Business Environment

Evolution and Foundation of

Business
Business environment
• All those factors and forces affecting the performance
of business organization is called business environment.
• Business environment consist of all component of the
surrounding consists of a business organization, which
affect or influence its operation and determine the
effectiveness.
• business decision should be taken only after scanning
the environment.
I. Internal Environment
II. External Environment
 Evolution and Foundation of
Business
Business environment
I. Internal Environment
• Internal environment refers to the various factors and forces
that are operated within the organization and are at the
control of management.
• The components of internal environment of a business are:
a. Owners
• Owners are the investors of the organization who have direct
interest in the personal and organizational welfare.
• Owners are directly and indirectly involved in the
management and operation of the business.
 Evolution and Foundation of
Business

Business environment
I. Internal Environment
b. Organizational structure.
• Organizational structure is the foundation of an
organization involving job definition, division of work,
hierarchy of authority and responsibility and co-
ordination among all the departments and members.
c. Organizational resources
• Resources consisting of human, financial, physical and
information.
 Evolution and Foundation of
Business
Business environment
I. Internal Environment
d. Organizational Culture
• organizational culture is a set of values, norms, beliefs,
customs and symbols that guide member’s behavior in
organization.
e. Employees
• Employees are assets of on organization and part of
internal environment
• The management should motivate and mobilize
employees in order to perform the organizational job
efficiently.
 Evolution and Foundation of
Business

Business environment
I. Internal Environment
f. Board of Directors.
• Members of bard of directors are the representative
of shareholders who directly involve in the day to day
operation of the company.
• Their responsibility is to run the business in the best
interest of the shareholders and other stock holders.
• They prepare long term plans and business strategies
of the organization.
 Evolution and Foundation of
Business

Business environment
II. External Environment
• External environment are those forces or factors
that are outsides the organization.
• Those forces or components are beyond the control
of management.
• The external environment is of two types.
A. Specific/Task Environment/Micro Environment
B. General Environment/ Macro Environment.
 Evolution and Foundation of
Business
Business environment
II. External Environment
A. Specific/Task Environment/Micro Environment
• Task environment or specific environment refers to the
forces and institutions that are near/ close to the
organization.
• They are semi controllable or partly controllable such
environments have a direct and immediate impact on
the managerial decision and directly relevant to the
achievement of organization goal.
• The task environment consists of following factors.
 Evolution and Foundation of
Business

Business environment
II. External Environment
A. Specific/Task Environment/Micro Environment
i. Customers.
• Those who purchase the products or services of an
organization are called customers.
• Customer may be individuals, organization,
schools, hospitals, government, wholesalers,
retailers, producers etc.
 Evolution and Foundation of
Business

Business environment
II. External Environment
A. Specific/Task Environment/Micro Environment
ii. Suppliers.
• Suppliers are parties and institutions that supply
materials, machines and other resources to
organizations.
• Suppliers may be raw material suppliers,
machinery supplier, human resource supplier etc.
 Evolution and Foundation of
Business

Business environment
II. External Environment
A. Specific/Task Environment/Micro Environment
iii. Competitors
• competitors are the rivals that compete with the
organization for resources.
• Organizations should analyze competition to form
clear strategy for giving satisfaction and expansion
of market share.
 Evolution and Foundation of
Business

Business environment
II. External Environment
A. Specific/Task Environment/Micro Environment
iv. Pressure Groups
• Pressure groups are special interest groups.
• They pressurize and lobby government and business
organizations to protect their rights and interest.
• These pressure groups consist of labor unions,
consumer’s association, human right groups, women’s
groups and environmental associations etc.
 Evolution and Foundation of
Business

Business environment
II. External Environment
A. Specific/Task Environment/Micro Environment
v. Financial institutions
• Financial institutions supply short and long term
credit to business firms.
• Financial institution are necessary for loans.
• They can be banks, insurance company and finance
companies.
 Evolution and Foundation of
Business
Business environment
II. External Environment
A. Specific/Task Environment/Micro Environment
vi. Strategic alliance
• When two or more companies work together in
joint venture or other partnership firm, it is known
as strategic alliance.
• Such alliance help to get expertise form other
companies to gain new business ideas and
knowledge.
 Evolution and Foundation of
Business
Business environment
II. External Environment
B. General Environment/ Macro Environment
• It is uncontrollable and requires proper monitoring of the
components to adopt on the basis of emerging changes.
• It creates opportunities and threats to the business
organizations.
1. Political/ Legal environment
• Generally political legal environment is the influence of there
institution legislature, executive and judiciary.
• Legislature enacts rules, regulations and laws where as
executives implement them.
• Judiciary ensures whether rules and laws are effectively
implemented in public interest.
 Evolution and Foundation of
Business

Business environment
II. External Environment
B. General Environment/ Macro Environment
1. Political/ Legal environment
a. Political philosophy
• Political philosophy is an ideology (belief, value,
principle, policy, theory) that a state has adopted.
• There are three types of political ideology
democratic, socialism and mixed.
 Evolution and Foundation of
Business
Business environment
II. External Environment
B. General Environment/ Macro Environment
1. Political/ Legal environment
b. Political institution
• This includes executive (Government), legislative
(parliament) and judiciary (court of law).
c. Political system
• Political system includes political ideology, election
process and process of government formation etc .
 Evolution and Foundation of
Business

