Task environment consists of those industry factors which are external to the firm but have a direct and specific impact upon the organization and are in turn affected by the organization’s operations.
These factors are shown in the following diagram.
These factors are explained in more detail as follows.
1. Competition:
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Competition is the basic element of a free enterprise system. The interests of both the organization and the customers are better served when choices in the market are available. Competition encourages progress and product-developments. It forces organizations to be more innovative and productive. For example, in 1955, Harley- Davidson held nearly 70% of the U.S. motorcycle market, but by 1983, this share had been reduced to only 3.7%.
This steep decline can be attributed to aggressive competition by Japanese companies such as Honda, Yamaha, Suzuki and Kawasaki who invaded the market with redesigned products and highly effective marketing strategies. Harley-Davidson failed to envision the strong impact of effective competition.
The American automobile market has always been dominated by three manufacturers, namely General Motors, Ford and Chrysler. General Motors was such a dominant company that it was often said that “what is good for General Motors is good for the United States.”
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The competition from Japan changed the picture so much that Honda Accord, a Japanese car, has been the highest-selling car in America for many continuous years. Because of such tough competition from Japan in price and quality, American car manufacturers have improved the quality of their own products considerably.
It is important to recognize that the area of competition is not limited to customers only but it extends to competition for all scarce resources such as raw materials, capital and human resources. Thus management must congruously look for cheaper but quality substitutes for raw materials and must acquire and retain an effective and dedicated work force by offering good working environment and by providing motivation for self-actualization goals.
Competitive strategies are well guarded secrets. Research activities, new product developments and future advertising campaigns of competitors are extremely highly protected secrets. Accordingly, management of an organization must continuously monitor competitor activities and analyze each competitor to gain an understanding of its probable actions and responses.
2. Customers:
The basic reason for the very existence of any business organization is making profits and the profits are created by customers. Hence, knowledge about the customer’s needs and fulfilling these needs is an organization’s primary concern. Accordingly, an organization must continuously monitor the consumer environment in terms of any changes in customer’s needs or preferences.
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Managers must also recognize certain buying preferences as passing fads and plan accordingly. An example of such fads may be the Nehru jacket or the designer jean. Customers can be the direct consumers who buy and use the products or services for themselves or they can be industrial organizations that use the products or services to produce their own products and services. An organization must match the changing needs of customers with new or improved products in today’s constantly changing business environment. According to Peters and Waterman, such successful companies as IBM, McDonalds and Walt Disney make every effort to stay close to their customers.
Many organizations now have well-defined organized systems in keeping up with their customers. They establish formal contacts asking them for feedback about the quality of their products and services and invite them to participate in helping make product design changes. According to Eric Von Hippel, in some industries, as much as 80 per cent of all important innovations have originated with users.
The customers expect a quality product at a reasonable price with guaranteed satisfaction. Accordingly, it is management’s responsibility to see that the interest of consumers is protected. “The customer is always right” has proved to be a good policy for intiating sales and keeping the customer.
3. Suppliers:
Since all organizations transform inputs of materials, equipment, energy, capital and labour into outputs of products and services, an organization must interact with a network of suppliers from whom these inputs are obtained.
This interaction is mutual and two- way. Just as an organization is interested that its suppliers maintain the quality of the materials that it buys from them, the suppliers are equally interested that the buyer organization brings out quality product.
Thus the buyers and sellers are interacting continuously to maintain such standards. Since quality and costs of raw materials determine whether the output product can meet the quality standards of a competitive market, many organizations look for suppliers from foreign sources which might provide advantages in price, quality or quantity.
Suppliers also influence a company’s strategic choices. Choosing the right supplier is an important strategic decision, whether it be colleges and universities which supply human resources or banks and federal lending agencies which provide capital or the suppliers of materials. Since a firm depends on its suppliers to provide certain resources at every stage of its operations, it is very important to keep good relations with the suppliers and it is always advisable to have choices among suppliers.
A firm that primarily depends upon one supplier for its resources can be crippled if the supplier goes out of business or is faced with its own labour or production problems. Accordingly, most organizations try to develop and maintain relationships with a variety of suppliers.
It is especially important to have close and dependable relationship with suppliers for those organizations who are using Just- in-Time (JIT) manufacturing approaches where resources become available when needed so that the need for keeping inventories can be eliminated.
4. Regulatory Agencies:
While political and legal issues and developments have an indirect impact on organizations and thus become an element of macro-environment, regulatory agencies are specific government agencies that have direct influence on organizational activities and operations and hence these are a part of the task environment of the organizations.
Regulatory agencies are created by local, state and federal government for the purpose of ensuring that organizations operate within the enacted laws. These agencies have the power to enforce laws in their respective fields and also introduce some of their own requirements that can be legally enforced. These agencies are basically set up to protect the public from certain business practices or to protect organizations from unfair competition.
These agencies regulate the activities of organizations in five principal areas. These are consumer protection, investor protection, environmental laws, preservation of free market competition and labour conditions. All these agencies are federally created and operate primarily within the United States of America.
The Consumer Products Safety Commission (CPSC) and Food and Drug Administration (FDA) protect the interests of consumers. Securities and Exchange Commission (SEC) establishes as to how public companies must conduct financial and accounting practices and protects investors from illegal securities activities.
Various antitrust laws are established to foster free competition and to discourage monopolization of markets. There are many laws that protect the interests of workers. These include equal employment opportunity, affirmative action and the right to work in relatively safe and healthy environment via Occupational Safety and Health Administration (OSHA) regulations.
Similarly, Environmental Protection Agency (EPA) protects the environment from being polluted by business organizations in terms of air pollution, water pollution and dumping of chemically hazardous wastes.
