What are three environmental influences an organization faces, and how do environmental factors impact an organization either negatively or positively?

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Tamara K. H. eNotes educator| Certified Educator

An organization's external environment is defined as anything outside of the actual boundaries of the organization that can influence the organization.

Competition is one external environmental factor. Competition refers to any industries that sell either similar or identical products and services, but competition can be limited to specific "geographic locations and markets" (Ashim Gupta, ed., "Organization's External Environment," Practical Management). While competition can seem scary, it can actually lead to more growth and development. When competitors start offering products and services that are similar to another company's, it forces the company to think outside of the box. The company is now forced to think innovatively in order to make its own products and services stand out from the competitors' or to figure out how to offer something brand new that competitors have not yet thought of. Competition can also force companies to enhance the quality of their service in order to outshine the competition.

However, competition can be harmful if a company is indeed completely outshined by the competitor. Studies show that when low-performing students are paired with high-performing students, the low-performing students start doing even worse than before or even completely quit. The reason why is that they see themselves as being unable to ever match their partners, so they completely give up. The only way for one partner's work to enhance the work of another partner is if partners equal in skill level are matched up (Annie Murphy Paul, "Can Tough Competition Hinder Academic Performance?," Time). The same can be seen as being true in the business world. If a company is totally eclipsed by its competitor, the company will fail. But if the competitor is equal in status and skill level, the two competitors will enhance each other.

Customers are a second external environmental factor that can both positively and negatively influence a business. The term customer refers to any person who purchases and uses a company's products and services. Customers can become an area of concern because their opinions change very frequently and very suddenly. Customers can also change demographically, which includes changes in "population age, ethnicity, education level and economic class" (Ashim Gupta, ed.). The more customers change, the more a company's products and services also have to change to reflect the new growing demands. Hence, as with competition, if a company is able to innovate and change with the changing demands of customers, then the business will grow and prosper. But if the company is unable to change, then changes in customer satisfaction will lead to business failure.