Introduction of Business Environment
Business environment refers to all economics surrounding that influences business. Business decisions relating to resources allocation, costs, profits and expansion are affected by business environment. It does not operate in a vacuum ; they operate in an environment . The business environment is thus the sum total of all forces surroundings and influencing the life and development of an organization. It reflects the total of all things (factors, forces, and institutions ) external to an organization that affects it. The business environment consists of the forces that influence the organization’s ability to carry out its operations effectively to attain its objectives.
It is the sum of external and internal factor that influences a business. The both factor can influence each other and work together to affect a business. A health and safety regulation is an external factor that influences the internal environment of business operations can be taken as one example. Additionally , some external factors are beyond your control. These factors are often called external constraints. Let’s take a look at some key environmental factors:
Types of Business Environment
- Internal Environment
An organization has several forces operating within its internal system. These forces together shape the internal environment has the following components:
Employees are the main assets of an organization. They are an important source of external information , though they are insiders of the organization. At times , the employees resist managerial , technical , and other changes that affect them and their work . Without the cooperation of employees and their productivity , organizations cannot attain their expected goals.
The structure is the overall framework for organizational roles , rules , hierarchy , relations and authority. The structure of an organization keeps on changing . It also includes individuals , groups , units and their inter-relationships. The periodic adjustment made in the work , function of individuals , groups and units change the internal working of the organization.
Shareholders are the main owners of an organization . Shareholders have a direct interest in the performance of the board . The management on the functioning and financial status of the organization provide full information to the shareholders at regular intervals .
Unions refer to the group of labor or staff of an organization to represent the problems and feelings of their members to management . Labor and management interact with each other for negotiating wages , working conditions , hours of work and so on , collective bargaining mechanisms are used . To avoid unnecessary disturbance , the management institutionalizes grievance handling and collective bargaining systems in consultation with the unions .
- External Environment
- Economic Environment
The economic system of the country determines the economics environment of business . The major elements of the economic environment are the system of economic planning and control ; fiscal , monetary , and industrial policies ; the conditions prevailing in agriculture , industrial and service sectors ; and a host of other economic conditions prevailing in the country.
- Socio - Cultural Environment
It is made up of the social institutions , class structure , desire , expectations , beliefs and customs of people in a given society . Closely associated with the social environment is a cultural environment that includes values , norms and accepted behavior patterns of people . This aspect of society directly influences business organizations .
- Political Environment
Political environments are governmental activities and political conditions that may affect your business . Examples include laws , regulations , tariffs and other trade barriers , war and social unrest .It mainly refers to the political structure , composition of bureaucracy , ideology of the ruling government , the political stability , public opinion and government-business relations . The degree of political risk existing in a country determines the investment climate in that country.
- Legal Environment
The framework of laws , regulations , and court decisions intended to encourage , guide , and control business activities means legal environment. Some are designed to protect workers , consumers , and communities . Others are designed to regulate the behavior of managers and their subordinates in business and other enterprises .
- Technological Environment
Radical developments have occurred over the past several years in communications , information and automation including robotics .This development not only presents enormous opportunities for business organizations in terms of enhanced effectiveness but also place heavy demands on them in the ever increasing competitive markets . Some technology innovations that can increase your productivity and profit margins , such as computer software and automated production . On the other hand , some technological innovations pose an existential threat to a business , such as an internet streaming challenging the DVD rental business .
- Global Environment
International development has their effects on domestics business . For instance , the firms dealing with import-export business are most affected by the changes taking place in the international market .
Organization – Environment Relationship
A system is an entity consisting of functional and interdependent parts operating in a large environment. Viewed in the sense, a business organization is an open system. There is constant interaction between a business system and its environment. The impact of these environmental forces is very powerful on the functioning of the business system. It is almost impossible for the business system to exist and grow without taking them into account. An organization is, thus, dependent upon the environment for its functioning.
It should be noted that the circumstances often change dramatically over time. They differ significantly from organization to organization, industry to industry and market to market. The open systems view of an organization, thus, implies that the effectiveness of the organization would largely depend on its ability to develop mechanisms for coping with these environment influences.
A business system is involved in input-process-output functions. It exchanges resources and function with the external environment that are relevant to its operations.
For instance, it imports inputs like capital , technology , manpower and the raw material from the external environment. These inputs are then processed within the business system and transformed into useful outputs in the form of goods and services. These outputs are sent back or exported to the external environment for final consumption. In the process of exchanging and trading , an organization has to face never-ending series of opportunities and threats.
Pant, Prem R. Principle of Management.kathmandu,Nepal:Buddha Academic Publishers and Distributors Pvt. Ltd, 2011.