The Three Basic Characteristics of Changing External Environments

Laurie Krokos

Professor Kerschner

BU240 – Management Principles

January 21, 2015

                                Chapter 3 Review Questions

1. The three basic characteristics of changing external environments are:

1. Environmental Change:  This is the rate at which a company’s general and specific environments change.  In stable environments, the rate of change is slow. In a dynamic environment, the rate of change is fast.  Some companies often experience both. The Airline industry is a perfect example.  They went through the deregulation period, jet fuel increases, and then 9/11.
2. Environmental Complexity:  This is the number and the intensity of external factors in the environment that affect organizations.  There are simple environments (few factors) and complex environments (many environmental factors).
3. I found the third characteristic to be Resource Scarcity, as opposed to Munificence.

This is defined as the abundance or shortage of critical organizational resources in a company’s external environment.  

1. The characteristics of changing environments affect uncertainty by being low when environmental change, complexity and scarcity are at low levels. Managers are more confident that they can react and understand external factors.
2. The difference between general and specific business environments are:

1. General:  A general environment consists of the economy, technological sociocutural and political/legal trends that indirectly affect all organizations.
2. Specific:  A specific environment is unique to that company’s industry and directly affects the way that company runs its day to day operations.

      4.   The components of a general environment are:

1.        The Economy:  In a growing economy, people are working, spending money; more products are being bought and sold.  In a shrinking economy, people have less money to spend, therefore, buy less, making growth for an industry difficult.

2.        Technological:  This is the knowledge, tools and techniques used to turn inputs into outputs.  Technological changes can benefit as well as harm a business; a business must be able to “embrace” changes.

3.        Sociocultural:  this is the demographic characteristics, general behavior. Attitude and beliefs of people in a particular society.  

4.        Political/Legal:  This includes the legislation, regulations and court decisions that govern and regulate business behavior.

5.        The elements of the specific business environment affect businesses by:

Customer Component:  Business cannot exist without customers.  Customer wants and needs must be constantly monitored in order to make a business a success.  The old phrase still holds true.  “The customer is always right”.

Competitor Component:  Business managers must constantly monitor their competition both big and small.  Many times, they overlook the small competitor and merely focus on the big ones.  This is a mistake.  They must always look for improvement in their product and ways to outdo the competition.

Supplier Component:  Suppliers and companies must establish a relationship that is beneficial to both parties.  A supplier depends on a company for business, and a business depends on the supplier to provide a quality product.  

Industry Regulation:  Regulations are created for each specific industry to protect the consumer, worker and society as a whole.  Companies must comply with these regulations to preserve their reputation in their specific industry.

Advocacy Groups: These are groups of concerned citizens who try to influence business practices in specific industries.  If companies don’t listen to these groups they could lose customers which can lead to business failure.

6.        The three step process managers use to make sense of their changing environments is:

        1. Environmental Scanning:  This involves searching the environment for important         

     events or issues that might affect an organization.

2. Interpreting Environmental Factors:  Managers determine what events and issues meant to the organization after environment scanning.  These are viewed as either threats or opportunities.

3. Acting on Threats or Opportunites:  Once an event or issue is interpreted as a threat or opportunity, managers must decide what to do under conditions of uncertainty.  This is aided by using Cognitive Maps.