DIRECTORATE OF EDUCATIONAL SERVICES

BUSINESS AND ITS ENVIRONMENT

Prepared By: Olarotimi Ajani

Course Code/Name: Bus001/ Business and Environment

Class: Foundation Class/2018/19

Course Units: 3 Units

Module 4 & 5

November 30, 2018

Table of Contents

The Nature of Business

Introduction

Definitions and objectives of Business:

What is Business? Purpose/objectives of Business Activity, Nature/Characteristics of

Business Activities, Business Functions, Concept of Adding Value, Problem of Choice and
Opportunity Cost, Needs of Business to Succeed, Why Many Businesses fails.
The Enterprise
What is an Enterprise? Types of Enterprise, Definition of Entrepreneur, Roles and
Qualities Entrepreneur needs for business success, The Role of Business Enterprise in
the Development of a Business and a Country.
Business Structure: Economic sectors: - primary, secondary and tertiary sectors. Public
and private sectors.
Business Sizes
Measuring business sizes, Types of business sizes, Small, Medium, Large and Multi-
National Businesses.

Small Businesses: Importance, and role in the economy, advantages and disadvantages,
strengths and weaknesses of family businesses, Business Internal growth.

The Business Environment

Dynamic Business Environment, Internal and External Environment of a Business,
BUSINESS COMMUNICATION
Meaning of business communication. Purposes of business communication. Methods of
communication. Roles of management in facilitating communication

ORGANISATION STRUCTURE

Definitions of organisational structures. Types: Formal and Informal. Merits and Demerits of each
organisational structure.
The Business Environment
Learning Objectives Module 4:

After completing this module, students will be able to:

1. Explain the meaning of business environment;

2. Identify the features of business environment;

3. Describe the external and internal business environment.

4.0 Introduction
It is very important for a business to understand the environment it operates. This is
because, the environmental factors influence almost every aspect of business, be it its
nature, its location, the prices of products, the distribution system, or the personnel
policies. Hence it is important to learn about the various components of the business
environment, which consists of the economic aspect, the socio-cultural aspects, the
political framework, the legal aspects and the technological aspects etc.

Therefore, we shall learn about the concept of business environment, its nature and
significance and the various components of the environment. In addition, we shall also
acquaint ourselves with the recent developments in Nigerian Economy that have
greatly influenced the working of business units in Nigeria.

4.1 Meaning of Business Environment

A business environment is the sum total of all external and internal factors which
influence the development, performance and outcome of a business. These factors
are largely if not totally, external and beyond the control of individual business
enterprises and their managements. The business environment can pose threats to a
firm or offer immense opportunities for potential market exploitation.

Successful business managers must have a good understanding of the environment in

which the business operates. This allows them to respond positively to changes that
take place and prepare for the impact such changes will have on their business
operations.

4.4 Features of Business Environment

In line with above definition, the business environment refers to the surrounding
conditions in which the business operates and can be divided into two broad
categories: external and internal.

• The external environment includes those factors over which the business
has little control, such as government policy, technology, economic
conditions and social attitudes.
 • The internal environment includes those factors over which the business
has some degree of control, such as products, location, resources,
management and business culture.

Environment

The factors that make up the business environment are not constant and certain.
They are continually undergoing change, and a business must keep ‘in tune’ with
the changes and adapt its operations accordingly.

4.5 The External and Internal Business Environments

The External Business Environment

External environment includes all those factors which influence business and exist
outside the business. Business has no control over these factors.
The external environment can be broadly classified as (a) Economic environment; and
(b) Non-economic environment. The economic environment includes economic
conditions, economic policies and economic system of the country. Non-economic
environment comprises social, political, legal, technological, demographic and natural
environment. All these have a bearing on the strategies adopted by the firms and any
change in these areas is likely to have a far-reaching impact on their operations.

Economic Environment

The survival and success of each and every business enterprise depend fully on its economic
environment. The main factors that affect the economic environment are:

• Economic Conditions: The economic conditions of a nation refer to a set of

economic factors that have great influence on business organisations and their
operations. These include gross domestic product, per capita income, markets for
goods and services, availability of capital, foreign exchange reserve, growth of
foreign trade, strength of capital market etc. All these help in improving the pace of
economic growth.

