2. WHAT IS BUSINESS ENVIRONMENT?
Environment of any organization is “the aggregate of all
conditions, events and influences that surround and affect it”.
The combination of internal and external factors that influence a
company’s or business operating situation.
4. EXTERNAL ENVIRONMENT
Factors outside the organization which provide opportunities or
pose threats to the organization
Factors that can impact the ability of a business or investment to
achieve its strategic goals and objectives.
Uncontrollable factors
Classified into two categories
Micro
Macro
5. Micro Environment
Refers to the environment which is in direct contact with the
business organization and can affect the routine activities of
business straight away.
Types of Factors
Suppliers
Customers
Marketing Intermediaries
Competitors
Publics
Financial Intermediaries
6. Micro Environment
SUPPLIERS
Suppliers are the persons who supply raw material to
company.
CUSTOMERS
Customers are the persons who buy goods from company.
7. Micro Environment
MARKETING INTERMEDIARIES
Market intermediaries are those person who helps
company to sell its products.
COMPETITORS
Competitors are those who also sell same product as the
company or business.
8. Micro Environment
PUBLIC
Group of people who can buy or who can show their
interest to buy the products of company.
FINANCIAL INTERMEDIARIES
Are those institutions who provide loan, credit and
advance to company.
9. Macro Environment
Refers to the external factors which affects company and its
business and there is no control of company on these factors.
Types of Factors
Economic
Non-Economic
Political
Demographic
Socio-Cultural
Technological
Natural
10. Macro Environment
ECONOMIC
The economic environment constitutes of economic
conditions, economic policies, and the economic system that is
important to external factors of business.
Economic environment refers to the nature and direction of
the economy within which business organisation are to operate.
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11. Macro Environment
NON-ECONOMIC
Political and Legal Forces
Refers to the political, government and legal environment.
It has close relationship with the economic system and economic
policy.
This refers to set of laws, regulations, which influence the
business organizations and their operations
12. Macro Environment
NON-ECONOMIC
Demographic Forces
Demography refers to study of the population.
Demographic factors are as below:
Size of population
Growth rate
Family size
Educational level
Age composition
Sex composition
13. Macro Environment
NON-ECONOMIC
Socio-Cultural Forces
Socio-cultural environment is an important factor that
should be analysed while formulating company business strategies.
These includes people’s attitude to work and wealth, ethical issues,
role of family, marriage, religion and education and the social
responsibilities of business
14. Macro Environment
NON-ECONOMIC
Technological Forces
Technological forces or factors could be said to be the most
pervasive in the environment. Technology refers to the application of
knowledge base which science provides. It is a well established fact
that information and communication technology has
revolutionized business operations
15. Macro Environment
NON-ECONOMIC
Natural Forces
The natural environment includes geographical and
ecological factors that influence the business operations. These
factors include the availability of natural resources, weather and
climatic condition, location aspect, topographical factors, etc
16. BRIEF COMPARISON (MICRO – MACRO)
BASIS FOR
COMPARISON
MICRO (INTERNAL) ENVIRONMENT MACRO (EXTERNAL) ENVIRONMENT
Meaning
Micro environment is defined as the nearby
environment, under which the firm operates.
Macro environment refers to the general
environment, that can affect the working of all
business enterprises.
Alternatively
known as
Internal Environment External Environment
Elements
COSMIC, i.e. Competitors, Organization itself,
Suppliers, Market, Intermediaries and
Customers.
PESTLE, i.e. Population & Demographic,
Economic, Socio-Cultural, Technological, Legal
& Political and Environmental.
Nature of
elements
Specific General
Are these factors
controllable?
Yes No
Influence Directly and Regularly Indirectly and Distantly
17. Environmental analysis is a strategic tool. It is
a process to identify all the external and
internal elements, which can affect the
organization’s performance. The analysis
entails assessing the level of threat or
opportunity the factors might present
What is Environmental Analysis?
18. DEFINITION AND CONCEPT
It a process of conducting research on
the business environment within which an
organization operates and on the organization
itself, in order to formulate strategy.
