Business

Environment Chapter 2
and Society
LEARNING OBJECTIVES
After studying this chapter, the students are expected
to;
 Know the Business environment and society.
 Know the concept, characteristics and components of business
environment.
 Understand corporate social responsibility, ethics, corporate
governance and ethical standards.
Concept of Business
Environment
Business environment refers to the set of all the business
conditions that have direct or indirect bearing on the growth
and development of a business. In other words, business
environment is the aggregate of all conditions, events and
influences that surround and affect a business.
Nature/Feature of Business
Environment
The following are some of the notable characteristics of the
business environment.
1. Complexity
2. Dynamic
3. Multi-faceted
4. Far-reaching impact
5. Aggregate of factors
6. Interrelatedness
7. Reciprocal
Types /Components/Classification
of Business Environment
The business environment is composed of the events and
conditions inside as well as outside the organization. Hence, it may
broadly be classified into the internal and external environment as
discussed below.
1. Internal Environment
2. External Environment
• General/ Remote/ Macro Environment
• Operating/Task Environment
Meaning of Internal
Environment
Internal environment of business consists of the conditions
and resources which are internal to an organization. They are
controllable by the firm in long run. They determine the
relative strength and weakness of a business. A sound internal
environment helps create competitive advantage that leads a
business towards the way of goal achievement.
Elements of Internal
Environment
There are different components or elements that form the internal
environment of an organization. They are discussed below.
1. Organizational goals and policies
2. Organizational resources
3. Organizational structure
4. Organizational culture
5. Owners and directors
Meaning of External
Environment
The external environment of a business comprises the factors
which are external to a firm. Firms must be aware and
understand the different segments of the external
environment to deal with uncertainty and achieve strategic
competitiveness. Firms understand the external environment
by acquiring information about competitors, customers,
stakeholders as well as other general conditions.
Components/Elements of
Internal Environment
The external environment is composed of the conditions that
are outside the business. They are not normally influenced by
a business. The external environment of a business may be
further divided into two groups.
A. General/Remote/Macro environment
B. Operating/Task environment
General/ Remote/ Macro
Environment
The general environment is composed of dimensions in the broader
society that influence an industry and the firms within it. Firms cannot
directly control the general environment.
1. Political environment
2. Legal environment
3. Economic environment
4. Socio-cultural environment
5. Technological environment
6. Ecological/physical environment
7. Global environment
Operating/Task Specific
Environment
It consists of outside forces that are immediately relevant for the
achievement of the goals of business organizations.
1. Customer
2. Suppliers
3. Competitors
4. Creditors/Financial institutions
Operating/Task Specific
Environment …(contd)
5. Distributors
6. Media
7. Government agencies
8. Pressure groups
9. Strategic partners/alliances
Concept of SWOT Analysis
SWOT is the acronym for
strength, weakness,
opportunities and threats that
are the strategic factors for a
company. A SWOT analysis
summarizes the key issues from
the business environment and
the strategic capability of an
organization that are most likely
to impact the strategy
development.
Components of SWOT
Analysis
The following components are analyzed under SWOT analysis.
1. Strengths
2. Weaknesses
3. Opportunities
4. Threats
Importance Of The Studies Of
Business Environment
A business has to study the business environment in a
continuous manner due to the following reasons.
1. First mover advantage
2. Strategy formulation
3. Competitive analysis
4. Strategic control
5. Adaptation
Importance Of The Studies Of Business
Environment …(contd)
6. Stability and sustainability:
7. Dynamism:
8. Lobbying
9. Public image
Concept of Corporate Social
Responsibility of Business
Corporate social responsibility (CSR) is the discretionary
efforts by a firm toward the society. It involves the activities
which are beyond direct economic benefits and legal
compliance.
Importance Of Corporate
Social Responsibility Of
Business
The following are the importance of corporate social
responsibility for an organization:
1. Boosts company image
2. Builds strong customer relationships
3. Positive relationship with society
4. Boosts employee morale
Importance Of Corporate
Social Responsibility Of
Business …(contd)
5. Better access to finance
6. Positive media attention
7. Reduces legal burden
8. New business opportunities
Elements Of The Socially
Responsible Organization
Socially responsible organizations have certain elements
which are discussed below.
1. Accountable
2. Collaboration
3. Voluntary
4. Internal assessment
5. Put social responsibility in writing
Elements Of The Socially
Responsible Organization …
(contd)
6. Embed social responsibility into the company planning and
budget processes
7. Create an open environment
8. Support of senior management
9. Measure social responsibility performance
10. Communicate social responsibility performance to all
stakeholders:
11. Take social responsibility as top agenda
12. Train employees directly involved in social responsibility
activities
Approaches/Strategies of
Social Responsibility
Corporate social responsibility is an approach of the
management towards building a long-term relationship with
the society. It is the business obligation towards the society.
1. Social obstruction approach:
2. Social obligation or defensive approach
3. Social responsive or accommodation approach
4. Social contribution or proactive approach
Areas of Social
Responsibility of Business
Social responsibility is related to building a long-term
relationship with the society as well as stakeholders. The central
idea behind this is the business sector should be responsible
towards the community and nation and build good image.
1. Responsibility towards investors/shareholders
2. Responsibility towards consumers
3. Responsibility towards employees
4. Responsibility towards government
5. Responsibility towards community
Arguments against Social
Responsibility
Social responsibility is one of the major function of modern
organizations. It is needed for the long-term growth and
sustainability of a business. However, there are some
arguments against social responsibility of business.
1. Not a basis function
2. Distorts profit
3. Operational problems
4. Difficulty in qualification
Concept of Business Ethics
Business ethics are moral principles that guide the way a
business behaves. They may take the form of written and
unwritten codes of principles, and values and are determined
by an organization’s culture.
Importance/Significance of
Business Ethics
Strategic decision makers should consider ethical issues
while making decisions since a business with high ethical
standards can be benefited in a number of ways.
1. Promotes goodwill and image
2. Good relationship with stakeholders
3. Less government intervention
4. Promotes competition
5. Promotes social responsibility
6. Improve working environment
Ethical Issues in a Business
There is a broad spectrum of ethical issues based on the
functions of a business organization. They are:
Finance and
Accounting
Issues

