General and Specific Environment

The external environment can be broadly classified into two parts - general, and specific environment. 

The general environment consists of the social, cultural, economic, legal, political, and educational conditions in the locality within which an organisation operates. 

On the other hand, the specific environment consists of the actual organisations, groups, and persons with whom an organisation must interact in order to survive, grow, and prosper in the long-run. These include people and other organisations of immediate and direct consequence such as the resource suppliers, regulators, clients and consumers. 

Elements in the General Environment 

You can identify the following major elements in the general environment of an organisation : 

Social and Cultural Forces 

Social and Cultural values indicate what actions are important, right, proper, and desirable from a societal perspective. Note that social and cultural influences are particularly important for Multi-national Corporations (MNCs) since they operate in more than one country. Even within a country, however, the social and cultural values may vary froin one region to another (South Indian vs North Indian), and also from time to time (Traditional vs Modem). 

Level of Economic Development 

The economic prosperity in a region substantially influences the amount of resources grow and develop. Adverse changes in the economic health of a country or region can have a dramatic impact on the performance of even very large firms. 

Educational Conditions 

The educational conditions of a region can have a major impact on an organisations' operations. For example, higher-technology firms,  infact, tend to locate the close proximity to universities and institutes with strong engineering and computer science programmes. 

Governmental Influences 

Governments influence organisations through laws and regulations that restrict certain freedoms of action. Organisations will have to know the "rules of the game" and play accordingly. 

Example 

In 1991, Indian Government announced a series of new economic policies and structural adjustment programmes. The emphasis shifted from a "license-permit raj" to that of a more or less "free-market economy".  Many Indian companies had to respond to the winds of change created by privatisation, globalisation, liberalisation, opening up the economy for foreign investment and MNCs. This brought about an imperative need to restructure some of the organisations which would be more compatible with the changed macro-economic business environment. This suggests that a well-developed and stable legal-political system can provide important services for organisations. 

Elements in the Specific Environment 

You can identify the following major elements in the specific environment of an organisation : 

1. The basic structure of the industry with special reference to the number and size of firms. 
2. The degree of inter-connection between firms. 
3. The nature of the cost structure within the industry. 
4. The nature, type and characteristics of the markets, actual or potential, to which the firm sells. 
5. Degree, form and nature of the competition. 
6. The technological imperative - labour intensive or capital intensive.