STRATEGIC ANALYTICAL TOOLS
19. PEST Analysis
PESTLE Analysis
STEEP Analysis
STEEPLE Analysis
Examples of Analytical Method used in
Strategic Analysis
20. This is a framework used to analyze the
external environmental analysis. The process
entails learning about various external factors
which affect the organization.
PESTLE Analysis
21. POLITICAL
These include government
regulation such as employment laws,
environmental organizations and tax policy.
Other political factors are trade restrictions and
political stability
PESTLE Analysis
22. ECONOMIC
These affect the cost of capital and
purchasing power of an organization. Economic
factors include economic growth, interest rates,
inflation and currency exchange rates
PESTLE Analysis
23. SOCIAL
These impact on customer’s need and
the potential market size for an organization’s
goods and services. Social factors include
population growth, age demographics and
attitude towards health.
PESTLE Analysis
24. TECHNOLOGICAL
These influence barriers to entry, make
or buy decisions and investment in innovation,
such as automation, investment incentives and
the rate of technological change.
PESTLE Analysis
25. LEGAL
This factor has both external and
internal sides. There are certain laws that affect
the business/organization environment in a
certain country while there are certain policies
that companies maintain for themselves.
PESTLE Analysis
26. ENVIRONMENTAL
this factor includes all those that
influence or are determined by more the
surrounding environment.
PESTLE Analysis
Environment means the surrounding, external objects, influences or circumstances under which someone or something exists. The environment of any organization is the aggregate of all conditions, events and influences that surround and affect it.
Conditions, entities, events, and factors surrounding an organization that influence its activities and choices, and determine its opportunities and risks also called operating environment and opposite of internal environment
Micro environment is a collection of all the forces that are close to the firm. These forces are very particular for the said business only. They can influence the performance and day to day operations of the company, but for a short term only. Micro environment is also known as task environment and operating environment. These forces or factors are; suppliers….
-Suppliers are the ones who provide inputs to the business like raw material, equipment and so on. These services must be provided on time, or the production as well as the quality suffers
-Customers or Consumers are the ones who purchase the goods for their own consumption. They are considered as the king of business
-Marketing intermediaries may include wholesalers, distributors, and retailers that make a link between the firm and the customers; middlemen such as agents and merchants that help the company find customers or close sales with them.
-Competitors are the rivals, which compete with the firm in the market and resources as well (kalaban or katunggali); are those who also sell same product
-Publics; any group that has an actual or potential interest in or impact on a company’s ability to achieve its objective”. Environmentalists, media groups, women associations, consumer protection groups, local groups, citizens associations are some important examples. That group of people who can buy or who can show their interest to buy the products
- Financial Intermediaries are those institutions who provide loan, credit and advance to company (Banks, Loan Agencies)
Suppliers are the ones who provide inputs to the business like raw material, equipment and so on. These services must be provided on time, it can be controlled if they will be paid on time. If one supplier stops to supply, the business can get raw material from other supplier and thus production as well as the quality will suffer
Customers or Consumers are the ones who purchase the goods for their own consumption. They are considered as the king of business. Business will be affected if the customers do not feel delighted, they will buy from other sources leading to decline in sales. hence it should maintain good relations with our customers.
These are the wholesalers, distributors, and retailers that make a link between the firm and the customers; middlemen such as agents and merchants that help the company find customers or close sales with them
Competitors are the rivals, which compete with the firm in the market and resources as well (kalaban or katunggali); are those who also sell same product
Publics; any group that has an actual or potential interest in or impact on a company’s ability to achieve its objective”. Environmentalists, media groups, women associations, consumer protection groups, local groups, citizens associations are some important examples. That group of people who can buy or who can show their interest to buy the products
Financial Intermediaries are those institutions who provide loan, credit and advance to company (Banks, Loan Agencies)
Macro environment - Refers to the external factors which affects company and its business and there is no control of company on these factors. It comprises general trends and forces that may not immediately affect the organization but sooner or later will alter the way organization operates.
