THE EXTERNAL AND INTERNAL ENVIRONMENTS
If managers in the airline industry are going to run their organizations efficiently, they have to understand the external environment confronting them, anticipate how changes in the environment might affect the profitability of their airlines, and take appropriate actions. These actions might include reducing capacity as demand declines, purchasing more fuel-efficient jets, avoiding price wars with low-cost airlines if possible, and reducing labor costs.
At the same time the ability of managers to take such actions is shaped by the airlines’ internal environment. For example, some long-established airlines, such as United, have powerful labor unions that have resisted attempts by managers to cut pay for pilots, flight attendants, and ground staff, or to introduce flexible work practices that boost labor productivity. This constraint has kept costs high and made it more difficult for managers to do what is required to make the airline profitable.
The situation confronting managers in the airline industry, while dramatic, is not unique. The work of all managers is affected by two main environments: the external environment and the internal environment. The external environment constitutes everything outside a firm that might affect the ability of the enterprise to attain its goals. The external environment itself can be subdivided into two main components.
There is the industry or taskenvironment confronting the organization, which typically includes actual and potential competitors, suppliers, and buyers (customers or distributors); firms that provide substitute products to those sold in the industry; and firms that provide complements. Then there is the more encompassing general environment within which the task environment is embedded.
The general environment includes political and legal forces, macroeconomic forces,