Lesson 4: The business environment

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Key terms

Business Micro-environment
Market environment Macro-environment
Environment Composition of the business environment
Environmental change SWOT analysis
Environmental scanning

Click here for the multilingual key terms for MNB1501.

4.2 The business and environmental change

LESSON

Lesson 4: The business environment

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4.2 The business and environmental change
The business environment and world are changing at a rapid pace: technology is taking rapid strides, customer trends and needs
evolve at a faster pace than ever before and market regulations are continuously being updated and launched. If a business cannot
cope with the pace of such changes, it will not survive (Haiilo, 2022).

Change can be described as an alteration in the status quo – in a business sense implying that there are alterations in the business
environment, which the business must take note of. Practical examples of the increase in the rate of change are to be found in the
convergence of different elements of telecommunications. Today’s cellphone is a minicomputer, giving you, for example, access to
your e-mail – a function that was previously only possible on your computer. With the advent of applications, mobile phones have
evolved to offer a complete solution to the majority of consumers’ wants and needs. More and more we see that changes in
technology are occurring at a faster rate. The long-playing vinyl records of the 1960s were replaced by compact disks (CDs), which
were then replaced by DVDs and MP3 equipment. Now, MP3s are being replaced by online music streaming services such as
Deezer or Spotify which are downloaded directly onto a mobile phone. Smart watches can facilitate credit card payments and smart
homes are able to manage households by controlling heating, safety and lighting.

The three most common types of organisational change include the following (Haiilo, 2022):

• Development change involves any organisational change that improves and optimises previously established processes,
strategies and procedures.
• Transitional change occurs when an organisation moves away from its current state to a new state to solve a problem.
Examples of transitional changes include mergers, acquisitions, and automation.
• Transformational change is radical and fundamentally alters the culture, core values and operations.

Under normal circumstances, affecting change in the workplace is quite challenging and workplace transformation needs to be
more agile. Indeed, research by McKinsey found that the failure rate of enterprise transformation efforts is higher than 60%. This
figure does not take into account the effect of Covid-19, which has necessitated many organisations to fundamentally change how
they operate and perform.

To deal with the high failure rate of transformation efforts, many organisations are leaning on change management, which offers a
formal approach to managing change in organisations.

Open the link below to watch a YouTube video about environmental change in the business world.
Time: 3:20 minutes

Play Video

In the next section, you will learn about the business environment.

4.3 The business environment

Lesson 4: The business environment

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4.3 The business environment

It has been stated that the business environment is dynamic and that the business must adapt to changes in the environment.
Before you begin with this section, start by watching a YouTube video giving an overview of the business environment.

Time: 5:31 minutes

Play Video
4.3.1 Defining the business environment

The business environment, in which the business operates, can be defined as the sum of all those variables which may influence
the successful existence of the organisation. It includes all the internal and external factors that affect how the organisation
functions – including employees, customers, management, supply and demand, and business regulations.

4.3.2 The three sub-environments of the business environment

The functioning of the business environment is explained by subdividing the business environment into three sub-environments: the
micro-environment, the market environment and the macro-environment.

The business environment and its three sub-environments are visually depicted in Figure 4.2:
Figure 4.2: The business environment and its sub-environments
(Source: Author's design)

The micro-environment refers to the business itself – the workers and managers, and the functional areas in which a business is
divided, such as the financial section and the marketing section. The main characteristic of the micro-environment is that
management has almost complete control over things that happen in this environment. Management can, for instance, decide on
the price that they will charge for the product that they sell, or how they are going to market the product to the customer. However,
this environment only has a slight influence on the macro-environment and can only influence the market environment through
business strategies.

The market environment refers to the immediate external sub-environment that has a direct influence on the business. For most
businesses, this environment comprises consumers (also called customers), competitors and suppliers. It may also include
intermediaries (or distributors). For example, Ford Motor Corporation manufactures and markets vehicles in South Africa. The
actual selling of the vehicles, however, is done through a network of independent dealers (i.e. the intermediaries). Management can
exert some control over this environment, but certainly not as much as they can over the micro-environment.

The macro-environment refers to the greater external environment that will influence the business to a lesser or greater extent.
Take the impact of an economic recession, for example. A recession may have a tremendous effect on future expansion plans,
production volumes, purchases and labour employment for the business. Management probably has the least control over what
happens in the macro-environment. The effect of an increase in the interest rate by the Reserve Bank must be accepted by the
business and they must live with the consequences of this increase.

