Sadler (2003) asserts that many factors in the external environment cause a lot of turbulence and uncertainty for organizations. According to him the environment often imposes major constraints on the choices managers make for their organizations.

To add to the above, Gareth & Hill (2008) also observed that since performance is the major objective of an organization, it is generally accepted that the structure and decision making in an organization is influenced by environmental complexity and volatility.

There are many variables in a firm’s external environment which strategic managers must be aware of. First and foremost, a firm’s external environment consists of variables and trends that do not directly touch on the short run activities of the firm but can, and often do influence its long-run decisions. These trends are found in the firm’s societal environment; also known as the macro-environment and they include economic, technological, political-legal and socio-cultural forces that influence decision making in organizations.

Secondly, there are variables in a firm’s external environment which directly affect the organization and are in turn affected by it. These are found in the task environment; also known as the micro-environment. Daft (2008) views the task environment as the sectors with which an organization interacts directly and that have a direct impact on the organizations ability to achieve its goals. A corporation’s task environment can be seen as the industry within which it operates. The variables in the task environment include suppliers, customers, competitors, creditors, employees, trade unions and governments.

Many researchers argue that developments in the societal or macro-environment affect firm’s through their task environment. The economic environment consists of macro level factors related to the means of production and distribution of wealth that have an impact on the business of the organization.
Changes in economic environment can have an obvious impact on business activity. For example, an increase in the interest rates translates into fewer sales of major home appliances. Therefore for firms that deal in home appliances, higher increase in interest rates results reduction in the demand for their products because mortgage rates increase as a result leading to higher cost of buying a house. Most of the household goods are bought when people move into their houses. Higher costs of buying the house eat into the budget for home appliances.

Political decisions by governments override all commercial concerns. Government regulations and legislations as a major part of the societal environment greatly affect firm’s decision making through the task environment variables. “Politico-legal forces allocate power and provide laws and regulation that may constrain or protect the business.”(Kourdi, 2009) Furthermore, with the developments on the political front affecting the economy all the time, the economic environment often becomes a byproduct of the political environment.

“Dependent on the economic conditions prevalent in a country, a government decides to adopt either tight or expansionary fiscal policy.” (Auerbach, 1997) With a tight fiscal policy, tax rates will rise. This will reduce a customer’s disposable income. This affects the level of spending in an economy. Goods and services offered for sale by firms are not patronized by their customers. Profitability is eventually affected.

In a related situation, a political decision by a government to ban the importation of foreign wax prints into the country protects the indigenous textile companies. The threat of foreign competition is eliminated. The political-legal environment is able to formulate antitrust policies that prevent firms from consolidating to form monopolies. Customers and consumers will then be able to get fair prices for goods and services purchased.

Socio cultural environment are the forces that regulate the values, morals and customs of society. Demographic characteristics or trends affect the buying motives, attitudes and habits of consumers. Customer analysis is very important during environmental scanning because monitoring the customer’s taste may result in attractive business opportunities. Educational level as well as consciousness and awareness of rights of consumers fall under the socio-cultural sector of the societal environment. These affect the consumer’s lifestyle and needs. They also influence brand awareness, brand loyalty and brand switching which all have various impacts on the organization.

Again, the economic conditions prevailing in a country affect the customers of a firm. This can be in the form of the purchasing power of consumers. Rising inflation reduces the purchasing power of consumers. The direct impact will be felt by firms when their customers are not able to patronize the goods and services that are offered for sale. When sales fall, profitability will definitely fall and when firms are not profitable over a sustained period of time, they “fold up.”

Technological advancements also affect business firms through changes in the processes of its raw materials sourcing, production and distribution of its final products. Technological innovations and the profound increase in the use of ICT are changing the way firms do their business particularly in the way they relate to their customers. Virtual markets and online stores now make it possible for customers to stay at home and buy whatever they need without having to be physically present. Reynolds (2004) points out that the era where management of organizations become overly worried because of empty showrooms are over because customers can do business from the comfort of their homes and offices.

Though the variables in a societal environment do not directly affect the decision making of firms in the short-run, they influence the trends in firms’ task environment which have direct consequences on their decision making in the short-term. Strategic managers must therefore not lose track of changes in their societal environment.