An understanding of the practice of management begins with the recognition that managers act within a system. A system is a set of coordinated activities that function as a whole.' Organizations, as systems, coordinate activities through subsystems in order to transform inputs (such as raw materials) into outputs (such as products or services). Coordinating these activities within an organization is central to the manager's task. The combination of characteristics that identify the organizational system and its relationship to the environment is referred to as the context.
Managers must be keenly aware of events outside their organization that may hamper the acquisition of resources. They must strive to transform raw materials in both an efficient and an effective manner. And they must distribute the products and services in a timely and competitive fashion. Coordinating these and other activities can make the difference between success and failure.
We can identify six areas that make up the external context, or the environment, of an organization.
Organizations that provide the same or similar products or services to a market are known as competitors. Competitors may lower or raise the prices of their products, modify their products; or seek to capture a greater share of the market through increased advertising. It is important for managers to recognize and understand the activities of competitors in a market in order to make decisions about pricing, product modification, and advertising.
The development of new procedures for producing products or services or the development of an entirely new product involves technological change. Often, technological change can lead to a decrease in price due to the discovery of a cheaper method for manufacturing a product. Moreover, technological change can result in an organization's product becoming obsolete.
Inflation rates, lending rates, gross national product, and money supply are among the economic conditions that influence the way managers operate in an organization. Indeed, failure of managers to understand economic conditions can result in substantial losses to an organization.
Societal values and Attitudes
Changing societal values and attitudes can affect how customers respond to a product; thus, they can influence sales. For instance, when the personal computer first came on the market, it was considered an expensive toy by many, useful solely for playing video games. By the mid-1980s, the personal computer was recognized as a valuable work tool in most businesses. This shift in attitude about the personal computer enabled many computer companies to dramatically increase sales. Societal values can also shift within a firm.
The actions of political parties, local school boards, and judicial systems are all part of a political process that influences managers in organizations.
Physical conditions involve natural events (e.g., sunny, rainy, or snowy weather) or acts of nature (e.g., tornadoes, hurricanes, or earthquakes) that can influence or dictate how managers in an organization operate.
Each of these six areas of the external context influences the manner in which an organization acquires material resources. Political activities may regulate the quantity of resources available to an organization. Economic conditions, such as high interest rates, may make it difficult to acquire capital resources through borrowing. Increased public awareness of business ethics may make it difficult for an organization that has been involved in unethical activities to attract or keep employees. Competitors may try to withhold important information in order to enhance their competitive advantage. Successful managers are those who understand how to prepare for and meet the demands of the external environment.
Transforming resources into products and services requires the coordinating of many activities. Many of these activities are coordinated through organizing subsystems, or departments. Purchasing acquires resources external to the organization, manufacturing makes a product or service, marketing delivers the product or service to the customer, personnel supplies the organization with needed labor, finance allocates capital to support productivity, maintenance keeps equipment in good working order, and data processing provides timely information to decision makers.
The job of a manager, whether coordinating activities within a department or across departments, is to recognize and understand the influence of both the internal and external context. Recognition of the relationships among and between these subsystems can have profound effects on the way managers design and staff the organization, direct and control task activities and behaviors of subordinates, and plan for the future.