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Influence of the external environment on the organisation

Discuss about the Business Environment for Small & Medium Enterprises.

The external environment for business is changing all around the world (Ferrell & Fraedrich, 2015). This has a greater impact on the operations of the firm. Its influence can be seen on various aspects of the business. Organisations also need to be prepared for the plans so that they can solve the problems companies are facing. For facing these challenges companies are taking use of appropriate tools and frameworks. There are many industry specific factors that are affecting the decision making process of the organisations. Organisations need to have thorough evaluation of these factors so as to have highly productive decisions. This report highlights the influence of external environment on the firm as well as the framework and tool that is used by the organisations to confront the challenges faced by them. It also showcases the industry specific factors that affect the organisational decision making.

External environment comprises of many factors. All these have a greater and wide ranging impact on the operations of the firm. Any changes in these factors have a direct or indirect influence on the business operations. Some of these factors and its influence are illustrated below:

  • Political: The regulations made by the government have a deeper impact on the business of the firm. As they define the norms according to which businesses will run so they can impact the business operations. Changing political domains all around the world especially in terms of political ties have a greater impact on the trade and taxations which directly affects the multinational firms (Epstein & Buhovac, 2014).
  • Consumer behaviour: The demands of the consumers are changing and this behaviour needs to be understood by the company. Since the competition has increased and hence it has forced the organisations to make sure that they have a proper understanding about the behaviour of consumers. They are demanding of products that solves their multiple problems at a same time or say they act smartly.
  • Economy: Governments economic policies decide the future of the organisation in any country. If the policies are suitable for the business especially related with the taxation and investments norms then it can add positively to the financial gain of the firm.
  • Competitor’s strategy: It is not just that the success and failure of the business of the organisation depends on the strategy that is made by the company but it also depends on the strategy made by the competitors. In competition the win of the organisation depends on how much better is the operation of the firm as compared to rival’s strategy.
  • Public opinion: This is also shaping the external environment for the business. It is important that what consumers feel about the company (Klapper, Lewin & Delgado, 2011). If there is a positive thinking about the firm then there is always a chance that company can attract larger number of people towards their products and services.

There are many tools that can utilised by the managers in order to confront the challenges that are faced by the companies (Babatunde & Adebisi, 2012). Some of them are as follows:

  • Supply chain management: This is the tool that will help the firms in meeting the demands of the consumers at the right time so that they maintain the demand and supply chain. It will also help the companies in managing their resources in a better way so that they may not have problems in their operations.
  • Digital Business: In order to improve the performance of the company they need to have a digital marketing strategy. Taking use of advanced technologies helps in reducing the cost of operations as well as improves the effectiveness of the firm which is necessary for its growth (Chavis, Klapper & Love, 2011). The storage of data which is a bigger problem for the firm can also be solved by the use of advanced technologies.
  • Strategic planning: This will help the firms in safeguarding against the government regulation as well as the economic policies made by them. Efficient planning of resources will help the company in its sustainable development.
  • Targeting and Positioning: It is seen that due to excessive competition companies are making the losses since most of their products are not making expected profit. This can be resolved by the strategy of targeting and positioning where the companies need to target the segment of the population for which they have designed the products and services (Chittithaworn, Islam, Keawchana & Yusuf, 2011). All other secondary activities of the firm must be according to the target section they have made for their respective products. In order to improve the attractiveness of the products and services of the company in the minds of the consumers positioning strategy is highly important.
  • Innovation: This is one of the best tools using which any company can face the competition they are in. It also helps in fulfilling the needs of the consumers which is crucial for their growth of the firm. Innovation ensures that all the expectations the firm will be heard and the may not face problems in making new investments with ensuring returns on it (Craig & Campbell, 2012).
  • Market and industry research: In order to understand the behaviour of the consumers as well as the strategies that are made by the competitors research is highly necessary. It also helps in understanding the factors that are confronting the business as well as the expectation that consumers have from the company (Trivikram, 2016). Research must be based on the data that is collected by the firm from their previous operations.

There are several factors that shape the decision making of the firm. Industry specific factors have higher linkage with the decision making of the organisation (Hamilton & Webster, 2015). Some of these factors are as follows:

  • Resources: This factor plays one of the most significant roles in the decision making of the firm. The amount of resources available with the firm as well as the quality it has plays a more significant role in the decision making. Any firm must analyse the resources available with them so as to make decisions more productive.
  • Competition: The amount of competition that a firm is facing plays a vital role in the decision making process. The products offered by the competitors and its attractiveness in the market plays a very crucial role in the competition (Wetherly, 2014).
  • Technology: In the modern day business technology plays a vital role in the decision making process. Higher the demand of the industry regarding the technology more is its influence on decision making (Sena Ferreira, Shamsuzzoha, Toscano & Cunha, 2012).
  • Return on Investment: The return a company gets on its investments shapes it’s decision making process. Decision related to the ROI helps in shaping the financial decision making of the firm.
  • Ethics and values: Every organisation has certain ethics and values and it is linked with the work that is done within the industry (Carroll & Buchholtz, 2014). This has a greater impact on the decision making process of the firm. All the decisions are made checking the ethical norms of the industry.

Conclusion

From the above report it can be concluded that there are several factors that exist in the external environment of the organisation. This makes the influence of external environment very wide in terms of its performance. There are many frameworks and tools that is utilised by the firms so as to confront the challenges and the problems they are facing in their business. Apart from this there are certain industry specific factors that are having influence on the decision making of the organisations and hence need to be evaluated in a proper way so as to take appropriate decisions.

References

Babatunde, B. O., & Adebisi, A. O. (2012). Strategic Environmental Scanning and Organization Performance in a Competitive Business Environment. Economic Insights-Trends & Challenges, 64(1).

Carroll, A., & Buchholtz, A. (2014). Business and society: Ethics, sustainability, and stakeholder management. Nelson Education.

Chavis, L. W., Klapper, L. F., & Love, I. (2011). The impact of the business environment on young firm financing. The world bank economic review, 25(3), 486-507.

Chittithaworn, C., Islam, M. A., Keawchana, T., & Yusuf, D. H. M. (2011). Factors affecting business success of small & medium enterprises (SMEs) in Thailand. Asian Social Science, 7(5), 180.

Craig, T., & Campbell, D. (2012). Organisations and the business environment. Routledge.

Epstein, M. J., & Buhovac, A. R. (2014). Making sustainability work: Best practices in managing and measuring corporate social, environmental, and economic impacts. Berrett-Koehler Publishers.

Ferrell, O. C., & Fraedrich, J. (2015). Business ethics: Ethical decision making & cases. Nelson Education.

Hamilton, L., & Webster, P. (2015). The international business environment. Oxford University Press, USA.

Klapper, L., Lewin, A., & Delgado, J. M. Q. (2011). The impact of the business environment on the business creation process. In Entrepreneurship and Economic Development (pp. 108-123). Palgrave Macmillan, London.

Sena Ferreira, P., Shamsuzzoha, A. H. M., Toscano, C., & Cunha, P. (2012). Framework for performance measurement and management in a collaborative business environment. International Journal of Productivity and Performance Management, 61(6), 672-690.

Trivikram, S., (2016). Retrieved from: https://myventurepad.com/influence-business-environment-success-organisation/

Wetherly, P. (2014). The business environment: themes and issues in a globalizing world. Oxford University Press.

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