Why is it important for managers to understand the external environmental components?

It refers to factors, forces, situations, and events outside the organization that affect its performance.

The five components are:

1. The economic component

2. The demographic component

3. The technological component

4. The sociocultural component

5. The political/legal component

The external environment of an organization are those factors outside the company that affect the company's ability to function. Some external elements can be manipulated by company marketing, while others require the organization to make adjustments. Monitor the basic components of your company's external environment, and keep a close watch at all times.

Your customers are among the external elements you can attempt to influence, via marketing and strategic release of corporate information. But ultimately, your relationship with your clients is based on finding ways to influence them to purchase your products. Market research is used to determine the effectiveness of your marketing messages, and to decide what changes can be made to future marketing programs to improve sales.

Government regulations in product development, packaging and shipping play a significant role in the cost of doing business and your ability to expand into new markets. If the government places new regulations on how you must package your product for shipment, that can increase your unit costs and affect your profit margins. International laws create processes that your company must follow to get your product into foreign markets.

As with the majority of the elements of your organization's external environment, your company must be efficient at monitoring the economy and learning how to react to it, rather than trying to manipulate it. Economic factors affect how you market products, how much money you can spend on business growth, and the kind of target markets you will pursue.

Your competition has a significant effect on how you do business and how you address your target market. You can choose to find markets that the competition is not active in, or you can decide to take on the competition directly in the same target market. The success and failure of your various competitors also determines a portion of your marketing planning, as well. For example, if a long-time competitor in a particular market suddenly decides to drop out due to financial losses, then you will need to adjust your planning to take advantage of the situation.

Any kind of company scandal can be damaging to your organization's image. The public perception of your organization can hurt sales it's negative, or it can boost sales with positive company news. Your firm can influence public opinion by using public relations professionals to release strategic information, but it is also important to monitor public opinion to try and defuse potential issues before they begin to spread.

It is important for managers to understand this aspect of the business environment because it can affect their firm and how it should be run. No business is insulated from the outside environment.  Things like political decisions, for example, can have a huge impact on a firm by changing tax laws or regulatory regimes.  As another example, the managers must be aware of things like new competitors entering their market.  Clearly, managers would need to be aware of these sorts of changes.

why it is important for a managers to understand the external environmental component pdf

One of management main task is to keep the company alive and as resilient as possible. Understanding external environmental components are key to survive. What if a heavy rain is coming down and the sewage cannot handle it. It could mean that operations are forced to stop due to lack of energy or other water problems. If management takes these external environmental components into account, it will certainly enhance it's ability to continue or to start up as quickly as possible. In this way, operations can continue and the company stays focused on their core activities.  And if they enlarge this thinking also for the well being of their employees, than they are truly building resilient and sustainable surroundings.

If management starts thinking about resilience, for the company itself and its employees, it will save a lot of money and build towards a more sustainable eco-system.