All managers irrespective of the type of organization in which they operate, must take into account the factors in the external environment in which they operate. They may do little or nothing to change these forces; however, they must respond to them. They must therefore identify, evaluate and react to these forces that may affect the organizational operations positively or negatively. These factors may include:
i) Political/Legal Constraints:
Laws regulate every dimension of human existence. They are about to prevent or stop the abuse of power. In exercising their power over resource, managers increasingly come into conflict with societal expectations and objectives. Business managers therefore face multitude of law as that limit their various powers. Examples of these laws include:
-Laws that regulate working conditions, minimum wages, safety of workers, competitive practices, etc. With regard to political legal constraints, managers can make inputs at the local/national levels. Managers may lobby with influential personalities so as to influence government decisions. In the final analysis, an organization usually cannot control what the government does.
ii) Economic Constraints:
These include availability of capital, inflation, interest rates on deposits and loans and similar factors that affect management practice. Business firms are increasingly influenced by government/donor imposed economic policies e.g. Structural Adjustment Programmes (SAPs)
iii) Socio-Cultural Constraints:
These consist of the value system, socio-demographic characteristics and other basic characteristics of people comprising the society Such characteristics include attitudes, desires, expectations, level of education, beliefs, religion, traditions, habits and customs of people in a society. The population structure, for example, would influence decisions on what products to produce by a business concern. Demographic patterns would also dictate the availability of workforce for a business entity. If a firm ignores society’s social concern, the society will impose legal restrictions.
iv) Technological Constraints:
Technology refers to the sum total of the knowledge we have of ways of doing things, inventions and techniques in areas of processes, machines and tools.
Technology is the key to an organisation’s transformation processes affecting processing speed as well as quality of the final output.
Technology can offer organizations a competitive edge.
v) Ethical Constraints:
Ethics refers to the code of morals of a person or groups that set standards as to what is good or bad, right or wrong in one’s conduct.
Management ethics are standards and principles that guide the actions and decisions of managers and determine if their actions and decisions are good or bad.
Ethical behaviour is fair conduct that goes beyond laws and regulations.
vi) Ecological Constraints:
This refers to the protection of the ecosystem. This is currently becoming more critical as environmental awareness increases globally.
vii) Constraints imposed by labour unions:
Through contracts negotiated with management, labour/trade unions may restrict what management may want to do about wages, retirement plans, working conditions and employment policies.
viii) Constraints imposed by competitors action:
A competitor through his actions places restrictions on what an organization can do. Pricing decisions in many firms often reflect the pricing decisions of a leading competitor. Also, if a competitor holds patent rights, he may restrict other organizations actions.