Business Environment
BBA -112 Business Environment 12/11/2017
Concept
2
The total of all things external to firms and industries
which affect their organisation and operation – Bayord O.
Wheeler
Business environment encompasses the climate or set of
conditions, economic, social, political or institutional in
which business operations are conducted – Arthur M.
Weimer
Thus, business environment means all those factors that
have an impact on business.
BBA -112 Business Environment 12/11/2017
Nature of Business
3 Environment
Aggregative: totality of all external forces which influence the
working and decision-making of an enterprise.
Inter-related: different elements of business environment are
closely inter-related and interdependent. A change in one element
affects the other elements.
Dynamic: keeps on changing from time to time
General and specific forces: general forces such as economic,
social, political, legal , natural and technological. Specific forces
such as investors, customers, competitors etc.
Relative: a relative concept. Differs from country to country
Inter-temporal: it changes over time
Uncertain: difficult to forecast the future environment.
Contextual : business environment provides the macro framework
within which the business firm operates.
BBA -112 Business Environment 12/11/2017
Significance
4
Knowledge of environmental changes is very helpful in
the formulation and implementation of business plans. A
business can obtain this knowledge through
environmental scanning.
Environmental scanning is a process by which
organizations monitor their relevant environment to
identify opportunities and threats affecting their business.
BBA -112 Business Environment 12/11/2017
Significance
5
Some of the direct benefits of understanding the environment
are given below:
• First mover advantage: awareness of environment helps an
enterprise to take advantage of early opportunities instead of
losing them to competitors.
• Early warning signal: environmental awareness serves as an
early warning signal. It makes a firm aware of the impending
threat or crisis so that the firm can take timely action to
minimize the adverse effects, if any.
• Customer focus: environmental understanding makes the
management sensitive to the changing needs and
expectations of consumers.
BBA -112 Business Environment 12/11/2017
Significance
6
Strategy formulation: environmental monitoring provides
relevant information about the business environment which serves
as the basis for strategy making.
Change agent: business leaders create a drive for change at the
grass root level. In order to decide the direction and nature of
change, the leaders need to understand the aspiration of people and
other environmental forces through environmental scanning.
Public image: a business firm can improve its image by showing
that it is sensitive to its environment and responsive to the
aspirations of public.
Continuous learning: environmental analysis keeps them in touch
with the changing scenario so that they are never caught unaware.
Knowledge of changing environment can keep the organization
dynamic in its approach.
BBA -112 Business Environment 12/11/2017
Types of business environment
Business firm
7
Internal External
environment environment
BBA -112 Business Environment 12/11/2017
Internal environment
8
Refers to all factors existing within a business firm.
Controllable factors
Internal environment imparts strengths or causes
weaknesses.
Example: a company can modify or alter its organisation
structure, policies, programmes, personnel, physical
facilities and marketing mix to suit the changes in the
environment.
BBA -112 Business Environment 12/11/2017
Internal environment
9
Main internal factors which influence the business decisions are:
• Culture - values, beliefs and attitudes of the founders and top management
• Mission and objectives- the business philosophy and purpose of a company guide its priorities, business
strategies, product market scope and development process.
• Top management structure- the composition of board of directors, the degree of professionalism of
management and the organizational structure of a company have important bearing on its business decisions.
• Power structure- the internal power relationship between the board of directors and the chief executive is an
important factor. The extent to which top management enjoys the support of shareholders and employees at
different levels also has an important bearing on decision making and working of the company.
• Company image and brand equity- the image and brand equity of the company plays a significant role in
raising finance, forming alliances, choosing dealers and suppliers, launching new products, entering foreign
markets etc.
• Human and other resources- the competence, morale and motivation of employees plays a vital role in the
success of the firm.
BBA -112 Business Environment 12/11/2017
External environment
10
Consists of forces and factors outside an enterprise
Uncontrollable external forces
External environment creates opportunities and
threats for an enterprise.
Example: a company has no control over national
income, social forces, government policies,
population etc.
BBA -112 Business Environment 12/11/2017
External environment
11
External environment
Micro Macro
environment environment
BBA -112 Business Environment 12/11/2017
Micro/ task environment
12
Refers to those individuals, groups and agencies with
which the organization comes into direct and frequent
contact in the course of its functioning.
Factors exercise a direct influence on the operations of the
enterprise.
Consists of the groups in the company’s immediate
operating environment which have a stake in the
company
BBA -112 Business Environment 12/11/2017
Micro environment-
13 elements
Customers
Competitors
Suppliers
Marketing intermediaries
Financiers
Public
Workers and trade union
BBA -112 Business Environment 12/11/2017
Macro environment
14
Refers to the general environment or remote environment
within which a business firm and forces in its micro
environment operate.
Company does not regularly or directly interact with the
macro env.
Forces create opportunities for and pose threats to the
company.
Less controllable factors
BBA -112 Business Environment 12/11/2017
Macro environment-
15 elements
Political and legal environment
Social and cultural environment
Economic environment
Financial environment
Technological and physical environment
Natural environment
Global environment
BBA -112 Business Environment 12/11/2017
Coping with environmental changes
16
Buffering- used to soften the impact of environment on
the organisation. Ex: stocking material, preventive
maintenance, employee training, building inventory
Levelling- attempts to reduce fluctuations in the
environment.
Anticipation- acquiring information about probable
changes in the environment.
BBA -112 Business Environment 12/11/2017
Coping with environmental changes
17
Rationing- allocating organisational resources according
to a system of priorities.
Dominating- facing the challenges and converting threats
into opportunities.
Changing- an organization may change itself, its
operations and output.
BBA -112 Business Environment 12/11/2017
