. Opportunities - Product development offers Nike many opportunities.
Threats - Nike is exposed to the international nature of trade.
Example 4 - Indian Premier League (IPL) SWOT Analysis. Where will you find the
Mumbai Indians, the Royal Challengers, the Deccan Chargers, the Channai Super
Kings, the Delhi Daredevils, the Kings XI Punjab, the Kolkata Knight Riders and the
Rajesthan Royals? In the Indian Premier League (IPL) - the most exciting sports
franchise that the World has seen in recent years, with seemingly endless marketing
opportunities (and strengths, weaknesses and threats of course!).
Example 5 - Bharti Airtel SWOT Analysis. Weaknesses - An often cited original
weakness is that when the business was started by Sunil Bharti Mittal over 15 years
ago, the business has little knowledge and experience of how a cellular telephone
system actually worked. So the start-up business had to outsource to industry experts
in the field.
SWOT analysis limitations

While useful for reducing a large quantity of situational factors into a

more manageable profile, the SWOT framework has a tendency
to oversimplify the situation by classifying the firm’s
environmental factors into categories in which they may not
always fit. The classification of some factors as strengths or
weakness, or as opportunities or threats is somewhat arbitrary.
For example a particular company can be either strength or a
weakness. A technological change can be either a threat or an
opportunity. Perhaps what is more important than the
superficial classification of these factors is the firm’s
awareness of them and its development of a strategic plan to
use them to its advantage.

Adapting to environment

The role of a manager is to monitor and shape the internal and

external environments and to anticipate changes and react
quickly to them.
Managers can monitor the environments through boundary spanning — a process of

gathering information about developments that could impact the future of the

organization. Managers can access information through a variety of sources: customer

and supplier feedback; professional, trade, and government publications; industry

associations; and personal contacts.

Managers can also actively work to influence their external environments through

lobbying, voting, and using the media to influence public opinion.

Internal elements comprise the organization itself. Internal change arises from activities

and decisions within the organization. Managers can gather information by conducting a

thorough evaluation of the internal operations of the organization. The purpose of this

internal analysis is to identify the organizational assets, resources, skills, and processes

that represent either strengths or weaknesses. Strengths are aspects of the

organization's operations that represent potential competitive advantages (any aspect

of an organization that distinguishes it from its competitors in a postive way), while

weaknesses are areas that are in need of improvement.

Several key areas of the organization's operations should be examined in an internal

analysis. Key areas to be assessed include the marketing, financial, research and

development, production, and general management capabilities. These areas are typically

evaluated in terms of the extents to which they foster quality and support the competitive

advantage sought by the organization.