If there's any certainty in business today, it's the presence of uncertainty.
So much of what happens in today's organizations is influenced by things outside of their control.
Whether it be lackluster consumer spending caused by an economic recession or even a
tsunami that damages supplier networks, businesses must be ready to deal with changes in their
external environments.
A businesses external environment is often described as the forces that exist outside
of the company that have the potential to affect it in some way.
Although its impossible to control what happens in their external environments, businesses
attempt to predict changes so that they can adapt accordingly.
In order to conduct more detailed analysis, the external environment is commonly split
into two categories: the general environment and the specific environment.
In this video, we're going to spend our time looking into the general environment.
The general environment consists of the the economic, technological, sociocultural, and
political and legal trends that influence a business.
By looking into each of these areas, a business managers are able to identify possible opportunities
and threats that can influence the performance of the business.
The first element of the general environment is the economy.
In this area, our focus is on evaluating the state of the economy in the countries where
the business operates.
In a general sense, businesses prefer a strong economy over a weak economy.
In strong economy unemployment is often low, which means people not only have money to
pay for necessities like living expenses, but also have discretionary income to devote
to things like vacations, cars, and dining out.
But look at what happens when an economy is struggling, much like the U.S. economy has
performed over the past several years.
An economy suffering from high unemployment translates to mediocre consumer spending as
people skimp on luxuries and instead focus on the essentials.
The end result is less demand for goods and services, which has a significant affect on
business revenues.
Although there are certainly some exceptions to this, a growing economy is generally good
for business.
So evaluating the economic environment is an important activity of managers as they
attempt to forecast sales, develop production schedules, and staff their businesses.
In a practical sense, managers often look at the consumer confidence index, business
confidence index, unemployment rate, new and existing home sales, durable goods orders,
and the producer price index to make an assessment as to the health of an economy.
Although relying on one indicator alone can lead to errors in decision-making, evaluating
several indicators can provide an accurate representation of an economy.
The second element of the general environment are technological trends.
Technology in this case is usually described as the knowledge, tools, and techniques that
are used to transform inputs into outputs.
Inputs commonly take the form of raw materials, like steel, copper, or iron ore, while information
includes facts, figures, and statistics.
These inputs are used to produce outputs, which take the form of goods and services.
For example, computer software and hardware, which represent technology, allow me the opportunity
to take information and present it in the form of a video.
Technology as we know it changes at a blistering pace.
And although these changes are commonly good for consumers in terms of added convenience,
they represent trends that business managers must be aware of.
Just look at digital books, which represent a relatively new market.
Companies that that identified this trends early on and adapted to it have performed
rather well, like Amazon for example.
However others who downplayed the significance of digital books failed to adapt in time to
actually leverage the trend.
3D printers also represent a new technological trend that is drastically altering the way
that businesses operate.
With the ability to print on demand, many businesses can now avoid the accumulation
of inventory and thus put those resources to use in other areas.
And last but certainly not least, we have the increased use of mobile devices.
As people are consuming more and more content on mobile devices, and less on traditional
desktop and laptop computers, business managers are scrambling to adapt websites, update software,
and even develop mobile advertising platforms to leverage the shift.
Facebook, who went through an IPO last year, went through a rather lengthy process of increasing
its mobile advertising efforts as it realized that a majority of its users accessed the
service on mobile devices, but a majority of its advertising revenues were derived from
traditional desktop and laptop users.
The third element of the general environment are sociocultural trends.
Often referred to as as the sociocultural environment, this area includes the demographic
characteristics, behavior, attitudes, and beliefs of people in a society.
So from a business perspective, we're attempting to identify changes or trends in these areas
that can serve as possible opportunities.
We can also evaluate this area to identify changes that pose risks to us, in which case
we should attempt to lessen the significance of that pending risk.
Sociocultural trends include the shifting age of Americans, the rising Hispanic population,
and increase in dual income households.
Due to a combination of medical advances which allow people to live longer and the aging
of the baby boomer generation, the population of the United States is starting to look a
little older.
According to the U.S. Census Bureau 20 percent of the U.S. population was 55 and older in
2000.
In 2010, that percentage rose to 25 percent and is expected to continue to rise.
This change was produced, among many other things, an increase in pharmaceutical retailers
as well as assisted living centers as businesses attempt to position themselves to take advantage
of the shift.
A rising hispanic population has also presented opportunities for businesses that are now
tailoring their goods, services, and advertising messages to them as a result of their increased
purchasing power.
Even politicians are adapted their campaign strategies with consideration for the rising
Hispanic population in the U.S.
And last we have rising in dual income households.
In the past thirty years alone, the percentage of families where both spouses work has risen
to 61 percent in 2012 from 47 percent in 1982.
These numbers vary even greater if you start back in the 1950s.
This transition away from the traditional household as it's often coined isn't a bad
thing.
Rather it presents opportunities for businesses as our attitudes towards the makeup of new
households shift.
A few things that have been produced in response to this transition include and increased number
of day care centers to accommodate working parents, an increased number of convenience
services such as delivering groceries directly to homes, and even employers offering flexible
work arrangements and other benefits to attract working parents.
The fourth and final element of the general environment are political and legal trends.
Commonly referred to as the political and legal environment, this area includes legislation,
regulations, and even court decisions that govern and regulate business behavior.
Although business managers can't necessarily change laws, though they can certainly try,
they do need to operate within the laws and other regulations established by the country
that they operate within.
Some of the changes that are affecting businesses today include the Affordable Care Act, which
includes a penalty to employers who don't offer health insurance to employees who work
more than 29 hours assuming the employer has above 49 full-time equivalent workers.
A possible increase in the national minimum wage rate also presents a change that business
managers must consider and can be very significant to those employers who hire primarily low-wage
workers.
These four areas, the economy as well as technological, sociocultural, and political/legal trends
make-up the general environment.
And although business managers can't influence these changes or trends, they can anticipate
them.
Doing so will allow a businesses managers to identify opportunities in the area of new
markets and products, while also protecting their businesses against changes looming on
the horizon.
In our next video, we'll discuss the second component to external environments: the specific
environment.
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