Elements of Business
Elements of Business
Elements of Business
Elements of Business
Environment
Business Environment
Business environment is a combination of the words business-environment. Business
includes all activities connected with production, trade, banking, insurance, finance,
energy, advertising, packaging and numerous other related activities.
Environment refers to all external forces, which have a bearing on the functioning of
business. The environment includes factors outside the firm which can lead to
opportunities for or threats to the firm. Although there are many factors, the most
important of these factors are socio-economic, technological, supplier, competitors
and government.
Business is a very complex process. It does not operate in a vacuum. Environment is
the macro setup within which the business firm operates. The term business
environment denotes the total surrounding, having various opportunities and
constraints for business and have direct or indirect bearing on its functioning or in
other words it can be stated that it refers to the aggregate of all forces and institutions
which are external to business and beyond the control of management.
Definitions of Business Environment
According to Bayard O Wheeler, business environment refers to The total of all
things external to firms and industries, which affect their organisation and operation.
Keith Davis, defines business environment in his famous book The challenges of
Business as Business environment is the aggregate of all conditions, events and
influences that surround and affect it.
According to Arthur M Weimer, Business environment encompasses the climate or
set of conditions, economic, social, political or institutional in which business
operations are conducted.
Business enterprise
operates in an open
system and has a
continuous interaction
with environmental forces
like customers, suppliers,
competitors, government
policy, etc. They should
adjust themself with the
changing needs of the
business environment.
Thus, business environment encompasses all those factors
(internal and external) that affect a companys operations and
include strengths, weaknesses, internal power relationships,
orientations of the organisation, nature of economy and
economic conditions, social cultural factors, demographic
trends, natural factors, global trends and cross-border
development, clients and suppliers, technological
developments, laws and government activities.
Types of Business Environment
Business environment is broadly categorised into two categories
Internal Environment
Internal environment refers to the factors internal to the firm
i.e., factors existing within a business firm. These factors are
generally controllable because the company has control over
them and determine the potential of a company to meet the
environment challenges.
Important Internal Factors
The important internal factors are as follows
It is widely acknowledged fact that any business
organisation is normally undertaken for profit maximisation.
Nonetheless, persons holding top positions in certain modern
corporate enterprises have some values which influence their
policies, norms, working language, systems, symbols practices
and overall internal environment. This may be refer as culture
of the organisation which is the collective behaviour of
humans that are part of an organisation. The extent to which
the culture of the organisation is shared by all, leads to an
important factor contributing to success.
Vision, mission and objectives of
the company guide its priorities, philosophy, policies etc.
e.g., Ranbaxys mission to become a research based
international pharmaceutical company led it to enter foreign
markets.
The composition of the
board of directors is very critical factor for the
development and performance of company as they are
highest decision-maker authorities, extend of
professionalism of management as it may be
professionally managed or family controlled, nominee
of financial institutions having large holdings in
companies, the shareholding pattern could have
important managerial implications. All these factors
are of great importance from the point of view of the
companys internal environment.
The internal power relationship
between the board of directors and senior executive
officers highly effect the decision making process of
the organisation.
The quality of human
resources of a company depends largely on
competence, commitment, attitude and motivation,
plays an important role in the success of the
organisation.
Physical Resources and the Technology The
production capacity, technology, R & D work,
distribution logistics etc are the factors that influence
functioning and competitiveness of the firm.
The image and brand
equity of the company matters a lot in raising finance,
forming joint ventures and other alliance, choosing
dealers and suppliers etc.
External Environment
External environment refers to external aspects of the
surroundings of business enterprise, which have
influence on the functioning of business.
Micro Environment
The micro environment or task environment comprises
those forces in the immediate vicinity of an organisation
that influence its functioning. The micro forces need
not necessarily affect all the firms in a particular
industry in the same way. Some of the micro factors may
be particular to a firm.