Human
Production
Ethical Resource
and Operations
Management
Management Issues
Issues
Issues

Marketing
Management
Issues
Ethical Issues in a Business
…(contd)
1. Finance and accounting issues
2. Human resource management issues
3. Marketing management issues
4. Production and operations management issues
Ethical Standards/Criteria of
Ethical Decision Making
There are some criteria that ensure ethical considerations in
decision making.
1. Compliance
2. Promote good and reduce harm
3. Responsibility
4. Respect and preserve rights
5. Promote trust
6. Build reputation
Corporate Governance
Corporate governance refers to the rules, policies, practices,
and processes by which a business is operated and controlled.
Accountability, transparency, fairness, and responsibility are
the basic principles of corporate governance.
Principles of Corporate
Governance
The following are the principles of corporate governance.
1. Fairness
2. Transparency
3. Accountability
4. Responsibility
Key Elements of Corporate
Governance
Most of the definitions of corporate governance center the
company itself i.e. internal perspective. However they have
certain elements in common which can be summarized as
follows:
1. System of relationship:
2. Multiple parties:
3. Involvement of all parties:
4. Proper distribution of rights and duties:
Advantages of Corporate
Governance
Corporate governance is advantageous on a number of
different levels which is shown as:
a. Improved operational efficiency
b. Access to capital markets
c. Lower cost of capital
d. Better reputation of the company it is directors and
managers.
Disadvantages of Corporate
Governance
Corporate governance is also not free from its weakness.
Disadvantages mostly come because of poor functioning of
board and management. Key disadvantages as of it are:
a. Separation of ownership and management
b. Chances for exposing critical (secret) company information
c. Misleading reports
d. Increased regulations (operation) costs
Click icon to add picture

Thank you