4.3.3 Characteristics of the business environment

The business environment has some distinctive characteristics:

• The variables are mutually related; that is, changes in one variable will often bring about changes in another. To illustrate the
point, a shortage of crude oil and the resultant increase in the international oil price will negatively affect (i.e. increase) the
inflation rate of South Africa. The oil supply forms part of the global environment and the inflation rate forms part of the
economic environment. For some businesses, the oil supply can also be seen as part of the market environment, that is, the
suppliers!
• There is evidence of increasing instability in the sense that nothing stays the same for very long. Look, for instance, at the
daily fluctuations in the rand-US dollar exchange rate.
• There is growing uncertainty about the future – even the immediate future is difficult to predict because of the lack of
information or the unreliability of information. Who knows what the rand-US dollar exchange rate will be next year?
• It is a complex environment because of the many variables that may cause and influence change. Various components in
the three sub-environments may change at the same time. There could be a strike at the business, which affects the output
and profitability of the business; at the same time, the retailers that are stocking the product may be demanding increased
supplies, while the Chinese exporters are exporting more competitive products to South Africa. We see here that variables in
 the micro-environment, the market environment and the macro-environment are simultaneously at play and influencing this
business.

Activity 4.1

This activity will take approximately 15 minutes to complete.

Identify the three sub-environments of the business environment for an organisation such as Shoprite and briefly describe the
influence of each of these sub-environments on this business.

Feedback

Shoprite is the largest supermarket chain in Africa and one of the ten largest in the world. As
such Shoprite is exposed to all the variables that were mentioned as part of the business
environment above. Let us look at the influence of the three sub-environments on Shoprite's
operations:

• Micro-environment. In this sub-environment, we see that essentially Shoprite has

complete control internally over the running of the business. It can formulate its vision
and objectives, determine its objectives and set up an organisational structure that
makes it easier to manage this vast business which is represented in a major number of
African countries. It also has control over resources such as capital and human
resources. One of its major problems is the scourge of HIV/Aids and how this affects its
most valuable resource, namely its employees. Because of the size of the organisation,
 it has a limited influence on the market environment as it sells a major share of grocery
products in the countries in which it operates.
• Market environment. The market environment consists of the customers and the
suppliers of grocery products, such as the manufacturers of the range of McCain frozen
vegetables. Intermediaries are also involved, such as the transporters of the groceries
from the manufacturer to Shoprite’s warehouses. There are also the competitors in this
environment, such as Pick n Pay and the Spar chain of supermarkets. They are all
competing for the money in the customer’s pocket. The market environment influences
Shoprite’s micro-environment, especially the intensity of the competition and the
changing needs of the customer.
• Macro-environment. This is the sub-environment in which matters such as an increase
in taxation or a lowering of the interest rate influence the market environment, for
example, putting more or less money into the customer’s hands. These changes in the
macro-environment will thus have an indirect influence on the profitability of the Shoprite
group.

Visit the website of the Shoprite group (https://www.shoprite.co.za) for more information on this
group.
In the next section, you will learn about the components of the business environment.

LESSON

Lesson 4: The business environment

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4.4 The composition of the business environment

The three components of the business environment include the micro, macro and market environment as discussed below.
4.4.1 The micro-environment

By now, you should be able to identify the micro-environment of a business: that is; the factors or elements in an organisation’s
immediate environment which affect its performance and decision-making. This includes the organisation’s mission and objectives,
its functional areas and human resources. This sub-environment has the following three components.

a. The mission and objectives of the business

In order to achieve organisational goals, it is important for the business to set a mission statement with clear objectives. The
mission statement focuses on what the organisation is currently doing and the functions the organisation performs to achieve it.
The mission statement is seen as a short statement detailing why the organisation exists, what its overall goal is, what kind of
product or service it provides, its primary customers or market and its geographical region of operation. Most mission statements
are action-based and provide clarity behind the “what”, the “who”, and the “why” of the organisation. Mission statements are short
and should not exceed 100 words; preferably they should only be one to three sentences.

Some examples of mission statements are as follows:

• Tesla – “To accelerate the world’s transition to sustainable energy”.

