The operating environment is also called the task environment and comprises of factors in the competitive situation that affect a firm’s success in acquiring needed resources or profitably marketing its goods and services. Amongst the most important of these factors are:
1. Firms competitive position
2. Customers Profile
3. Reputation amongst suppliers and creditors
4. Ability to attract capable employees
1. Firms Competitive Position
An understanding of a firm’s competitive position improves a firm’s chance of designing strategies that optimize its environmental opportunities. Development of a competitor profiles enables a firm to more accurately forecast both its short and long term growth and profitability. Firms consider the following factors when evaluating their competitive position:
- Market share
- Breadth of product line
- Effectiveness of distribution
- Price competitiveness
- Advertising and promotion effectiveness
- Financial position
- Raw material cost
- R & D advantages
- Relative product quality
- Customer Profile
- Patents and Copyrights
- Union relations
- Technological position
- Community relations
- Caliber of Personnel
Once these factors have been identified, an appropriate criterion is used to select the most critical of the factors for the success of the organization. These factors are rated in a given scale e.g. 1-5 Then the competitor being evaluated is rated on the same criteria and using the same rating scale. The outcome of this procedure is used to evaluate the firms competitive position.
2. Customers Profile
Developing a profile of a firm’s present and prospective customers improves the managers the ability of its manager to plan strategic operations, to anticipates changes in the size of markets and to reallocate resources so as to support forecast shifts in demand patterns. The main strategies used in segmenting consumer markets are;
- Economic factors
The firm ought to cultivate a close working relation with its suppliers because the firm might heavily depend on suppliers for financial support, services, materials and equipment. To gain a competitive position, the firm should address the following questions:
- Are the supplier’s prices competitive?
- Do the suppliers offer attractive quantity discount?
- Are the suppliers‗ reputable and service competitive?
4. Human Resources: Nature of the Labor Market
A firm’s ability to attract and retain capable employees is essential to its success. A firm’s access to needed personnel is affected primarily by three factors:
- Firms reputations as an employer
- Local employment rates
- Availability of people with needed skills
Shareholders are people who hold a stake in the business by virtue of having contributed capital to the business by buying its shares. Shareholders are interested in profitability of the organization. They earn dividends if the business is profitable and earn nothing if it makes losses.