Organizations And External Environment

Have you ever imagined yourself as a leader of a huge or small organization ? Which decisions would you make to guarantee a high efficiency of work ? I know that you feel that it may be easy to successful. It's just a decision-making and some employees who need someone to command them. Sitting behind large offices is a dream target for many employees, but to achieve this goal you need not only a hard work, but a high level of knowledge. Neglecting a simple thing could lead to the end.
Over years many companies suffered from losses while others had already collapsed and did not exist anymore. There were many different reasons behind these problems. Some companies ended due to the competition with other firms. Others gave up because their products are no longer desirable. Most these firms figured out the main reasons of the problems too late. Many employers focus on internal environment more than the external environment or they would not pay attention to the outer boundaries. They may believe that the external environment is something you can’t control or deal with. For example, they look after good staff, great services, high quality of products ,appropriate structure…etc. All these issues manage and handle internal environment of the organization. Unfortunately, many firms somehow or another neglect external factors which could also affect negatively their business. Many companies went out of the market just because of the impact of external sectors while everything affect the internal environment was great and successful.
For instance, IBM company in the early eighties was the leader of technology field. It owned more than 70 percent of marketing share. IBM was depending on Mainframe system for years. It was successful and stable system, but later on, IBM started losing its large part in the market. In 1989 the IBM’s percentage share of market does not exceed ten percent. IBM was about to collapsed because the decision makers ignored the new changing in the external environment sectors which were the new companies and the new technology that appeared that time. Likewise, Kodak company which was sustainable for more than a hundred years. This company didn’t interest of the new technology in the beginning of nineties which was digital technology. This ignorance cost Kodak not only its reputation but its existing, too. The question now is how we can observe the external boundaries? Where do we have to pay more attention? Should we monitor all external factors? There are ten sector which could affect any firm Whether it is a small or a giant. Each one of these sectors represent a different field.
First is the Government sector: this sector may impact the business through federal law, regulation, taxes, court system, political processes. For example, companies that produce military tools should expect any changing in the government regulation which may cost the company unexpected losing. In addition, the companies that trading in bonds should be alert to any expected raising or decreasing in the interest rate which directly affect the bonds prices. Then there is industry sector which reflect the industry size, competitors, and competitiveness. Telecom companies for instance, face strong competition from other competitors, I remember in my country that one of the telecom companies lose almost 8% of subscribers due to an advertisement from other company which give the new customers some advantages.
Technology represent the third sector. It is one of the most complex sectors that caused many collapses of different companies particularly in the last two decade. Imagine that you own a successful electronic shop which sell laptops, cameras, and TVs, but later on a new online shop offered the same products with ten percent less of your prices and free shipping! Online shops did not pay for rentals or incur any additional costs like electricity, branches, Salaries sellers…etc. Definitely you would close within months unless you predict this step and offer it for your customer exactly like Best Buy company did.
Human resource is the fourth sector and the difficult one to control just because of the human been nature. How? Engineers for instance can find another job very easy even if they are working in an important project they will leave whenever they want! Transfer Technology company which design and production products for U.S navy faced a complex problems due to the employees who work on an important design and left the company in the middle of the project. Transfer Technology company adopted a wonderful environment for its engineers, but the problem was repeating every few weeks. Some engineers were looking for higher salaries others wanted to live in such a big cities rather than small one. Others looked for new chances to work in easy field rather than designing for U.S. navy.
The fifth sector is financial resource which could influence firms that depend on liquid money, or stock markets, or private investors. The number of banks which bankrupted during last two years may explain the risk of working with financial environment. One of the important instances of finance risk is Long-Term Capital Management (LTCM) which collapsed in 1997. LTCM depended on financing and partners who invested their money in LTCM. LTCM traded in bonds, stock markets and finally collapsed like a flash!
Likewise, there are international sector that interest in competition from foreign firms or inter overseas markets. Moreover, market sector and its impact from customers, clients potential users of products and services.
Each company have to look at these sectors and determined which of them they have to deal with. Also, they have to Measures the stability of the each one. If the sector is changing rapidly then it is unstable and vice versa. Likewise, if the firm encountered four or less different sector, then the situation conceded simple but if its more than four sectors, it will be complex. Therefore, firms that work in complex and unstable environment have to open more departments and activate employees participation very well. Moreover, they have to raise integration level among departments and decentralized ( push the decision-making to the lower level of the firm ) the decision-making unlike the firms that face simple and stable climate and can depend on few department with no integration or decentralization.
Nevertheless, companies that faced simple and unstable climate they need some expand in departments and few integration among departments. Also, they may decentralize decision-making and work with mechanistic structure.
I believe that if the managers of the companies concentrate in the external environment as much as they do in the internal, they will avoid unexpected risk which may cost them the entire company.

Note: this article written after learning organization behavior MGT689 and the sectors in this article were taken from the slides of this subject.

Thank you
Sami Alsenidy