External environment illustration External environment theory

Environmental constraints

Business activity is constrained (limited) by the environment in which the business operates. There are a number of important components of this environment including:

  • The actions of competitors.
  • legal requirements. E.g. what is legally expected
  • social requirements and expectations. The sorts of expectations that society has of businesses e.g. to operate in an ethical way
  • economic constraints e.g. the amount of income that consumers generally have to spend
  • technological constraints. Often what businesses are able to produce and sell and how they operate is determined by the technologies available to them.

Businesses are constrained by a host of factors in their surrounding environment. For example, legal constraints determine how they produce (e.g. Health and Safety and Product Safety laws). Social constraints determine the tastes and buying patterns of consumers. For example, in recent years consumers have turned increasingly to healthy foods as an alternative to ones that a heavily saturated in fats and contain high levels of sugar.

Anticipatory approach

Businesses need to be constantly aware of these environmental constraints and how they alter over time. They need to take what is termed an anticipatory approach ie. to anticipate changes that are likely to take place in the future in the business environment. By anticipating change businesses are able to adjust the way they operate to be ahead of competitors.


Reactive approach

Businesses that take a reactive approach i.e. which only change when or after the environment alters will be left behind.

Studying environmental constraints and environmental change is important to businesses that want to plan ahead.

Some of the most important environmental constraints on a business include:

  • the actions of competitors
  • changes in consumer demand and changing tastes
  • legal changes
  • changes in technology and
  • changes in the economic environment.

Supporting Documents

These downloads will help to put external-environment theory into context using real world examples from real businesses.

Meeting customers' needs
Travis Perkins logo

Learn how Travis Perkins used external-environment theory to thrive in the construction industry by downloading our premium case study.

Meeting customers' needs in growth markets - online gaming
BT logo

Learn how BT applied external-environment theory to thrive in the telecommunications industry by downloading our premium case study.

The use of social media in promotion
National Trust logo

Learn how National Trust used external-environment theory to prosper in the non-profit industry by downloading our premium case study.

Leading a revolution in banking
Intelligent finance logo

Find out how Intelligent finance used external-environment theory to thrive in the financial services industry by downloading our premium case study.

Entering a new market with a new product
Experian logo

Discover how Experian employed external-environment theory to prosper in the financial services industry by downloading our premium case study.

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