Episode 146: The General Environment: What It Is and How To Evaluate It

If there’s any certainty in business today,
it’s the presence of uncertainty. So much of what happens in today’s organizations is
influenced by things outside of their control. Whether it be lackluster consumer spending
caused by an economic recession or even a tsunami that damages supplier networks, businesses
must be ready to deal with changes in their external environments. A businesses external
environment is often described as the forces that exist outside of the company that have
the potential to affect it in some way. Although its impossible to control what happens in
their external environments, businesses attempt to predict changes so that they can adapt
accordingly. In order to conduct more detailed analysis, the external environment is commonly
split into two categories: the general environment and the specific environment. In this video,
we’re going to spend our time looking into the general environment. The general environment consists of the the
economic, technological, sociocultural, and political and legal trends that influence
a business. By looking into each of these areas, a business managers are able to identify
possible opportunities and threats that can influence the performance of the business. The first element of the general environment
is the economy. In this area, our focus is on evaluating the state of the economy in
the countries where the business operates. In a general sense, businesses prefer a strong
economy over a weak economy. In strong economy unemployment is often low, which means people
not only have money to pay for necessities like living expenses, but also have discretionary
income to devote to things like vacations, cars, and dining out. But look at what happens
when an economy is struggling, much like the U.S. economy has performed over the past several
years. An economy suffering from high unemployment translates to mediocre consumer spending as
people skimp on luxuries and instead focus on the essentials. The end result is less
demand for goods and services, which has a significant affect on business revenues. Although
there are certainly some exceptions to this, a growing economy is generally good for business.
So evaluating the economic environment is an important activity of managers as they
attempt to forecast sales, develop production schedules, and staff their businesses. In
a practical sense, managers often look at the consumer confidence index, business confidence
index, unemployment rate, new and existing home sales, durable goods orders, and the
producer price index to make an assessment as to the health of an economy. Although relying
on one indicator alone can lead to errors in decision-making, evaluating several indicators
can provide an accurate representation of an economy. The second element of the general environment
are technological trends. Technology in this case is usually described as the knowledge,
tools, and techniques that are used to transform inputs into outputs. Inputs commonly take
the form of raw materials, like steel, copper, or iron ore, while information includes facts,
figures, and statistics. These inputs are used to produce outputs, which take the form
of goods and services. For example, computer software and hardware, which represent technology,
allow me the opportunity to take information and present it in the form of a video. Technology
as we know it changes at a blistering pace. And although these changes are commonly good
for consumers in terms of added convenience, they represent trends that business managers
must be aware of. Just look at digital books, which represent a relatively new market. Companies
that that identified this trends early on and adapted to it have performed rather well,
like Amazon for example. However others who downplayed the significance of digital books
failed to adapt in time to actually leverage the trend. 3D printers also represent a new
technological trend that is drastically altering the way that businesses operate. With the
ability to print on demand, many businesses can now avoid the accumulation of inventory
and thus put those resources to use in other areas. And last but certainly not least, we
have the increased use of mobile devices. As people are consuming more and more content
on mobile devices, and less on traditional desktop and laptop computers, business managers
are scrambling to adapt websites, update software, and even develop mobile advertising platforms
to leverage the shift. Facebook, who went through an IPO last year, went through a rather
lengthy process of increasing its mobile advertising efforts as it realized that a majority of
its users accessed the service on mobile devices, but a majority of its advertising revenues
were derived from traditional desktop and laptop users. The third element of the general environment
are sociocultural trends. Often referred to as as the sociocultural environment, this
area includes the demographic characteristics, behavior, attitudes, and beliefs of people
in a society. So from a business perspective, we’re attempting to identify changes or trends
in these areas that can serve as possible opportunities. We can also evaluate this area
to identify changes that pose risks to us, in which case we should attempt to lessen
the significance of that pending risk. Sociocultural trends include the shifting age of Americans,
the rising Hispanic population, and increase in dual income households. Due to a combination
of medical advances which allow people to live longer and the aging of the baby boomer
generation, the population of the United States is starting to look a little older. According
to the U.S. Census Bureau 20 percent of the U.S. population was 55 and older in 2000.
In 2010, that percentage rose to 25 percent and is expected to continue to rise. This
change was produced, among many other things, an increase in pharmaceutical retailers as
well as assisted living centers as businesses attempt to position themselves to take advantage
of the shift. A rising hispanic population has also presented opportunities for businesses
that are now tailoring their goods, services, and advertising messages to them as a result
of their increased purchasing power. Even politicians are adapted their campaign strategies
with consideration for the rising Hispanic population in the U.S. And last we have rising
in dual income households. In the past thirty years alone, the percentage of families where
both spouses work has risen to 61 percent in 2012 from 47 percent in 1982. These numbers
vary even greater if you start back in the 1950s. This transition away from the traditional
household as it’s often coined isn’t a bad thing. Rather it presents opportunities for
businesses as our attitudes towards the makeup of new households shift. A few things that
have been produced in response to this transition include and increased number of day care centers
to accommodate working parents, an increased number of convenience services such as delivering
groceries directly to homes, and even employers offering flexible work arrangements and other
benefits to attract working parents. The fourth and final element of the general
environment are political and legal trends. Commonly referred to as the political and
legal environment, this area includes legislation, regulations, and even court decisions that
govern and regulate business behavior. Although business managers can’t necessarily change
laws, though they can certainly try, they do need to operate within the laws and other
regulations established by the country that they operate within. Some of the changes that
are affecting businesses today include the Affordable Care Act, which includes a penalty
to employers who don’t offer health insurance to employees who work more than 29 hours assuming
the employer has above 49 full-time equivalent workers. A possible increase in the national
minimum wage rate also presents a change that business managers must consider and can be
very significant to those employers who hire primarily low-wage workers. These four areas, the economy as well as technological,
sociocultural, and political/legal trends make-up the general environment. And although
business managers can’t influence these changes or trends, they can anticipate them. Doing
so will allow a businesses managers to identify opportunities in the area of new markets and
products, while also protecting their businesses against changes looming on the horizon. In our next video, we’ll discuss the second
component to external environments: the specific environment. For questions please leave them
in the comment box below and remember to subscribe to Alanis Business Academy to have our latest
videos sent to you while you sleep. Thanks for watching.

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