• Ted Talks – “Spread ideas”
• LinkedIn – “To connect the world’s professionals to make them more productive and successful.”
• Amazon – “To be Earth’s most customer-centric company, where customers can find and discover anything they might want
to buy online, and endeavours to offer its customers the lowest possible prices.”
• Standard Bank – “Our purpose is to drive Africa's growth, we are a catalyst for inclusive and sustainable economic growth in
the countries we operate and we make life better for our fellow Africans by doing business the right way.”
• MTN – “Our mission to utilise innovative information and communication technologies to empower our communities’ grows
from strength to strength.”

Activity 4.2
This activity will take approximately 15 minutes to complete.

Identify the mission statement of your three favourite brands, products or companies. Evaluate how successful they are, given your
experience with the company.

Feedback

Depending on your experience with the company you have chosen, you might have a
different opinion on their mission statement than some of your fellow students. Take a
couple of minutes to share your views on this topic with your fellow students in the
discussion forums.

Once the organisation has developed its mission statement, appropriate objectives are
developed. Business objectives represent the results the business needs to achieve so that
it can accomplish its longer-term company vision. For organisations in a market economy,
the primary objective will be the profit motive. However, this is not the sole objective of a
business and is often supplemented by various other types of objectives. Some examples
of business objectives are listed below (Root, 2019):

• Getting and staying profitable (the profit motive): to ensure that profitability is
maintained, it is necessary to make sure that revenue remains ahead of the
expenses incurred to run the organisation. To achieve this objective, it is equally
important to focus on controlling costs and expenses in production and operation as
well as to maintain the profit margin on products sold.
• Productivity of people and resources: organisations must focus on overall
productivity to be successful. The objective should be to provide employees with the
required resources in order for them to be as productive as possible. Productivity
includes aspects such as employee training and development, employee
engagement, employee wellness, pay structure, leadership, job satisfaction, culture
 and work environment, equipment maintenance, as well as the purchasing of new
equipment.
• Excellent customer service: Keeping their customers happy should be one of the
primary objectives of any business. The organisation improves customer retention
and can generate repeat revenue by providing customers with excellent customer
service.
• Employee attraction and retention: high employee turnover rates are linked to low
productivity, high costs and a holistic working environment. By creating a productive
and positive employee environment, the organisation can reduce the turnover rate.
• Mission-driven core values: as mentioned in section 4.2.1, the mission statement
describes the organisation’s core values. It summarises organisational beliefs
regarding customer interaction, responsibility towards the community and employee
satisfaction. Therefore, it is important for the organisation to align its core values with
business objectives to create a positive corporate culture.
• Sustainable growth: a company should aim to achieve sustainable growth by
developing objectives based on historical data and future projections. Company
resources, such as finances and human resources, should be carefully used to
ensure that growth is generated sustainably.

Open the link below to watch the YouTube video about business objectives.

Time: 4:11 minutes

https://www.youtube.com/watch?v=RdQuKwhCzGU

Make sure that you understand what business objectives are. The important factor that you should know about setting business
objectives is that the objectives should be SMART (Specific, Measurable, Achievable, Relevant and Time-bound).
b, Organisational functions

Among other things, organisational functions refer to purchasing the necessary supplies and the logistics of getting the supplies to
the right place, the marketing efforts needed to meet the wants and needs of the organisation, and the financial expertise needed to
ensure that profits are made and that taxes paid to the South African Revenue Service are correctly calculated and paid over on
time.

c. Human resources

The business’s human resources are an essential asset that must be carefully nurtured and developed to succeed. Without the
necessary skilled and enthusiastic personnel, some companies have been forced to close their doors.

One of the major problems faced by South African businesses is the impact of HIV/Aids on the workplace and employees. Although
the HIV/Aids problem can be seen as part of the macro-environment and, more specifically, as part of the social environment,
managers must take notice of its implications for the business they are managing. It is a fact that South African businesses cannot
afford to lose highly skilled workers to this debilitating illness. Companies vary in their approach to managing HIV/Aids in the
workplace. Business practices that contribute to mitigating the effects of the illness and preventing its spread include the following:

