AGENDA

MEANING AND Types Micro Environment Micro Environment

CHARACTERISTICS
 MEANING OF BUSINESS ENVIRONMENT

Business environment represents all external forces, factors or

conditions that exert some degree of impact on the business
decisions, strategies and actions taken by the firm. The success of a
business is generally dependent on its business environment. A
successful business has to identify, appraise, and respond to the
various opportunities and threats in its environments. To be
successful, the business has to not only recognize different elements
of its own environment but also adapt and manage to influence them.
The business must continuously monitor and adapt itself to the
environment if it is to survive and prosper
CHARACTERISTICS OF BUSINESS
ENVIRONMENT
1.Specific and General Forces:
Business Environment is made up of both specific and general forces.
Specific forces refer to the customers, competitors, investors etc. which have
a direct effect on the day to day working of the business while the general
forces refers to social, political, legal, technological and other forces which
indirectly affect the operations of a business.
2.Inter-Relatedness:
Various elements of business environment are very closely related to each
other. For example, at present there has been an increase in demand for
products like diet colas, fat free cooking oil, sugar free products etc. due to
increase in awareness for good health among the consumers.
3.Dynamic Nature:
Business environment is dynamic in nature i.e. it keeps on changing. For
example, change in government policies, change in taste and choice of the
consumer, change in technology etc. Such changes could be triggered by internal or
external factors.
 IMPORTANCE OF BUSINESS
ENVIRONMENT
1.Determining Opportunities and Threats:
The interaction between the business and its environment would bring out
opportunities for and threats to the business. It helps to find new needs and
wants of the consumers, changes in laws, changes in social behaviours of
people, and also tells what new things the competitors are bringing in the
market to lure consumers. Thus, determining opportunities and threats.
2.Giving Direction for Growth: The interaction with the environment enables
the business to identify the areas for growth and expansion of their activities.
Once the company knows the changes happening around it, it can plan and
strategise to fight it off and emerge as a successful business.
3.Continuous Learning:
The managers are motivated to continuously update their knowledge,
understanding and skills to meet the predicted changes in the realm
of business
4. Meeting Competition:
It helps the firms to analyze the competitors’ strategies and formulate
their own strategies accordingly. As discussed in above points, the
idea of any business is to flourish and beat competition for its
products and services.
4. Image Building:
Environmental understanding helps the business organizations in
improving their image by showing their sensitivity to the environment
in which they operate. For example, in view of the shortage of power,
many companies have set up Captive Power Plants (CPPs) in their
factories to meet their ownrequirement of power. Understanding the
needs of the environment, be it government, consumers, or any other
element, it helps showcase that the business is aware and responsive
to the needs. It creates a positive image and helps it to prosper and
win over the competitors.
 Internal Environment

Internal environment is composed of multiple elements existing

within the organization, including management, current employees
and corporate culture. Internal environment is the conditions,
people, events and factors within an organization that influence its
activities and choices, particularly the behavior of the employees.
Factors that are frequently considered part of the internal
environment also include the organization’s mission statement,
leadership styles and its organizational culture.
External Environment
A business does not operate in a vacuum. It has to act and react to
what happens outside the factory and with in its office walls. These
factors that happen outside the business are known as external
factors or influences. These will affect the internal functions of the
business and also the objectives of the business and its strategies.

To succeed and thrive, organizations must adapt, exploit, and fit

with the forces in their external environments. Organizations are
groups of people deliberately formed together to serve a purpose
through structured and coordinated goals and plans. As such,
organizations operate in different external environments and are
organized and structured internally to meet both external and
internal demands and opportunities.
 SWOT Analysis

A systematic approach to understanding the environment is the SWOT

analysis. Business firms undertake SWOT analysis to understand the
external and internal environment. SWOT, is the acronym for strengths,
weaknesses, opportunities and threats.
Through such an analysis, the strengths and weaknesses existing within
an organization can be matched with the opportunities and threats
operating in the environment, so that an effective strategy can be
formulated.
An effective organizational strategy, therefore, is one that capitalises on
the opportunities through the use of strengths and neutralises the
threats by minimizing the impact of weaknesses.
the process of strategy formulation starts with, and critically
depends on, the appraisal of the external and internal environment
of an organization. We will learn more about SWOT analysis in the
second chapter of strategic Management at Intermediate level.
• A strength is an inherent capacity which an organization can use to
gain strategic advantage over its competitors
• A weakness is an inherent limitation or constraint which creates a
strategic disadvantage.
• An opportunity is a favourable condition in the organization's
environment which enables it to consolidate and strengthen its
position.
• A threat is an unfavourable condition in the organization's
environment which creates a risk for, or causes damage to, the
organization
 Micro-environment

Micro-environment is related to small area or immediate periphery of an

organization. Micro-environment influences an organization regularly and
directly. Within the micro or the immediate environment in which a firm
operates we need to address the following issues:
⬥ The employees of the firm, their characteristics and how they are
organized.
⬥ The customer base on which the firm relies for business.
⬥ The ways in which the firm can raise its finance.
⬥ Who are the firm suppliers and how are the links between the two being
developed?
⬥ The local community within which the firm operates.
⬥ The direct competition and how they perform
ELEMENTS OF MICRO ENVIRONMENT

This is also known as the task environment and affects business and
marketing at the daily operating level. Whilethe changes in the macro
environment affect business in the long run, the micro environmental
changes are noticed immediately.

