UNIT 01 : BUSINESS AND

ITS ENVIRONMENT
1.4 Analyses the business as a process of inputs and outputs.
LEARNING OBJECTIVES
 Explains the inputs of different businesses.
 Explains the function of a businesses.
 Lists the output of different businesses.
 Presents a business as an input, output process using
diagram.
 Separates the inputs of a certain product under each type
of input.
 Explains with examples that the business functions will
vary according to the nature of the business
INPUTS(RESOURCES)

 Inputs (resources) such as land, labour, capital, entrepreneurship,

information, time, and knowledge are used for business activities.
 Consider a garment factory as an example.

Factory buildings, sewing machines, tailors, employees such as supervisors,

the land where the business operates, the number of working shifts (hours),
designing of clothing, computer aided designing, finding new markets,
searching for modern machines, the knowledge possessed by managers,
obtaining legal advice are some of the resources used in that business.
FACTORS OF PRODUCTION
 Resources used by any business for the production of goods and services are
known as factors of production.
 Everything that is used as an input in business activities is known as resources. These
resources can be classified in various ways.

Men
Human Resources Land
Money
Materials Physical Resources Labor
Machines
Financial Resources Capital
Methods
Market Information Resources Entrepreneurship
Minute /time
Time Resources Information
Concepts Time
Customers
Knowledge
LAND

 All the natural resources available are considered as land. It includes

resources on the surface of the land as well as resources beneath the land.
 Land where building is situated
 Ventilation
 Sunlight (Natural light)
 Minerals, forests, soil
LABOUR
 The mental and physical contribution in a business can be considered as
labour in simple terms.
 Physical and mental labour of the tailor
 Physical and mental labour of the supervisor
 Mental labour of the managers
 Labour of the watchmen
CAPITAL
 Anything produced by man in order to facilitate manufacturing process is
known as capital.
 Building
 Sewing machines, equipment
 Distributing vehicles
 Materials, thread, buttons, zips
 Money
ENTREPRENUERSHIP
 Entrepreneurship encompasses the role of organizing factors of production
such as land, labour and capital required for production in order to start and
conduct a manufacturing process.
 An entrepreneur takes the risk, creates innovations and takes decisions with
regard to the business.
 Decision maker of the combination of resources (Person who enjoys profits)
 Decision maker who undertakes risks
 Individuals or institutes
INFORMATION
 Success of the any business will depend on information.
 It important to collect accurate information to make correct decisions.
 Designs that suit with consumer taste
 New information about raw materials
 Information about new technology
 Information about the market
TIME

 Working hours of employees

 Working hours of machines
 Time taken to make decisions
 Time taken to distribute goods to the market
 Time taken to produce the products
KNOWLEDGE

 Obtaining patents for new products

 Skills of garment employees
 Knowledge processed by managers
 Knowledge of designing technicians
 Law advice
FUNCTIONS OF THE BUSINESS
Administration Production Marketing Financial
activities

Preparing Obtaining raw Distribution of Obtaining funds

garment materials garments Paying salaries
employee s’ Inventory control Advertising Investing fund s
file s. Quality control Deciding of price
Providing relevant
advice
Maintaining
attendance sheets
FUNCTIONS OF THE BUSINESS

Human resource Research and Management information

activities development activities

Recruiting of employees Conducting researches on Maintaining information

Training new innovations system
Promoting Improving the products Obtaining new
Exploring low cost information
methods Updating the information
Production process

PRO
INP OUT
CES
UTS PUT
S
Production process
 Business process of a bakery
Land – Production –
Land where the bakery is located  Obtaining the materials
Labour –  Mixing the materials
Labour of the bakers · Making bread
Capital – Marketing –
 Advertising
Building, oven, trays
 Distribution
Entrepreneurship · Pricing
Owner of the baker y/ the ability of Administration –
the person who combines factors of Bread
 Preparing employees’ files,
Production Maintaining employee s’ attendance Buns
Information – sheets Cake
new technological methods Financial activities- (Baker y
 Obtaining funds needed, Purchasing
Market information items)
assets, Paying for expenses
Time –
Human resource Activities
Working hours of employees  Recruiting employees, Training
Over time work Research an d development
Knowledge – activities–
Skills of the employees  Conducting surveys, Conducting
Knowledge a bout researches to improve the quality of the
new production product
UNIT 01 : BUSINESS AND
ITS ENVIRONMENT
1.5 Examines the reasons for the interest of stakeholders in
businesses.
LEARNING OBJECTIVES
 Lists the stakeholders of a selected business.

 Explains the reasons for the interest of each stakeholder on businesses.

 Reveals that the reasons for the interest on the business differ with each
interested party.

 Explains the importance of interested parties to a business.