• Economic Policies: All business activities and operations are directly influenced by
the economic policies framed by the government from time to time. Some of the
important economic policies are:
 i Industrial policy

ii Fiscal policy

iii Monetary policy

iv Foreign investment policy

v Export –Import policy

The government keeps on changing these policies from time to time in view of
the developments taking place in the economic scenario, political expediency
and the changing requirement. Every business firm has to function strictly
within the policy framework and respond to the changes therein.

• Economic System: The world economy is primarily governed by three types of

economic systems, viz.,

i Capitalist economy;

ii Socialist economy; and

iii Mixed economy. Nigeria has adopted the mixed economy system which
implies co-existence of public sector and private sector.

NON-ECONOMIC ENVIRONMENT

The various elements of non-economic environment are as follow:

i. Social Environment: The social environment of business includes social factors like
customs, traditions, values, beliefs, poverty, literacy, life expectancy rate etc. The social
structure and the values that a society cherishes have a considerable influence on the
functioning of business firms. For example, during festive seasons there is an increase in
the demand for new clothes, sweets, fruits, etc. Due to increase in literacy rate the
consumers are becoming more conscious of the quality of the products. This increases the
demand for the different types of household goods. It may be noted that the consumption
patterns, the dressing and living styles of people belonging to different social structures
and culture vary significantly.

ii. Political Environment: This includes the political system, the government
policies and attitude towards the business community and the unionism. All these
aspects have a bearing on the strategies adopted by the business firms. The
stability of the government also influences business and related activities to a
great extent. It sends a signal of strength, confidence to various interest groups
and investors. Further, ideology of the political party also influences the business
organisation and its operations. Strikes, lockouts and labour disputes etc. also
adversely affect the business operations.
iii. Legal Environment: This refers to set of laws, regulations, which influence the
business organisations and their operations. Every business organisation has to
obey, and work within the framework of the law. The important legislations that
concern the business enterprises include:
 • Companies and Allied Matter Act,

• Foreign Exchange Management Act,

• National Drug Law Enforcement Act,

• Consumer Protection Act,

• Environment Protection Act, etc.

In addition to these acts, the following also form part of the legal environment of
business.

• Provisions of the Constitution: The provisions of the Articles of the

Nigerian Constitution, particularly directive principles, rights and
duties of citizens, legislative powers of the Federal, state and Local
government also influence the operation of business enterprises.

• Judicial Decisions: The judiciary has to ensure that the legislature and
the government function in the interest of the public and act within the
boundaries of the constitution. The various judgments given by the
court in different matters relating to trade and industry also influence
the business activities.
iv. Technological Environment: Technological environment include the methods,
techniques and approaches adopted for production of goods and services and its
distribution. The varying technological environments of different countries affect
the designing of products. In the modern competitive age, the pace of technological
changes is very fast. Hence, in order to survive and grow in the market, a business
has to adopt the technological changes from time to time. It may be noted that
scientific research for improvement and innovation in products and services is a
regular activity in most of the big industrial organisations. Nowadays, no firm can
afford to persist with the outdated technologies.
v. Demographic Environment: This refers to the size, density, distribution and
growth rate of population. All these factors have a direct bearing on the demand
for various goods and services. For example, a country where population rate is
high, and children constitute a large section of population, then there is more
demand for baby products. Similarly, the demand of the people of cities and towns
are different than the people of rural areas. The high rise of population indicates
the easy availability of labour. These encourage the business enterprises to use
labour intensive techniques of production. Moreover, availability of skill labour in
certain areas motivates the firms to set up their units in such area. For example,
the business units from America, Canada, Australia, Germany, UK, are coming to
India due to easy availability of skilled manpower. Thus, a firm that keeps a watch
on the changes on the demographic front and reads them accurately will find
opportunities knocking at its doorsteps.
vi. Natural Environment: 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. Business is greatly influenced by the nature of natural
environment. For example, sugar factories are set up only at those places where
sugarcane can be grown. It is always considered better to establish manufacturing
unit near the sources of input. Further, government’s policies to maintain
ecological balance, conservation of natural resources etc. put additional
responsibility on the business sector.
BUSINESS COMMUNICATION

Learning Objectives Module 5:

After completing this module, students will be able to:

1. Explain the meaning of business communication;

2. Understand Purposes of business communication;

3. Understand Methods of communication; and

4. Understand Roles of management in facilitating communication

5.0 Introduction
The word “communication” derived from the Latin word ‘communicare’ that means to impart,
to participate, to share or to make common.

