Introduction
Most organizations in the modern-day world operate in very dynamic conditions. The business environment has over the recent past proved to be one that is volatile, and in effect, organizations can no longer sit and relax, thinking that all is well. Organizations operate in both internal and external environments (Richard & Devinney, 2009). Therefore, they need to carry out their operations in such a way that they take advantage of the opportunities presented by the external environment.
If not managed well, the external environment may present some factors that the businesses may not be able to cope with, therefore, affecting their operations (Tan & Nasurdin, 2011). This may lead to poor performance or even in extreme cases, closure of the business. This paper discusses the issues that an organization faces considering its external factors. The paper touches on the challenges faced by the Coca-cola company in its quest to remain the world leader in the production and distribution of beverages.
External environment analysis
Any organization which is keen to remain relevant in the modern-day business environment ought to carry out external environmental analysis regularly. This analysis reveals the various external factors that it operates under and the threats and opportunities presented by the factors (Venkatraman & Prescott, 1990). If a company properly discerns its external factors, it can take advantage of the opportunities and minimize the threats. Therefore, remain ahead of the competitors.
An analysis of any company’s external environment reveals these five external elements that affect the company; political, economic, social, technological and legal. This can be achieved by carrying out the PESTEL analysis in the quest to ascertain the SWOT study of a company (Rahim, 2011). These factors are the elements that the organization is usually not in control of and as such, it ought to manage its affairs to fit in the environment. Many companies, however, often encounter challenges associated with these external factors.
One of the challenges faced by an organization is its responsiveness to the legal environment. The legal environment is one of the most unpredictable, yet the most critical of the organization’s survival in a particular market. Governments enact laws and legislations that directly affect the products being offered in a country (Venkatraman & Prescott, 1990). Acts of parliament ban some products, and this may negatively affect the company that supplies such products. An example of such legislation was the enactment by the India government banning the production and sale of Coca-cola soft drinks in the state of Kerala. Even if the federal court lifted the ban, later on, the company had already undergone negative publicity due to the allegations made. The company is therefore unable to effectively adjust to such legislations and the legal actions by the court of law which hurt the operations.
The other issue facing organizations considering the external environment is the multiple stakeholders in the organization. The primary objective of a business entity is to make a profit, and the ultimate goal is to maximize the wealth of its shareholders. However, the shareholders are only a part of the stakeholders since there are quite a several other interested parties in the business. As such, the organization considering external factors such as the social factor as an element of the external environment will often encounter a challenge in trying to satisfy the social needs of the external stakeholders. An example of the external stakeholder with interests in social wellbeing is society. The society provides an ample environment for businesses to operate in. Even though the business considers the government as the custodian of the social welfare of people, organizations have over the recent past been charged with the responsibility of satisfying the social needs of the community.
This has compelled organizations to brace for tough times due to the demands being put forward by the society. In most cases, the non-governmental organizations act as societal watchdogs and as such, pose the greatest threat to a business organization. In the year 2003, the Center for Science and Environment (CSE), which is based in New Delhi India, accused coca-cola of using contaminated aerated water. This, they argued, posed a danger to the health of the population and insisted that the company was engaging in unethical business practices. Even though the company defended itself, saying that the water is used to manufacture drinks contained the minimum levels of allowable chemicals by the health standards, the image of the company was denied. It can be seen, therefore, that the different stakeholders pose a challenge to the organization trying to concentrate on satisfying the interests of the shareholders who are the most important of all the stakeholders.
Coping with technology is another issue that most organizations face. The modern-day business environment is forced to embrace technology in virtually all its functional areas, and this poses a challenge to many organizations whose products are based on traditional business models.
Conclusion
It has been seen that the external environment presents a great challenge to any organization. Since organizations cannot directly control these factors, there is a need to manage the organization in a way that it fits in the external environment. These external factors present either opportunities or threats. Thus, an organization ought to take advantage of the opportunities and minimize the threats to not only survive but also to thrive.
References
Rahim, A. (2011). Managing conflict in organization. New Jersey: New Brunswick.
Richard, P., & Devinney, T. (2009). Measuring Organisational Performance Towards Methodological Best Practices. Journal of Management, 23 (5), 718-804.
Tan, C. L., & Nasurdin, A. M. (2011). Human Resource Management Practices and Organizational Innovation. Journal of Knowledge Management, 65 (2), 13-36.
Venkatraman, N., & Prescott, E. (1990). Environmental Strategy Coalignment: An Empirical Test of its Performance Implications. Strategic Management Journal, 45 (1), 1-23.