External information for performance management is organized from the business environment. The data collected is used for planning, decision-making, and controlling business processes and resources to achieve organizational goals and objectives. It is mostly required for strategic purposes. However, the business environment can also provide information for tactical and routine decision-making.
Elements in the business environment
- The economic and financial environment
- Political and environmental issues
- Legal environment
The economic and financial environment provides data relating to the financial market and the country’s economy. This includes factors like interest rate, stock market index, inflation, and gross domestic product among others.
Suppliers provide resources (financial and materials) to the entities. Management must have some basic information about potential suppliers before patronizing them. Also, it should ensure that current suppliers provide quality material resources that will help in the production of quality products or the rendering of excellent services.
Understanding your competitors is paramount to business growth. Management needs data regarding competitors’ market share, profitability, and pricing policies. They may want to understand competitors’ business processes and examine areas that they can imitate.
Political environmental issues are those business environments the organization has little or no control over. A decision by the government of the day may have either a positive or negative impact. Therefore, management should be on guard concerning political statements. Because it may tame or make their organization.
The legal environment is about government regulations. Similar to the political environment, a new regulation can have a great impact on business and there is nothing the managers can do about it.
An example in Nigeria is when the central bank of Nigeria bans cryptocurrencies in the country. This had a great impact on businesses in the industry. And some were forced to leave the country or close down. However, regulations can have a positive impact on businesses.
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Sources of external information
- Market research
- Supplier price lists and brochures
- Trade journals
- Newspapers and other media
- Government reports and statistics
- Reports published by other organizations, such as trade bodies.
Limitations of external information
- The possibility of inaccurate information.
- Information might be incomplete.
- The information provided might either be too much or not enough in detail.
- There might be a problem with obtaining information in the form that is required.
- External information might not be available when required
- It might not be easy to find
- Certain external information may be outdated or misinterpreted.
Source: ICAN Study materials