• Gathering information from partnerships and collaborations. Partnerships or collaborations with external experts, local and
international NGOs, academic institutions, government bodies, multilateral institutions, labour unions or employee
associations are critical to the development and implementation of an HIV/Aids programme.
• Creating an HIV/Aids policy. A written statement by the organisation describes their policy on HIV/Aids; if possible, people
living with HIV/Aids should be involved in drawing up this statement. In businesses where employees are at risk of workplace
exposure to HIV/Aids, the policy should spell out training requirements, and safety procedures and equipment, and have a
plan for responding to workplace exposure to the virus.
• Involving multiple stakeholders in policy and programme development. The organisation should seek feedback from local
and international NGOs, academics, health experts, unions and employees to ensure that the policy is thorough, fair and just
and answers workers’ concerns. During programme development, the Ford Motor Company of Southern Africa held a series
of round-table discussions with stakeholders to gain the community’s support and feedback on its HIV/Aids policy.
• Approaching HIV/Aids as any other debilitating disease. From a policy perspective, approaching HIV/Aids as any other
progressive disease will help remove its stigma and make employees living with HIV/Aids less likely to suffer discrimination
and, therefore, more willing to come forward for treatment.
 • Designing workplace HIV/Aids programmes to fit local cultures. The organisation should develop policies and programmes to
deal with the circumstances of HIV/Aids prevalence, the primary mode of transmission, the level of workforce education and
cultural norms, by considering local cultures and conditions.
• Ensuring that the HIV/Aids policy is a living document. The organisation should ensure that the policy is driven by all levels
and units within the organisation so that it is not viewed as only a human resource policy.
• Using a comprehensive approach. It is essential to follow an approach that looks at prevention, education and treatment. A
programme that focuses only on providing access to drugs while ignoring behaviour will ultimately not have a significant
impact on workers’ behaviour.
• Intervening early. Early intervention is one of the most important strategies of any HIV/Aids programme. Organisations such
as Eskom, with education programmes dating back to the late 1980s, claim to have lower prevalence rates in their workforce
than other businesses in their community because they made HIV/Aids a business priority early on.
• Getting support from the organisation’s leadership. Clear support from leadership is critical, particularly concerning obtaining
resources for comprehensive programmes.
• Providing ongoing education and training. The organisation should reinforce and expand their HIV/Aids policy by providing
education and training for all employees, starting with the orientation of new employees. Include information on the illness,
how to prevent HIV infection, appropriate workplace conduct and legal issues that may arise; and guide managers and
supervisors on complying with laws and regulations, managing benefits, accommodating employees with HIV/Aids and
helping employees who ask for counselling.
• Ensuring legal compliance. The organisation should fully understand the laws and regulations governing workplace practices
with respect to HIV/Aids and be certain to learn about new legal developments as they occur.
• Supporting employees with HIV/Aids. Employees with HIV/Aids should be supported to balance their job demands and
stresses associated with illness-related issues by offering support groups, flexible work scheduling, telecommuting and extra
time off. Nutrition and exercise programmes have proven to enhance lifestyle and productivity.
• Giving employees opportunities to support the fight against HIV/Aids. Where culturally appropriate, employees should get
regular opportunities to contribute positively by creating fund-raising ventures and volunteer opportunities with local
HIV/Aids-support groups – and be given time off to participate in these activities.
• Helping build local capacity. The organisation should work with local governments, NGOs and healthcare providers to
strengthen local infrastructure and capacity to create sustainable healthcare access for employees and the broader
community.

It is clear from the above that management can, to a large extent, determine the business’s success. When things go wrong for the
company, one of the most common reasons can be traced back to poor management practices.
 Activity 4.3

This activity will take approximately 15 minutes to complete.

Why is it necessary for South African businesses to actively get involved in tackling HIV/Aids in the workplace?

Feedback

There are various reasons why South African businesses must get involved with the
management of HIV/Aids in the workplace. Some of these reasons are the following:

• Better opportunities for growth in markets: Signs of long-term, negative economic