Communication is the essence of management. The basic functions of management

(Planning, Organizing, Staffing, Directing and Controlling) cannot be performed well
without effective communication. Therefore, this module will focus on understanding
the meaning of business communication, its purpose, methods of communication and
also the roles the management plays in facilitating communication.

Communication can be defined as interchange of thought or information

between two or more persons to bring about mutual understanding and desired
action. It is the mutual exchange of understanding, originating with the receiver.

Communication is the exchange of ideas, opinions and information through written or spoken
words, symbols or actions. Communication is a dialogue, not a monologue. In fact,
communication is more concerned with a dual listening process. For communication to be
effective, the message must mean the same thing to both the sender and the receiver.

5.1 Definitions of Business Communication

What is Business Communication?

Business communication refers to general communication that takes place

between or among parties regarding business-related functions and is
specifically concerned with business activities.

Fig 5.1: Simple form of Business communication process

Types of Business Communication

Business communication can be internal, i.e. when it is exchange of information between

staff of a business organisation or external when it is exchange of information between
the business organisation and people or organisation from outside (e.g. communication
with customers, third parties, contractors, government agencies, etc).

Internal Communication

Communication within an organization is called “Internal Communication”. It includes

all communication within an organization. It may be informal, formal function, or
department providing communication in various forms to employees.

Effective internal communication is a vital mean of addressing organizational concerns.

Good communication may help to increase job satisfaction, safety, productivity, and
profits and decrease grievances and turnover.

Internal Business Communication types are:

i Vertical Communication. These are of two types and they are:

• Upward Communication: This is the flow of information from subordinates to

superiors, or from employees to management. Without upward communication,
management works in a vacuum, not knowing if the messages have been received
properly, or if other problems exist in the organization. By definition,
communication is a two-way affair. Yet for effective two-way organizational
communication to occur, it must begin from the bottom.
Upward Communication is a mean for the staff to:
- Exchange information
- Offer ideas
- Express enthusiasm
- Achieve job satisfaction
- Provide feedback
• Downward Communication: Downward communication generally provides
information – which allows a subordinate to do something. For example,
instructions on how to complete a task. Downward communication comes after
upward communications have been successfully established. Here Information
flow from the top of the organizational management hierarchy and telling people
in the organization what is important (mission) and what is valued (policies). This
type of communication is needed in an organization to:
 - Transmit vital information
- Give instructions
- Encourage two-way discussion
- Announce decisions
- Seek cooperation
- Provide motivation
- Boost morale
- Increase efficiency
- Obtain feedback

ii Horizontal/Lateral Communication

Horizontal communication normally involves coordinating information and allows

people with the same or similar rank in an organization to cooperate or collaborate.
Communication among employees at the same level is crucial for the accomplishment of
the assigned work.
Horizontal Communication is essential for:

- Solving problems
- Accomplishing tasks
- Improving teamwork
- Building goodwill
- Boosting efficiency

External Communication

External communication refers to communication with people outside the company.

Supervisors communicate with sources outside the organization, such as vendors and
customers.

The advantages are that it leads to better:

- Sales volume
- Public credibility
- Operational efficiency
- Company profits

These in turn will improve:

- Overall performance
- Public goodwill
- Corporate image,

And ultimately, it helps to achieve:

- Organizational goals
- Customer satisfaction
5.2 Purposes or Objectives of Business Communication

Communication has many objectives. Its primary objective is to exchange ideas,

opinions, thoughts, beliefs and information between human beings. In the fields of
business, the main objective of communication is to help managers in performing all
managerial functions smoothly.