Important Performers inthe
Micro Environment
The most important performers in the micro environment are as
under
Business enterprises requires a number of
suppliers, who supply raw materials and components
to the company. It is an important force of the micro
environment of a company.
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Types of Business Environment
Internal
Environment
External
Environment
Micro
Environment
Culture
Vision, mission
and objectives
Top management
structure
Power structure
Human and other
resources
Company image
and brand equity
Suppliers
Customers
Market
intermediaries
Competitors
Public
Economic
Political
Social and cultural
Technological
Legal
Natural
Financial
Global
Macro
Environment
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They are highly influential as they are the central
point of every business. Success of business largely
depends on identifying the need, desire, tastes liking etc of
a customers.
Every business enterprise is assisted
market intermediaries, which include agents, brokers, who
help the company to find customers. These acts as a link
between company and final consumer.
Activites of a business adjust according to the
actions and reactions of a competitors. This factor should
be known to a company as the upcoming profit or revenue
will only be driven when this factor is in control.
Any group that has actual or potential interest in the
business, has its impact on the business. e.g., growth of
consumer groups may effect the working of a newly
developed business.
Macro Environment
Macro environment has major external and uncontrollable
factors that influence an organisations decision-making and
affect its performance and strategies. When the macro
environment is uncontrollable, the success of a company
depends on its adaptability to the environment.
These factors include
Business enterprises conduct its
activities in the market system with the objective of profit
maximisation, since business enterprise is essentially an
economic institution. Therefore, surrounded by an
economic environment which consists of economic factors
that influence the business in a country. These factors
include gross national product, corporate profits, inflation
rate, employment, Balance of Payments, interest rates
consumer income etc.
The economic and political systems of
a country are mutually dependent, the one reflecting the
ideologies of the other. It comprises political stability and
the policies of the government. Ideological inclination of
political parties, personal interest of politicians, influence
of party forums etc create political environment.
Socio-cultural environment
means the value attitudes, beliefs and customs of people in
a given group or society. Socio-cultural dimensions
complicate the environment in which entrepreneurs have
to manage their ventures, which literacy rate, customs,
values, beliefs, lifestyle, demographic features and
mobility of population are part of the social environment.
It is important for managers to notice the direction in
which the society is moving and formulate progressive
policies according to the changing social scenario.
The progress of business depends
on the level of technology available in a country which
gives a massive impetus to the economic revival. It also
indicates the pace of research and development and
progress made in introducing modern technology in
production. Technology provides capital intensive, but
cost effective alternative to traditional labour intensive
methods. In a competitive business environment
technology is the key to development.
It has a great impact on the functioning
of the organisation as it establishes codes and procedures
for various types and aspects of business and deals with
deviations or infringement law like bribery, product
counterfeiting, gray markets, black markets, consumer
deception and tax evasions.
The coverage, efficiency and efficacy of the legal system
determine adequacy, cost and speed of economic justice and
these factors are of great importance for the growth of
business. In every country there exist specific pieces of
business legislation which together guide control and
regulate business activity, such as in India Trade Mark Act
1969, Essential Commodities Act 1955, Standards of
Weights and Measures Act 1969 and Consumer Protection
Act 1986.
No business can survive in climatically
inhospitable conditions. Business has broadly two
relationships with natural environment. First, the
environment is the source of resource as raw material and
secondly, it has causes damage inthe process of production.
Business finance is concerned with
making decisions about the investments in the business. It
includes bond markets, forex markets, stock markets,
commodity markets, OTC markets, Real estate markets
and cash or spot markets. All these markets play an
important role in raising finances for the companies and at
the same time give profits to the investors.
It includes rules and regulations of
WTO, IMF, WB, SAARC, G20 and other international
bodies which duly effect the business organisation
operating their business in any particular country.
Business has to exist in world market and then it should
understand their effect and take action according to these
rules and regulations.
Corporate planning
Competitor evaluation
Environmental scanning.