effects of HIV/Aids suggest that business opportunities for growth in South Africa
may be constrained if steps to counteract the pandemic are not taken. Business-
sponsored HIV/Aids prevention programmes in workplaces and local communities
help to reduce the accumulated costs and the extent of the pandemic.
• Increased productivity: There are varying estimates about the loss of productivity
each year due to the absence of individuals with HIV/Aids from the workforce.
Productivity is negatively affected by increased absenteeism, the loss of skilled
employees, the need to invest in training replacements and declining morale.
• Decreased costs of healthcare and other employee benefits: The healthcare and
related costs sustained by companies having employees with HIV/Aids can be a
significant burden. A Harvard University survey of companies in Durban, South
Africa, concluded that companies might need to set aside as much as 7,5% of their
annual payroll to fund losses incurred by the disease. Companies that develop
 HIV/Aids training and education for employees can contribute to the reduced
prevalence of HIV/Aids and to reducing long-term health costs. Studies of South
African firms indicate that cost savings due to investment in prevention and education
programmes are as high as 3, 5 to 7,5 times the cost of intervention.
• Reduced employer liability: South African businesses can reduce their risk of legal
liability by implementing a formal HIV/Aids policy that prohibits discriminatory
behaviour, providing training and education to reinforce this policy, and ensuring
accommodation for employees with HIV/Aids.
• Continued workforce diversity: Rates of HIV infection worldwide are highest among
the youth and women. Women now account for half of all HIV/Aids cases, and in
Africa, it is estimated that 0% of all HIV-infected persons are women. Businesses that
place particular emphasis on HIV/Aids education and support for employees in these
particularly at-risk populations will benefit from being able to maintain a workforce
that represents multiple perspectives, talents and skills, as well as being more
reflective of the general population.
• Lower rates of employee turnover: Company efforts to prevent HIV infection and to
support employees with HIV/Aids will reduce the number of employees lost to this
disease.
• Improved employee morale: The most immediate reported benefit of workplace
HIV/Aids education is improved morale. In addition to providing information that
allays fears and offers guidance on preventing infection, support programmes signify
that employers are knowledgeable about the issues and care about their employees.
Formal policies on HIV/Aids also raise morale by clarifying responsibilities and
expectations.

4.4.2 The market or task environment

The more common term used in management terminology to describe this environment is the “market environment” because it
refers to the immediate consumer market, the supplier market and the intermediary market in which competitors also operate.
However, because the profitable development of this market is often seen as management’s most important task, it is sometimes
referred to as the task environment. As stated above, the market environment consists of the following components:

a. Customers

The consumer (also called the customer) is the main reason the business operates. Without the support of the consumer to buy the
product or service of the business, that business will eventually fail. So, the company must understand the wants and needs of the
customer. Therefore, information about the customer is needed and the organisation must ensure that they keep track of changes
in this market.

b. Suppliers

Suppliers are categorised as supplying material, capital and labour to businesses in South Africa. Material is a broad term referring
to the raw material required by the manufacturers of products and the energy supplier used by most businesses. Capital is supplied
to companies through various alternative sources of which banks (e.g. Absa, Nedbank, Standard Bank and First National Bank) are
the most important. Labour is supplied to businesses through organised labour which, especially in South Africa, has an important
say in what the workers are paid and what the conditions of service are.

c. Intermediaries

Intermediaries are institutions that bridge the gaps between the manufacturer and the customer. Some of the most critical
intermediaries are the wholesalers that sell grocery products to small businesses, such as the spaza shops in the townships.
Agents who sell real estate are another form of intermediaries that bridge the gap between the buyer and seller of a property.

d. Competitors

Competitors are rival businesses competing for the custom of the consumer. Example: The most direct competitor of a Checkers
supermarket situated in Edenvale, Gauteng, is usually the nearest Pick n Pay supermarket or Spar supermarket. The Woolworths
store or the convenience stores at the closest petrol stations may be more indirect competition.

Porter’s Five Forces refer to the five market environment elements that influence the industry’s competition and profits. It is an
important theory to understand when studying an organisation’s market environment.
 Access the link below to learn about Porter’s Five Forces.

https://penpoin.com/porters-five-forces/
Also, watch the YouTube video below for a practical example of how Porter’s Five Forces can be used.

Time: 7:44 minutes

Play Video

The market environment has a direct influence on the business because this is where competitors compete, where the customer is
found and where the suppliers and intermediaries operate. So, crucial business transactions take place in this environment.
Therefore, most of a business’s opportunities or threats are found here. For example, a strong competitor could be a very serious
threat to the existing businesses operating in the same market. At the same time, if a business finds it difficult to compete with a
strong competitor, it may identify other needs that it can satisfy in the community – and in so doing exploit (or utilise) an opportunity
in that market. Cell C was a late entrant in the cellular phone marketplace and from the start was under threat because it was
competing against two established competitors (Vodacom and MTN). Cell C identified the need for a different and more cheaply
structured package for cellphone users, providing substantial savings to prepaid as well as contract customers. Today Cell C is a
niche player in the market and has carved out a viable target market against tough competition.

