The modern world is changing rapidly and it influences both sides of the market relationships. While customers’ preferences are changing the businesses also experience the changes caused by external environment which consists of economic, political, social, demographic, legal, and other factors. These factors cannot be controlled by the companies, however, they make an impact on the way the managers can run a business. Usually the companies can success only if they set strategic goals which fit the trend in the external business environment in which their businesses operate. It requires the companies to review their strategies and that is why management should monitor an external environment and adjust the strategy to keep the business ahead of the competition. The external environment analysis is extremely important for small businesses as it leads to increase in efficiency and effectiveness of planning (Kraus, Harms, & Schwarz, 2006).
Of course, it is almost impossible to predict all the changes since they are beyond the company’s control and that is why firms face uncertainty. That is why the interaction between the businesses and external environment is very complicated. Due to the dynamically changing environment which are unpredictable and may appear suddenly management should thoroughly plan how to cope with the change (Phelps, Chan, & Kapsalis, 2001).
External factors are complex as they represent challenges and the opportunities at the same time and their influence on the company depends on the way they are treated by management. For example, if the management made a decision to follow the latest trend by producing the good that is very popular at the moment the company may become more profitable within a short period of time. However, if the customers’ needs are ignored the firm may face losing customers and its market share along with the financial consequences.
In this respect, the best way to accept the external environment is to accommodate to rapidly changing conditions and the company may simply adapt to the changes or spend some time researching the environment and act accordingly.
References
Kraus, S., Harms, R. & Schwarz, E. J. (2006). Strategic planning in smaller enterprises-new empirical findings. Management Research News, 29(6), 334-344. http://dx.doi.org/10.1108/01409170610683851
Phelps, R., Chan, C., & Kapsalis, S. C. (2001). Does scenario planning affect performance? Two exploratory studies. Journal of Business Research, 51, 223-232. http://dx.doi.org/10.1016/S0148-2963(99)00048-X
