4. Internal and External Environments of LSOs

Question 1

Environment?

Answer 1

The term environments are used to describe the context in which business is carried out.

The environments of organisations are divided into:
■ internal
■ external.

Question 2

INTERNAL ENVIRONMENT?

Answer 2

• Management has most control over its internal environment: staff, structure and policies.
• Management can expect that the decisions it makes in these areas will have some certainty about them and will achieve something of the predicted outcomes.

Question 3

EXTERNAL ENVIRONMENT?

Answer 3

• The external environment is more challenging.
• The environment in which large organisations do business is both complex and dynamic (constantly changing).
• The external environment presents managers with threats to their plans and offers opportunities for their success.

• The external environment consists of:
■ the operating environment
■ the macro environment.

Question 4

EXTERNAL ENVIRONMENT

The Operating Environment?

Answer 4

The operating environment of a large organization consists of four main factors.
1 Customers
2 Suppliers and creditor
3 Competitors 
4 Special interest groups

Question 5

EXTERNAL ENVIRONMENT

The Macro Environment?

Answer 5

The macro environment of large organizations consists of five main factors.

1 Economic conditions

2 Legal–political conditions

3 Technological factors

4 Education and training conditions

5 Society’s attitudes

Question 6

EXTERNAL ENVIRONMENT
The Macro Environment
Economic Conditions?

Answer 6

• Economic conditions are a major part of the external environment faced by large organisations.

•	The current state of the economy shows in figures (economic indicators) such as:
■ consumer spending
■ the level of unemployment
■ the rate of inflation
■ wage rates

• Economic conditions can have many powerful effects on business organisations

Question 7

EXTERNAL ENVIRONMENT
The Macro Environment
Legal–political conditions?

Answer 7

• Large organisations operate within a complex framework of laws and regulations.
• Government action regulates—and sometimes deregulates—commercial activity in Australia in many ways. Taxation policies and rates are important examples.

Question 8

EXTERNAL ENVIRONMENT
The Macro Environment
Technological factors?

Answer 8

• New technology is driving change at a global level.
• Producers of all sorts need to utilise the most suitable technology for their purposes.
• Failure to take the benefits of available technology and the business suffers.

Question 9

EXTERNAL ENVIRONMENT
The Macro Environment
Education and training conditions?

Answer 9

• Modern organisations need highly educated and skilled employees.

• A strong education infrastructure is a significant factor in the macro environment.
It supplies employees who are capable of driving change and growth in large organisations.

Question 10

EXTERNAL ENVIRONMENT
The Macro Environment
Society’s attitudes?

Answer 10

• Large organisations must take account of society’s attitudes and values—of what is generally considered to be ‘right’ and ‘wrong’.

 Society both constrains the activities of large organizations and offers them business opportunities.

 Society’s prevailing attitudes influence many areas of corporate life: from acceptable products to internal employment practices.

 Society’s attitudes to corporate ethics have become more important in the macro environment of large organizations.

Question 11

EXTERNAL ENVIRONMENT
The Operating Environment
1 Customers

Answer 11

• Customer satisfaction is central to business success.

* Both profit and not-for-profit organisations strive to stay in touch with needs.

Question 12

EXTERNAL ENVIRONMENT
The Operating Environment
2 Suppliers and creditors?

Answer 12

• In order to operate, large organisations need reliable supplies of all the inputs necessary for production.

• Businesses also need sources of finance (credit) to fund their activities and growth.
• Creditors include banks, finance companies, fund managers and other businesses.

Question 13

EXTERNAL ENVIRONMENT
The Operating Environment
3 Competitors ?

Answer 13

• Competition from other producers is another key part of a business organisation’s operating environment.
• It is the nature of business that competition is always changing and there is always potential for new competitors to emerge

Question 14

EXTERNAL ENVIRONMENT
The Operating Environment
4 Special interest groups?

Answer 14

• Three types of special interest groups can impact on the activities of large organisations.

A) First, trade unions, which represent around 20 per cent of Australian employees.

 Are an important part of the operating environment in many industries.
 The interests of unions are often expressed through peak organisations

B) Consumer groups are a second type of special interest group.
 Consumer groups are active in areas such as pricing, advertising, packaging and safety.

C) Third, special issue groups and pressure groups (lobbies) exert pressure on the operating environment in some industries.