4.4.3 The macro-environment

The wider macro-environment consists of variables that influence the business directly and indirectly. The changes in the macro-
environment are called megatrends because they influence all businesses in all the countries of the world. There are six variables
in the macro-environment:

a. Technological environment

Technology is one of the main drivers of change in the world. New inventions replace old technology, creating opportunities and
threats for businesses. One example is the telegraph service which was offered by the post office. This service was replaced by
new technologies such as faxes and e-mails, creating efficient tools for businesses but also making what was a viable service of
the post office obsolete.

b. Economic environment

This environment has a direct influence on other variables in the micro-environment, the market environment and the macro-
environment. For example, a dramatic increase in bank interest rates may negatively affect the disposable income of consumers
who have borrowed money from banks. This may then have a negative impact on the country’s social structure when fewer people
are able to buy necessities such as food, which may result in social unrest.

c. Social environment

This environment is influenced to a great extent by the technological and economic environment. For example, we are all aware of
growing urbanisation – with more people moving to cities because of increasing unemployment in the rural areas and the belief that
better-paying jobs are available in the major cities of South Africa. This has resulted in the rapid growth of informal settlements, with
resultant demands on the infrastructure of the cities and the development of new retailing outlets in the form of spaza shops and
shebeens. HIV/Aids is another social problem; one that has massive social and economic implications for South African
businesses.

d. Physical environment

This environment focuses on the physical resources that businesses and we as consumers use. The scarce resources we must
manage in South Africa are essential aspects of the physical environment. South Africa is a semi-arid country and there is
speculation that we will not be able to supply the minimum needs of the population by the middle of this century. Businesses must
consider the impact of the physical environment, as some manufacturing businesses primarily use water for their production.

e. Institutional/political-governmental environment

The South African government significantly influences the landscape of business, for instance, labour legislation, on employment
and minimum wages.

f. International environment

This environment also significantly influences the other variables in the macro-environment, the market environment and the micro-
environment. One example of the influence of the international environment on South African businesses is the changing price of
crude oil and its impact on the price of fuel and the inflation rate. We have seen dramatic increases in the fuel price and the knock-
on effect on the prices of food and other commodities.

Access the link below to watch the two YouTube videos about the macro-environment.

Time: 4:03 minutes

Play Video

Time: 4:03 minutes

 Play Video

After watching the videos above, do the following activity.

Activity 4.4

This activity will take approximately 8 minutes to complete.

How would you classify the following developments as part of the six sub-environments of the macro-environment?

• The government announces the date of the general election.

• Inflation is on the rise.
• Unemployment figures are on the rise.
• More women are going out to work.
• A wonder cure for influenza has been found.
• There is an increase in oil spills on the South African coastline.

Feedback

• Government forms part of the political sub-environment

 • Inflation is part of the economic environment.
• Unemployment is part of the economic sub-environment but also influences the
social environment.
• Working women are part of the social environment.
• A cure for influenza refers to technology – thus, part of the technological
environment.
• Pollution is one of the problems encountered in the physical environment.

Now that you understand the components of the environment, in the next section, you will learn about the process of environmental
scanning.

4.5 Environmental scanning

Lesson 4: The business environment

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4.5 Environmental scanning

Environmental scanning is described as the process of the measurement, projection and evaluation of change in the different sub-
environments. In layman’s terms, it is the constant and careful analysis of the internal and external environment, allowing the
organisation to detect opportunities, threats, trends, lessons and weaknesses that can influence the current and future strategies of
the organisation.

Environmental scanning is generally considered one of the major managerial responsibilities and is often used to react to change
more easily. It can therefore be used to keep abreast of external social, economic, technological and political developments which
may be difficult to observe or predict but which management dare not ignore. It entails the identification and monitoring of every
opportunity or threat. It may range from a simple information system to a formal environmental scanning division or unit whose sole
task is to monitor external environmental factors.
Because of dynamic changes in the business environment, the organisation must scan its environment continuously. As stated
previously, the scanning process may differ from one business to another. For example, many large organisations will hire
dedicated employees specifically to research and learn about market changes that may influence the organisations. These
employees then provide top management with prudent information gleaned from said research so that the organisation does not lag
behind marketplace changes. Management then uses this knowledge when making decisions about the organisation’s future.

Some examples of environmental scanning are the following (Bhasin, 2019):

• Market research is performed and data collected from market research is studied to provide input for the planning of future
actions.
• The performance of competitors is compared to the organisation’s performance to learn about competitors’ strategies and
business ideas.
• Executives from the organisation may be approached to learn about the organisation’s environmental aspects.
• Demographic data obtained from the market is analysed and business decisions are based on such data.
• Information is collected from articles, websites, journals, magazines and newspapers and these information sources are
used to create a picture of the business environment.

