Chapter Three: Assessing External Environments

The external environment consists of the forces and conditions outside of the organisation that could potentially influence its performance. The task environment consist of those forces that have a high potential for affecting the organisation on an immediate basis. The general environment consists of those forces which typically influence the organisation's external task environment and thus the organisation itself and the internal environment is key factors and forces inside the organisation that affect its operations.

The general external environment includes demographic and societal values. Technological forces include product technological changes and process technological changes. Economic forces include current economic conditions and cycles, and structural changes. Political and legal forces includes laws and government activity. Global forces include those changes to institutions and physical infrastructure.

Higher profits occur in a task environment with few competitors, quality-based competition, high entry barriers and high switching costs, few new entrants, few substitutes, fragmented customers, many suppliers (i.e., in economic terms towards monopoly). Lower profits occur in a task environment with many competitors, price-based competition, low entry barriers and low switching costs, many new entrants, many substitutes, united customers, few suppliers (i.e., towards perfect competition). Strategic partners include organisations that work closely with a firm in pursuit of mutually benefical goals (i.e., an oligopoly). The internal environment consists of owners, the board of directors, employees and corporate culture.

Managers must engage in environmental scanning and response. Effective scanning begins with defining the categories of influence, recognising the influence, analysing the effects and responding both directly and strategically through organisational agility and information management.