Business Communication Objectives are:

a. Achieving organization goals: The main objective of communication is to help

managers in achieving organization goals. It helps managers to perform all
managerial functions and to achieve predetermined goals.

b. Exchanging of information: Another objective of communication is to exchange

information between employees of an organization. It helps to contact the external
forces of an organization.

c. Formulation and execution of plans: Communication supplies information to

the managers who prepares effective plans for the organization. Managers collect
information from different sources and prepare and execute organizational plans
through the help of communication.

d. Increasing efficiency: Communication helps to increase the efficiency of the

employees of an organization by supplying information timely relating to the
work.

e. Directing the subordinates: An important objective of communication is to give

effective direction to the employees of an organization. Communication helps to
reach executive orders to the subordinates.

f. Create consciousness: Another remarkable objective of communication is to

create consciousness among the employees about their duties and responsibilities
by supplying various information.

g. Coordination and cooperation: Another important objective of communication

is to help in coordinating and cooperating the activities of various work groups
and departments working within the organization.

h. Persuasion: To persuade the employees to work hard for the organization and
the buyers to buy organization’s products are two other important objectives of
communication.

i. Facilitating joint effort: No organization can achieve its goal by individual effort.
It requires joint effort. Communication helps in taking joint effort in the
organization.
 j. Education and training of employees: Communication helps to provide
education and training of employees of the organization.

k. Develop labor-management relations: Another objective of communication is

to improve relationship between management and workforce within the
organization. It removes misunderstanding. Between the two parties and helps to
develop and maintain better relationship.

l. Creating relationship with external parties: Communication helps to create

good relationship with external parties of the organization.

m. Monitoring and controlling the activities: Monitoring and controlling the

activities of the subordinates is other important objective of organization
communication.

n. Solving problem: One of the most important objectives of communication is help

solving different organizational problems. It creates bases for discussion by
supplying information which helps in removing the differences among the
disputed parties.

o. Initiate to change: Another objective of communication is to initiate change

within the organization. Communication supplies various information to the
employees which helps in changing their attitude and brings changes in the
organization.

p. Decision making: Communication helps managers to take decisions. It helps in

exchanging ideas and opinions with others which help managers to take
appropriate decisions.

q. Making aware of future change: In earth everything is changing continuously.

To adapt with the changing environment management has to initiate different
organizational changes. Here communication helps to make employees aware of
future change.

r. Building image: Strong image of the organization helps to gain competitive

advantage in the market. Communication helps to build up image of the
organization through timely contact with the stakeholders, advertising etc.

1.3 Methods of Business Communication

Fig 5.2: Methods of Business Communication

 Essentially, communication can be verbal or oral and non-verbal. It is verbal when it is
carried out between sender and receiver(s) orally; i.e. by words of mouth. The verbal
communication means can be through person-to-person or through electronic means; such
as telephone, GSM, and electronic media (internet, online Streaming, Video conferencing,
etc). It is non-verbal when it is through writing, gesture and signs.

Therefore, in business communication, choosing the best ways to communicate messages to

employees, contractors, vendors, customers and investors requires a mix of different tools
and methods. Older audiences might prefer face-to-face meetings, while younger people
might respond better to texts, tweets and emails. Understanding different options will help
managers make the right choices for the business and get the organisation’s message across
the way it’s intended.

Verbal Business Communication Methods

Verbal communication is a common way individual transfer their message to other
individuals and businesses. Verbal communication methods may include:

• Physical Conversation: this can occur at meetings, in-person interviews,

Presentations and Lectures, Workshops, etc.

• Electronic Communication: Telephones, video/audio conferencing,

Internet phone calls, etc.

Verbal communication may be the best communication method because it allows people
to assess the verbal or nonverbal inferences by individuals giving a message. It may also
create a more comfortable environment for receivers to ask questions and get feedback
from individuals giving the message. The increasing use of global business operations has
created challenges for verbal communication. These challenges may include language
barriers, cultural or social barriers, and time differences when giving messages. These
challenges must be overcome for verbal communication to present a clear-cut message
that receivers can act on quickly with little to no confusion. Thanks for technologies that
facilitate real-time language interpretations and verbal communications between people
of different languages.

