What is Business Environment ?Concept, Characteristics & Types

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Concept of business environment.

The phrase “business environment” refers to all aspects of a company’s surroundings that affect and influence its operations and determine its effectiveness. The totality of all conditions, events, and forces that surround and affect the business environment is referred to as the business environment. Institutions or influences that influence an organization’s functioning are referred to as the environment.

According to K. Aswathappa,“Business environment mainly refers to all external forces that

impact businesses.”

According to V. P. Michael,”Business environment is the sum total of the environmental factors

which provides an atmosphere for business.“

Characteristics of Business Environment

  • Complex
  • Dynamic
  • Mutual relationship
  • Uncertain
  • Far-reaching impact:
  • Multi-faceted
  • Relativity
  • Internal and external forces

Types of business environment 

Internal Environment

The internal business environment refers to the internal aspects that influence how you do business and how successful you are. The keys to company success are managing the strengths of your internal operations and spotting prospective opportunities and risks outside of your operations.

Owners

  • Owners are those who have made a financial investment in the company and have property rights and claims against it. 
  • They have the right to change the company’s policy at any moment. 
  • They can be an individual or a group of individuals who formed the company or who bought a share of the company on the stock market.

Board of Directors

  • The board of directors is the company’s governing body, and they are responsible for supervising senior management such as the general manager. 
  • They are chosen by investors.

Employees

  • Employees, often known as the workforce, are the most significant part of an organization’s internal environment since they undertake administrative responsibilities.
  •  Individual employees, as well as the labor organizations to which they belong, play a vital role in the internal environment.
  • If correctly managed, they can have a beneficial impact on the organization’s policies. However, poor personnel management might result in a disastrous situation for the organization.

Culture

  • The collective conduct of individuals of an organization, as well as the values, ideals, beliefs, and habits that they attach to their activities, is referred to as organizational culture.
  • Culture is an essential factor of how well their company will function, an organization’s culture plays a significant part in shaping its success.
  • It shapes management behavior since it is the cornerstone of the organization’s internal environment.

Organizational structure

  • It is the foundation of an organization, encompassing job descriptions, division work, power structure, accountability, and coordination among all departments and members.

External Environment

An organization’s external components can be divided into two types.There are two types of environments: task and general.

Task environment

 It consists of customers, suppliers, strategic allies, competitors,financial institutions, pressure groups, market intermediaries, labor unions,communication media, interest groups, and regulatory agencies. These components directly affect the activities of a business organization.

  • Customers
    •  A customer is the recipient of a good or service from an organization.
    • They can be ultimate consumer, industrial customers or institutional customers or
    • government customers or retailer customers or global customers. 
    • Organization develops different programs to satisfy its customers.
  • Suppliers 
    • A supplier is a person or company that provides the organization with goods or services.
    • Raw material providers, machinery suppliers, human resource suppliers, financial resource suppliers, and so on are all examples of suppliers.
    • For quality, effective, and timely delivery of resources, it is preferable to have long-term and lucrative relationships with suppliers.
  • Strategic allies
    • Strategic allies are formed when two or more organizations work together as a joint venture. It is created for special work.
  • Competitors
    • Any person or organization that competes with another is referred to as a competitor. A rival sells a product or service that is comparable to yours.
    • As enterprises compete for a bigger market share, the existence of rivals can lower the pricing of goods and services.
    • Competition can occur at the product line level or at the industry level. Coca-Cola and Pepsi are rivals in the beverage industry.
  • Financial institutions
    •  A financial institution is a company entity that offers financial services to other businesses. 
    • Banks, financial firms, insurance companies, capital markets, and anti-so on are all part of it.
  • Pressure groups
    •  A pressure group is a formally formed group that aims to influence an organization’s policies or to protect or advance a certain cause or interest.
    • Pressure organizations include Consumers Union, Environmental Protection Association, Child Labor Action Group, Action on Smoking and Health, Women’s Rights, and others.
  •  Market intermediaries
    • In the distribution channel, marketing intermediates (also known as middlemen or distribution intermediaries) play a significant role.
    • Middlemen, facilitators, and service agencies are examples of market intermediates.
    • Middlemen include agents, wholesalers, distributors, and retailers, while facilitators include warehouses, transportation, and so on.
    • Similarly, service agencies include researchers, consultants, advertising firms, and so on.

General Environment

Political-legal environment

Political-legal environment is another important component of the general environment. It does not remain under the control of the organization. Thus, decisions should be taken after deep study and analysis of this component.

Economic environment

It  is an important component of the general environment. Economic policies, economic system, economic condition, and globalization are main components of the economic environment. These components do not remain under control of business organizations.

Socio-cultural environment

Socio-cultural environment is one of the most important components of the general environment. It includes social and cultural components.

  • Social components directly and indirectly impact the business organization. It consists of demography, reference groups, lifestyle social class, and pressure groups.
  • Cultural components directly and indirectly impact the business organization. It consists of religion, language, attitudes, and beliefs.

Technological environment

The technological environment consists of those forces that affect the technology and which can create new products, new markets, and new marketing opportunities. It consists of the level of technology, pace of technology, research and development budget and technology transfer.

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