The 2018 Global Risk Perception Survey (GRPS) predicted that several trends in the external environment will force complex
organisations to approach the future with a varied resilient response to ensure their capacity to adapt and prosper despite ongoing,
high-impact low-probability risks. In this regard, transformative resilience requires transformation to mitigate some risks.
Organisations will need to proactively change, or they will be forced to do so by outside forces. This process requires organisational
foresight, which can be achieved through continuous environmental scanning that allows organisations to engage with the
uncertainty of various futures.

Managers and consultants also use environmental scanning to ensure that the organisation develops products that consumers
want. By systematically and intentionally analysing the organisation’s internal state and the external competitive environment, the
organisation becomes aware of any changes that may have an impact on its business operations.

In addition to the above, environmental scanning and analysis provide many advantages to the organisation, helping it to stay safe
from any losses and be ahead of the competition (Bhasin, 2019):
 • Environmental scanning provides the organisation with valuable knowledge regarding its strengths and opportunities. It also
makes the organisation aware of the threats in the industry.
• Doing environmental scans provides the organisation with information on how well it uses its resources. The organisation
can also determine if any resources are being wasted and, if so, how to curb wastage.
• The organisation can learn and discover competitors’ strategies, to help them formulate their strategy.
• The data collected from environmental scanning should play an essential role in long-term business planning.
• Environmental scanning assists the organisation in staying connected with its customers. The organisation can learn about
changing consumer expectations and adjust its products and services accordingly.

Various techniques in the organisation’s toolkit can be used to conduct environmental scanning:

• Research: Many organisations conduct research to learn about the latest trends of the industry (or even threats) – to take
the necessary steps to exploit the opportunity or reduce the possible impact of the threat.
• Expert opinion: Management may also approach experts who have deep knowledge of the industry and thus can provide key
analyses of the opportunities and threats which may arise.
• SWOT analysis: SWOT stands for Strengths, Weaknesses, Opportunities and Threats. This analysis is a strategic technique
used by organisations to explore their internal strengths and weaknesses. It also analyses the industry’s (external)
opportunities and threats. This is a valuable technique for business planning.
• PEST analysis. Very similar to the SWOT analysis, the PEST or PESTLE analysis aims to collect data about the external
macro environment: political, economic, social, technological, legal and environmental factors are investigated. It helps the
organisation to make informed decisions about its strategic planning.
• Analysis of industry: depending on the organisation, there might be different businesses that are direct or indirect
competitors. Analysing the industry is a type of environmental scanning done to learn and understand the competitors’
business strategies. This is done to assist the organisation in developing counterstrategies to ensure that they remain ahead
of the competition.

Activity 4.5

This activity will take approximately 5 minutes to complete.

Answer the following questions:

1. Is environmental scanning the same for all types of businesses? Explain.

2. When conducting a SWOT analysis, which components will you be looking at?

Feedback

1. Although the process of environmental scanning covers the same aspects of the
business environment, some unique requirements need to be considered when you do
an environmental scan for a particular business. Remember that different environments
affect businesses differently. A computer manufacturer, for example, will be affected far
more by the technological environment than will, say, a bakery. The political
environment influences a public organisation more than a bicycle repair shop. A farming
business will be far more influenced by the physical environment (i.e. the climate) than a
firm of accountants. What may be a factor in the macro-environment for one business
could be a significant factor in the market environment of another company. The gold
price (international economic environment) will be part of a gold mine's market
environment, but part of a shoe factory's macro-environment.
2. The SWOT analysis is used to analyse an organisation’s strategic and competitive
situations. It stands for strengths, weaknesses, opportunities and threats. Organisations
use the SWOT analysis to understand what they are good or bad at and what factors
external to the organisation might present changes for success or failure. Some
components that can be included in a SWOT analysis are:

Strengths Weaknesses Opportunities Threats

 Employees Outdated Underserved Competitor
technology markets actions
Patents
Employee New social Economic
Cash skill gaps trends downturns

Brand High Technological Government

operating advances regulations
Unique costs
selling
points /
capabilities
Inside the firm Outside the firm
This brings us to the end of this lesson.

4.6 Summary

Lesson 4: The business environment

Open block drawer
Completion requirements
Mark as done
4.6 Summary

You now have basic insight into the business organisation and environment. In this lesson, you learned about the business
environment, its components and environmental scanning. In lesson 5, you will learn about corporate social responsibility.

Self-assessment questions