Organizations have to closely analyse and monitor all the elements of micro
environment in order to
stay competitive
1.Consumers/Customers
According to Peter Drucker the main aim of business is to create and
retain customers. Customers are the people who pay money to
acquire an organization's products. The products may be both in
form of goods or services. The organization cannot survive without
customers. However, it is interesting to know that customer may or
may not be a consumer. Consumer is the one who ultimately
consumes or uses the product or service.
2.Competitors
Competitors are the other business entities that compete for
resources as well as markets. It is rightly said that “Competition
shapes business”. A study of the competitive scenario is essential for
the marketer, particularly to understand the threats from
competition
3.Organization
Individuals occupying different positions or working in different capacities in
organizations consist of individuals coming from outside. They have different and
varied interests. In micro environment analysis, nothing is important as self-
analysis by the organization of itself. Understanding its own strengths and
capabilities in a particular business, i.e., understanding a business in depth
should be the goal of firm’s internal analysis. The objectives, goals and resource
availabilities of a firm occupy a critical position in the micro environment.
4.Market
The market is larger than customers. Customers together make market. People
who buy goods are customers, while all those to whom the business believes it
can sell are the market. The market is to be studied in terms of its actual and
potential size, its growth prospect and also its attractiveness. The marketer
should study the trends and development and the key success factors of the
market he is operating
 Macro environment
Macro environment has broader dimensions. It mainly consists of economic, technological,
political, legal and socio-cultural factors. The issues concerning an organization in terms of
macro environment are:
⬥ What are its threats from the competitive world in which it operates and why?
⬥ Which areas of technology might pose a threat to its current product range and how?
⬥ The bargaining power/dominance of suppliers and customers.
The classification of the relevant environment into components or sectors helps an
organization to cope with its complexity, comprehend the different influences operating,
and relating the environmental changes to its strategic management process. Macro
Environment consists of demographics and economic conditions, socio-cultural factors,
political and legal systems, technological developments and global trends, etc. These
constitute the general environment, which affects the working of all the firms in a common
way and are not regular in affecting decision making. They occur over long term period.
 ELEMENTS OF MACRO ENVIRONMENT

Macro environment is that part of external environment which is largely external to the
enterprise and thus beyond the direct influence and control of the organization, but which
exerts powerful influence over its functioning. The external environment of the enterprise
consists of individuals, groups, agencies, organizations, events, conditions and forces with
which the organization comes into frequent contact in the course of its functioning. It
establishes interacting and interdependent relations, conducts transactions, designs and
administers appropriate strategies and policies to cope with fluctuations therein and
otherwise negotiates its way into the future.
Demographic Environment
The term demographics denotes characteristics of population in a area,
district, country or in the world. It includes factors such as race, age, income,
educational attainment, asset ownership, home ownership, employment status
and location. Data with respect to these factors within a demographic variable,
and across households, are of interest, to businessmen in addition to
economists. Marketers and other social scientists often group populations into
categories based on demographic variables
Economic Environment

Economic environment refers to the nature and direction of the economy in which a
company competes or may compete. It includes general economic situation in the
region and the nation, conditions in resource markets (men, money, material,
machine, method) which influence the supply of inputs to the enterprise, their costs,
quality, availability and reliability of supplies. Economic environment determines the
strength and size of the market. The purchasing power in an economy depends on
current income, prices, savings, circulation of money, debt and credit availability.
Income distribution pattern determines the marketing possibilities. The important
point to consider is to find out the effect of economic prospect and inflation on the
operations of the firms. Think like a business owner who understands the various
aspects of business and how they can affect the decision making and strategy of
your business
Political-Legal Environment
This is partly general to all similar enterprises and partly specific to an individual
enterprise. It includes such factors as the general state of political development,
the degree of politicization of business and economic issues, the level of political
morality, the law and order situation, political stability, the political ideology and
practices of the ruling party, the purposefulness and efficiency of governmental
agencies, the extent and nature of governmental intervention in the economy and
the industry, Government policies (fiscal, monetary, industrial, labour and
exportimport policies), specific legal enactments and framework in which the
enterprise has to function and the degree of effectiveness with which they are
implemented, public attitude towards business in general and the enterprise in
particular and so on

Technological Environment
The most important factor, which is controlling and changing people’s life, is
technology. Man could realise the dream of walking on the moon, traveling in
spaceships, and flying to the other side of the globe within a few hours, all
because of technological advancement.