An organization does not exist in a vacuum; as we have seen, it is embedded in a task (industry) environment, and that environment is embedded in a wider general environment. Developments in the general environment can shape the task environment, and the task environment determines the ability of an organization to attain its goals. The task environment can present opportunities that if exploited make it easier for the organization to attain its goals; it can also give rise to threats that make attaining goals more problematic. Managers need an intimate understanding of the environment that confronts their firm. They need this to craft actions and strategies to take advantage of opportunities and counter threats. Without a detailed understanding of the environment confronting their organization and how that environment might change over time, managers are unlikely to be effective.

Managers also need to understand that the external environment is not just something they passively respond to; it is something they can influence and shape through their actions. In a dramatic example, David Margolese, the former CEO of Sirius Radio, lobbied the Federal Communications Commission for several years, finally persuading the FCC to grant licenses allowing companies to offer satellite radio service in the United States. Today two satellite radio providers, XM Radio and Sirius, are growing rapidly and presenting traditional radio broadcasters with a significant competitive challenge. Through his actions Margolese significantly altered the task environment confronting radio broadcasters. This is what the best managers do: They see the external environment not as it is, but as it might be, and they push their firms to take actions that dramatically change that environment.

To manage effectively, to address emerging opportunities and threats, and to proactive shape the external environment in ways that benefit their firm, managers must be able to get things done within their enterprise. To do this they must understand the internal environment confronting them, particularly its strengths and weaknesses. They need to review the internal organization of their enterprise, as well as its human capital and resources, and ask themselves what can be done to improve these factors, eradicating weaknesses and building on strengths, so they have better assets to work with as they attempt to exploit external environmental opportunities.