Introduction to business environment

INTRODUCTION TO BUSINESS ENVIRONMENT

External Environment

WHAT IS BUSINESS ENVIRONMENT?

• Environment of any organization is “the aggregate of all conditions, events and influences that surround and affect it”.
• The combination of internal and external factors that influence a company’s or business operating situation.

TYPES OF ENVIRONMENT?

• Internal Environment
• External Environment
• Micro Environment
• Macro Environment

EXTERNAL ENVIRONMENT

• Factors outside the organization which provide opportunities or pose threats to the organization
• Factors that can impact the ability of a business or investment to achieve its strategic goals and objectives.
• Uncontrollable factors
• Classified into two categories
• Micro
• Macro

Micro Environment

• Refers to the environment which is in direct contact with the business organization and can affect the routine activities of business straight away.
• Types of Factors
• Suppliers
• Customers
• Marketing Intermediaries
• Competitors
• Publics
• Financial Intermediaries

Micro Environment

material to

• SUPPLIERS

Suppliers are the persons who supply raw company.

• CUSTOMERS

Customers are the persons who buy goods from company.

Micro Environment

helps

• MARKETING INTERMEDIARIES

Market intermediaries are those person who company to sell its products.

• COMPETITORS

Competitors are those who also sell same product as the company or business.

Micro Environment

• PUBLIC

Group of people who

can buy

or who can show their

interest to buy the products of

company.

• FINANCIAL INTERMEDIARIES

Are those institutions who provide loan, credit and advance to company.

Macro Environment

• Refers to the external factors which affects company and its business and there is no control of company on these factors.
• Types of Factors
• Economic
• Non-Economic
• Political
• Demographic
• Socio-Cultural
• Technological
• Natural

Macro Environment

• ECONOMIC

The economic environment

constitutes of economic

conditions, economic policies, and the economic system that is important to external factors of business.

Economic environment refers to the nature and direction of the economy within which business organisation are to operate.

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Macro Environment

• NON-ECONOMIC

Political and Legal Forces

Refers to the political, government and legal environment. It has close relationship with the economic system and economic policy.

This refers to set of laws, regulations, which influence the business organizations and their operations

Macro Environment

• NON-ECONOMIC

of the population.

Demographic Forces

Demography refers to study Demographic factors are as below:

• Size of population
• Growth rate
• Family size
• Educational level
• Age composition
• Sex composition

Macro Environment

• NON-ECONOMIC

Socio-Cultural Forces

Socio-cultural environment is an important factor that should be analysed while formulating company business strategies. These includes people’s attitude to work and wealth, ethical issues, role of family, marriage, religion and education and the social responsibilities of business

Macro Environment

• NON-ECONOMIC

Technological Forces

Technological forces or factors could be said to be the most pervasive in the environment. Technology refers to the application of knowledge base which science provides. It is a well established fact that information and communication technology has revolutionized business operations

Macro Environment

• NON-ECONOMIC

Natural Forces

The natural environment includes geographical and ecological factors that influence the business operations. These factors include the availability of natural resources, weather and climatic condition, location aspect, topographical factors, etc

BRIEF COMPARISON (MICRO – MACRO)

BASIS FOR COMPARISON	MICRO (INTERNAL) ENVIRONMENT	MACRO (EXTERNAL) ENVIRONMENT
Meaning	Micro environment is defined as the nearby environment, under which the firm operates.	Macro environment refers to the general environment, that can affect the working of all business enterprises.
Alternatively known as	Internal Environment	External Environment
Elements	COSMIC, i.e. Competitors, Organization itself, Suppliers, Market, Intermediaries and Customers.	PESTLE, i.e. Population & Demographic, Economic, Socio-Cultural, Technological, Legal & Political and Environmental.
Nature of elements	Specific	General
Are these factors controllable?	Yes	No
Influence	Directly and Regularly	Indirectly and Distantly

What is Environmental Analysis?

• Environmental analysis is a strategic tool. It is

internal elements, which can affect

a process to identify all the external and

the

organization’s performance.

entails assessing the level

The analysis of

threat or

opportunity the factors might present

STRATEGIC ANALYTICAL TOOLS

• DEFINITION AND CONCEPT

It a process of conducting research on the business environment within which an organization operates and on the organization itself, in order to formulate strategy.

Examples of Analytical Method used in Strategic Analysis

• PEST Analysis
• PESTLE Analysis
• STEEP Analysis
• STEEPLE Analysis

PESTLE Analysis

a framework

used to

analyze the

This is external

environmental

analysis.

The process

factors

entails learning about various external which affect the organization.

PESTLE Analysis

• POLITICAL

government

regulation

These include such as

employment

environmental organizations and tax

laws, policy.

Other political factors are trade restrictions and political stability

PESTLE Analysis

• ECONOMIC

These affect the cost of capital and purchasing power of an organization. Economic factors include economic growth, interest rates, inflation and currency exchange rates

PESTLE Analysis

• SOCIAL

These impact on customer’s need and the potential market size for an organization’s goods and services. Social factors include population growth, age demographics and attitude towards health.

PESTLE Analysis

• TECHNOLOGICAL

These influence barriers to entry, make or buy decisions and investment in innovation, such as automation, investment incentives and the rate of technological change.

PESTLE Analysis

• LEGAL

This factor has

both external and

internal sides. There are certain laws that affect the business/organization environment in a certain country while there are certain policies that companies maintain for themselves.

PESTLE Analysis

• ENVIRONMENTAL

influence or

this factor includes are determined

all those that by more the

surrounding environment.