The organization’s external environment includes the factors outside its boundaries that affect its performance. Managers have very limited influence over what happens outside the organization. They need to continually align their internal environment with changes in the external environment. The successful companies are the ones that keep changing. It is also important to have good relationships with external stakeholders, because they provide access to resources.

The nine major external factors are listed in what follows. The first five are known as task factors, and the other four are known as general factors. Here, we briefly discuss how each external factor influences how you conduct business. Customers. Business success is based on customer relationships and providing the products customers want. Without giving customers value, you don’t have a business.

Competition. Organizations must compete for customers. When a competitor changes prices, firms tend to match prices to keep customers. When competitors offer improved or better products, firms tend to do likewise. Suppliers. Organizations buy resources from suppliers. Therefore, a firm’s performance is affected by suppliers. Labor Force. The employees of an organization have a direct effect on its performance. Management recruits human resources from the available labor force outside its boundaries.

Shareholders. The owners of a corporation, known as shareholders, influence management. They vote for the directors of the corporation, who hire and fire top management. Society. Our society, to a great extent, determines what are acceptable business practices. Individuals and activist groups have formed to pressure business for changes.