 Shows how businesses should perform to fulfil the expectations of

stakeholders for the successful existence of a business.

 Decides the priority of the stakeholder on the interest of the business and the
ability to influence the business.
 Stakeholders of businesses
 Stakeholders are the different parties who are interested in the business
activities
 Ex :-
 Owners

 Managers

 Customers

 Suppliers

 Competitors

 Financial Institutions
 Employees

 Government

 Community
 Stakeholders of businesses

Owners
Owners are the individuals providing resources to the business. The owner of a business
can be either a single person or a group of persons.
Managers
The business operations are conducted and decisions of the owners are implemented by
the managers. In large scale businesses, there can be number of managers such as
finance manager, marketing manager, etc.

Customers
are the individuals who buy goods and services from a business. They can buy these
goods either with the re-selling motive or with the motive to use on own consumption.
Stakeholders of businesses

Suppliers
Suppliers are the providers of raw materials, transport facilities, etc, to a business.
Competitors
Competitors are other businesses producing or selling similar goods or services to a
business in operation.
Financial institutions
These are the institutions providing institutions required loans, consultancy services
etc. to a business. Ex- Banks, Venture capitalists (Venture capitalists may be
individuals, such as family members of private investors. They are the financiers of
the business, and are classed as stakeholders)
Employees –
Individuals performing the operations of a business are known as employees.
 Stakeholders of businesses

Government
The government propagates policies required to achieve economic growth of a
country

Community
Includes the population living outside of the business in the society
Examples :-
Journalists, environmentalists
pressure groups
Objectives of stakeholders
Objectives of stakeholders
ACTIVITY
UNIT 01 : BUSINESS AND
ITS ENVIRONMENT
1.6 Classifies the business environment which influences the
businesses.
LEARNING OBJECTIVES

 Explains the business environment.

 Lists the benefits obtained by the businessman by studying the business
environment.
 Classifies the business environment.
 Lists the various environmental forces that influence the business.
 Provides examples for the internal and external environmental forces of a
given business.
BUSINESS ENVIRONMENT

 The environment, in which the factors which influence the business operates
is known as business environment.

 These factors may directly or indirectly impact on business activities.

 Therefore businesses should study the changing business environment and

adapt their business activities accordingly to achieve the success in business
world.
Classifies the business environment

 Factors of business environment can be categorized into two,

Internal Environment
External Environment
The forces and conditions
All forces that influence
that influence and exist
and exist outside of an
within an organization
organization are known
are known as Internal
as External environment.
environment.
Classifies the business environment

 External environment also can classify into two,

Task environment Macro environment

The specific organizations The broad environment of a

or groups that influence business and influential
and belong to external groups related to it are
environment of the known as macro
business are known as environment or general
immediate environment. environment.
 Classifies the business environment
 The factors of business environment can be shown in a flow chart,

Owners
Managers
Employees Economic Environment
Customers Political Environment
Organization structure
Suppliers Legal environment
Organization culture
Competitors Demographic environment
Resources
Producers of substitute Technological Environment
products Natural Environment
Potential businessmen Social and cultural environment
Global Environment
Benefits that a businessman get by
studying business environment
 To identify strengths
 To identify weaknesses
 To identify business opportunities
 To identify threats
Strengths & Weaknesses
 The strengths and weaknesses of a business can be identified by studying the internal
environment
 The strengths can be used to grow a business, whereas weaknesses are to be minimized.
Opportunities & Threats
 Opportunities and threats available for a business can be identified by analyzing
external environment
 The businessmen can exploit the opportunities and face the threats successfully
UNIT 01 : BUSINESS AND
ITS ENVIRONMENT
1.6 Analyses the influences of internal environmental forces on
businesses.
LEARNING OBJECTIVES

 Lists the internal environment forces that influence the business.

 Provides examples for the strengths and weaknesses related to each internal
force.
 Comparatively analyses how the strengths and weaknesses of the internal
environment influence the business activities.
 Explains the ways to make business successful by using its strengths and
actions that can be taken to avoid threats.
INTERNAL ENVIRONMNET
 The forces and conditions that influence and exist within an organization are
known as Internal environment.

Organization
structure
Owners Managers

Organization Resources
Employees culture
 The party, who contributed resources or invested funds in a business and endures
profits or losses is owners.

 The party who formulates business plans and makes decisions is the managers.

 The party, who is engaged on relevant works according to the plans and decisions
made by the top managers, is employees.

 The organization culture is the beliefs, values, attitudes, norms, habits,

behavioural patterns that are shared among everyone in the business and which
will be handed over to future generation.

 The way in which the functions, resources and authority of a business are
distributed to achieve the objective of a business easily is organization structure.

