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THE MICROENVIRONMENT

17 November, 2015 - 15:33

The microenvironment has been defined as a particular organization's external business environment. As it is virtually impossible to thoroughly study the entire macroenvironment, managers are obliged to narrow their focus to that portion of the macroenvironment which either facilitates or hinders the organization's pursuit of profitable opportunities. Only then can they feasibly do something with it—that is, use it for the purpose of accomplishing organizational objectives.

The main reason for being concerned with the microenvironment stems from the necessity to provide an adequate answer to the following question: How does the macroenvironment affect the quality of particular managerial decisions? It was mentioned in THE FIELD AND THE FRAMEWORK that the quality of managerial decisions is measured by the difference between the intended results and the actual results: The smaller the difference, the higher the quality of the decisions made by the management. The quality of managerial decisions is influenced by two sets of variables: the controllable variables (the possible) and the uncontrollable variables (the probable). The possible represents the organization's strengths and weaknesses; the probable represents the state of nature or the external environment. Organizational objectives (the preferable) are set by matching the possible with the probable—that is, by matching the organization's capabilities with the environment's capacities.

The manager assesses the company's strengths and weaknesses by performing an internal audit of its physical, monetary, and human resources or assets. This assessment is a relatively simple matter; most managers have considerable experience with this task. Assessing the external business environment, however is not as easy as assessing the firm's strengths and weaknesses. To begin with, the manager has much less control over the external environment. Second, because in the past the external environment could often be expected to play a positive role in the corporate strategy-setting process, many managers still tend to assume that "What is good for the company is good for the society." Today, assessing the impact of the environment on the firm's ability to survive and prosper is the most difficult task facing managers of every kind of organization.

Multinational corporations use a variety of methods to assess the external environment, or do what was called in the past environmental forecasting. These methods range from the so-called grand tours by a team of high-ranking executives to the "old hands approach" of having company experts prepare reports on an area's political, economic, and social conditions to the Delphi method of analyzing expert opinions, quantitative econometric models, and simulation exercises and role playing. Most MNCs limit their aspirations to simply obtaining some type of quantitative measure of the risk involved in venturing abroad. 1

Though this book recognizes that an attempt to assess the risk of a foreign strategy is very important, its focus is the broader concept of environmental scanning. The purpose of environmental scanning is to gain an adequate understanding of the environment in which the MNC contemplates involvement, to enable the management of the company to minimize the potential political and economic risks as well as to detect opportunities for further profitable involvement.

This book will follow the well-established and accepted contemporary management practice of treating the external environment as a set of "emerging issues." This approach, known as issues management, was originally developed by the International Planners Association and was subsequently adopted and further refined by corporate executives and expert consultants as well as by academics. Joseph F. Coates, President of J. F. Coates, Inc., one of the pioneers and perhaps the best known consultant in issues management, describes the technique this way:

Within the past decade, issues management, a new form of futures research, has taken hold in corporate America. It is rapidly spreading to trade and professional associations and is beginning to be effectively applied in federal, state, and local government planning. Issues management is the organized activity of identifying emerging trends, concerns, or issues likely to affect an organization in the next few years and developing a wider and more positive range of organizational responses toward that future. Business and industry, in adopting issues management, seek to formulate creative alternatives to constraints, regulations, or confrontation. Often in the past, the awareness of a trend, a new development, or the possibility of new constraints came too late to frame anything but a reactive response. 2

The remainder of this chapter will be devoted to a description of a computer package called ENSCAN, developed by the author. 3 The package is not intended to provide a foolproof or complete system for environmental scanning. Rather, its purpose is to help the manager become personally involved in performing an environmental scan. As with most managerial activities, there is no substitute for personal involvement in environmental scanning.