Similar to affirmative action laws in America where minorities, who have been discriminated against previously, are given preferential treatment in hiring and promotions, there are laws in India which provide special privileges to what is known as “Scheduled classes”, in terms of government jobs and admissions into medical colleges and other professional institutions.
A debate has begun both in India and in America whether it is fair to continue such “reverse discrimination” and whether the decisions to hire, select or promote people should be based upon merit only, provided that all citizens are given the same opportunity to prepare themselves for jobs, for admissions into colleges and for promotions and that there are no “reserved” seats for anybody or any group.
There is another type of “regulatory agency” which is known as the “interest group”. An interest group is organized by its members to attempt to influence organizations. Even though these interest groups lack the official power of government agencies, they can exert considerable influence on organizations by using the media to call attention to their positions. For example, an interest group in America, Mothers Against Drunk Drivers (MADD), has been successful in putting considerable pressure on alcoholic-beverage producers to put warning labels an their products and on bars and restaurants to refuse drinks to those who already had too much to drink.
5. Potential Entrants:
All organizations want to keep their number in the given industry limited. This reduces competition and increases profitability of these organizations. In some countries, the government laws and regulations are enacted to protect certain organizations from competition, domestic or foreign, either by denying new licenses or by erecting trade barriers. In India, for example, no new automobile maker could enter the market until recently. Similarly, the customs duty tax on imported items was kept so high that it protected the domestic producers of such items.
In a free market economy, such as America, that is not possible to do. Accordingly, organizations themselves try to defend their competitive position by maintaining some legitimate barriers to entry. These barriers include large economics of scale, product differentiation, large financial requirements, limited access to viable channels of distribution and cost advantages which the new entrants would find difficult to match.
It is almost impossible to enter into automobile manufacturing industry or aero plane manufacturing industry because of heavy set-up costs involved. Personal computers (PCs) industry is so highly saturated that it is not economically profitable to enter into the market unless someone comes up with a breakthrough.
Another entry barrier arises when potential entrants expect stiff retaliation from entrenched firms. For example, Xerox and General Electric found that they could not enter into the main frame computer industry because of domination by IBM on the basis of scale economies in production, research and development, marketing and service.
6. Substitutes:
Technological advances lead to the development of substitutes for existing products which offer either price or quality or convenience advantages. Laptop computers are a good substitute for desk top computers which themselves are good substitutes for mainframe computers under certain situations. Generic drugs are good substitutes for name brand drugs and cost much less. Pressure from substitute products limits an industry’s profit potential by competing and placing a ceiling on prices.
Firms that ignore the potential threats from substitutes find themselves losing their market share. For example, manufacturers of pin ball playing machines who ignored the boom in video arcade games suffered huge losses. Nutra Sweet, a sugar substitute minus calories posed a threat to sugar products as weight conscious dieters switched to Nutra Sweet as a good substitute for sugar.
Fiberglass insulation faces competition from such substitutes as Styrofoam, cellulose and so on. Accordingly, organizations must be continuously monitoring the environment for development of any substitutes that would pose a threat to their market share and must continue to improve the quality of their own products so as to be sufficiently cost effective to compete with such substitutes.
7. Labour:
There is a very keen competition for qualified personnel and the organization needs the right mix of workers in order to survive and prosper. Accordingly, an organization must create and enhance an image of its environment which is conducive to attracting skilled and ambitious workers.
Furthermore, it is necessary for the organization to establish such training programs that help in developing future managers and leaders. Human resources are the most important resources for any organization because without the skilled people, the sophisticated technology, capital and materials are of little value.
In America, most of the labour force is organized into “Labour Unions”, who play a significant role in the organizations’ task environment. A typical, large manufacturing organization deals with many unions and must keep good terms with all the unions. A strike by any one of the unions can cripple the entire organization.
Eastern Airlines, one of the major air carriers went out of business because of labour disputes. A sympathetic labour union can be of great help in achieving organizational objectives even in times of economic difficulties. Labour unions wield considerable amount of power, as illustrated by the following example.
“In 1990, Mazda, one of the three unionized Japanese auto plants in the United States, began to experience labour difficulties, which embarrassed not only Mazda but also the United Auto Workers (UAW) union.
Mazda and the representative of the union worked out an agreement to work in harmony and to keep out potential trouble makers. However, when the union voted for its representatives, some activists and extremists got elected.
In response to union militancy, Mazda put into operation the following decision.
i. Replaced several important American managers with Japanese.
ii. Increased pressure on employees to produce more cars.
iii. Became more strict in handling sick leave and absenteeism.
These actions resulted in severe strain in relationships with the union which is in conflict with the Japanese style of management which dwells on team spirit and “family” type atmosphere”.
Accordingly, it is very important to keep the labour force happy with their jobs so that the workers do not pose a threat to the economic health of the organization.
8. Owners:
Owners or the share holders (also known as stakeholders) are becoming an element of major concern for managers in many businesses. This is especially true of those share holders who hold large blocks of stock. For example Time Warner Inc. decided to issue new stock in 1991 to reduce its debt, but had to back down when several major stockholders opposed the move.
Another group exerting significant influence on organizations is the group that manages pension funds. These funds control nearly 50 per cent of the shares traded on the New York Stock Exchange.
Some organizations are beginning to be alert to the power that is in the hands of these pension funds managers, and there is fear that these managers may sacrifice long- term organizational effectiveness for the sake of short-term results.
Accordingly, management must continuously monitor the proposal of holders of large blocks of stock and must provide timely and correct information regarding the economic health of the organization to all stock holders.