 Everything such as land, labour, capital, entrepreneurship, time, information and

knowledge that are used as inputs for producing goods and services are resources .
The strengths and weaknesses that are
bound with each environmental factor

Environmental Strengths Weaknesses

Factor
Owners Having a larger number of Having a smaller number
them. of them.
Their increased financial Decreased financial
strength. strengths in them.
Their increased knowledge Lack of knowledge and
and experience. experience in them
Managers Their increased training and Decreased training and
experience. development.
Ability to take correct Being backward to take
decisions. decisions.
Taking wrong decisions.
The strengths and weaknesses that are
bound with each environmental factor
Environmental Strengths Weaknesses
Factor
Employees Having clever experienced employees. Having inexperienced employees.
Having versatile abilities in them. Having irresponsible and
Having good attitudes in them. Unaccountable employees.
Having motivated employees. Having unfavourable working
habits in them
Having negative attitudes in
them.
Having inefficient employees.
Organization Having a positive evaluation and value Not having an established value
culture system. system and ethical system.
Having an inherent, developed ethics Not having a high supervision.
and habits.
The strengths and weaknesses that are
bound with each environmental factor
Environmental Strengths Weaknesses
Factor
Organization Proper division of work. Having conflicts among
structure Proper building up of the roles.
organization. Lack of coordination
among sections.
Resources Quantitativeness Having outdated
Qualitativeness resources
Lack of resources
Not having enough
resources.
 ACTIVITY
 Briefly point out how each force mentioned in below table may have an
impact on the activities of the school positively and negatively.

Force Positive Impacts Negative Impacts

Students Being disciplined Having negative attitudes towards

Being skillful learning
Being backward

Teachers

The space of the

classroom

Prefects
UNIT 01 : BUSINESS AND
ITS ENVIRONMENT
1.6 Analyses the influences of task environmental forces on
business.
LEARNING OBJECTIVES

 Lists the task environmental forces that influences businesses.

 Lists the business opportunities that form from task environmental forces.

 Shows the threats to businesses that form from task environmental forces.

 Provides examples for the influences of the task environmental forces on a

business in a selected business.

 Presents proposals to identify business opportunities and make use of them

and to face threats.
TASK ENVIRONMENT
 The specific organizations or groups that influence and belong to external
environment of the business are known as immediate environment.

Produces of
Customers substitute
products
Suppliers

Competitors Potential
businessmen
TASK ENVIRONMENT

 Task environmental forces will have an impact on businesses by creating

opportunities and threats to a business.

Threats
Opportunities
External factors
External factors
that hinder the
that help to
achievement of
achieve the goals
goals
TASK ENVIRONMENT

 Buyers of the goods and services of a business are the consumers.

 Individuals and institutions that provide resources needed for a business are
suppliers.
 The business that provides similar goods and services as that of the business
are competitors of the business.
 Those who supply alternative products or services for the product that the
business supply are the producers of substitute products.
 Those who wish to launch businesses in future are the potential businessmen
Factors that create opportunities and
threats for the businesses

Force Factors
Customers Awareness of consumers
Income of consumers
Suppliers Providing or not providing quality
materials in time by suppliers
Giving or not giving discounts
Competitors Entry of new competitors to the market
Existing competitors leaving the market
Providing different facilities with goods
and services by competitors
producers of substitute products the availability of plentiful substitute
products
Potential Businessmen Entry to the market
UNIT 01 : BUSINESS AND
ITS ENVIRONMENT
1.9 Analyses the influences of macro environmental forces on
businesses.
LEARNING OBJECTIVES
 Lists the macro environmental forces that influence on businesses.
 Explains each macro environmental force.
 Shows the importance of each macro environmental force to businesses.
 Presents examples for the influences of macro environment on businesses.
 Analyses the influence of macro environmental forces on to task
environmental forces.
 Explains with examples that there is an inter-relationship between the macro
environmental forces.
MACRO ENVIRONMENT
 The broad environment of a business and influential groups related to it are
known as macro environment or general environment.

Political Economic Social and cultural Technological

environment environment environment environment

Demographic Natural
Legal environment
environment environment

Global
environment
Political Environment
 The policies of a government will have an influence on the
businesses.
 Businesses have to conduct their business activities by considering
these policies.
 Infrastructure development policy
 Government spending levels will influence the businesses. For a example, if
the government decides to build a new motorway ,businesses in the
construction industry will benefit the most.
 Fiscal policy
 Government may change the levels of government spending and taxation to
influence total demand in the economy. This is called Fiscal Policy.
.
Legal Environment

 The legal environment consists of laws and regulations in order to protect

consumers, domestic businesses, local community and environment.
 The government appoints institutions, boards, commissions and responsible
authorities and individuals to enact these laws.

