external environment
is everything outside an organization’s boundaries that might
affect it. There are two separate external environments: the
general environment
and the
task environment
. An organization’s
internal environment
consists of conditions and
forces within the organization.
The General Environment
Each of the following dimensions embodies conditions and events that have the potential
to influence the organization in significant ways.
The Economic Dimension
The
economic dimension
of an organization’s general
environment is the overall health and vitality of the economic system in which the orga-
nization operates.
2
Particularly important economic factors for business are general eco-
nomic growth, inflation, interest rates, and unemployment. After several strong years of
growth, the U.S. economy fell into a recession during 2008 and only began to recover
from it in 2012. During this period, energy and related prices jumped, business and eco-
nomic growth slowed dramatically, and unemployment mushroomed as one struggling
business after another made workforce cuts.
As one specific example, in 2014, McDonald’s U.S. operation was functioning in an
economy characterized by weak growth, moderate unemployment, and low inflation.
These conditions produce paradoxical problems. Moderate unemployment means that
fewer people can eat out, but those who do are looking for inexpensive options—like
McDonald’s. McDonald’s can also pay lower wages to attract new employees, since
many people are looking for work and fewer opportunities are available than was the
case a few years earlier. Similarly, low inflation means that the prices McDonald’s must
pay for its supplies remain relatively constant, but it also is somewhat constrained from
increasing the prices it charges consumers for a hamburger or milkshake. The economic
dimension is also important to nonbusiness organizations. For example, during weak
economic conditions, funding for state universities may drop, and charitable organiza-
tions such as the Salvation Army are asked to provide greater assistance at the same
time that their incoming contributions dwindle. Similarly, hospitals are affected by the
availability of government grants and the number of low-income patients they must
treat free of charge. The economic dimension of the general environment is discussed
more fully in the “Tough Times, Tough Choices” feature.
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