This lesson describes the general environment of an organization and gives some examples of how its various components influence the task environment of an organization.
Weather changes, trade laws, and new competitors have increased the cost of JD Clothing’s production process and decreased their sales. Worried that all this change might spell out their demise, JD Clothing quickly calls in Environment Gal (E.G.), a consulting pro, to help them understand what’s happening to their once successful business.
E.G. swoops in and readily explains that the changes occurring outside the organization through trade laws, weather, technology and various other factors are known as the external business environment, which is typically broken down into two categories.
- The general environment, which includes an array of external influences, such as the environment, technology, economic conditions, demographics, sociocultural forces, political or legal factors.
- The task environment, which consists of a company’s ability to acquire necessary materials, such as products for making the clothing, or revenue from sales and their ability to deliver outputs as exporting goods.
E.G. tells JD not to be confused by the environment component of the general environment. This means exactly what it says, the environment, and it includes any changes to the physical environment.
In addition, what happens in the general environment tends to have a significant impact on the task environment, which includes the organization’s ability to make and deliver their products or services. For example, let’s say that there’s a drought and the cotton crop for JD’s clothes doesn’t grow as it should. This could lead to an increase in the cost of cotton used in the manufacturing process. Thus, it impacts their task environment by prohibiting their ability to purchase a necessary product for their business.
This is why it’s important to understand how the components of the general environment are interacting with the task environment. These components include technology, economic conditions, demographic and sociocultural factors, and political or legal factors, among others. Let’s now take a look at these different components.
Using her handy tablet E.G. begins to show JD all of the apps and other software programs available on smartphones and/or tablets and laptops that can help them to manage their manufacturing processes, sales, and more.
E.G. points out that JD Clothing is still using traditional retail sales and has yet to set up an online platform. She tells the team that by not to developing an online sales strategy they lost an entire market of customers that may have purchased their products. She goes on to explain that as technology advances companies will often either change with the technology or get left behind.
JD Clothing also needs to consider how the economy influences their business. E.G. tells them to consider the recent economic down turn. She goes on to explain that people buy less clothing when they don’t have a lot of money. When customers aren’t buying clothing, then JD Clothing won’t need to move as many products out of their manufacturing location. Thus, the economic conditions influence the company’s distribution of their products.
Demographics & Socio-Cultural Factors
In addition to economic conditions, E.G. explains the importance of demographics and sociocultural factors. This means that JD Clothing needs to consider the characteristics of the population and the local culture the company operates in. For example, if JD Clothing is developing a product line for 20 year olds but their retail stores are located near retirement communities, they may have a problem. JD Clothing should take a close look at where their retail stores are located and determine what the average age, gender, or marital status of the local population is. If it doesn’t match the demographics of their target market, then they’re going to have trouble distributing products.
Next, E.G. asks JD Clothing if they are familiar with the culture of the local population where they’re trying to sell their products. Unsurprisingly, they really aren’t. E.G. then begins explaining that the local culture is important because, for example, what people buy in California will likely be different than what people buy in New York. Basically, the culture will directly impact what they should make and what they should sell.
Political & Legal Factors
In closing, E.G. stresses that the political and legal factors are another important component of the general environment and can include trade laws, policies on sales, tax laws, labor laws, the type of government, and any other political or legal force that can influence JD Clothing’s business and ability to make and sell their products.
While trade laws may influence where JD Clothing can sell their products and how much it costs to send them there, tax laws may impact what percentage of tax they have to pay on revenue. In addition, labor laws and unions can affect who JD Clothing can hire and how much they have to pay them. The bottom line is that all sorts of political and legal factors, from tax laws to labor unions, influence the money that JD Clothing can make and how they’re able to make and sell their products.
The external business environment is made up of two environments.
- The general environment, which includes an array of external influences, such as the environment, technology, economic conditions, demographics, socio-cultural forces, and political or legal factors.
- The task environment, which consists of a company’s ability to acquire necessary materials, such as products for making the clothing or revenue from sales, and their ability to deliver outputs as exporting goods.
The general environment influences the task environment through politics, law, demographics, economic conditions, the environment, the economy, and local sociocultural trends. In order to stay profitable in a changing market, companies must pay attention to how these factors influence their ability to make, sell, and distribute their products.