A business’s external environment can be divided into two parts, one is the task environment and the other is the general environment. This second part of the business’s external environment consists of a set of external influences like technology, the environment, demographics, economic conditions, legal or political forces, and sociocultural forces.
The general environment includes the broad economic, political/legal, sociocultural, demographic, technological, and global conditions that affect an organization.
It refers to a combination of forces or factors outside a company that can influence the operation and performance of the business.
Although these external factors don’t affect organizations to the extent that changes in their specific environment do, managers must consider them as they plan, organize, lead, and control.
Managers can use an important tool known as PESTEL analysis to organize the factors of the general environment. The names of the six components of the general environment are reflected in PESTEL:
- Political: This component consists of the governments’ stability, tax policies, and changes in tariffs and trade restrictions.
- Economic: It consists of elements like inflation rates, interest rates, GDP (gross domestic product), disposable income levels, unemployment rates, and the economy’s general growth or downfall.
- Social: Social component consists of demographical trends like the size of the population, ethnic mix, and age, and cultural trends like consumer activism, and attitudes regarding obesity, etc.
- Technological: It consists of factors, such as increases in automation, changes in the new product development rate, and service industry delivery advancements.
- Environmental: This component includes factors like weather patterns, pollution levels, and natural disasters.
- Legal: Legal component includes safety and health regulations, employment laws, antitrust laws, discrimination laws, and the like.
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