Examples :- Examples :-
 Companies Act No. 07 of  Registrar of Companies
2007 Consumer Affairs Authority
 Consumer affairs authority  Labour Courts and Labour
Act No. 09 of 2003 Tribunals
 Shop and Office Employees  Central Environmental
Act No. 14 of 1954 Authority
 Public Health Inspector
Companies Act No. 07 of 2007

 he Companies Act (No. 7 of 2007) contains the rules,

procedures, accounting and reporting requirements
for companies incorporated or registered in Sri Lanka. 

 http://www.drc.gov.lk/en/wp-content/uploads/2018/
04/Act-7-of-2007-English.pdf
Consumer affairs authority Act No. 09 of
2003
 Ithas been designed to protect the interest of the
consumers.
 It safeguards the rights of not only the consumers
but also the traders who are subjected to
injustice.
 http://www.caa.gov.lk/web/images/Act/CAA_Ac
t_E.pdf
Legal Environment
These law and regulations exists to prevent businesses from making false claims
about the performance of their products, selling goods that are not fit for human
consumption and selling goods that are not fit for purpose. Every businessman is
expected to comply with these laws and regulations that are applicable, imposed
by the government. If the business break the laws, they may be fined.
Economic Environment
 Economic environment consists of economic factors that affect businesses

Economic Description
Factors
Interest rate It is the interest rate given for bank deposits and charged
for bank loans.
Inflation Inflation is the continuous increase in the general price
levels of goods and services.
Income It is how the national income of a country has been
distribution distributed among its people.
Level If every one expecting a job receives a suitable job, a
employment country will achieve a full employment level.
Foreign It is the rate at which the currency of one country is
exchange rate exchanged with the currency of another country.
https://youtu.be/NH9bbBd8yec

International International relations are the relationships existing

relations between countries.
Technological Environment

 Trends in communication technology and the changes that have happened in

agricultural, industrial and medical sector belong to technological
environment.
 The technological environment grows rapidly due to new innovations.
 Technological environment factors:
Advancement in computer technology
advancement in communication technology due to internet
Advancement in production methods
Nano technology and digital technology
Advancement in transportation technology
Agricultural Sector
Demographic Environment

 The main factor that connect with businesses is population. That is, market is made
up of persons.
 Examples -:
 Size of the population
 Growth rate of population
 Gender
 Age structure
 Composition of ethnicity (Sinhalese, Muslims, Tamil etc.,)
 Level of education
 Composition of family
 Household patterns
Size of the population
Growth rate of population

We can also compare the year on year population growth rates for the period 2000–
2018
 The nature of these features in demographic environment may influence the
businesses in different ways.
 The rapid increase of population is more important from two angels.

More are more resources are Countries with very large

required to provide for the populations will find it difficult to
population. support them.

Increasing population naturally has a large impact on businesses. However

such an increase in population would not lead to a market growth unless it is
accompanied by a parallel increase in the purchasing power.
Social and cultural environment

 Beliefs, social ethics etc. that individuals possess are included in social and
cultural environment.
 Examples :
 Beliefs of individuals
 Values of individuals
 Customs
 Wishes
 Religious beliefs
Natural Environment

 Today, there is a global awareness on the damages caused to natural resources.

 Business activities in many countries have polluted air, water and land.
 Rules and regulations have been imposed to conduct business activities in order
to protect the natural environment.
 Changes in natural environment will impact on businesses.
 Example -:
 Finding new natural resources
 Changes in weather and climate
 Location of the land
 Natural disasters
Global Environment

 There are greater opportunities to exchange goods and services from the time
of globalization.
 The culture of individuals has changed as well. As a result, different kinds of
goods and services have entered the world market. Tough competition can
also be seen.
 Examples :
 Trade agreements are signed
 Trade blocs being created
 Formation of world organization
 Creating rules and regulations internationally
The impacts of macro environmental
forces on the business
Macro environment force Impact to the business

Demographic Environment The demand for goods and services is increased

because of the increase in population which will
create opportunities to businesses.
In the same way, decrease in population will
decrease the demand which will create threats to
businesses.

Economic Environment A decrease in interest rate results in increase in

borrowing loans which will create opportunities to
businesses
Similarly, increase in interest rate limits the
borrowing of loans and businesses have to face
threats.
The impacts of macro environmental
forces on the business

Macro environment force Impact to the business

Political and legal Imposing favorable rules and regulations for

environment businessmen will create business opportunities.

Imposing unfavorable rules and regulations will

cause businesses to face threats.
 interconnections among macro
environmental forces.
Gem mines belong to natural environment. But to make it a
business activity, one has to take legal approval.

When commercial banks install ATM machines for the

convenience of customers, they should get the approval
from the central bank.
QUESTIONS