Environment can be defined as all factors outside an organization's boundaries that affect the activities of the organization. Environmental factors consist of information, capital, material, people, and other organizations. For example, consider a fast-food hamburger restaurant near a college campus. An environmental factor would be the supplier from whom the restaurant buys its ground beef. Statistics on college enrollment would be a factor. Information about patterns of hamburger consumption among college students would be another factor.
Often new factors are introduced into the environment that are important to managers. The campus bookstore may open a cafeteria serving hamburgers which is in direct competition with the fast-food restaurant. Dissatisfaction with the college food service may bring more students into the restaurant more often. The election of a new president in Argentina may result in a change in beef export policy that affects the price of ground beef in the United States. Managers need to know not only what factors affect their firm, but what effect these factors may have.
A manager's understanding of environmental factors is helped by learning to identify environmental domains which comprise groups of factors. We can conceptualize and analyze six environmental domains that influence the activities of an organization: economic, political, social, technological, competitive, and physical domains. Some organizations may have factors in each of these domains. Other organizations may have factors in only one domain. However, managers should be knowledgeable about each domain. Changes in the environment may transform domains once thought to be negligible into domains that heavily influence the firm.