BUSINESS

ENVIRONMENT
Chapter 2
INTRODUCTION TO BUSINESS
ENVIRONMENT
 
 Business environment is the sum
total of all external and internal
factors that influence a business.
The term 'business environment
implies those external forces,
factors and institutions that are
beyond the control of individual
business organizations and their
management and affect the business
enterprise.
 Types of

environment
Internal External
environment environment

Micro
Environment
Market Macro
environment environment
(task) (general)
ENVIRONMENT OF
BUSINESS
INTERNAL ENVIRONMENT
 The internal factors are generally regarded as
controllable factors because the company has
control over these because the company has
central over these factors; it can alter or modify
such factors as its personnel, physical facilities,
organization and functional means, such as
marketing mix to suit the environment.
THE INTERNAL ENVIRONMENT
 Conditions and stakeholder forces within an
organization
 Owners.
 Board of directors
 Employees
 Physical work environment
Organizational culture
 Owners: Owners are people who invested in
company and have property rights and claims on
the organization. Owners can be an individual or
group of person who started the company; or
who bought a share of the company in the share
market. They have the right to change the
company’s policy at any time.
 Board of Directors: The board of directors is the
governing body of the company who are elected
by stockholders, and they are given the
responsibility of overseeing a firm’s top
managers such as general manager.
 Employees: Employees or the workforce, the
most important element of organizations
internal environment. If managed properly they
can positively change the organizations policy.
But ill-management of the workforce could
lead to a catastrophic situation for the
company.
 Organizational culture
is the behaviour of humans who are part of an
organization and the meanings that the people
attach to their actions. Culture includes the
organization values, visions, norms, working
language, systems, symbols, beliefs and habits. It is
also the pattern of such collective behaviours and
assumptions that are taught to new organizational
members as a way of perceiving, and even thinking
and feeling. Organizational culture affects the way
people and groups interact with each other, with
clients, and with stakeholders.
ORGANIZATIONAL STAKEHOLDERS

A person, group or organization that has interest
or concern in an organization.

Stakeholders can affect or be affected by the

organization's actions, objectives and policies.
Some examples of key stakeholders are
creditors, directors, employees, government
(and its agencies), owners (shareholders),
suppliers, unions, and the community from
which the business draws its resources.
 EXTERNAL ENVIRONMENT

 Market environment: is also known as task

environment and operating environment because the
micro environmental forces have a direct bearing on
the operations of the firm
 Macro environment: is also known as general
environment and remote environment. Macro factors
are generally more uncontrollable than micro
environment factors.
 When the macro factors become uncontrollable,
the success of company depends upon its
adaptability to the environment.
o
Market environment(task)
o Task environment consists of specific
external organizations or groups that
influence an organization.

 Suppliers
 Customers
 Competitors
 Strategic allies
 Regulators
 SUPPLIERS

 Suppliers are organization that provide

resources for other organization. A good
relationship between the organization and the
suppliers is important for organization to keep a
steady follow of quality input materials.
 Customers
 Customers are the life of an organization. They are
the ultimate goal of a company. There are many
competitors around the company. They offer
different types of products and benefits; as a result
the competitors get a chance to compare their
product with other company. Dealing with
customers has become increasingly complex in recent
years. new products and services, new methods of
marketing and more discriminating customers have
all added uncertainty to how business relate to their
customers.
 Competitor
Now a day’s competitors conduct their
activities very tactfully .they try to know about
the strategy of another’s company. They bring
new technology, procedures and substitute
products. As a result competition increases
now days. They create direct influence upon
management.
 Strategic allies

 they are the organization and individuals with whom

the organization is in an agreement or understanding
for the benefit of the organization .In other word,
two or more companies that work together in join.
strategic partnership help companies get from one
companies the expertise they lack. they also help
spread risk and open new market .but some cases
they both give priorities their opinions. Sometimes
it influences their activities. most strategic
partnerships are actually among international firms.
 Regulators:

regulators are units in the task environment that

have the authority to control, regulate or
influence an organization’s policies and
practices. Government agencies are the main
player of the environment and interest groups is
created by its members to attempt to influence
organizations as well as government. Trade
unions and chamber of commerce are the
common example of interest group.
 Macro
environment(general)
 Economic Dimension
 Technological Dimension
 Political-LegalDimension
 Socio-cultural dimension
 Economic Dimension:
 the economic dimension of an organization is the
overall status if the economic system in which the
organization operates. The important economic
factors for business are inflation, interest rates and
unemployment. These factors of economy always
affect the demand for products.
 During inflation, company pays more for its resources
and to cover the higher costs for it, they raise
commodity prices.
 When interest rates are high, customers are less
willing to borrow money and the company itself must
pay more when it borrows.
 When unemployment is high, the company is able to
be very selective about whom it hires, but customers’
buying power is low as fewer people are working.
 Technological Dimension: it denotes to the
methods available for converting resources
into products or services. Managers must be
careful about the technological dimension.
Investment decision must be accurate in
new technologies and they must be
adaptable with them.
  Socio-cultural dimension

 : customs, mores, values, and demographic

characteristics of the society in which the
organization operates are what made up the
socio-cultural dimension of the general
environment. Socio-cultural dimension must be
well studied by a manager. It indicates the
product, services, and standards of conduct that
the society is likely to value and appreciate.
Standard of business conduct vary from culture
to culture and so does the taste and necessity of
products and services.
 Political-Legal Dimension:
the political-legal dimension of the general
environment refers to the government law of
business, business-government relationship and
the overall political and legal situation of a
country. Business laws of a country set the do’s
and don’ts of an organization. A good business-
government relationship is essential of the
economy and most importantly for the business.

 If the political condition hold a stable situation

in a country , it is very easy to mgt to continue
their business activities .political unrest
creates various problems for decision making.
 MANAGING ENVIRONMENT
 Business has to adapt to its environment to ensure
survival.

 Mgt follows ways to adopt the external

environment:
 
1.Information mgt
Information is necessary for the initial understanding
of the environment and for monitoring the
environment where the changes have come.
One technique for managing information is boundary
spanners. a boundary spanner is an employee, such as
a sales representative or as a purchasing agent, who
spend much his or her time in contact with other
outside the organization. They are engage in
environmental scanning. Different manager needs
different types of information. All the information
should relevant, like timely information. within the
organization most firms has also established computer
based information system to gather and organize
relevant information for managers and assist in
summarizing that information in the form of most
pertinent to each manager’s needs.
2.strategic response
Another way an organization can
adapts to its environment is strategic
response. if the market growth of a
company is growing rapidly ,the firm
might decide to invest more heavily in
products and services for the market. if
the market is shrinking or not provide
reasonable possibility for growth ,the
company may decide to cut back.
3. Mergers, acquisitions, and alliances
A related strategic approach that some
organization use to
Adopt to their environments involves mergers ,
acquisitions ,and alliances.

4. organizing design and flexibility

the organization design is a means to implement
strategies and plans to achieve organizational
goals .good organizational design helps
communication, productivity, and innovation. it
creates an environment where people work
effectively.
Flexibility is called organic design .organization
flexibility helps the organization react quickly to
market change ,meet new customer demand ,and
6. performing social responsibility
we have the responsibility for our society. The
company should obey all the rules and
regulation; those are determined by the
government or society. they should produce
product basis on the need of the society. they
should pay tax timely .By following these they
can receive support from the customer and
government also .And by this they can adopt
the environment .