Managing the Environment

A manager does not operate in isolation.  Everything happens in a certain context.  The internal and external environments in which the manager operate can be quite complex and need to be monitored.

Internal environment

First of all, the manager operates in the context of the organisation’s internal environment.  In this environment the manager has some control over the decisions made within the organisation.  The internal environment can be subdivided into the physical environment, social environment, technological environment, economic environment, information environment and managerial environment.  

Physical environment

The physical environment includes buildings, equipment and facilities of the organization.

Social environment

The social environment consist of the people and interpersonal relationships within the organization.

Technological environment

The technological environment is about specific technology the organization uses, as well as all supporting functions, processes, policies and procedures.

Economic Environment

The economic environment is about all the economic subsystems of the organization.

Information Environment

A great deal of information is generated and shared in an organisation.  The information can be used by management to improve effectiveness.  For example production volumes, sales, gross margins and so on.

Management Environment

Each organization has its own management culture. Such a management culture is determined by the values, norms and practices of the leaders of an organization.  The two most common management environments are

  • Democratic management environment
  • a Participative management environment.

External environment

In addition, the organization also operates within a much greater context.  Managers must monitor the external environment to identify opportunities and threats.  It is important to be aware of the concerns of customers, availability of suppliers, market trends, actions of competitors etc.

The external environment can be divided into a local environment, a national environment and an international environment.  Each of these can be further divided into a number of sub-environments.  This includes the physical environment, social environment, technological environment, economic environment, information environment and managerial environment and political environment. 

Physical environment

The physical environment consists of infrastructure that create certain opportunities and constraints for an organization.  Examples include transport networks like roads and train rails.

Economic environment

The economy of a region, a country and the world will have a definite influence on how a company operates.  It affect choices such as whether we import or source locally.  Trade agreements, import restrictions, exchange rates, interest rates, employment rate and economic growth are factors to consider.

Information Environment

The twenty first century is the information age, and there is a lot of useful information available to the organization.  Management must monitor customer needs, preferences and expectations.  Management must also stay up to date on the actions of its competitors and factors affecting suppliers.

Gathering information can be costly and time consuming.  Identify what information is relevant to the organisation.  Start with a broad perspective and narrow down on aspects most likely to affect the organisation.

Useful sources include government reports, industry publications, trade meetings, expos, market research, and the internet.  Managers must also build informal networks.  Avoid using a single source of information.  Also find different interpretations of the same information

Technological environment

There is also a wider technological environment that will determine how the company do business.  Equipment and software can improve productivity significantly.  But  management must also note the impact technology have on the socioeconomic and natural environment.  For example, automation could lead to high levels of unemployment as a negative side-effect.  Another example is the possible negative impact of oil exploration in the Karoo.

Social environment

The wider social environment has a significant impact on a company’s activities.  Managers must monitor changes in population demographics like age and diversity.  In modern times, companies must also be aware of their social responsibility.

Political environment

Companies can not ignore the politics and policies which influence its actions.  For example, the threat of nationalization can affect a company’s approach to business expansion.  War, revolution, political instability, state capture and corruption all affect corporate strategy and managerial decisions.

Legal environment

A country’s laws and regulations usually determine what is possible (or not). Labor legislation, income tax regulation, company law, safety standards and environmental regulations are all examples of this.

The Environment a Company Operate in
The Environment a Company Operate in

The nature and size of a company determine to what extent these facets of the environment will affect the business. A sole proprietorship that only produce and sell locally, is less affected by foreign trends.  While the international environment is crucial for a multinational company  or a company that imports or exports.

More external monitoring is needed when

  • an organisation is very dependent on outsiders
  • when the environment is more turbulent
  • When the organisation faces severe competition or serious threats

References

Hannes Kruger, Management training manual.  Written for the Meat Board, Chapter 1

Gary Yukl, Leadership in organisations.  Sixth Edition, Pearson Prentice Hall, 2005, Chapter 12, p373-376




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