Business Management 2

(B5-BM2-13)
Managing In a Changing Environment
Objectives:

By the end of the session, students should be

able to:
• Define external/internal environment of an
organization.
• Identify the two components of external
environment as specific environment and general
environment
• Identify and describe the various components of
the specific environment.
• Identify and describe the various components of
the general environment.
Concept systems thinking in
business
• Systematically, a business acquires inputs
(labour, capital, land, raw material and
information) from the environment in
which it operates and processes them into
products and services for that community
at a profit/surplus.
• Its apparent that both business and the
environment depend on each other to
satisfy their needs. This interdependence is
termed interaction.
 Systems theory
• Systems theory explains the
interdependency between the business
organization and its environment
• A system is a set of interrelated elements
(sub-systems) functioning as a whole.
• A business organization is a system that
operates in a specific environment.
 Systems theory
• Business organizations are not self sufficient,
nor are they self contained.
• They exchange resources with and are
dependent upon the external environment in
which they operate.
• The organization and the environment
depend on each other for survival. This
mutual dependence is illustrated below.
 Systems theory
Transformation
process of
Inputs inputs
from the Manufacturing &
environme operational Outputs to
nt systems the
Technology environmen
Human Expertise t
Financial Information
Physical Products
information Management Services
process
Planning
Organising
Learning
Controlling
 Systems theory

• A sub-system is actually a system within a

system. E.g. the university's library,
laboratories, and administration can be
regarded as sub-systems but they are also
systems in their own right.
• Synergy is another concept of the system
theory that can be applied to management. It
means that the whole is greater than the
sum of its parts.
 Business Environment
• Environment refers to all internal and external forces
which have a bearing on the functioning of business.

• External environmental factors (PESTEL) are

normally complex, beyond control of an individual
organisation. Therefore, they need to be managed as
they pose threats to a firm or offers immense
opportunities for potential market exploitation.
However, internal environmental factors can be
controlled by the business itself.
 Micro, Market and Macro
environment
 Micro-environment refers to the variable
that management of a business has complete
control over. For instance:
 The business itself,
 Resources of the business
 Employees
 Culture of the organisation.
 Micro-environment
• Refers to the internal environment of the company.
• This includes all departments, such as management,
finance, research and development, purchasing,
operations and accounting.
• Each of these departments has an impact on
marketing decisions.
• For example, research and development have input
as to the features a product can perform and
accounting approves the financial side of marketing
plans and budget in customer dissatisfaction.
 Micro-environment cont’
• Marketing managers must watch supply
availability and other trends dealing with suppliers
to ensure that product will be delivered to
customers in the time frame required in order to
maintain a strong customer relationship.
• The internal environment also refers to the
organization’s vision, mission and strategic goals.
In addition, it also refers to the structure of the
organization, allocation of resources and reward
systems.
 Micro-environment cont’

• It is worth noting that management can

control the micro environment. In instances
where management makes better decisions,
the chances of the organization surviving in
the volatile environment are high.
 Market environment
cont’
 The market environment/task environment refers to
factors and forces that affect a firm’s ability to build
and maintain successful relationships with:
 Customers: Needs and preferences change over time,
bargaining power of customers
 Competitors: Existing; threat of new entrants
 Intermediaries
 Substitute products, eg coffee and tea. Examples?
 Bargaining power of suppliers.
 The Public/Community
Internal/Micro, Market and
Macro Environment
 Macro-environment
 Macro-environment refers to the variable that
is outside the organization that management
doesn’t have total control over. Six distinct
features of macro-environment are PESTEL:
 Political
 economic,
 social,
 technological,
 ecological and legal environment.
 Different Components of
Environment, cont’
Macro Environment:
 Economic Environment
 Political Environment
 Socio-Cultural Environment
 Ecological/Natural Environment
 Demographic Environment
 Technological Environment
 Macro-environment
cont’
• Economic environment: economic growth rate, levels
of employment, consumer income, interest rates,
rate of inflation, exchange rate, fiscal and monetary
policy, recessions and general state of the economy.
Fiscal policy affects businesses through tax rates.
• Socio-cultural environment: People are products of
their society. Culture influences an individual’s
lifestyle, habits, values and spending patterns.
• Ecological/Natural environment: An organization
obtains its raw materials from the natural/physical
 Macro-environment
cont’
environment. Organizations also dispose their waste in
the natural environment. The natural environment
poses threats and opportunities to the organization.
• The political environment: The state influences the
business environment primarily as a regulator
through the promulgation and enforcement of
various laws. Some governments intervene in
markets dominated by monopolies.
• The demographic environment: Demographic
distribution of the population in terms of age, gender
 Macro-environment
cont’
• The technological environment: Technology
determines what an organization can or can
not produce. At industry level, technology
poses both opportunities and threats to the
organization.(Eg: what are the opportunities
created by the Internet to firms in different
sectors of the economy?)
• What are the threats brought about by the
internet to firms?
 Summary
• Organisations are not self-contained or self-sufficient.
• They interact with and are influenced by their environment.
• Organisations depend on their environment as a source of
inputs and as a recipient of their outputs.
• Many of the environmental forces—both specific and
general—are dynamic and create considerable uncertainty
for businesses.
• Every organisation must manage these forces to earn profits
and satisfy customers.
• Micro environment refers to the immediate environment of
the company. Macro environment refers to the environment
outside the company.
Thank you!