Business environment
II. External Environment
B. General Environment/ Macro Environment
1. Political/ Legal environment
d. Legal system
• The things what business organization can do and
what they cannot do are stated in legal system.
• The right responsibilities and interests of labors
and consumers are also clearly explained.
 Evolution and Foundation of
Business
Business environment
II. External Environment
B. General Environment/ Macro Environment
1. Political/ Legal environment
e. Court
• Court solve the legal problems and disputes.
• There may be different types of courts (supreme
court, district court)
f. administration of law
• This includes the law implementation bodies.
• They are government body’s police and advocates etc.
 Evolution and Foundation of
Business
Business environment
II. External Environment
B. General Environment/ Macro Environment
2. Economic Environment
• The whole economic surrounding affecting an organization is
called economic environment.
• This includes fiscal policy, income, inflation, interest rate and
unemployment.
a. Fiscal Policy
• It includes income, expenditure and subsidies amount which
are achieved or earned by government.
• How much tax rate is determined and in how many areas tax
is facilitated etc are clearly defined in it.
 Evolution and Foundation of
Business
Business environment
II. External Environment
B. General Environment/ Macro Environment
2. Economic Environment
b. Incomes
• The situation of income distribution also affects the
national economy of the country.
• It means that the decrease income of people
automatically reduces their expenditure ratio.
• It saves less saving and invests less capital.
• As a result, the size of national capital become small.
 Evolution and Foundation of
Business

Business environment
II. External Environment
B. General Environment/ Macro Environment
2. Economic Environment
c. Inflation
• If the price of goods and services is higher than the
price of money then the situation is called inflation.
• The increasing price of goods or services directly
affects the demand or demand goes down.
 Evolution and Foundation of
Business
Business environment
II. External Environment
B. General Environment/ Macro Environment
2. Economic Environment
d. Interest rate
• If the rate of interest increases the cost of money
increases resulting to price hike of goods or services.
e. Unemployment
• Purchasing capacity is determined by employment.
• Purchasing capacity increase with increase in
employment and decrease with unemployment.
 Evolution and Foundation of
Business
Business environment
II. External Environment
B. General Environment/ Macro Environment
3. Socio-cultural environment
• It is combination of two words i.e. society and culture.
• Culture consists of learned patterns of behavior
common to member of a given society and society is
composed of people and their culture.
• Socio-cultural environment is thus made up of the
social institutions (family, religion, education, cast) ,
class, structure, beliefs, values, accepted patterns of
behavior, customs of the people and their expectations.
 Evolution and Foundation of
Business
Business environment
II. External Environment
B. General Environment/ Macro Environment
3. Socio-cultural environment
a. Demography
• Demography focuses on the composition of
population of the country.
• It consists of growth and size of population, age
group, sex ratio and female, urbanization and
migration of people etc
 Evolution and Foundation of
Business
Business environment
II. External Environment
B. General Environment/ Macro Environment
3. Socio-cultural environment
b. Life style
• Life style is the pattern and living standard of the
people.
• The change in level of income, fashion, education,
social interrelationship and media change their lifestyle
of the people.
• The changed lifestyle forces people to change their
attitude and behavior.
 Evolution and Foundation of
Business
Business environment
II. External Environment
B. General Environment/ Macro Environment
3. Socio-cultural environment
c. Pressure group
• Pressure group are special interest groups.
• They pressurize and lobby governments and
organization to protect their interests.
• Consumer association, civil society, human rights
organizations, owner organizations and environment
protection group etc are the pressure groups of the
society.
 Evolution and Foundation of
Business
Business environment
II. External Environment
B. General Environment/ Macro Environment
3. Socio-cultural environment
d. Reference group
• Reference group are those where one follows their
style, belief and value.
e. Social Class
• On the basis of the economic status society can be
classified as high class, middle class and low class.
 Evolution and Foundation of
Business
Business environment
II. External Environment
B. General Environment/ Macro Environment
3. Socio-cultural environment
f. Religion
• Religion is the belief and trust for which group of people have
accepted since long ago.
• provides the foundation of perception that a group of people has
accepted the norms and values of the society.
g. Language
• Language is the medium of expressing views, ideas, experiences
and knowledge etc.
• Generally language represents the tradition and culture of the
society
 Evolution and Foundation of
Business
Business environment
II. External Environment
B. General Environment/ Macro Environment
4. Technological environment.
• Technological environment refers to technical
surroundings that influence business.
• It is a process of converting inputs into outputs by
using different technologies.
• It focuses on the use of devices, machines,
equipment and other to produce the final goods.
 Evolution and Foundation of
Business
Business environment
II. External Environment
B. General Environment/ Macro Environment
4. Technological environment.
a. Level of Technology
Level of Technology can be
-Labor based technology
-Capital based technology
b. Pace of technological changes
Marketing should adapt to the change technological forces.
c. Technology Transfer
• Technology transfer implies technology imported from technologically
advanced countries.
d. Research and development
• Increased research and development budget for technological adaptation,
up gradation and development.