Non-verbal communication: This includes written communication and body

language such as gestures, facial expressions, and even posture.

• Body Language: This non-verbal communication sets the tone of a conversation

and can seriously undermine the message contained in sender’s words if care is
not taken. Examples are gestures, facial expressions, postures. For example,
slouching and shrinking back in chair during a business meeting can make one
seem under-confident, which may lead people to doubt the strength of person’s
verbal contributions. In contrast, leaning over an employee’s desk and invading
his or her personal space can turn a friendly chat into an aggressive
confrontation that leaves the employee feeling victimized and undervalued.
 Yawning in between serious conversation may construe lack of interest in such
conversation to other party.
• Written Communication: Written communication includes internal business
memos, formal letters, bulletin boards or posters and other various written
communication forms. Individuals may choose to use written communication if
they need to reach multiple individuals at different locations with a similar
message. This communication time may also help senders conveyed technical
messages that have several instructional steps individuals must follow or
diagrams and charts needing to be reviewed for receivers to understand the
message. Written communication also creates a paper trail for important
messages. Individuals may be required to acknowledge receipt of the message or
respond within a limited time frame. Organizations often use written
communication to ensure they have documentation when correcting an issue or
dealing with important legal situations.
• Electronic Written Communication: Technology has opened up new types of
business communications. New communication methods include email, social
networking, company websites, online chat and text messages. Electronic
communication allows companies to send mass messages to several individuals
quickly and at a low business cost. Electronic communication methods are often
used to reach outside business stakeholders or the general public. Organizations
may create several different electronic communication channels to reach different
target markets or demographic groups with their message. Electronic
communication is also used to communicate with international organizations or
individuals at the time-efficient manner.
5.0 Roles of Management in Facilitating Communication
The importance of communication in a business organisation cannot be over-
emphasized. Management is responsible for ensuring that the employees are able to
effectively communicate with one another and with management. Management must also
ensure effective communication with customers and other external stakeholders as this is also
key to success of the business.

Therefore, management must play the following key roles in facilitating effective
communication in the business organisation:

• Creation of Communications Policy: Management must create

communications policy and put it in writing for training and reference use.
Policies for using email, including when to forward or copy other parties.
Outline rules regarding inner-office communication, intranet and memos.
Also establish guidelines for communication such as text messaging, voice
mail, instant messaging and video-conferencing. Also, policies for external
communication must be considered.

• Establish Communication Channels: There are a variety of ways to

communicate, and the management’s responsibility is to ensure employees
understand the company’s best-established communication practices.
Electronic and physical Channels must be established.
• Install Necessary Communication facilities: Facilities such as
telephones; desktops, intercom, mobile communication gadgets, Internet
facilities, computers etc., must be made available by the management. Also,
staff of the organisation must be trained on the usage of these facilities to
ensure effective communication.

• Trouble-Shoot Communication Issues: When communication issues

arise, management must ensure the authorized manager intervene and
mediate a resolution. A manager must understand the different
communications styles of individual employees. Whereas one employee
may prefer the ease and personal nature of face-to-face discussions,
another may prefer to put details in writing to ensure accuracy and track-
ability. The manager is charged with helping these colleagues find a happy
medium. For example, the two employees in this example might be urged
to talk face-to-face, and then summarize the conversation in a follow-up
email to ensure clarity on all sides.

• Teach Communication Skills: Some people have a difficult time

articulating thoughts and ideas, and a management must ensure helping
employees develop their communication skills. This can be done through
role-playing, job training and mentoring. Management may also consider
the value of sending employees to a public speaking development training
organisation such as Poise Nigeria Limited, which helps professionals hone
their communication and business etiquette skills.

• Issue Communication Checks: Even with a comprehensive set of

communication best practices in place, there are still bound to be
occasional breakdowns in the way people share and exchange information.
Management should periodically review internal policies, request
employee feedback and conduct a “performance check” to ensure
communication strategies are on track. This may be accomplished during
all-staff meeting, individual or group performance reviews or through an
employee survey or focus group.