The External Environment Constraints and Challenges:
Despite the fact that appliance sales are expected to climb for the first time in four years, Whirlpool Corporation, which already shut down 10 percent of it's production, capacity continues to cut costs and scale down capacity even more. And it's not alone in its protective, defensive actions. The decade from 2000 to 2009 was a challenging one for organizations. For instance, some well-known stand alone businesses at the beginning of the decade were acquired by other companies during this time, including Company (now a part of Hewlett-Packard), Gillette (now a part of Procter & Gamble), Anheuser-Busch
(now a part of Anheuser-Busch InBev), and Merrill Lynch (now a part of Bank of America); others disappeared altogether, including Lehman Brothers, Circuit City, and Steve & Barry's (all now bankrupt) and WorldCom and Enron (both done in by ethics Scandals). Anyone who doubts the impact the external environment has on managing just needs to look at what's happened during the last decade.
The term external environment refers to factors and forces outside the organization that affect its performance. As shoe, it includes several different components. The economic component encompasses factors such as interest rates, inflation,
changes in disposable income, stock market fluctuations, and business cycle stages. The demographic component is concerned with trends in population characteristics such as
age, race, gender, education level, geographic location, income, and family composition. The political illegal's component looks at federal, state, and local laws, as well as global laws and laws of other countries. It also includes a country's political conditions and stability. The sociocultural component is concerned with societal and cultural factors such as values, attitudes, trends, traditions, lifestyles, beliefs, tastes, and patterns of behavior. The technological component is concerned with scientific or industrial innovations. And the global component encompasses those issues associated with globalization and a world economy. Although all these components pose potential constraints on managers' decisions and actions, we're going to take a closer look at two of them-the economic and demographic aspects. Then, we'll look at how changes taking place in those components constrain managers and organizations. we'll wrap up this section by examining environmental uncertainty and stakeholders relationships.
The Economic Environment
You know the economic context has changed when a blue-ribbon company like General Motors declares bankruptcy; the Organization for Economic Cooperation and Development predicts some 25 million unemployed individuals globally; 8,4 million jobs in the United States vanish and the economic vocabulary includes terminology such as toxic assets, collateralized debt obligations, TARI, bailouts, economic stabilization, wraparound mortgages, and stress tests. To understand what this economic environment is like, we need to look at the changes that have taken place and the impact of those changes on the way organizations are managed. The economic crisis called the "Great Recession" by some analysts began with turmoil in home mortgage markets in the United States when many homeowners found themselves unable to make their payments. The problems soon affected businesses as credit markets collapsed. All of a sudden, credit was no longer readily available to fund business activities. It didn't take long for these economic troubles to spread worldwide.
What caused these massive problems?
Experts cite a long list of factors that include excessively low interest rates for a long period of time, fundamental flaws in the U.S. housing market, and massive global liquidity. Businesses and consumers became highly leveraged, which wasn't an issue when credit was easily available."0 However, as liquidity dried up, the worldwide economic system sputtered and very nearly collapsed. Now, massive foreclosures, a huge public debt burden in many countries, and continuing widespread social problems from job losses signal clear changes in the U.S. and global economic environments. Even as global economies began the slow process of recovery, most experts believed that the economic environment facing managers and organizations would not be as it was and would continue to constrain organizational decisions and actions.
Demographic Environment
Baby Boomers. Gen Y. Post-Millennials. Maybe you've heard or seen these terms before. Population researchers refer to three of the more well-known age groups found in the U.S. population by these terms. Baby Boomers are those individuals born between 1946 and 1964.
So much is written and reported about "boomers because there are so many of them. The sheer numbers of people in that cohort means they've significantly affected every aspect of the external environment (from the educational system to entertainment/lifestyle choices to the Social Security system and so forth) as they cycle through the various life stages. Gen Y (or the "Millennials") is typically considered to encompass those individuals born between 1978 and 1994. As the children of the Baby Boomers, this age group 1s also large in number and making its imprint on external environmental conditions as well. Front technology to clothing styles to work attitudes, Gen Y is affecting organizational workplaces. Then, we have the Post-Millennials-the youngest identified age group-basically teens and middle-schoolers This group has also been called the ingeneration. primarily because they've grown up with technology that customizes everything to the individual. Population experts say it's too early to tell whether elementary school-aged children and
younger are part of this demographic group or whether the world they live in will be so different that they'll comprise a different demographic cohort, Demographic age cohorts are important to our study of management because, as we said earlier, large numbers of people at certain stages in the life cycle can constrain decisions and actions taken by businesses, governments, educational institutions, and other organizations. But demographics doesn't only look at current statistics, it also looks to the future, For instance, recent analysis of birth rates shows that more than 80 percent of babies being born worldwide are from Africa and Asia." And here's an interesting fact: India has one of the world's youngest populations with more males under the age of 5 than the entire population of France. And by 2050, it's predicted that China will have more people age 65 and older than the rest of the world combined. D Consider the impact of such population trends. on organizations and managers in the future.
How the External Environment Affects Managers?
Knowing what the various components of the external environment are and examining certain aspects of that environment are important to managers. However, understanding how the environment affects managers is equally as important. We 're going to look at three ways the environment constrains and challenges managers-first, through its impact on jobs and employment; next, through the environmental uncertainty that is present; and finally, through
the various stakeholder relationships that exist between an organization and is external constituencies.
JOBS AND EMPLOYMENT:
As any or all external environmental conditions (economic, demographic, technological, globalization, etc.) change, one of the most powerful con-
strains managers face is the impact of such changes on jobs and employment-both in poor conditions and in god conditions. The power of this constraint became painfully
obvious during the recent global recession as millions of jobs were eliminated and unemployment rates rose to levels not seen in many years. Economists now predict that about a quarter of the 8.4 million jobs eliminated in the United States during this most recent economic downturn won't be coming back and will instead be replaced by other bypass of work in growing industries." Other countries face the same issues. Although such readjustments aren't bad in and of themselves, they do create challenges for managers who must balance work demands and having enough of the right types of people with the right skills to do the organization's work.
Not only do changes in external conditions affect the types of jobs that are available. they affect how those jobs are created and managed. For instance, many employers use
flexible work arrangements to meet work output demand." For instance, work tasks may be done by freelancers hired to work on an as-needed basis or by temporary workers who work full-time but are not permanent employees or by individuals who share jobs. Keep in mind that such responses have come about because of the constraints from the extremal environment. As a manager, you'll need to recognize how these work arrangements elect the way you plan, organize, lead, and control. This whole issue of flexible work arrangements has become so prevalent and part of how work is done in organizations that well address it in other as well.
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