External components of the business environment remain outside of the organization. They influence the ability of an organization. They can be classified into two categories- task general and general environment. Competitors, suppliers, customers, regulators, strategic allies, etc. are task environments and political-legal, economic, socio-cultural, and technological(PEST) are general environments. These factors are beyond the control of the business organization. The management should utilize them in favor of the organization by using their knowledge, ability, and skill. Some popular definitions of external environment given by J. Stoner and R.W. Griffin are as follows:
The external environment can be defined as all elements outside an organization that is relevant to its operations. —J.Stoner
The external environment is everything outside an organization that might affect it. —R.W. Griffin
Eventually, components of tasks and the general environment are the major external factors of the business environment. They remain outside the organization and directly and indirectly influence the ability of the organization. External components are harder to predict and control. These factors can be more dangerous for an organization. Careful analysis is a must to make rational decisions.
1 . The task environment
Competitors, suppliers, customers, regulators, strategic allies, etc. are the major components of the task environment. These components, directly and indirectly, influence business decisions from outside. They remain outside but very close to the organization.
The competing firms are the competitors of the organization. They influence business organizations. Competitors can launch a new product in the market, they can reduce the price of the product, can launch a new promotional scheme, and so on. The competitors also compete for resources. All these activities of competitors provide threats to the organization.
Suppliers are those organizations that provide resources to business organizations. It is good for any organization to keep long-term relationships with suppliers for quality, effective, and prompt delivery of resources. Suppliers may be raw material suppliers, machinery suppliers, human resource suppliers, financial resource suppliers, and so on.
Customers purchase products or services of an organization. They can be of different types such as household, government, industry, commercial enterprises, etc. An organization should make efforts to have different kinds of customers and has to develop different programs to retain quality customers. They are king in the market. An organization’s success depends on profitable relationships with quality customers.
The regulator controls the policy and behavior of an organization. Regulators may be regulatory agencies and interest groups.
The regulatory agency is a unit formed by the government. It provides protection to people and organizations by curbing unfair business practices. It protects consumers’ rights.
An interest group is another form of the regulator. The group formed to influence an organization is an interest group. The such group works for the interests of its members. For example, Mothers Against Drunk Drivers-MDD is an interest group that gives pressure on liquor producers to paste warning levels on their products, gives pressure on automobile producers to manufacture difficult automobiles/cars to start by intoxicated persons, puts pressure on the government to make rigid legal provisions against liquor drinking, and give pressure to bars and restaurants not to sell liquors to the habitual drunkards.
When two or more companies work together as a joint venture, it is called strategic allies. such allies are formed for doing important work for the benefit of involving parties. One company can learn special skills and knowledge from others in strategic allies. Along with this, the risk is shared among companies or parties. For example, Ford and Mazda Companies establish strategic allies and they have jointly established Probe Automobile.