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Definition

External environment

The term External Environment refers to factors and forces outside the organization that affect the organization’s performance. Outside forces that are more often than not rather impossible to estimate beforehand and hence, become inherently hard to control are part of the external environment. 

Business owners would love to have control over them so that the production and performance within a business are not hampered. Market research and data analysis have become two of the most necessary tricks to excel in the business industry nowadays.

There are two components to these outside environments: 

  • The specific environment and 
  • The general environment

There are factors beyond the control of the firm that influence its choice of direction and action, organizational structure, and internal process and they are major parts of the external environment. These factors can be divided into three interrelated subcategories and they are the factors in the -

  1. Remote Environment
  2. Industry Environment
  3. Operating setting

 

For example, a company making great profits for consequent months may be greatly affected by a sudden crash in the stock market. Here, the stock market crash would play the role of the external environment.

 

Use of the Term in Sentences

  • The external environment often impacts the production and growth of a company even more effective than internal ones since they are hard to keep track of or control.
  • Businesses that are able to foresee the external environment which can impact the product quality and efficiency.

 

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