This environment refers to the wide ranging economic, socio-cultural, political and legal, and technological forces that affect the organisation and its operating environment. These forces originate beyond the firm’s operating situation. The macro environment is also called the external or remote environment. The macro environment presents threats and opportunities that are often difficult to grapple with (that is, identify and respond to), than with events in the microenvironment
The economic environment constitutes of economic conditions, economic policies, and the economic system that is important to external factors of business. It refers to the nature and direction of the economy within which business organisation are to operate. These are economic stages that exists at a given time in a country, a system that is adopted by a country for example. Capitalistic, Socialistic or Mixed Economy. Economic policies for example, monetary, industrial and fiscal policies
Political Environment - Refers to the political, government and legal environment. It has close relationship with the economic system and economic policy. Political environment also affects business with different business laws. These laws controls all the activities of business. Examples are the Government policies like fiscal, monetary, industrial, labour, and export and import policies which are influenced to specific legal enactments and framework towards the business organisation; The Government policies, rules and regulation are controlling and monitoring the business enterprises and its activities in the state; Government tax policies are critical and affect to the business organisation.
Demographic forces.. From the word Demography refers to study of the population. Demographic factors are Size of population; Growth rate; family size; Educational level; Age composition; Sex composition.
1. Size of population- All these elements are relating to business. If size of population is increasing with high growth rate, demand is increased.
2. Growth rate- High growth rate of population is also tells us high rate of supply of laborers. Many companies motives to invest money in developing countries due Cheap labor power and developing market.
3. family size:Suppose, we are making residential rooms. For making residential rooms, we should study the number of family members who will live in it
4. Educational level-Educational level of our customer may also affect our marketing techniques. If our customers are very educated, we can use online advertising, if they are not educated we have to use old means of advertising.
5 Age composition- Before producing the product, we see what age group will use this. For example, young population are interested to wear jeans but old age population are interested to wear kurta and pajama.
6. Sex composition-Sex composition are two one is male and other is female. We also study the number of our customers who are female and no. of our customers are female. If female are more than male, we will care their need specially in making of our products
This refers to the size, density, distribution and growth rate of population. All these factors have a direct bearing on the demand for various goods and services. For example a country where population rate is high and children constitute a large section of population, then there is more demand for baby products. Similarly the demand of the people of cities and towns are different than the people of rural areas. The high rise of population indicates the easy availability of labour. These encourage the business enterprises to use labour intensive techniques of production. Moreover, availability of skill labour in certain areas motivates the firms to set up their units in such area
Socio-cultural environment is an important factor that should be analyzed while formulating company business strategies. These includes people’s attitude to work and wealth, ethical issues, role of family, marriage, religion and education and the social responsibilities of business. It consists of factors which are related to human relationships and the impact of social attitudes and cultural values
Technological forces or factors could be said to be the most pervasive in the environment. Technology refers to the application of knowledge base which science provides. It is a well established fact that information and communication technology has revolutionized business operations
The natural environment includes geographical and ecological factors that influence the business operations. These factors include the availability of natural resources, weather and climatic condition, location aspect, topographical factors, etc. Climate and weather conditions affect the location of certain industries. Natural environment is the study of an important component of the nature.
Environmental analysis is a strategic tool. It is a process to identify all the external and internal elements, which can affect the organization’s performance. The analysis entails assessing the level of threat or opportunity the factors might present. These evaluations are later translated into the decision-making process. The analysis helps align strategies with the firm’s environment
It a process of conducting research on the business environment within which an organization operates and on the organization itself, in order to formulate strategy.
Businesses are greatly influenced by their environment. All the situational factors which determine day to day circumstances impact firms. So, businesses must constantly analyze the trade environment and the market.
There are many strategic analysis tools that a firm can use, but some are more common. The most used detailed analysis of the environment is the PESTLE analysis. This is a bird’s eye view of the business conduct. Managers and strategy builders use this analysis to find where their market currently. It also helps foresee where the organization will be in the future.
PESTLE analysis consists of various factors that affect the business environment. Each letter in the acronym signifies a set of factors. These factors can affect every industry directly or indirectly.
This is a framework used to analyze the external environmental analysis. The process entails learning about various external factors which affect the organization
It is a useful tool for understanding the political, economic, socio-cultural, and technological environment that an organization operates in. it can be used for evaluating market growth or decline, and as such the position, potential and direction for a business
Failure to understand the environmental factors for business shall create number of problems, which in fact are difficult to solve. It will reduce the profit margin and will make the opportunities for expansion to slip. But a proper appreciation of the environmental factors will bring many benefits.
