Chapter 2: The Management Environment
External Environment
Factors, forces, situations, and events outside the
organization that affect its performance.
One of the biggest mistakes managers make today is failing
to adapt to the changing world. No successful organization,
or its managers, can operate without understanding and
dealing with the dynamic environment—external and
internal—that surrounds it.
The term external environment refers to factors, forces,
situations, and events outside the organization that affect its
performance.
For example, a volcanic eruption in Iceland in 2010
prevented delivery of auto parts that led to a shutdown at a
BMW plant in South Carolina and a Nissan Motors facility
in Japan.
Components of the External Environment
the external environment includes six components:
• The economic component encompasses factors
such as interest rates, inflation, changes in
disposable income, stock market fluctuations, and
business cycle stages.
• The demographic component includes trends in
population characteristics such as age, race, gender,
education level, geographic location, income, and
family composition.
• The technological component focuses on
scientific and industrial innovations.
• The sociocultural component is concerned with
societal and cultural factors such as values,
attitudes, trends, traditions, lifestyles, beliefs, tastes,
and patterns of behavior.
• The political/legal component looks at federal,
state, and local laws, as well as other countries’
laws and global laws. It also includes a country’s
political conditions and stability.
• The global component encompasses issues
associated with globalization and a world economy.
What Is the Economy Like Today?
◼ Global productivity still slow
◼ Global trade is sluggish
◼ U.S. employment is up
◼ Is the American dream still a possibility?
The economic crisis that gripped the United States and
other countries in 2008 appears to finally be over, though
growth and productivity in Europe is still behind that of the
United States. Global trade is also sluggish, prompting
some analysts to ask whether the world is becoming less
connected.
With an unemployment rate of just 5.5 percent, U.S.
employment is up, but much of that is related to low-wage
jobs. Further complicating the picture is the fact that some
seven million Americans are trapped in part-time jobs,
unable to find full-time positions. Moreover, just 64
percent of Americans still believe that the so-called
American dream that hard work leads to success and riches
is real.
Economic Inequality
Harris Interactive Poll: Only 10 percent of adults think
economic inequality is “not a problem at all.”
Most survey respondents believed that it is either a major
problem (57 percent) or a minor problem (23 percent). Why
has this issue become so sensitive? Those who worked hard
and were rewarded because of their hard work or creativity
have long been admired. In the United States, that gap
between the rich and the rest has been much wider than in
other developed nations for decades and was accepted as
part of our country’s values and way of doing things.
The Sharing Economy
Asset owners share with other individuals through peer-to-
peer service, for a set fee, their underutilized physical
assets or their knowledge, expertise, skills, or time.
Airbnb, Uber, Zipcar, and SnapGoods are just a few
examples of a fast-growing phenomenon called the sharing
economy, in which asset owners share with other
individuals through peer-to-peer service, for a set fee, their
underutilized physical assets or their knowledge, expertise,
skills, or time.
Demographics
Demography is destiny.