Five Components of an Organization's External Environment
Customers
Customers buy products or use services. They may be individuals, but also may be manufacturers, wholesalers or corporate clients. To compete, a business must deeply understand its customer's needs and desires. Analyzing this environmental component allows a business to make sound strategic decisions that affect operations.Customer-oriented changes such as extra services, new products, or expanded hours of operations might sharpen a company's competitive edge.
Competitors
A business occupying the same marketplace as another company that provides similar products or services has a competitor. A rival company may vie for the same customers through some mix of service, product features, quality, convenience, selection and price. To enhance customer service, the competition may choose to provide delivery options, good warranties and generous financing. To compensate for this external force, a company must keep abreast of the means the competition uses to lure customers, and objectively analyze the competitor's strengths and weaknesses. An existing business must also know when new competition enters their market.
Labor Environment
Labor as a factor of the external environment refers to the people a company hires to fill its positions. A company rises and falls on the competence and expertise of its workforce, so finding qualified candidates in the community is crucial. In assessing the labor environment, companies should look to characteristics that include the average educational level of the community, training programs available, technical know-how, and diversity, which is increasingly necessary in a globally connected world. Changing population patterns such as changes in the community's average age should also be assessed.
Owners
For a business run by hired managers, the owners of the business become a part of the company's external rather than internal environment. Owners might not only be those who started the business, but may also
Customers buy products or use services. They may be individuals, but also may be manufacturers, wholesalers or corporate clients. To compete, a business must deeply understand its customer's needs and desires. Analyzing this environmental component allows a business to make sound strategic decisions that affect operations.Customer-oriented changes such as extra services, new products, or expanded hours of operations might sharpen a company's competitive edge.
Competitors
A business occupying the same marketplace as another company that provides similar products or services has a competitor. A rival company may vie for the same customers through some mix of service, product features, quality, convenience, selection and price. To enhance customer service, the competition may choose to provide delivery options, good warranties and generous financing. To compensate for this external force, a company must keep abreast of the means the competition uses to lure customers, and objectively analyze the competitor's strengths and weaknesses. An existing business must also know when new competition enters their market.
Labor Environment
Labor as a factor of the external environment refers to the people a company hires to fill its positions. A company rises and falls on the competence and expertise of its workforce, so finding qualified candidates in the community is crucial. In assessing the labor environment, companies should look to characteristics that include the average educational level of the community, training programs available, technical know-how, and diversity, which is increasingly necessary in a globally connected world. Changing population patterns such as changes in the community's average age should also be assessed.
Owners
For a business run by hired managers, the owners of the business become a part of the company's external rather than internal environment. Owners might not only be those who started the business, but may also